Mastering the Digital Innovation Challenge

In 2010, a small group of managers at the automaker Volvo Car Corp. assembled to craft a vision for the future involving wirelessly connected cars. They recognized that the company needed to renew its innovation capability to compete more effectively in an increasingly digital environment. Doing so, of course, was easier said than done. One problem was that many managers didn’t see a need to innovate digitally. Volvo Cars was a car manufacturer, after all, and not a digital business. Others saw the need to engage in digital innovation, but they couldn’t get their head around how to do so. How could they convince their colleagues, when they didn’t necessarily have a clear vision of what the innovation outcome would be and the process itself appeared to be ambiguous? At the same time, Volvo Cars’ automotive business was strong, raising additional concerns about how to innovate digitally while maintaining core competencies.

Many incumbent businesses share similar questions to those Volvo Cars faced in 2010. A recent report by MIT Sloan Management Review and Deloitte found that nearly 90% of managers surveyed report that their industry is likely to be disrupted by digital technologies, yet less than half report that their company is doing enough to prepare for this disruption. Our four-year research project at Volvo Cars offers insights into a challenge that established companies must master — and competing concerns that they must balance — as they pursue digital innovations. (Detailed findings from our research were published in the March 2017 issue of the journal MIS Quarterly. See “Related Research.”)

Working on a strategy for connected cars, the executive team of Volvo Cars outlined a vision that would allow certain digital aspects of the car to be updated after the car was manufactured and sold. New digital technology would enhance users’ experience and enable new revenue streams. By rethinking traditional automotive product development cycles, car connectivity could increase the pace of change. It would also allow the company to engage with external innovation ecosystems and sync with developments in consumer electronics.

The executive team realized this vision would not be easy to implement, nor was it mainly about creating new technological infrastructures.