The new ROI for digital innovation

Innovation has had a bigger brother moving into the house next door; Digital Technology and between them, they have been busily knocking the walls down, to share the future going forward. The two have become interlinked, you seem to always need the one to respond to the other. Maybe it is a “digital – innovation twin” that shapes the physical world with digital understanding- think about the current Industrial Digital Twins for IIoT solutions.

Seriously, have you not noticed the more we work in the innovation space, digital and technology have become inseparable and part of any innovation solution. The innovation funds are increasingly being switched to digital or technology solutions and the output of the discoveries from this digital technology need innovation to then be applied. A virtuous loop.

Managing in this shift has become more intense and committing.

The reliance on deeper insights, more data, greater communications is changing the way we undertake innovation. Speed, scale, and scope are greater within the mix than ever before. We are testing uncertainty constantly, validating a part, pivoting more, experimenting and prototyping to work through this deciphering. Data specific, technology-driven, innovation invigorating.

Organizations are spotting opportunities faster than ever. We are cutting across borders, teaming up with start-up’s, past competitors to seize these opportunities.

Let’s take the emerging Health Care changes going on in the U.S.

Let’s take Amazon, the “golden child” or “big hairy and scary brute”. They see a market is in that specific need of the Amazon treatment, then they are onto it. The recent announcement that J.P.Morgan Chase, Amazon, and Berkshire Hathaway are teaming up in a joint venture to do “something”  about the high cost, complexity, and bureaucracy of U.S. HealthCare, becomes one of those announcements that must have struck a real fear into all the prescription-drug middlemen. It is ambitious, yet the combined clout really makes you sit up and take notice. It is announcing the existing ways of conducting business, in silo’s of activity not visible to others, is going to be changed fairly dramatically. The change will be based on technology, data, and interactions, applying a digital solution alongside innovative applications and linkages, are going to be central to the solutions.

Then we heard that Apple was launching medical clinics, for delivering the “worlds best healthcare experience” for its employees Once it has mastered this, we can expect technology solutions will be applied on their learning for more universal solution application to the US health care, to offer out to the market. Now, this gets very intriguing.

The main purpose is to rein in the runaway health care costs, which are 18% of U.S. gross domestic product (GDP). The size of the “health care beast” is around $3.3 trillion and it is going to take considerable new investment and concepts to tame this and make it become a little leaner, less duplication and more efficient. Who better to search for creative solutions than these companies, watch as others join in this new battleground.

Yet again we are seeing a business decision made on spotting an opportunity and not concerned, at the present, on the classic financial measure of ROI- return on investment. If you look at Amazon they provide shareholder return on the value in the share, less in the bottom line. They see financial management differently. They chase growth and opportunity for their value.

How that will stack up with J.P. Morgan and Berkshire Hathaway view on financial management will be interesting to watch. As Warren Buffett has stated “it won’t be easy or quick” to solve healthcare. The current search is on for a “terrific CEO” and in Mr. Buffet’s words “to apply lots of commitment, probably make some important mistakes, lots of time. I’m not interested in lots of time. At 87, I want to keep it moving”

Each of these companies; J.P. Morgan, Amazon, Berkshire Hathaway, along with Apple have lots of cash to invest, they have access to some of the best and brightest talent and technology solution presently known. This will produce concepts, solutions, and innovations that have high levels of radical change that will be built into them. It will potentially alter the way healthcare operates in ways we currently can’t imagine.

Now why did I raise ROI and entitle this “the New ROI for digital innovation”

Simply the focus on the bottom line might still be the place to focus upon for many but when you have a significant access of cash, technology and talent you have such an amazing confidence in exploiting existing and exploring new markets in ways beyond most organizations ability to comprehend or undertake.  The fact you keep investing your cash into that continuously and relentlessly investing cycle of growth, built on technology and innovation always being shaped by digital understanding, then the traditional ROI (return on investment) seems not as important as my new ROI, one of being Relevant, based on Outcomes and Impact as the new bottom line of investing judgement.

Relevant

It is this merciless and unremitting quest to grow, to expand, to seek out opportunities and disrupt much if what looks to be inefficient, still operating mostly in a manual world, lacking a digitally connected and highly connected value chain there is a real opportunity for technology and innovation to be creatively applied. We are constantly seeing creative solutions in new ways, in combinations of technologies, coming together to change our perception of our worlds (Smartphone, Online books, Uber, Airbnb, Device Management). These are significantly changing our environment, both in our personal lives and increasing in the Industrial world, of connecting up as they show us their relevancy and value. Relevance is today having a direct bearing on the matter, that an opportunity spotted as one that is pertinent to pursue, rigorously. The activity we focus upon in finding solutions must be relevant, ones that are solving real social and economic problems.

