Innovation labs are popping up all over the place. A recent report showed that, between March and October 2016, 88 innovation labs opened their doors globally - that’s over 10 per month. Amazing, right?
Not so much. On average, most of them will have quietly disappeared within three years of their launch. Recently Target, Alaska Airlines, Coca-Cola, the New York Times, and Chubb have all shut their initiatives down.
So what’s the problem? Do big companies just lack good ideas? Or is something else going on?
Turns out, there are five big reasons why innovation labs, accelerators and outposts fail instead of fly: a lack of integration with the core company; a focus on existing business models that results in tweaks rather than transformations; a drive to build from within instead of bringing innovation in from the outside; innovation as a PR move; and, innovation done for its own sake, rather than to support the overall business strategy.
Innovation outposts aren’t integrated with HQ
Large corporations have set up R&D labs, separate from HQ, for decades; either because there were few R&D resources in their home country, or to take advantage of foreign laws, resources, expertise and market opportunities. But in the last seven years or so, companies have been flocking to innovation clusters like Silicon Valley to tap into their innovation ecosystems. It makes sense - if you want to do cool stuff, you go where the cool stuff is happening.
But often, these innovation outposts are isolated and disconnected from the rest of the company. So while outpost employees may accumulate a ton of social capital and absorb a load of new ideas and technologies, there are no processes or systems in place to integrate and propagate them back into the wider company. There’s simply no means of sharing or acting on any value generated.
And when there are some systems in place, large corporations tend to lose out on speed. Decision-making in a hyper-competitive innovation cluster happens much faster than standard corporate processes allow - and if the company hasn’t set priority lanes or shortcuts to handle outpost opportunities, those opportunities end up dead on arrival.
According to Alessandro Di Fiore, founder and CEO of the European Centre for Strategic Innovation, companies must look for ways to create a return on investment, not just a return on coolness:
“If companies want to reap the benefits for their innovation pipeline it is not enough to send a few smart employees overseas and wait for the magic to happen. They need to think carefully and strategically about how to shape and implement a two-sided model, in which integration and propagation is key. Otherwise, they may just find themselves sitting by as the next gold rush happens.”
Tweaks aren’t innovations
It’s pretty common these days for companies to have their own corporate innovation lab. Saul Kaplan, author of the Business Model Innovation Factory, has visited a lot of them and, according to him, most aren’t actually innovating - they’re tweaking. From his recent Medium article:
“Innovation labs will launch with lofty rhetoric from CEOs about transformation and thinking out-of-the-box. But as soon as line executives and business unit leaders get control of the lab’s agenda, it is destined to produce only tweaks. This shouldn’t be a surprise, because corporate innovation labs are structured, resourced and governed to produce incremental improvements to today’s business models.”
While there’s nothing wrong with improving existing business models, or ‘making a better mousetrap’, most companies want to avoid being disrupted, or ‘Netflixed’, by new business models - that’s presumably why they’ve set up an innovation lab in the first place. But avoiding that is difficult when the company continues to view emerging technologies and markets through the lens of their current business model, and doesn’t consider innovating the business model itself.
Building your own doesn’t always make sense
It’s difficult to innovate from within. Anderee Berengian, Cofounder and CEO at Cie Digital Labs, explains why:
“Let’s start with the name. A lab is a place where you invent things within your four walls. Picture Thomas Edison trying 5,000 light bulb filaments before settling on tungsten. But innovation labs take a guy like Edison out of the equation. The reality is, most profit-focused companies would stop after 500 tries. Edison would then go start his own company.”
According to Berengian, transformative innovation requires two things: obsession, and constraints. You need an obsessively focused leader at the helm, and external pressure to show traction. Both of these are difficult to find or replicate in a large corporation.
They are, however, easy to find in a typical startup - which is why for many companies, partnering with or buying a startup can have far better results. Whole Foods could have set up a lab and rolled its own delivery service, but why when they could simply invest in the obsession and constraints that powered the young delivery service startup Instacart?
Berengian says: “Executives need to wake up to the fact that real innovation comes from outside your company.” That isn’t going to stop in-house innovation labs from popping up, even as companies like Disney, Ogilvy and Adecco shut theirs down. Why? Because many companies still haven’t learned that...
Innovation labs aren’t a good PR move
An innovation lab can raise the profile of a company, helping them attract talent and win the C-Suite over to lean methodologies. And opening them up to everyone helps democratize innovation, and create a company-wide innovation culture.
In theory, anyway. In practice, this generally isn’t the case. We’ve talked about how outposts and labs are often disconnected from the larger company, and ideas generated from them struggle to gain a foothold. According to The Corporate Startup author Tendayi Viki this democratization rarely happens, and setting up an innovation lab for PR purposes is setting up a disaster for innovation culture.
Innovation can’t just be about cool ideas - those ideas have to have commercial viability. Viki defines a great innovation culture as one where the majority of innovation projects are focused on finding ideas that will sell. But too often, he’s seen labs and accelerators set up for image purposes, and even in some cases funded by the marketing department. In Forbes, he writes:
“Most of the startups selected for such accelerators are based on the ability of the company to use them to tell a great PR story, versus having real commercial potential. The lab itself will be designed to look like a creative startup space with canvases, whiteboards, sticky notes, bean bags and foosball tables. Such practices send an implicit message to employees that innovation is about the artifacts that startups use. The everyday grind and hard work involved in innovation best practice is hidden from them. So they learn nothing but innovation theater.”
When these labs produce no value for the company, Viki says, the blame often lands on lean methodology itself and its usefulness for large companies. The time and money spent leads to frustration and ‘innovation fatigue’ among executives, and the lack of any real innovation culture means the talent initially attracted by the lab leaves for greener pastures.
“Having PR as a goal does not create value for customers. We must have authentic goals for our labs and accelerators. Inauthentic goals can not create an authentic innovation culture.“
Innovation for its own sake is not a strategy
There’s no question that companies need to pursue innovation in order to keep pace with ever-changing markets. But as with setting up innovation labs for PR purposes, simply saying ‘Ok, we have to innovate!’, setting up a lab and waiting for mind-blowing results isn’t a strategy.
LEGO embraced innovation as a strategy in 2000, adding a plethora of new products, education centers, even an amusement park to its already large portfolio. They listened carefully to customer feedback. They proactively searched for unexploited markets where they could dominate. And three years later, they were on the verge of bankruptcy. Wharton professor David Robertson, author of Brick by Brick: How LEGO Reinvented Its Innovation System and Conquered the Toy Industry, says that management had put all its attention into innovating, but very little into how that innovation fit into their key corporate goals. According to Robertson, “If you are going to accelerate innovation, you need to know which way you are going.”
To get the best result from an innovation lab, it’s vital to have a strategy for innovation - but that strategy needs to align with the overall strategic needs and goals of the company. And when a company has strong, clearly defined strategic goals, it’s easier for innovation initiatives to discover ways support and achieve those goals. When innovation is seen as a separate thing, rather than as a tool that brings new ideas and thinking to defined business objectives, the outcome is nothing, at best… ruin, at worst.
So… what’s next?
Are innovation labs flying, or failing? And, if they are failing, what do we do about it? Have you seen successful innovation labs and, if so, what did they look like - and if you’ve seen them fail, why? How would you design the perfect innovation lab at your company?
