Effective Strategies for Innovation Leaders: How to Build an Innovation Lab with Real Business Value

Barclays, Boots, and Jaguar Land Rover. What do these companies share? All three have invested in innovation, and join a growing cohort of organisations that have launched an innovation lab or partnered with a startup accelerator to further their business vision.

Companies in every industry have recognised that innovation is critical to stay competitive and solvent in an evolving marketplace. The lure of investing in and fostering an innovation ecosystem may be hard for some companies to resist; labs and accelerators promise brave, low-cost, and agile experimentation to solve persistent challenges and bring new growth opportunities.

What we see is that there is no clear roadmap for how to do innovation right. In this article, we identify popular approaches to innovation and counter some of the main obstacles with solutions or considerations to help practitioners and organisations build a more effective innovation environment.

Build, Buy, or Partner?

Businesses take different approaches to innovation and many are finding great success. Keith Cotterill, an adjunct lecturer on innovation and entrepreneurship at Carnegie Mellon University Silicon Valley, suggests that most businesses that pursue innovation follow one or more of three general approaches: Build, buy, or partner.

Some companies build in-house incubators, like Barclays Eagle Labs. This approach includes management consultancies like Boston Consulting Group’s BCG Digital Ventures or McKinsey & Company’s McKinsey New Ventures, which incorporates the results back into the firm’s key capabilities.

Others take a buy approach via corporate or venture capital. Jaguar Land Rover, for example, launched a startup studio called InMotion to invest in high-growth companies in the mobility and smart transportation sector.

Some businesses choose to partner and collaborate with other companies on innovation. While it’s a largely underserved approach, Cotterill said, disruptions are beginning to happen within key industries, including AI, machine-learning, connected learning, and autonomous cars.

And spanning all of these approaches, of course, are the startup accelerators like Startupbootcamp, Founders Factory, and Techstars that largely sit outside of a business and connect early-stage businesses with direct access to mentors, partners, and investors. There are also specialized innovation companies that help invent new businesses, products, brands, and services for companies. A leading innovation consultancy we spoke with differentiates itself with a practical, end-to-end approach and a focus on human values.

However, innovation consistently stumbles within established companies. After four years, Nordstrom’s innovation lab downsized in 2015. Most of the lab staff were shifted into other units at the company along with the objective itself: innovation would now be everyone’s job. Ogilvy Labs, Disney’s research lab, and Adecco Ignite Lab all closed in 2016, among many others. Why?

Getting over the Innovation Hurdles

When to comes to why innovation flounders at established organisations, we heard a few common refrains: a rigid corporate structure and cultural constraints, difficulty identifying business impact and introducing new products, selecting and empowering the right leadership, and countering innovation fatigue.

At the same time, organisations that have found success are remaining nimble, connecting innovation with business value, working with industry-specific accelerators, recruiting the best talent, and sharing knowledge and resources.

Rigid Structure vs. Agility

The hurdle: Remaining nimble is a challenge for organizations, Cotterill said. Deep institutional knowledge and behaviours, functional silos, management styles, hierarchical structure, copious meetings and limited time, legal and regulatory issues; all of these factors can contribute to a rigid corporate structure that is unfavorable to innovation and top creative talent. “It could take six months to examine a proposal for a technology product that has a shelf life of three months,” he said.

Related to structure is an organisation’s culture and overall willingness to embrace innovation. The ability to adopt innovative methodologies — like design thinking — is a good example. Staff might love design thinking courses and return with plenty of lessons and ideas, Cotterill said. “Then they get back to the job and have no chance of applying it.” There exists a significant tension between the organisational model or mindset of a company and new approaches that support innovation, like design thinking.

The solution: Organisations must strike a balance between an appetite for process control and structure with something that can move fast, Cotterill suggests.

Remain nimble and create exceptional operations. Andy Shannon, Head of Global at Startupbootcamp, advises organizations to first turn inward. “Learn from past mistakes and this will take you a step closer to achieving success,” he said. “We are heavily investing in taking our unique data to fully update our toolkits to provide deep dives into the reasoning behind how and why our model is working.”

Another answer may be starting small. Focus on small or iterative innovation, not an entirely disruptive or encompassing shift to the core business model or operations. “It doesn’t have to be brand new design all the time, maybe bringing in Salesforce is the answer,” Cotterill said. And, if that’s the case, clearly position these smaller adaptations as key innovation successes for your business.

