How To NOT Build Corporate Innovation Labs

Nowadays, nearly every major corporation has some kind of corporate lab function. Most such labs hire a pack of highly talented young digital natives, give them a lot of budget and let them experiment on whatever comes to their minds. There is generally nothing bad about this movement and so far, at least some companies, have had great success with this model. 

On the other hand, after a few years of excitement, many companies realize that their digital masterminds sitting in the fancy new office in Berlin (or any other tech hub in the world) often neither delivered the expected impact on the parent company nor built any unicorns.

After working with different innovation labs and related functions from the consulting and internal perspective, I realized that there is huge potential for project failure in this difficult setup. I want to share my personal view on how to NOT build a corporate innovation lab and reveal the most common mistakes.

#1 Limit the Connection to your Parent Company, No Matter What

Yes, it is true, innovation needs the freedom of thought. Also true, the existing boundaries together with bureaucracy within the parent company can stop ideas from growing. Getting regionally divorced from your parent office can have a positive impact, since it allows corporations from less attractive parts of the country to hire the desired tech talent in a location they prefer. Should the management cut all connections to the parent company?

Avoiding exchange regarding the strategy and projects of your lab is a major source of failure. At the end of the day, your core organization should profit from newly built ideas, processes or ventures. If you haven’t established connections and included internal opinions from the beginning, the core organization is very unlikely to accept whatever your Innovation Lab has built.

This also matters for the lab staffing. Imagine a lab that is only built on talented new hires with highly creative and digital minds. By nature, they lack the expertise of how the organization has done business in the past. The lab is very likely to produce outcomes that can’t be transferred into the daily activities. Getting the right mixture of people is a difficult task but diversity will be important when it comes to creating innovative solutions.

Besides funding and established access to the customer, the knowledge of your parent company is the biggest asset for your corporate startups and new business ideas - a major asset compared to regular startups. Use this unfair advantage wisley! The lab strategy should foster knowledge transfer in both directions with regular meetings, marketing and employee exchange programs.

#2 Use a Greenfield Approach

Just let the lab staff do whatever comes to their mind. At the end of the day, a company is paying the lab for being creative and telling it what the next big thing will be. Letting them loose on a greenfield, with no boundaries or given direction to go, will bring up the most creative solutions. Is a greenfield approach the right setup for an innovation lab that will boost creativity? 

Even though working without the clear and often decelerating influence of the core company can help your lab to become creative, the parent company shouldn’t let loose all strings. In times of exponential technology growth and rapidly changing trends in customer behavior and expectations, it is important to set a clear strategic framework in which way the lab should move. The necessary research and analysis can either be done by the lab itself, by the corporate R&D function or some kind of strategy department. The only important thing is that strategic areas are communicated and confirmed with the management.

My experience has shown that labs which are clearly focused on use cases for a certain trend or technology, produce a much more decisive and usable outcome.

#3 Don’t even Dare to Use Traditional KPIs for Innovation

As a lab, it is one of your major goals to make the first steps towards the bright new future that lies ahead. How dare someone ask you to get measured in a traditional sense? Does upper management even understand the metrics you are talking about? Are classical KPIs not only for classical business approaches? 

Nobody said measuring innovation would be an easy task. There are endless theories talking about “fail fast & inexpensive” or “Innovation has no ROI”. I am a big fan of the lean startup approach and rapid prototyping myself. However, after countless discussions about the value of data and experience from failures, I realized that a mixture of classical and innovation KPIs has a value for your activities. 

The truth is, that even if your innovation unit is perceived as a cost center and does not have to follow traditional standard evaluations by the management, KPIs have to be defined and progress has to be tracked. This progress can be measured either in terms of tangible or in intangible assets. Tangible assets can be financial but also for instance the number of unique users using a certain service. 

An intangible way can be the return of insights towards the core of your business. It can be represented in many ways from customer exploration and interviews, to measuring the willingness to pay on a prototype website.

As a lab, try to figure out how to best evaluate your activities and the type of reporting your C-level is expecting. Keep in mind that it is the core business that is financing your innovation approaches and they are the ones that will decide if you will proceed at the end. They deserve to get the information needed to support decisions.

#4 Build Everything from Scratch

The lab hired some very experienced digital minds, why should you even think about acquisitions? At the end you hired these people, so you can build stuff on your own. Is there any need to scan the market when you do have the power to build?

Starting things from scratch is great. It will give you deep inside information on how things are done and this can be a great source of insights for your parent company. Doing everything on your own is a good way, if your lab’s goal is to achieve technology mastership. Most of the time it is not. 90% of startups fail and your lab should not be aiming for the same quota.

Only a fool learns from his own mistakes. The wise man learns from the mistakes of others.

Otto von Bismarck

If building a corporate startup or any other kind of larger activity, use the financial advantages you have as a traditional corporation and scan the market for innovative and suitable solutions to your business goals. Most of the time, what you are aiming for will be new to your company, not necessarily new to the market. Let the startups do what they can do best. The early stage of learning about product market fit and experimenting with new technologies belongs to them. You should be aiming for adapting what they have learned and combining different approaches to a suitable solution for your goals.

Summing it Up

Having some kind of external function, that helps you to hire digital talent, experiment within new opportunity spaces and enables your company to adapt to new market situations is very desirable for traditional players in order to adapt to the exponential progress of technology and markets. Still these functions have to be carefully planned and strategically mapped to your companies’ goals to be successful, otherwise you end up doing the innovation theatre without any substantial outcome.

The early and wild days of innovation are over and there are tons of strategies, processes and tools that can help you, driving your innovation efforts in the right directions. Don’t expect your corporate innovation functions to work without guidance. As much as you have to be agile in the way you’re approaching challenges, you have to be strategic in the framework you’re going to set up to do so.