The Challenge of IT-Enabled Innovation

IT is mostly utilised for making the routine operational processes more efficient. Innovation, which is a strategic objective for the organisation, is generally delegated to R&D or product design units with very little involvement of IT, thus precluding any technology inputs to the quest for innovation. Moreover, many senior executives still have an unclear understanding of technology, do not do adequate groundwork for spurring IT innovation, have unrealistic expectations and, thus, end up with disappointing outcomes. Nevertheless, there are success stories for IT-enabled business innovation. One of these stories is YCH Group in Singapore, which tied IT to the core of its business, laid a solid foundation for fostering IT-based innovation, improved managerial practices to better align IT with the business and has reaped the rewards.

IT could enable business innovation in three broad ways:

• By providing tools and support that let business managers develop new products and services. For instance, IT can help create linkages within the enterprise, as well as, with outside entities to enable a collaborative pursuit of new ideas.
• By fundamentally altering business processes and systems to pave the way for a range of new products and services.
• By becoming an integral part of new products or services, thus being at the very core of business innovation.

This research, based on a case study of a Singapore-based supply chain management (SCM) company called YCH, underscores the importance of considering the transformational innovative role of IT and also offers lessons for fostering IT-enabled business innovation in business organisations.

IT innovation at YCH

YCH Group is a logistics and supply chain management company that serves clients in the Asia Pacific region. In the mid-1990s, YCH transformed itself into a total supply chain management (SCM) company. Since then, it has been aggressively using IT for innovative supply chain solutions to enhance its partnerships with key customers.

The use of various innovative IT-enabled applications at YCH such as Y-WMS™, YCH’s first version of a 3PL warehouse management system (WMS) introduced in 1987, YCH’s vendor-managed inventory (VMI) solution – Intribution® launched in 1996, YCH’s order fulfillment and distribution solution – Intrabution® started in 2001, YCH’s virtual hub (V-Hub™) solution initiated in 2004, and more recently, the world’s first successful implementation of radio-frequency identification (RFID) technology for liquid products in bonded warehouses in 2005. All these resulted in substantial gains not only for YCH but also its customers.

For example, RFID warehouse tracking alone increased efficiency by 40% by eliminating manual data entry and reducing costs by eliminating one shift (three workers or manpower savings of 7.5%) and improving speed and accuracy of stock-takes. Similar benefits accrued to YCH by using other IT-enabled innovative solutions.

Six critical capabilities for fostering an IT-innovation culture

YCH recognises that having the necessary technological capabilities is not sufficient for fostering IT-enabled innovation. It also requires developing internal manpower, knowledge, logistics expertise and processes. The company focuses on building and nurturing the following six critical capabilities to generate innovative IT-based business solutions.

These six capabilities, which form an internally consistent, self-reinforcing mechanism are:

1. Open innovation culture
2. Entrepreneurial IS organisation and structure
3. Cross-functional project teams
4. Customer-centric alliances
5. Staff development
6. Focus on value

Three major lessons learned from the YCH story

The current research based on the case study of YCH explores the firm’s journey, describes its experiences and provides three major lessons for businesses seeking to use IT to drive business innovation. The first lesson is to foster a mindset for innovation, which YCH has done by creating an IT-centric innovation mindset and by balancing strategic and operational issues.

The second is to build partnerships, which YCH has achieved by developing an outward-facing IT organisation, by leveraging cross-learning from alliances and by leveraging IT to capitalise on opportunities to grow with customers.

The third lesson is to mitigate risks and uncertainty, which YCH has done by instilling a flexible risk ethic, by focusing on customer value when assessing its innovation projects and by paying attention to protecting intellectual property.

These lessons are useful for both CIOs and other organisational leaders engaging in business innovation and are summarised in the figure that follows.

All these lessons from YCH can guide other organisations in leveraging IT for business transformation and fostering business innovation.

Assoc Prof Thompson Teo and Shirish C. Srivastava were given Honourable Mention at the 2007 Paper Awards Competition held by Society for Information Management. This paper was also published in MIS Quarterly Executive with C. Ranganathan from University of Illinois at Chicago and James WK Loo, CIO of YCH Group.