Establishing the need for an innovation system

Innovation is a challenge for many companies, but experience shows that those that succeed have a culture and system in place to support it. Kantega SSO Enterprise (KSSO) is a subsidiary of Kantega that offers proprietary SaaS solutions for secure and user-friendly login on Atlassian's Data Center platform to enterprise customers worldwide. We have delivered solid profits for several years, have a proven record for sustainable innovation, and in 2022 we were also recognized as a Gazelle company by the financial newspaper Dagens Næringsliv. Let's look at why we believe implementing an innovation system will further benefit our business model, and which three specific needs in KSSO that we think it can solve.

This article is part of a series of blog posts where we share experiences from a learning project on innovation accounting and innovation systems. The background for the learning project is described in the first article in the series: Creating a framework for innovation

Clarifying the need for innovation is crucial when a company undergoes business transformation. A clarified need is the starting point for developing and improving the way we carry out and measure innovation work. A natural starting point is to look at the current situation of the company.

KSSO is an Atlassian Marketplace Partner. This means that all product sales take place through the Atlassian Marketplace. We primarily serve large enterprises in the B2B market, with high demanding customers like Visa, ANZ, Tesla, Toyota, VW, Mercedes-Benz, NASA, Boeing, Airbus, Samsung, and Sony, to name a few. The two products with the most customers are our SSO extensions to Jira and Confluence on Atlassian's data center platform. KSSO has a solid financial position, and we expect continued good sales for its existing products in this market. 

In KSSO, core innovation is done every day, by improving existing products based on customer feedback, and continuous efforts are being made to optimize these. For KSSO, innovation is currently mostly about developing new features that add value to customers and are supported by a sustainable and viable business model. 

The need for innovation in Kantega SSO 

KSSO has a steady revenue and a high profit margin as of now. However, we see that the market is increasingly moving towards cloud services. This is a trend that is enhanced by the fact that Atlassian is pushing hard in that direction too. Thus, we believe that the main growth of the market will take place on Atlassian's cloud platform in the not-so-distant future. This is a platform where, for technical reasons, we cannot offer our existing products. At the same time, the competition on the cloud platform is stronger than what we have experienced on the data center platform. If KSSO is to experience continued growth in the future, it is thus essential to generate new and innovative products.  

Thus, our innovation strategy is now changing towards developing products or features that add value for customers that can't or won't buy our current products and are supported by a sustainable and viable business model. 

This does of course not imply that we won't take care of our current customers. It's just a clarification that for us, it is natural to separate our innovation activities from our continuous, customer-driven improvement cycle in our core products, which we described in our article about the value of great first-line support in a B2B startup.

At the same time, how to select and experiment with ideas is an unsolved dilemma for us. This applies both when improving or further developing existing products, and when developing completely new products. As a company, we cannot implement every new feature that our customers want or jump on an idea for a new extension or product just because it sounds clever. That will only lead to ‘feature creep’, which in turn will reduce the usefulness of the products for everyone, or new products that are not sustainable because we risk addressing needs and problems that are in low demand.

What are the prerequisites for creating innovation? 

The fact that the market is changing is not a realization that has come gradually. Already in 2020, KSSO started a race to launch its first app on Atlassian's cloud platform. After a thorough preparation where different needs and associated business opportunities were explored, we decided to create an integration app that made it possible to show sketches produced in the design tool Figma inside Confluence. This was launched just before the summer of 2021. Unfortunately, Figma itself launched an app with much of the same functionality. Sales therefore never took off.  

Although that innovation project didn’t result in a commercial success, we learned a lot from the process and validated that the team is able to explore new business opportunities in a good way and develop fresh solutions based on the insight work that is done. In addition, we realized that we must become better at killing ideas at an earlier stage. 

Consensus on direction and framework for innovation 

Some advice from the authors of the book Innovation Accounting is to develop a definition of innovation that is adapted to the business, to ensure that the board and those who work in the company have the same understanding of what innovation entails and which direction to go. 

