To remain competitive, eCommerce companies must adapt quickly to changing consumer behavior and market dynamics. In this blog post by Michael Sommer, Director Partner Management at diconium, he describes how to embrace disruptive innovation and incremental improvement approaches, which allow for agile responses to market changes and customer demands. Using a recent survey conducted by diconium as a basis for his analysis, Michael outlines how combining the power of new technologies, data utilization, agile working methods and strategic partnerships, eCommerce businesses can drive incremental innovations, enhance customer service and secure long-term success in an ever-evolving industry.
Even in times of crisis, the German economy is full of drive to make digital progress: According to a recent CIO/CTO survey by diconium, 87% of companies are planning to invest at least as much in digital transformation this year as they did in 2022. In eCommerce in particular, the focus is on the customer. In view of the rapid changes in consumer behavior, it is more important than ever for eCommerce companies to adapt flexibly to these developments in order to remain competitive in the future. What is needed are innovations that respond to dynamic change by helping to stay a decisive step ahead of changes in the market, the competition and customer expectations.
For true business model innovations, this means thinking big. After all, according to the inventor of the "theory of disruptive innovation," author and Harvard professor Clayton Christensen, disruptive innovation is the only thing that really brings growth. But disruption always means upheaval — letting go of the old to allow the new to emerge. It is not for nothing that the Austrian economist Joseph Schumpeter spoke of "creative destruction" in this context, which many companies shy away from. The principle of incremental innovation offers a softer intermediate step. As a testing module for innovations, changes here take place in small steps to be able to react agilely to changes.
Incremental innovations convince through flexibility in dynamic times
In the age of constant change, more and more companies are relying on this incremental improvement or further development of existing products, services or processes. According to the latest diconium survey, however, not even one in two decision makers (44%) prioritizes the completely new development of digital products and services. No wonder: For eCommerce companies in particular, incremental innovation strategies based on existing resources and experience are a good way of optimizing the user-friendliness of their platform and the shopping experience for their customers more quickly and flexibly than disruptive approaches.
In particular, regular user surveys and the collection of feedback can provide valuable support here for customer-centric further development. In addition to the significantly lower costs than with disruptive innovations, it is therefore above all the flexibility that convinces eCommerce providers of the incremental approach. Kelly Goetsch, CSO at commercetools, confirms: "By taking a flexible approach to commerce, companies are able to innovate and evolve their customer experience incrementally, rather than having to invest a lot of time, money and resources. This progressive approach to innovation is critical to capturing a greater share of the trillion-dollar eCommerce market."
In focus: New technologies for improved customer service
In general, incremental innovation in eCommerce is characterized primarily by the use of new technologies. These include IoT, artificial intelligence and machine learning, among others. Decision makers in eCommerce should especially consider implementing automation technologies to automate manual tasks and improve customer service. After all, this is what eCommerce must be all about.
Focusing on customer needs is and will remain central to the sustainable success of eCommerce companies. However, a consistent customer focus requires a continuous, never pausing optimization of products and the entire value chain. This is especially true for eCommerce. Because here, customer expectations are changing faster than in other sectors. At the same time, however, the speed at which processes can be optimized is also increasing. If an eCommerce company firmly anchors an approach such as incremental innovation in the architectures of technology, business and organization, it is ideally positioned for increasing resilience and further growth.
Senior Digital Consultant, diconium
From a technological perspective, the principle of composable commerce is gaining in importance for incremental innovation in eCommerce. As a flexible, scalable and agile modular system, the composable stack replaces rigid monolithic platforms with the ability to continuously adapt the customer experience to changing customer needs. With modular iterations and best-of-breed, for example, new touchpoints and features can be efficiently added for rapid innovation, new ways of interacting with consumers can be created and personalization and automation can be further advanced. In addition, the flexible commerce engine provides more overall freedom to innovate at scale without experiencing downtime. Companies can thus fully focus on innovation output and drastically shorten time-to-market.
Data potential is still not being fully exploited
An important key to successful innovations of any kind is formed by the data of every company. This is because they provide important insights that can be used to initiate and implement incremental innovations in a targeted manner. However, in more than one in two companies (54%), the data potential is still not being exploited, according to the decision-makers surveyed in the diconium survey. In addition to the harmonized and optimized tech architecture, the necessary data expertise in the teams is often lacking. Just under half (45%) primarily identify a lack of specialists such as data analysts, data engineers or data scientists as the main reason for failing data projects.
Asked about the areas in which the decision makers in their company see the greatest potential for data use in the next one to two years, 50% name service and customer management, followed by marketing and sales (44%) and production and operations (41%). In eCommerce in particular, companies should increasingly rely on data-based personalization to meet consumers' desire for individual offers and tailored recommendations. At the same time, customer information can be used to make important predictions about buying behavior. To leverage this data advantage, eCommerce providers need to set up transparent processes for collecting and analyzing customer data and establish them throughout the company.
Agile working methods and partnerships drive innovation processes
Agile working methods provide an ideal framework for the practical implementation of the incremental innovation strategy. The dissolution of classic leadership cultures, hierarchical control mechanisms and responsibility silos in favor of an agile mindset directly contribute to companies being able to react quickly to changes and continuously improve their products and services. Agile ways of working enable teams to quickly gather feedback from customers and users and continuously achieve improvements in the form of incremental innovations in short sprints.
To further accelerate transformation and innovation processes, many companies are increasingly entering into innovation and technology partnerships, according to the diconium survey. More than half of the decision makers surveyed are pursuing the goal of accelerating transformation processes with their partnerships. Four out of 10 decision makers expect to acquire knowledge and new methods from collaboration with external companies from the innovation and technology sector. Tapping new transformation potential (38%), accelerating the market launch of new products/services (37%) and developing new business models (37%) are also among the reasons why decision makers enter into innovation and technology partnerships.
Tight budgets and blurred market focus put the brakes on innovative strength
In a nutshell: The incremental innovation strategy offers eCommerce the great advantage that companies can adapt their products and services quickly and flexibly to the needs and requirements of their customers. Investments in digital services in particular can help eCommerce companies successfully implement their incremental innovation strategy and enable them to hold their own in the market over the long term in dynamic times.
In fact, many of them have long been in the process of evolving in the interests of their customers. However, only six out of 10 decision makers in the diconium survey rate the available budget as sufficient. More than half of the companies would invest (even) more if additional financial resources were available. Both technical and human resources should be made available for successful implementation. However, the decisive success factors here are not only know-how, further training opportunities and agile management. It is also important that the respective departments work closely with IT.
A central aspect for the future viability of business success is, of course, the consistent customer centricity of eCommerce, which includes the analysis of usage data and the continuous adaptation to user wishes based on this. But in practice, only 58% end up flexibly adapting their transformation and innovation goals to current market conditions. This is a mistake. There is urgent potential for optimization here in order to implement future incremental innovations in eCommerce in a targeted and successful manner. So, let's get to work!
To learn more about what incremental innovation is and all the benefits of this strategy, read our blog posts Embracing agility & resilience: The strategic advantage of incremental innovation in digital commerce and Small steps, big results: How incremental innovation can reshape your business tech.
Michael Sommer is Director Partner Management at diconium and responsible for portfolio management. For more than 20 years, he has been driving the topic of customer experience, digital marketing and eCommerce, most recently in leading positions at Intershop and Mapp Digital. He is also a member of the Bitkom working group Cloud Services & Digital Ecosystems and Open Source.