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Why You Need a Software Innovation Strategy

Brandon M. Lewis
Mar 21, 2022 10:31:08 AM

Companies spend many billions of dollars on innovation annually. Volkswagen, for example, is spending $30 billion on a revamp of its tech. However, all too often, corporations' lofty software aspirations are frustrated; whether it be due to organizational inertia, the inherent complexity of software development, or failed execution. But with the digitalization of the economy occurring at an accelerating clip, it is essential for incumbent firms to develop and implement an effective software strategy or face relegation into obscurity at the hand of more nimble, digitally native market entrants.

Strategy is a set of policies and behaviors defining the business and aimed at achieving its specific competitive goals. While companies frequently define and adjust their general strategy, all too often their software strategy is an afterthought or left alone to the CIO or CTO to decide. Yet in an age when competitive differentiation increasingly occurs through software and no industry is left untouched by the effects of digitalization, this is a dereliction of duty and leaves one vulnerable to failure or disruption. Software innovation should be incorporated to and aligned with the overall strategy of the company, taking into account the needs of the various business units, end users, and customers. Without a proper software innovation strategy, digitalization efforts can become an incoherent mishmash, where goals may fail to be achieved or where costs may exceed benefits. As Gary P. Pisano explained in the Harvard Business Review; "A company without an innovation strategy won’t be able to make trade-off decisions and choose all the elements of the innovation system."

An innovation strategy generally needs input from diverse sources from within and without the company, but this is especially true for software. Software strategy impacts the entire firm and as such needs to integrate the perspectives of those from other business units, especially for software where the end-user is internal within the corporation. Likewise, when the end user is a customer, his or her needs must also be considered. However, without a guiding software innovation strategy to concentrate digital efforts, it's quite possible for this rich diversity of perspectives to easily become a discordant cacophony of voices. A comprehensive software strategy is often the necessary engine behind many successful general business strategies. Beyond mere generalities, your software strategies should provide answers to these questions:

Does your software innovation strategy create value?

A foundational decision for your software strategy is what type of value your innovations aim to create. If it isn't cutting costs and increasing efficiency, then it needs to provide tangible value for customers so that they're willing to pay more. 

It is vital not only that the innovation creates value for the company, but also that it can be captured. Any great innovation will eventually attract imitators. Imitators can drive down prices and even improve the innovation to outperform the company from which it originated. Beyond this, it is possible for suppliers and distributors to have strong enough bargaining power to sap most of the value. Building a so-called walled garden can also improve a company's ability to capture the majority of created value. Considering all of these factors is necessary for a successful software innovation strategy.

Does your strategy exploit true competitive advantages?

Competitive advantages come in two forms – structural advantages and unique capabilities. Structural, or positional, advantages arise from barriers to market entry. They can be legal protections (e.g. preferential regulations or tariffs) or result from economies of scale. Unique capabilities can stem from privileged, tradable resources (e.g. patents) or can merely be competencies that the company does especially well. Companies often overestimate their structural advantages. In order to ensure that competitive advantages are sustainable, it is important to vigorously test believed advantages. Combining advantages can also make it more difficult for competitors to imitate strategies. In this vein, it is essential to continue innovating to keep competitors at bay. 

Will there be adequate buy-in?

Strategic change, especially for large, complex digital projects is difficult in and of itself, but a lack of conviction can stymie even the best conceived efforts. Large software projects and strategy require more than just a commitment of resources, but rather also the buy-in all of stakeholders. Creating a culture open to change is a must in such rapidly moving times. 

Are there adequate resources to achieve this strategy?

Some industries have recognized the importance software rather belatedly, resulting in companies competing vigorously for the best tech talent. One such example of this can be seen in the German automotive industry. Bosch, Continental, and the ZF Gruppe have thousands of developers and programmers in their employment; while Volkswagen is anxiously attempting to catch up with Tesla by building out its software development prowess. While software development can be outsourced, this leads to the risk of vendor lock-in. 

The Next Steps

Regardless of the chosen software innovation strategy, it's almost certain that a great deal of your currently invested resources in software development go wasted. Somewhere around 80-90% of developer hours are spent doing maintenance work, rather than creating innovative features. The strategic management of software development suffers from both its inherent complexity and the impossibility of maintaining a human overview of a codebase that often expands into the hundreds of millions of lines of code.

Fortunately, there's a solution for this in the form of software process mining. Software process mining technology takes the data traces already created in the process of software production, aggregates and then analyzes them using artificial intelligence. Through A.I., a holistic overview of the software development organization can be created. Intuitively understandable KPIs and visualizations simplify the complexity and puts the reins of the organization back in the hands of executives and managers, so that software development can be strategically managed and monitored. These same insights can then be drilled-down by developers or managers to identify the source of inefficiencies, eradicate technical debt, and solve knowledge distribution issues before they become a problem

If you're interested in discussing how software process mining can augment your software innovation strategy, please contact us today!

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