New technologies such as machine learning, virtual assistants, the Internet of Things (IoT), robotic process automation, and voice recognition can bring real business benefits. Yet companies do not always know how to spot the best ideas and scale new solutions. At SAP, an innovation factory provides the framework to help them do this.

A study by management consultancy firm McKinsey last year found that among successful companies, 70 percent were using algorithms and machine learning and 48 percent were using digital assistants and chatbots. Among their less successful competitors, these shares were 31 and 25 percent respectively.

Managers in many industries have realized that embracing new technologies puts their business ahead of competitors. An Oxford Economics study revealed that 93 percent of managers believe that such technologies are vital to competitive advantage. In a joint study, the Economist Intelligence Unit (EIU) and SAP found that half of those companies that adopted machine learning early saw in it the greatest potential for making their businesses more profitable.

Studies aside, managers still want to know whether investments here really will deliver such significant benefits in the medium- and long-term, whether these benefits can be measured, and how companies can fit innovation projects in around all their other imperatives.

New, Faster Way of Prototyping

In SAP’s innovation factory, consultants from the SAP Services organization have come up with a way of rapidly testing new ideas, building prototypes, and creating and discussing business cases. It enables midsize companies and corporate groups to discover new technologies and learn how they can innovate in a practical and methodical way.

“Many companies take a highly academic approach to innovation,” Juan Galeano Ventura, program manager at SAP Services, says. “But we want to change this by being problem-oriented, and following a method that is flexible and allows companies to change their thinking.”

Even companies already migrating to SAP S/4HANA can benefit from the innovation factory.

“It is also about making SAP S/4HANA even more compelling by enabling extra innovations along the way,” Lars Friedrich of SAP Services explains.

Two Teams, One Approach

The innovation factory method helps companies build early prototypes and generate new business ideas. There are four stages:

  1. Set Up Teams: The company and SAP each put together one team. The SAP team comprises an innovation architect, a process architect, and experts in innovative technologies, such as machine learning, IoT, and chatbots, as well as a data scientist and a program lead. The customer provides its project lead, a sponsor from management, business and technical experts, as well as the people who will be using the software that results.
  2. Generate and Test Ideas: This stage is not only about discovering that playing around with ideas can be fun, it is also about getting the teams to identify which ones will provide new impetus for the business. The teams also create a backlog – a list of promising ideas – and choose the best ones to pursue.
  3. Build Prototypes: The teams then spend 30 to 50 days working on a prototype solution before deciding whether to scale it and then use it operationally.
  4. From Proof of Concept to Business Case: At the proof-of-concept stage, the teams test whether the technology is feasible and whether it is easy to use. They then produce the business case.

Fresh Ideas Along the Way

The business case quantifies the financial benefits of the new solution to the company and therefore determines the prototype’s future. The business case matters because the project’s initial funding ends at this point. From then on, the team must fund itself, Friedrich explains. Team members from the company spend one or two days a week on the project and can return to their regular roles for the rest of the time.

“The project manager still needs to invest about half of their working time,” says Friedrich. Because the innovation factory comprises a clearly defined approach and helps ensure the teams have the right mix of skills, the resulting prototype is less likely to be consigned to the desk drawer.

Jump-Starting Innovation

“It takes courage, and investment up front. The rest is a bit like a startup,” Ventura says. “Some things work, some things don’t. If the first prototype goes live, that can really jump-start innovation at the whole company.”

Ventura also notes that what tends to happen in projects like these is that as time goes on, the ideas are less about the technology itself: “It’s about getting creative and recognizing the practical benefits to the company.”

There are already early success stories: One major German manufacturer that tried the innovation factory approach generated 60 ideas. It whittled them down to the 10 most promising, and turned them into prototypes. Three are now about to become part of its SAP software and company processes.

This story originally appeared on the SAP Germany News Center.