Speed of innovation in medium-sized companies: agile like Amazon

You have to imagine the sum in numbers: Last year alone, Amazon had 24,400,000,000 euros at its disposal for the development of innovations. This is not only 27 percent more than in the previous year – with this amount, Amazon is out-doing every other company on the planet, reports auditing company EY. By comparison: Volkswagen, on paper Germany’s most spending-friendly company (the largest national economy in Europe, after all), invested 12.1 billion euros in innovations. So not even half as much.

“Digitalization has triggered an investment boom that is steadily gaining momentum,” said EY expert Alexander Kron in the Frankfurter Allgemeine Zeitung. It is becoming “clearer and clearer that the competitiveness of companies is increasingly determined by their technological performance and innovative strength”.

That sounds like bad news for medium-size companies. How are they supposed to keep up with digitalization when the competition has double-digit billion sums to play with? They only have one option: Just do it. As quickly and as cleverly as possible. It’s a better alternative to lamenting in meetings why the others have more budget, the better Chief Digital Officer or the bigger IT department. Or fantasizing on podiums about the possibilities of the digital transformation and changing only superficial things in your own company.

“Digitalization made in Germany is an almost biblical paradise: Hardly anyone has to work more, people are nice to each other, everyone is fine and someone is always baking a delicious cake in their home office. At least that’s the impression you get when you listen to the relevant opinion leaders on Twitter, Instagram and Co.,” Panos Meyer, Managing Director of the digital agency Cellular in Hamburg, recently complained in “manager magazine”.

Just to make it clear: The digital transformation is not a party, but hard work, even if “feel-good chatterers and positivity spreaders” on the congress stages of this world or as in-house consultants are pretending that “digitalization is primarily a communication issue”.

The truth is that there are two main areas: IT infrastructure and business organization.

The currency of the new world is data, but many old IT systems keep this data locked away as securely as the Bundesbank keeps its gold reserves or Coca-Cola its own recipe. Companies often struggle for years to tap into these data sources via new interfaces and process them further. While they’re doing this, Amazon has once again increased its market share and located delivery addresses on the moon. Companies therefore need modular systems that can be quickly expanded and adapted to current developments.

Moving to new systems is never easy and sometimes risky. A current example is the Swabian mineral oil specialist Liqui Moly, which is active in more than 120 countries and wanted to accelerate internal processes by introducing new company software. What actually happened is that it lost a third of its profit and Ernst Prost, the head of the company, said he had “never had to apologize to his customers more often in his entire career than in the past six months”. The story of the raging company boss was featured in all business and trade media.

Nevertheless, the greatest challenge of the digital transformation is not the IT, but the organization. Managers and employees have to leave their familiar paths, develop their own initiative and endure contradictions – just like at Amazon.

There, every innovation begins in the same way: An employee has an idea and describes it in the form of a one-page press release. This is how Amazon’s smart order button Dash, the same-day delivery Prime Now or the marketplace for handmade products started. Anyone who has an innovative idea for a new product at Amazon must first write a one-page communication explaining what the product can do and why it should be launched on the market.

If the idea is understood and approved, a team of experts meets to explore the potential. If this round is also completed positively, stage two starts: The idea giver must defend his or her project in an FAQ interrogation. Only negative objections like “No one needs that” or “There are already hundreds of these” are allowed. Only when this purgatory has been overcome can the implementation start. Then the teams start to scribble, develop mockups or visualize in another way how a customer will actually experience the product.

Companies such as Zalando and MediaMarkt-Saturn are now working in a similar way. Small, interdisciplinary teams are responsible for solving a specific task and present their results at regular intervals. The process is therefore neither chaotic nor uncontrolled. But within the so-called sprints, the teams have greater freedom than before.

Mistakes are always a part of it,

even at Amazon. Companies must have a clear goal, says Jeff Bezos. But the path to this goal cannot always lead straight ahead.

Mistakes cost money, but in agile systems, the loss is usually manageable. There are no rigid three-year plans and no more major projects in which fixed teams develop series-ready products with no feedback and in tunnel vision mode that ultimately nobody needs. Instead, it is about so-called “MVPs” (Minimal Viable Products), minimally functional initial product versions with which customer acceptance and marketability can first be tested before they are rolled out on a large scale.

Furthermore, not every company has to reinvent the wheel. Platforms such as the international start-up network Plug & Play bring established companies together with young companies that may already have developed a suitable solution for their needs.

Of course you also need budgets for this. But not 24.6 billion euros like Amazon.

Conclusion:

Many medium-sized companies have neither the money nor the employer brand to have expensive and lavishly equipped innovation teams develop new products. But they can rely on something else: their agility. Medium-sized companies have always been designed to work faster and more flexibly than their larger competitors. With agile methods, they can make bring their old strengths even further to the fore.