Innovation and digitalization – What is the difference?
Digitalization requires companies to undergo digital transformation. Or is it innovation? There are confusions in a lot of companies. Is innovation, digital innovation and digitalization actually the same? What is the difference? In this article you will learn the difference between innovation and digitalization. In our free e-book “Create Outstanding Organizations” you will learn how to prepare your company for the decade of innovation and digital disruption. You can download the e-book free of charge here.
The obvious difference: innovation is not necessarily digital
Innovation has many facets. For some it is a synonym for product development, for others it is the development of organizational innovations or service innovations. Accordingly, innovation is similarly managed by implementing a continuous improvement process, an idea management and an innovation management in a company.
An improvement in the manufacturing process of a product, a completely new product for existing markets or an innovative service – these different types of innovation have always been a defining part of innovation management.
Digital innovation, on the other hand, refers exclusively to the development of digital products, services and digital business models. A borderline case is the question to what extent the installation of sensors for data acquisition in a physical product is attributable to innovation or digitalization. The installation of sensors tends to be more innovation-based, the development of services and business models on the basis of this data tends to be more digitalization-based.
Digitalization affects the entire organization, innovation doesn’t necessarily have to
Innovation often has little impact on business structures and workflows. A new production line is opened for an innovative product. In order to enter a new market segment, new sales structures are established. And even with organizational innovation, the basic process often remains the same – only in an optimized form.
Digitalization, on the other hand, affects the entire organization. All processes and procedures within companies are gradually being transformed into digital processes or completely rethought. Businesses use innovative technologies such as digital communication tools, artificial intelligence or the Internet of Things to develop new processes and offerings on the basis of data. This change therefore affects all divisions.
In contrast to the innovation management of the past, which was often assigned to individual departments, in enterprises all departments and areas are subject to a transformation process.
Digitalization requires different approaches to innovation
In addition to the existing types of innovation described at the beginning, there are new ones. The development of digital services for customers and the development of digital business models:
Digital services are offerings for customers that help them to use products better or more efficiently or to obtain information faster and more specifically. Examples are digital operating instructions, a tracking service in logistics or digital reports on energy consumption. Digital services are often not an independent source of income for companies. They serve to keep the existing offer attractive or to make it more attractive.
Digital business models are an independent form of value creation. Companies use digital technologies. They build on these offers for which customers are willing to pay. Digital business models can exist as a supplement to an existing product or as independent digital business models.
Typical digital business models are so-called freemium offers, in which customers receive the basic version of a product free of charge and have to pay for upgrades. Another common digital business model is the creation of a digital ecosystem or marketplace where customers, suppliers and other industry partners come together.
Since the development of this type of innovation often differs drastically from traditional product development, numerous companies have established their own departments and created positions such as Chief Digital Officer. Traditional innovation and digitalization are separated. Does this make sense in any case? It depends on how close digital innovation is to the core business. Companies can also use existing structures such as the continuous improvement process to push digitalization forward.
The development of digital business models and services often requires different processes and methods than e.g. product innovation, which are mainly implemented via innovation processes. Innolytics® supports both digitalization and innovation. Companies can set up different communities on their platform – for example, quality and improvement circles at local locations as well as cross-divisional digital working groups. The groups can exchange ideas on the platform, engage in ideation and generate ideas, conduct idea evaluation and transfer them into an innovation roadmap.