Adopt a realistic outlook and be ready for the challenges. “To encourage internal innovation, corporations must act like startups themselves by adopting the lean startup methodology in order to innovate,” Shannon said. “As such, they need to accept the core challenge faced by most startups including high failure rate, ability to change direction, execute quickly and keep operations lean, and this ‘startup mentality’ is what corporates mainly struggle with.”

Just being in the right place — like Silicon Valley — is not always the answer, either, Cotterill said. To be more creative, there needs to be pervasive structural, organisational, and cultural shifts.

Explore what an accelerator partner or specialised firm could bring to the table. They not only understand the problem of a rigid structure, but they also have practical tools and resources to help businesses take action and create a more favourable innovation environment. “What’s more, accelerators encourage agility and the ability to pivot quickly — a strategy which may contradict the structured nature of corporate entities,” Shannon said.

Profitability vs. Purpose

The hurdle: When the outcome of the innovation is a new product or service, it can be hard to roll this out within an organisation. The resulting product may not be something of lasting or sustainable value to the core company. A Forbes article suggests, that a “…lack of strategic alignment also creates orphans; great new products with a good business models that whither on the vine because no managers in the company are willing to take the product to scale.”

In some engagements, there may be a tendency to focus on creativity and coming up with interesting ideas, rather than on the crucial components of experimentation, iteration, and commercialisation that result in new, profitable products or services. A perception exists that innovation systems are disconnected from reality and strategy — that they are just idea engines. At the same time, using profit to justify innovation could be problematic and limiting.

While inspired to innovate, some businesses are truly wary of disruption and will push back on changes to the business as a whole. These companies may like the idea of innovation, but in reality they’re seeking minor tweaks to existing products and services, not a modernisation of the business model itself. (Think of Cotterill’s earlier Salesforce example.)

The solution: We spoke with an innovation strategist who suggests a basic but critical practice: Have a clear purpose or vision from the onset, he said. “Think about what success will look like. And ask, why do you want to be more innovative? Why create a more innovative culture?” Successful ventures are those that have a clear rationale and goal for innovation; they’re not just doing it because it sounds cool or because they want a hub in Silicon Valley. Innovation for the sake of innovation — to be provocative or disruptive — will not work. Done right, innovation can be strategic, aligned, and revenue-generating.

Some innovation labs are intentionally disconnected from the core company, either physically, in “outposts”, or by organisational structure and hierarchy. But when innovation happens in a silo, it’s challenging to integrate emerging ideas and systems back into the larger company. An effective ecosystem has a clear mechanism for sharing and propagating the value of the innovation. This should happen at regular intervals and with the right audiences, from the CEO and the board of directors to the business units and the larger public. However, be cautious of imposing too many systems and channels for the sake of structure and engagement; the wrong mechanism can slow or halt the speed of innovation and work against agility.

Innovation strategies must not lose sight of the customer or consumer role, either. Involve customers in testing and feedback phases as strategically as you would the CEO or board of directors. And trust what they tell you.

Another solution: Identify and clearly connect the business value. “There has been a shift over the last two years, in which with any new technology, the emphasis is much more on business value delivery,” Cotterill said. Increasingly, executives are looking at the spend on innovation or technology and results, he said. Organisations might invest a lot to create an incubator, but if you can connect the output to business impact, the investment can be positioned as a good value.

Periodically reflect on your initial innovation aims. Was the goal to create a viable new stand-alone venture or product? Or was it to generate value for the core company, perhaps by driving business development, sales, or fostering more conducive business environments in key markets? “While it’s undeniable a corporate would have immense resources to accelerate and scale a young company, in their very nature internal labs aim to work on solutions that benefit their corporate’s bottom line, and not those of the startup,” Shannon said. “On the other hand, standalone accelerators such as Startupbootcamp may work with multiple corporates as partners, but the ultimate focus is often on the needs of the startup and finding a variety of ways in which a two-way collaboration can take place.”

People vs. Empowerment

The hurdle: Depending on the approach to innovation — build, buy, partner, or other — the right people need to be involved at the right inflection points.

For example, if a business unit head from a core company is in charge of setting the agenda at an innovation lab or with the accelerator partner, he or she brings built-in limitations; they are accustomed to working within the constraints of the existing business model of the core company. They might not have the vision or ability to “stretch,” to enable creativity and innovation.

In terms of establishing innovation leadership, migration from within doesn’t always work. Some organizations see innovation roles as prestige or reward for a long-serving executive, Cotterill said. Rather, if a big company hires a CSO or CIO, these leaders bring greater job specificity and built-in abilities to lead and foster innovation. An even more non-traditional approach is to bring in mavericks, outside people, to disrupt established organizations.

