A former colleague of mine used to say that ‘we’re all making it up as we go along.’ He didn’t mean that as consultants we deliberately set out to deceive, but that in a fast-changing business world where new technologies and possibilities are emerging all the time, there are very few precedents to follow or principles to abide by. Instead you have to be attentive to your environment, adaptable, willing to experiment and show the humility to recognise and learn from mistakes.
I remembered this when I read about an increasing trend amongst firms to close down innovation labs. For established firms wanting to experiment with new business models, autonomous innovation labs have been a popular strategy. They provide an environment where ideas can be developed, tried and tested rapidly within small teams, free from the restrictions and complexities of a large parent firm. They also have valuable PR cache and that’s no slight; for firms with a traditional, or even staid reputation, encouraging skilled experienced hires and talented graduates to resist the lure of glamourous digital firms to join their ranks can be challenging. The innovation lab can be a powerful symbol of a fresh, progressive culture promising freedom, opportunity and creativity. But making the innovation lab deliver value back to the business is a different challenge.
In my experience, the innovation labs created by established, national and multinational firms are run by experienced professionals with deep expertise in their chosen fields and the tolerance of risk necessary to explore ideas and stimulate a create environment. The particularly successful ones manage to combine a wide range of disciplines and skill sets to enrich their work. Much like their parent companies, they can claim to be experts in their domain. A bit cooler, edgier and maybe a touch flashier, but experts nonetheless.
Where I believe the innovation lab strategy struggles is not necessarily in the lab environment itself, but in the relationship with the parent firm. In particular, the way in which creative ideas emerging from the innovation lab are transitioned into the parent firm and transformed into innovations – ideas capable of providing value for customer and delivering value back to the firm in return. This transfer of innovation from one domain to the other – from the lab, which emphasises creativity and experimentation, to the firm environment, where revenue, profit and operational efficiency are more dominant concerns – is where the challenge lies. While the pools of expertise and experience in the innovation lab and parent firm are often deep, it is at the point of transfer between the two that many firms find themselves ‘making it up as they go along’.
And if firms do find themselves improvising the transfer of potential new product or business model from one domain to the other, it’s no surprise. Both organisations will necessarily want to focus resources and energy on their core business activities; for the innovation lab, stimulating fresh ideas and for the parent firm, delivering revenue and profits and scale while reducing costs. That’s a crude simplification of the goals of two types of organisations, but it serves to illustrate a contrast.
The challenge is that while both organisations concentrate on the priorities of their particular domains too little attention is given to the integration between the two. As a result, an innovation transfer problem occurs. The organisations fall into a pattern of innovation where ideas are developed independently in the lab environment, then transferred to the parent firm for implementation and scaling. However, without a keen understanding of the particular factors shaping the firm’s environment at that time, or the intricacies of operating processes, manufacturing, service delivery and other key areas, perfectly good ideas will struggle to achieve adoption and the innovation lab will appear to have failed. In reality it’s the linearity of the innovation process firms are following that’s the source of the problem, not the innovation lab itself.
Context is king. Innovation labs provide a valuable, independent, creative atmosphere in which ideas can flourish, but for those ideas to scale to the orders of magnitude necessary to be commercially viable, input from the parent firm is necessary throughout the innovation process. Equally, the parent firm itself must begin to anticipate how a new idea will disrupt its existing business models and begin the process of adapting if adoption of the innovation is to be successful.
Organisations must not fall into a linear innovation process – especially where external innovation is concerned. It must be handled synchronously, with several contexts of activity happening simultaneously. Work in the innovation lab, the parent firm, and in the all-important innovation space between the two are equally important for ideas to successfully graduate to innovations. But if the innovation lab appears to be struggling to deliver results, don’t jump to the conclusion that the lab itself is the problem. Widen the focus. Look to the innovation space and ask how the transfer of an innovation is being managed and how the lab and parent firm integrate through the innovation process. Although it rarely feels like it at the time, things going wrong offers the best opportunity to learn. So the answers to those questions may reveal more insights and opportunities than you first anticipate and lead you to take a second look at the potential of the lab.