This is a process that admittedly has taken some time, but we have now reached a point where everyone is agreeing on both the direction in which innovation should take place and what framework we should work within, for both core innovation and more transformational innovation. 

In the spring of 2022, we investigated various opportunities for innovation, particularly within the security domain, examining opportunities both on the inside and outside of Atlassian's ecosystem of tools and services. This work was led by former head of KSSO Jon Espen Ingvaldsen. The result was a clear recommendation on which business models we should explore further, and what we should abandon. Thus, we decided to invest further in the Atlassian ecosystem as this is where we assume that we have the best chance to succeed. 

Exploration of needs and technical possibilities 

And this is where we are now. In addition to the continuous innovation work we do on our core product, we have initiated two transformational innovation paths: One group explores the unresolved needs that users have at Atlassian Jira and Confluence for Cloud, how we can build extensions that solve these needs and, not least, what business opportunities this can provide. In parallel, we have initiated a technical learning project that explores the possibilities and limitations of Forge, Atlassian's new technical platform for cloud. This has already resulted in a prototype for an app that helps companies stay GDPR compliant in Jira Service Manager, which won an honorable mention and prize in Atlassian's annual hackathon, Codegeist'22. 

So far, the innovation process has been done on an ad hoc basis. However, it became evident that we have a capacity problem since we are a compact team. This made it challenging to manage and coordinate all innovation activities and at the same time make sure that what we did actually added value.  

The need or an innovation system 

As we can see, transformative innovation work can be challenging. This is especially true for the development of new business models. When approached by Kantega, we quickly saw the potential in joining the learning project, because we had already experienced how difficult this task can be.  

An innovation system supports continuous exploration of new business models. Thus, we hypothesize that an innovation system can solve three precise needs in KSSO: 

• The introduction of an innovation system will make the job of planning, implementing, and coordinating various innovation activities at a strategic and operational level easier, more efficient, and more transparent. 
• An innovation system will make it easier to make good decisions about when to proceed with an idea, and when it is time to finish work on it. 
• Through the learning project, we will identify a balance between how much to invest in developing new products and services, in relation to how much they invest in further development of the solutions that KSSO already makes money from. 

What return do investments in innovation bring?  

Through the learning project, we have identified that many CFOs have a hard time answering the following questions: 

• How much money have you spent on innovation in the last five years? 
• What proportion of today's revenue comes from products developed during the same period? 

This might indicate that many do not know the returns that a company gets from innovation. Thus, it can be helpful to turn the question around. Instead of looking for the revenue that an innovation project has returned in retrospective, one can instead look to the future and ask: 

• What will the turnover of today's products be in five years? 
• What do we need to spend on innovation to maintain sustainable turnover? 

In other words, should the company focus on harvesting profits from today's products, or invest in new products and services that can also contribute to profits and growth in a longer term?  

The Team and the Board of KSSO have together chosen to do the latter. 

The need for an innovation account? 

Although KSSO has decided to explore new business models, there is not necessarily a need to set up a complete innovation account. However, there will still be a need to lead and measure many of the activities they do in other ways than today. Just as for the other activities and artefacts in the innovation system, this part must be tailored to the specifics of KSSO. 

The purpose of an innovation account is to support the innovation process, considering that product development should be managed and measured depending on the type of innovation performed, i.e., whether we talk about core innovation, adjacent innovation or transformative innovation. The life cycle of the product, which typically include developing ideas, testing ideas and scaling ideas, must be considered as well. Good decision data makes it easier to portion out the investments in product development, depending on how mature the idea or product is. In addition, it reduces the risk of working too long with ideas that will not lead to real value for the company. 

Next: The innovation thesis 

We have now established the importance of creating an innovation system in KSSO. However, there are quite a few elements that must be in place for an innovation system to work. Also know that these elements must mature at the same rate.  

The innovation thesis and antithesis are fundamental to an innovation system. They describe the company's picture of the future, the strategic goals for innovation, what opportunities that exist, and which investments to avoid. Stay tuned for our next article, where we will explain how we worked with our innovation thesis and what we learned from the process.