Innovation labs are springing up everywhere, with fintech a particular bright spot over the last year.

Looking at Google News results from September 2016 for fintech alone, I can see intiatives from Deutsche Bank, Royal Bank of Canada, Fidor, BMW, PayPal and many more.

Labs are now commonplace across industries from retail, to telecoms and travel.

But what exactly is an innovation lab, and how do they work?

How to define an innovation lab?

The drawing below shows there are many ways to encourage innovation within a business.

Some of these involve a strategic and goal-focused unit, perhaps focused on a specific area like big data, tasked with creating anything from a new product or service to a new technology or business model.

Other innovation initiatives may not be physically co-located, they can be as radical as Google's model of 20% 'free' time for workers to innovate, or simply involve setting up a group to collaborate with other industries, startups, or academia.

innovation labs

Image via The Fintech Book, Wiley

The challenges of setting up an innovation lab

Andra Sonea, systems architect, eloquently sums up some of the many questions that companies need to ask themselves in the course of creating an innovation lab.

I'll paraphrase slightly as follows:

  • What roles should be filled?
  • What types of people make the best innovators?
  • Should you recruit from inside the company or look for fresh perspectives?
  • Do you define a governance framework from the beginning or let it evolve?
  • What projects will you prioritise?
  • How do you integrate with the rest of the organisation and not be perceived as outlaws?
  • Do you need dedicated infrastructure?
  • How can ideas be tested softly? Who are your actual clients?

The aims of the innovation lab

Whilst the goal of any innovation lab is ultimately to create new revenue streams or bolster existing ones by improving productivity or speed, there is much more to consider.

Many of the methods of encouraging innovation represent both means and an end. For example, a new culture of working may be beneficial for productivity, but in its own right can make for a happier workforce.

So, what are some of the common aims of the innovation lab?

Incubating a new culture

Many think of culture as the wishy washy side of both innovation and digital transformation.

Fixing broken windows (the idea of new office decor, relaxed dress code and seating, and Macs for all) can often be seen as an empty gesture - snacks can only make a company so much more enjoyable to work at.

However, these changes are an important step when combined with a focus on new ways of working - customer centric, data driven, tech-enabled.

Communication between a lab and other teams, often involving a cross-functional team, is important in instigating a 'test, learn, iterate' culture.

One of the challenges of the lab, as Sean Cornwell of Travelex states (though referring to broader digital transformation), is avoiding the cool kids in the corner syndrome.

Incubating culture is a fine balance and further down the line may ultimately hinge on hiring and firing.

Ideation

Fairly obviously, this is a large part of what innovation labs promise. That can involve hackathons or day-long collaborative events.

Innovation labs may work on proposals submitted from across the business, even involving a competition element to reward teams or employees.

At the lighter end of the lab scale, hack spaces or CX demos can be created merely to demonstrate the latest tech in a particular industry and encourage staff or even clients to think big.

Talent replenishment

A catch-22 can occur at relatively slow-moving companies. These companies must attract talented staff with digital skillsets in order to change the company, but these candidates may not want to work for companies that may be perceived as boring or old fashioned.

So, the lab can be created as an attractive base for new employees. Ryanair provides a good case study here, showcasing all the benefits of working for its lab on a dedicated microsite.

Salary, empowerment, startup culture and often a new location (such as a metropolitan office rather than the out-of-town HQ) are all used as a draw.

ryanair labs

Open data

This isn't always an aim of innovation labs, but opening up data for third parties to innovate can be a good method of early product development in certain industries.

Nesta, the British innovation charity, runs the Open Data Challenge with the Open Data Institute, which has spawned new digital products and boasts a five to tenfold ROI.

One such product built on open data is Movemaker, an 'app for house hunters, which helps people living in social housing swap their properties'.

In-housing

Part of investment in a lab can be a focus on developing in-house capabilties.

Rather than looking to agencies to develop new media, for example, companies can bring competency in house.

Emphasising long term revenue

The lab can be a form of insulation against short term accounting that some see as the enemy of innovation.

Though product development can be fast through agile methods, creating new products or business models doesn't always lead to an immediate return. The lab is an environment where long-term thinking can be encouraged.

This requires what Tom Guy of Hive (British Gas's home internet-of-things spinoff) calls 'air cover' from stakeholders.

Time and money granted from senior members of the business, managing upwards.

New businesses

Investing in an accelerator allows companies to give money, facilities and training to a range of startups and have a stake in their success, either aiming for integration in the long term, or a portfolio of successful tagential businesses.

Axel Springer's Plug and Play accelerator in Berlin is a good example, and includes other partners such as Deutsche Bank. 

So, innovation labs should be much more than PR

In summary, though labs can seem like PR on the surface, they need to stand for much more in order to change big businesses.

Ben Davis

Published 2 November, 2016 by Ben Davis @ Econsultancy

Ben Davis is Editor at Econsultancy. He lives in Manchester, England. You can contact him at ben.davis@econsultancy.com, follow at @herrhuld or connect via LinkedIn.

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Comments (1)

David Reilly

David Reilly, Digital Strategy Consultant at Econsultancy Guest Access TRAININGSmall Business Multi-user

Interesting article Ben. Agree I think there are many positives for opening Innovation Labs but these are only one element of innovation. I think key is combining the right mix of teams, a mix of technical expertise, business expertise and creativity and of course speed to market for new products. Hence alot of the great new innovations, like Hive, seem to be emerging from startups where everyone is encouraged to innovate

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