The commercial space of the modern world has been and continues being daily refurbished by technological and digital innovation. It helps entrepreneurs to gain a competitive edge. Having various forms, the novelties help to improve the existing products, to streamline the manufacturing processes, to provide new solutions for meeting customer demand better or to completely change the business models, marketing strategies, operating processes, and supply chain logic. More than that further technology integration helps to continuously create value in every industry.
Potential welfares and risks of digital innovation
However, it should be born in mind thatlack of strategy and management around innovation can significantly increase the risks of it. Still, lets first discuss the potential benefits of digital innovation.
Better productivity and lower costs
It’s no brainer that much of the process improvements are aimed at product cost reduction either through advanced manufacturing capacity or optimized and more flexible business procedures.
Increased competitiveness through enhanced quality of goods and services
Manufacturing the product of better quality or offering more effective service due to the digital business innovation implemented, a company will inevitably witness higher revenues. It will just be a natural result of the increased demand and sales of the goods, which meet the needs of the customers.
Wider product range
The technological advance helps companies create state of art models, benefit from robust design solutions and manufacturing engineering capabilities. Thus the range of any product can be expanded and specifications diversified for different models. It results in increased sales and consequently profit.
More added value and better brand awareness
Due to the increased possibilities of wider product range, a company gets the opportunity to create a USP - unique selling proposition to the existing and potential customers, to offer them something special, they are ready to pay more for. It will also result in differentiating from the competitors and consequently better brand recognition.
Legal and ecological issues handling
Not only digital innovation ideas facilitate the upgrading of a product, but also the optimization of manufacturing processes to comply with the environmental regulations and legal norms. At times businesses have to modernize to meet the changing requirements even though it was not planned.
Improved staff retaining, motivation, and easier employment
It should, probably, be mentioned as a side effect. Perfect product quality reached through innovation often brings a company a corresponding reputation. Pioneering businesses are well-known for being inspiring their stuff for better achievements and thinking out of the box. It attracts and motivates employees who are eager to develop.
New partnerships and relationships
A partnership is often an effective way of meeting business objectives. In case you innovate, you’ll become interesting to other businesses for the purposes of cooperation and achieving even better results in bringing innovative technologies faster to the market. Besides, pooling monetary, human and infrastructure resources can reduce operational costs and overall expenses. Thus the end value of a product decreases even more.
Any novelty comes with some pitfalls and the risks of innovation also exist. The main three to mention are competition, uncertain returns, and accessibility of finance.
Unfortunately, it’s difficult to protect innovative processes and products, even though the system of patents was established as an attempt to offer a legal shelter to those who introduce pioneering solutions. At times the competitors can be revealed only after the investments have been made and a great deal of research made. That’s where we come to the next point.
A great deal of research is often purely hypothetical. Nobody can offer a 100% guarantee that there will be revenue and profits in the future. The risk increases proportionally to the development timescale. The longer the research lasts, the higher are the chances that the competitive companies can overtake it as well.
Accessibility of means
Businesses often have limited financial resources for research and design purposes. That’s why lots of entrepreneurs and startupers dealing with innovations frequently face the lack-of-means-challenge. It’s important to realize here that the returns of innovation are often long-term and the investment policy of the company should align with its long-term goals. At the same time, the risk management of digital innovation should be carefully mapped out.
How to mitigate the risk and cost of innovation
No matter what sphere your business and innovation are, whether it’s a digital innovation in banking sector, of the industrial process or the product or service you offer optimization, the technology should not be undervalued. A value-based pricing strategy is an effective way of risk mitigation.
1. Take a team approach
To release a really advanced solution that will be of demand you need a profound understanding of your clients’ needs and pains. So the engineering, research, and design teams should work in close cooperation with the marketing and sales departments.
Capturing market insights will help figure out what a consumer is eager to pay for and what product features or elements should be implemented to add it value. Such aspects are commonly not asked before the product is transferred to the commercial department and it often becomes the reason for failures.
2. Determine the economic value of the innovation and adopt a value-based pricing strategy
It’s at times difficult to define the fair share of the financial value, which was created due to the new-fangled digital solution. That’s why a great many businesses tend to use the old good cost-plus pricing equation. This strategy is simple and seems good enough. However, it does not address the value side of the price calculation and the technology is often underestimated.
A value-based approach is essential then to avoid putting too small a price on the innovation introduced. Otherwise, your consumers or partners will attain more than the fair share of the value.
3. Overcome legacy pricing pitfalls
In the process of a value-based pricing structure formation, other confusing issues will be discovered. Lots of technologies, like hard- and software or industrial equipment, for instance, have their own pricing. Managed by various business units inside the company they may create obstacles to the consistent cost equation.
4. Create a pricing structure for long-term success
It’s reasonable not only to finance digital novelties but also to adjust proper business procedures and a considerate pricing structure, to curtail the risk of underpricing. It will as well make the most of the acceptance of the new product in the market.
Often bright and promising digital innovation ideas lack proper technical realization. To generate profit, one should get a deep insight into the technologies which drive innovation, and the concerns of the market which govern the success.
No matter if you develop a new product, refresh some strategy or look for a new original way to fight off the competitors, your approach to innovation will be determined by your business specifics and experts you turn to. Partnering with companies, like Axisbits, which are ready to help you in crafting both a pioneering and a future-proof solution is a key to success.