Why Innovation Labs Fail, and How to Ensure Yours Doesn’t
What do Walmart, Facebook, and Lockheed Martin have in common? They all recently unveiled lavish new innovation labs. These kinds of labs go by different names — accelerators, business incubators, research hubs — and my research suggests their numbers are growing. Over half of financial services firms have started their own creative spaces, and you’d be hard-pressed to find a health care company or retailer without at least one innovation lab, whether it’s a conference room with sticky notes or a 20,000-square-foot incubator space, like the one launched by Starbucks in November of last year.
That’s all great news, generally speaking. Innovation labs are a safe place for organizations to run experiments and iterate on projects, and they’re an important investment for firms that have rigid approaches or that work in highly regulated industries. But do they actually add value and generate growth? According to a report from Capgemini, the vast majority of innovation labs — up to 90%, one expert says — fail to deliver on their promise.
From doing extensive research for my book Disrupt-It-Yourself and advisory work with large corporations in various sectors, I’ve found that there are three reasons many labs come up short. Here’s what companies should watch out for.
Lack of Alignment with the Business
Legendary innovation spaces like Xerox PARC and Bell Labs can evoke images of extreme secrecy and complete isolation from the core business. That sort of separation can be important, especially in companies where bureaucracy tends to neutralize new ideas. But separation alone is seldom a problem.
The problem tends to be that the innovation center doesn’t have a clear strategy that’s aligned with the company’s — or doesn’t have one at all. Many labs install kegs and offer kombucha on tap to get the creative gears turning, and then begin to ideate with only a limited idea of their goals. Some of the innovation teams I’ve met recently seem unsure if they are charged with serving the core business or with disrupting it. This lack of strategy is a common symptom of “innovation theater”: Boards and C-suite leaders unveil labs that are mostly for show, so they can check the box of having a team dedicated to innovation — and especially to disruption. Yet the curtain comes down quickly, either because ideas from these labs are disconnected from real customer needs or because no one is on the hook to carry the ideas through to implementation.
Leaders need to think through the implications of opening a lab, decide how it will complement or disrupt current and future business, and do the difficult work of determining how new ideas will be executed. This starts with a few considerations:
Vision. Creating clear goals for the lab helps both intrapreneurs and company leaders understand the direction and purpose of innovation initiatives. My firm recommends using “from/to” statements. For example, “We want to go from placing big innovation bets to trying many small experiments and rapid prototyping,” or “We want to go from having a limited range of innovation to being able to test out lots of new ideas while simultaneously growing the main business.”
Growth. What happens when an idea has been validated and needs to keep growing outside of the lab? Where will the idea go for additional support? Options may include going back into the core business or to an incubator or an accelerator. Potentially disruptive innovations may go somewhere outside of the core organization, where they can be further developed while being protected from corporate antibodies and business-as-usual fingerprints.
People. How will the lab support the intrapreneurs doing the hard work of bringing forward new ideas and executing them in unchartered territory? How will the lab facilitate close connections with the end users or customers for whom these ideas will solve a problem? People, along with their passions and purpose, are at the heart of the most successful innovation initiatives.
Lack of Metrics to Track Success
Innovation needs to be driven by much more than caffeine. After all, labs lose their luster in the eyes of executives when they fail to contribute to the bottom line over time. The irony? Many never have metrics to begin with. The truth is that innovation labs that don’t have or can’t manage metrics are essentially set up to fail.
Admittedly, innovation requires different thinking around financial support — labs need the space to iterate, evolve, and incubate ideas. Yet even if your lab is a cost center with a mandate to experiment over the long term, some type of return, financial or otherwise, needs to be specified in advance and tracked over time. Specific metrics serve at least two purposes: define what’s at stake for lab innovators as well as company leaders, and remind people that the benefits of innovation range from the very tangible (financial return on investment) to the less tangible but perhaps more valuable (return on intelligence in the form of new knowledge and insight).
But if the yardsticks for mature lines of business don’t apply to the lab, how do you come up with rigorous alternatives? When testing new ideas with potential customers, for example, early-stage metrics could be as simple as: How many users are finding value in the idea? How often do they tell their friends about it? How often do they return to use it? Financial metrics can be introduced as early as the prototype stage: Are users willing to pay for this? And later: How much revenue is being generated from these new offerings? Innovation cannot be sustained, however, without a holistic approach to metrics, one that includes focused organizational capabilities as well as leadership metrics that support the behaviors required to build a culture of innovation.
Lack of Balance on the Team
I’ve seen more than one lab languish because it was headed by a leader who had deep industry knowledge and good intentions but simply didn’t understand how innovation works. These kinds of leaders approach innovation much the way they approach problem solving in the core business, which often leads to little more than incremental improvements.
I’ve also seen labs struggle when they’re staffed solely by a squad of external entrepreneurs, whose eagerness to set fire to traditional ways of working promptly burns bridges within the company. This is the classic folly of entrepreneur-in-residence programs: Participants know how to launch startups and build businesses but are missing the internal knowledge and networks required to navigate large corporate systems.
It takes a diverse team to succeed. You do need a few people from outside the four walls of the organization, but they should be surrounded by others who bring a mix of skills — including long-standing employees who have a passion for innovation and know how the company works.
Getting this balance right can be messy, but there’s no other way. Effective innovation teams, whether inside or outside of a lab, are purpose-driven and diverse, often in terms of function and background as well as cognitive style. Here’s a quick litmus test: You’ll know you have the wrong team when everything is running along smoothly but the team’s output doesn’t look much different from business as usual. You’ll know you most likely have it right when the team emerges with good ideas, has plenty of the healthy tension that arises when diverse voices challenge one another, and effectively manages the ambiguity inherent to innovation.
Given all the ways that innovation labs can go wrong, should your company hesitate to set one up? Not necessarily. As Kyle Nel, the former executive director of Lowe’s Innovation Labs, and now a faculty member at Singularity University, told me, “Large organizations have just as much a right to play into that future, if not more so, than these kids in a garage somewhere that we’re scared of.” And Nel should know. At Lowe’s he oversaw breakthroughs that included a 3D printer designed for deep space (now used at the International Space Station) and LoweBots (autonomous robots that help customers find the products they’re looking for).
How did Nel and his team at Lowe’s beat the odds? He spent a whole lot of time “building and putting process and rigor to…identify what to work on; helping people on all different levels, from the CEO and board down, understand and have a substantive conversation about the outcomes of what you’re trying to build (and not the steps along the path to build it, because that’s unknown); and create new systems for getting KPIs and metrics of success, so you can see if you’re on the right track.”
The beauty of Nel’s approach is that it gets more people in the organization thinking about problem solving. A main point of these investments in facilities and talent is to fuel the innovation pipeline by encouraging creativity across the organization, while addressing the vision, growth, and people issues described above. Creating a cordoned-off space for innovation can signal that creativity happens only in specially designated spots and only among the people whose job it is to be creative — as in the R&D labs of yore.
Bottom line: The place for creativity is everywhere. Innovation labs are useful because they can provide training, networks, and other resources to help intrapreneurs succeed — regardless of where they work in the company. And, ideally, there should be cells of innovation (often driven by those intrapreneurs) across the organization. This is how real change starts to occur, altering the company’s cultural DNA to make the whole business more like an innovation lab.