Direction of innovation risks creating a future “authenticity” problem

At the recent Tech & Innovation Leaders summit for professional services something fundamental occurred to me during a session where we were live polling the senior audience of around 100 leaders. The audience was spread across law, accounting, property, consulting and in-house in somewhat of a unique gathering that looks beyond an insular sector approach towards broader emerging themes. The disconnect that started to emerge was around what firms stated as their goals for innovation compared to what they were actually doing. Incidentally, the wider areas that emerged as clear themes from the summit were around the way in which firms were starting to get to grips with the power of data (see related article here), the processes they were using and the cultural challenges. For a summary of the conference themes that emerged see here.

In this article, first published on Alternative Insights, I want to explore what I think is a potential disconnect which could impact on both firms’ clients and employee perceptions creating real financial risk. This article builds on another piece I have written on a recent innovation benchmark study which you can also read here. One of the key findings from that study was that very few firms are driving material revenue increases from their innovation initiatives, driven by a great many factors including many firms not having the right processes, investment or culture and because many are focusing on incremental innovation at a time when clients are expecting more.

It is this client expectation that I think starts to expose the potential disconnect. In the live poll we asked a set of questions which I now want to explore in some more detail. The first question we asked was around the firms’ primary motivation in driving tech-enabled innovation.

Only 24% felt that the innovation goal was to drive internal efficiency.

The rest felt that it was either to develop new revenue generating products and services (49%), to show clients how they are innovative to win work (19%) or to be able to do things in future that they can’t currently do without tech (8%). So it’s fair to say that the majority felt it was about a client-led approach to innovation. However, this then needs to be contrasted to a later response:

72% felt that the majority of innovation spend currently is making internal processes more efficient.

So only 24% of firms think internal efficiency is the goal but 72% feel they are spending most on this area? This disconnect seems to be supported in that 85% of people feel that not enough focus is currently on the client and transforming the outcome they receive. Keep that in mind as we proceed.

There is clearly a disconnect on where people are investing effort, and a degree of awareness of the disconnect, but what is causing this? When we explored whether firms felt they were collaborating enough with clients around innovation 77% felt that they were not doing so for fear of upsetting the status quo. Perhaps explaining this fear is that 89% felt that firms are too risk averse to really innovate in a revolutionary rather than an evolutionary way. The picture this paints is perhaps of a client model that currently isn’t broken enough to take many firms out of their comfort zones in how they work with clients.

There does though seem to be an awareness of what the future models with clients might look like with a high 92% feeling that we are inevitably moving towards greater productisation of professional services through technology.

For more on the shift towards productisation you can read an article I wrote here. The challenge to facilitating this shift would appear to be gaps in skills, structure and investment levels:

• 79% of firms felt that they currently lack the skills in effective deployment of technology with clients and for greater productisation;
• Partnership structures get in the way of capital investment needed to drive innovation according to 89% of those surveyed;
• Perhaps surprisingly 56% of people believed that firms should spend more on technology innovation than any other business support area.

It’s worth pausing to unpick some of these elements as it would seem to suggest that while firms say they want to innovate to drive better client service they currently have a number of pretty significant barriers in the way. If a majority of people are saying that they are not working collaboratively with clients, are risk averse, don’t have the skills, structure or right levels of investment, then it feels as if there is a growing gap between their stated aim and their current positioning. I should also mention as an aside that the benchmark study I referenced earlier found that across over 70 firms that the average level of investment is around 2% of revenue invested in innovation, which would suggest that there is a large disconnect between actual spending and 56% of people feeling that it should be the highest funded business support area.

The partnership structure does feel like a significant barrier to driving an increased level of capital investment needed. Essentially current partners are required to invest for the long term but by the time it pays back they may not be in the partnership. What is perhaps interesting therefore is to contrast some of the above statistics to a question asked around the most important things required to deliver successful tech-enabled innovation. The top items (people could pick more than one) were having the right cultural approach at 76%, having the right leadership at 57%, having the right skill sets internally to deliver at 41%, and getting the right organisational model to support innovation at 32%. What is interesting is that people are putting items in what feels like a logical order of importance but that this is quite disconnected from where they currently stand.

As an aside we did also ask some questions on the technologies people felt would have the biggest impact and I will explore that further in future articles but see the article that I wrote about blockchain and why firms may be underestimating the impact here. We also asked some questions on both the challenges and priorities around data and future skills needed in firms which I will explore in future articles in due course.

I said at the outset that I saw a future risk for firms as a result of the disconnects between what they are saying and what they are doing.

I think this innovation disconnect between goals and actions could manifest in an “authenticity” challenge if firms don’t act quickly

By this I mean simply that if firms are continuing to put out bold statements around innovation then they only have a limited period before their employees and clients start to question what has been achieved. Although not necessarily an issue right now given many people are at the start of their innovation journeys, this will change in a year or so from now. At a time when organisational values and purpose is more important than ever for both employees and clients, then having a stated intent that is incongruent to actions could cause real damage. In order to break this down a little:

-      Goal misalignment - Firms state their goal is to drive client-focused innovation yet the majority of spend is on internal efficiency gains;

-      Client collaboration gaps - Despite the goal being client focus most are not wanting to engage more collaboratively through fear of risking the status quo;

-      Culture gaps - Firms see culture and leadership as the most important drivers and yet most also feel that partnership structures are too risk averse to act;

-      Investment gaps - There is a view that investment levels need to be significantly more than they are now but that the partnership structure gets in the way of capital investment;

-      Skills gaps - It seems there is a clear acceptance of the drive towards the productisation of services and yet firms lack the skills to deliver on this.

The reason I say that an authenticity gap could do real damage is that if employees don’t see meaningful progression on some of the gap areas then it will challenge the very authenticity of the leadership teams driving the innovation agenda. The client authenticity gap is perhaps even more concerning in that there appears to be a significant mismatch between what they want in terms of changes in consumption patterns and the drive towards productisation, and what the firms are currently focused on and have the skills to deliver. If firms don’t rapidly rebalance towards the opening statistic of this article, that most feel it is about innovation for clients, then clients may indeed decide to move on.

It raises the question of why this disconnect has emerged. Even though people know what is needed they are not doing it. Perhaps the answer is simply that it is hard, hard to engage with clients in new ways, hard to drive capital investment in a partnership structure, hard to change model towards productisation, hard to rebalance skill sets, hard to take risks. On the other hand there is the easier route, innovating internal processes that are so inefficient currently you can’t go that far wrong. The challenge is that not that many clients really care about firms’ internal processes when we are moving from a process-driven services model to an outcomes-driven model.

For some practical steps firms can take I would suggest:

1 – Review the goals for innovation and check in on whether they are clear and whether there is alignment across the leadership and then into what is being communicated to employees and to clients. If you want to check in on where you sit and realign your plan you can always get help;

2 – Think about the model for innovation and the processes. We also asked people which they felt was the right model to drive technology innovation in professional services. Overwhelmingly people felt that it should be embedded into the practice teams (47%), and be a value that the whole firm embraces rather than a separate team (38%), with only 9% feeling that the best model was to have a separate innovation business unit to drive this;

3 – Ask the hard questions– is there a disconnect between the goals, the messages, the current model and the actions that are being taken around the way in which engagement with clients, levels of investment and skills gaps are being addressed? Then ask whether there is a risk of an authenticity gap unless changes are made.

It would be great to have people share thoughts and reactions to these statistics, the conclusions I draw, and also on what they have done to try and rebalance innovation efforts to being meaningfully focused on the client.