The solution: Invest in the right talent, including your key partners. “Much of our performance at Startupbootcamp revolves around attracting the best startups,” Shannon said. “From our experience, a strong focus on key event exposure and producing industry-targeted thought leadership pieces are drivers for success.”

As innovation becomes more a necessity and less a luxury, tapping into industry-specific resources can fast-track success. Startupbootcamp, for example, runs over 20 industry-specific programs globally covering areas such as Fintech, smart energy and cities, and IOT. “This deep focus allows us to provide our startups with access to the most relevant corporates, mentors, and investors within their industry,” Shannon said. “What’s more, over the years we have grown rapidly allowing us to attract startups globally and accelerate them in key startup hubs.”

Involve the right people throughout the entire process. Empower staff, and ensure clear leadership buy-in and vision. “They key thing is to make sure that innovation is on the agenda,” an innovation strategist said. “From the CEO to the CMO to the CTO; these are the people that can ensure alignment with corporate strategy and goals.”

“I’ve seen most success when the CEO is brought in. It’s not a new perspective,” he said. “You’d be surprised how many times a project is commissioned and it’s misaligned with those above.”

Passé vs. Possible

The hurdle: Innovation fatigue is a thing. Cotterill suggests that with too much emphasis on innovation, it become overdone and teams can lose focus. Vague approaches or a lack of connection to larger organizational goals or strategy can fuel this fatigue.

The solution: First, consider unique and motivational approaches to innovation. One idea is contest-based innovation, Cotterill says, a technique increasingly used by organizations and in academic settings. This includes hackathons, which brings bright minds together with data sets and more focused and creative objectives and, often, prizes. This approach can present a more minimal effort for an organization in terms of time, investment, and resources. However, remember that the key is to plan for how to successfully integrate these outcomes back into the business.

Couple this with tactical resource and knowledge sharing. One suggestion from Cotterill is to develop a new culture of recognition that rewards — rather than inhibits — top talent who take risks. The best data scientist at your organisation might work on the best client projects in an effort to advance their professional career. But, if there is motivation — and a path — to take on different, complementary, and more risky projects, organisations could more effectively tap into these significant in-house resources.

And, as always, turning to experts is advised. “Behind every successful organisation is a strong culture, great leadership team, and passionate people. Success often hinges on establishing the right partnerships and building an environment where you encourage knowledge sharing. Talk to people who already work with startups for inspiration and advice,” Shannon said. “Our team is very international and diverse and this is why we persuade everyone to highlight key learnings and best practices through monthly calls, annual gatherings, and templates.”

Leverage the Innovation Economy

For corporations of all sizes and verticals, innovation is necessary, challenging, and highly nuanced. There is no one approach that works for every single company, there is no clear roadmap, there is no silver bullet. Which is exactly why it’s also big business. Consultancies, agencies, and hybrids that can package, deliver, and scale innovation and impact for a company or brand are in a sweet spot.

This is especially true for agencies that can help organisations with the tactical, practical application of innovation.

“We think of ourselves as bringing commercial skills and design aspects to help you identify the core problems,” an innovation strategist said. “Is there a problem? What is the problem that needs to be solved for a consumer? We identify the human challenge or barrier, and then layer on commercial or design capabilities. And then we help navigate this through the organisation.”

“There may be more than a dozen proven innovation methods, but actually adapting and activating them is a totally different story,” he said.

Greater engagement with startups is a symptom of progress. “Indeed, the companies that have identified these challenges are the ones that have started practicing “open innovation” and created initiatives that encourage engagement with startups,” Shannon said.

Innovation initiatives face greater scrutiny today as companies deal with different headwinds within their core business, the strategist said. But this presents a key opportunity for management consultancies or professional services firms with capabilities to help organisations identify, connect, and quantify the business value and impact these initiatives bring to the core company.

“Everyone wants a cool innovation lab in New York or San Francisco,” the strategist said. But what if they become cost centers and not the revenue generators they had hoped for?

Overall, it may be that the “ingestion capability” is what still needs cracking. Large companies will continue to be interested in enterprise technologies and innovation. If we put the onus of success on the creativity itself, on those asking the questions and taking the risks, we endanger the process. Rather, specialised teams can partner or embed within an organisation to help them integrate new technologies and clearly position their value. “You can’t allow startups to do this themselves, they’re too busy doing what they’re good at,” Cotterill said.