Digital disconnect in innovation can be traced to complex legacy IT issues, says expert

Out-Law News | 29 Oct 2014 | 5:25 pm | 3 min. read

Existing legacy arrangements underpinned by a complex web of contracts may be slowing down the adoption of new digital technology by some businesses, an expert has said.

IT contracts specialist Clive Seddon of Pinsent Masons, said that legacy IT arrangements, together with uncertainty over how best to harness the potential of 'big data', may be the explanation for some inertia in adopting new digital technology.

Seddon was commenting after a new report by Boston Consulting Group (BCG) (28-page / 793KB PDF) found that innovating is a top-three priority for 75% of businesses and that 61% of businesses are increasing their spending on innovation schemes.

BGC said that it would expect to see "the most intensive innovation focus in big data, given all the attention that has been devoted to the ability of digital data and advanced analytics to generate new products, markets and revenue streams". However, it said that three quarters of the business executives it surveyed had said that their business is "not targeting big data in their innovation programs".

BCG said it had identified a similar reluctance by some businesses to embrace new mobile technologies.

"Most businesses that are assessing how to embrace digital technology are not starting with a clean slate when it comes to their IT and telecoms infrastructure," Seddon said. "They rely on an existing estate that serves existing operating models and processes. Adopting new digital technology can be a substantial financial commitment and force businesses to realign their operating models to be more customer-facing and further necessitate a change in organisational culture."

"In addition, businesses' legacy IT arrangements are often governed by a matrix of long term  relationships and contracts with existing suppliers that can make it difficult for those companies to introduce new digital technology to their business," Seddon said. "To realise the cost and functional advantages of digital technology, most businesses need to somehow re-engineer their legacy systems and operations or run a separate and parallel stream of activity which is costly."

"Many businesses, despite recognising the need to gather large volumes of data and the potential of the latest data analytics tools, still lack an understanding of how best to harness the data they have access to and act on any insights they can glean," Seddon said. "This may also explain the reluctance of some businesses to invest in big data solutions."

"We are still at the early stages of the big data revolution," he said. "Data has already been dubbed 'the new oil' and everyone understands there are huge amounts of data being generated. Where there is work to be done, however, is in how to analyse and make best use of that data. This is a part-technology, part-cultural and organisational change issue."

The business models of many businesses in a number of sectors, from the financial services market to the retail industry, have been disrupted as a result of new technology in recent years and this will continue, Seddon said.

"The BCG report identifies that many of the most innovative companies in the world operate in the technology sector," Seddon said. "That is not surprising given the competitive environment in their own sector. However, companies cannot afford to be complacent about what competing businesses are doing in their own sector as the danger for all sectors is new entrants. New entrants can be innovate start ups, like the challenger banks, or large companies who see an opportunity in a different sector – this is the power of technology."

The BCG report drew a distinction between businesses that are 'strong innovators' and businesses that deliver genuinely breakthrough innovation. It said that just 13% of businesses told it they have "a significant ambition to deliver radical innovation". However, many of those respondents, more than 40%, described their businesses' innovation capabilities as "average at best".

"Breakthrough innovators are especially effective at bringing together the pieces required for radical innovation and organising them for high impact", the BCG report said. "There are at least a dozen factors related to management, governance and organisation design that can have a major impact on any company's innovation program. Breakthrough innovators corral them all."

"Structures and processes are often designed to sidestep the big-organisation pressures that can bury a new product or idea before it has the chance to demonstrate its value," it said. "Bureaucracy, cost consciousness, and caution come to define the way many companies operate. Strong and breakthrough innovators combat the creep of such characteristics every day."

BCG said that businesses need a "dedicated environment" to support risk taking and breakthrough innovation. More than 70% of businesses identified as 'breakthrough innovators' "have a different organisational entity for managing radical innovation", it said. BCG said that there is also a growing trend for companies to develop ideas in corporate incubators or accelerators. It said it was important that innovation was a centralised function within any corporate structure.

"Decentralised organisations tend to dilute the risk-taking authority, allocating smaller budgets and not providing the risk takers with top management backing or the time they need to succeed," BCG said.