Outcomes

It is no more inputs or outputs, it is all about outcomes. The ability to apply, recognize and demonstrate knowledge and understanding. We need to constantly take our experiments from a theory that needs constant testing, adjusting into final validation. Outcomes are looking for new space. It is inventors, researchers and analysts need to achieve outcomes. We have the need to have both extrinsic and intrinsic outcomes, in healthcare solutions for example. We need to always define, build and gain identification with our outcomes as they show the new space and potential opportunity to build. Innovation outcome can be incremental, evolutionary and revolutionary. Outcomes are the new meaning point

Impact

J.P.Morgan Chase, one of the partners with Amazon and Berkshire Hathaway, have spoken fairly often around impact investing. The need for scaling, access to sizable capital and exploring different business models. It is the right conditions when capital, talent and social challenge come together to resolve a challenge. The U.S.Heath is just one of those challenges that might be right for the JPMC treatment.

When we map problem spaces (U.S.Healthcare) we are looking for impact investing. The “impact economy” has been defined by the Aspen Institute as the “twin forces of supply and demand, impact investing and social entrepreneurship, that is driving systemic change in the US and around the world.”

Quoting from different papers on the “impact economy”: Part of the aim is to recalibrate supply and demand that looks harder at social impact. The need is to build a new social contract that may develop into a social impact bond- investors provide capital to fund community-based programmes whose successful implementation lessens long-term public expenditure and improves social outcomes. Clearly, this emerging concept will not be easy, but it does bring together all parties to attempt to drive impact and innovate in different fields where we have bigger social challenges. The key is it does need to generate shared value for all and that is going to be a hard road to travel.

Let’s look at some of the critical success factors for this to succeed.

The Monitor Institute wrote a report released in 2009 on impact investing and it provides an excellent overview of what needs to happen.  Their list of critical success factors was to view this from different parties’ perspectives but let me provide the list of significant issues to be resolved. So taking their suggested list and adapting it:

This is an evolutionary path. One that Healthcare solutions might need to travel, so all become highly engaged

• Developing a range of different but creative packaging instruments that make it possible to gain sufficient returns and bring the different parties together in this project.
• Most probably have some infrastructure especially suited to manage opportunities (separate stock exchanges, intermediaries, and specialists)
• Form a clear network/ community to enable linkages between investors and explore common goals.
• Encourage sufficient commercial capital to participate in joint deals by involving all possible investors that see this as critical to contribute funds too.
• Build sufficient submarket funds or grant capital that might have different investment rates so a more ‘blended’ rate is attractive and resolves different ‘benefit’ criteria between parties to underpin the risk/cost investment within the solutions.
• Achieve a common approach for assessing social/ environmental elements of investment from research and valuation aspects that allow new technology related solutions to emerge.
• Structure a viable market for investment opportunities where competitive returns can be demonstrated that yield attractive returns and reverse current cost acceleration
• Impact rating systems can be developed that offer acceptable minimum standards to certify companies and verification and are not actually equally destructive.
• Achieve a growing standard of metrics that set out goals of achieving social or environmental objectives that bring the supply/demand sides into a better, more equitable balance.
• A real push will be needed for more product innovation that meets the challenges, is able to be scaled up and overcomes potential (parts of) society’s objection or concerns with accepting the changes it might bring.

So, we need a different way to evaluate ROI

For me, if you begin to look around at the type of complexities we are trying to resolve we need to dampen the old school of “Return on Investment” and look to the new school of “Relevant, Outcome and Impact” as our new measuring stick.

If we continue to solve solutions through ingenuity from innovation, alongside digital and technology solutions, we will continue to challenge incumbents with new, better value propositions that continually innovate and evolve, as innovation, digital and technology form together giving a very different set of opportunities for value return to the ultimate consumer.

So Relevant, Outcome and Impact might just become our new ROI for business evaluation, born out of innovation, digital and technology application coming together to tackle tough challenges. Worked upon by harnessing talented people and analytical understanding. seizing new opportunities to resolve many of our inefficient areas.