The Need For A Corporate Innovation Lab

30 Aug 2016

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I really love corporate innovation labs. It’s a great way to boost R&D, promote intrapreneurship and get the best talent on the market. Well executed it’s also great way to “fight off” potential threats from startups, giving you a position at the forefront of new ventures, tech and innovation. Of course every company innovates, but dedicated labs can take innovation to the next level.

The ever great CB Insights, have compiled an amazing list of the most well known corporate innovation labs. The list 47 companies, from Google toSephora, who understand the power of distruption.

So what if you are a business leader and don’t yet have your own innovation lab — what should you do?

First, you have to consider how innovative you already are. Are you already organising hackathons, promoting inventive concept development and encourage idea development on a regular basis? Do you allow employees to spend time on non business related innovation and have you aligned the creative product and service development processes with your overall corporate strategy?

You can easily setup your own internal checklist, here’s great example from Scott Anthony, David S. Duncan Pontus M.A. Siren published in HBR:

1. Is innovation development being spearheaded by a small, focused team of people who have relevant experience or are prepared to learn as they go?

2. Has the team spent enough time directly with prospective customers to develop a deep understanding of them?

3. In considering novel ways to serve those customers, did the team review developments in other industries and countries?

4. Can the team clearly define the first customer and a path to reaching others?

5. Is the team’s idea consistent with a strategic opportunity area in which the company has a compelling advantage?

6. Is the idea’s proposed business model described in detail?

7. Does the team have a believable hypothesis about how the offering will make money?

8. Have the team members identified all the things that have to be true for this hypothesis to work?

9. Does the team have a plan for testing all those uncertainties, which tackles the most critical ones first? Does each test have a clear objective, a hypothesis, specific predictions, and a tactical execution plan?

10. Are fixed costs low enough to facilitate course corrections?

11. Has the team demonstrated a bias toward action by rapidly prototyping the idea?

Then, you need to seriously consider and analyze how big of a threat it would be for you to not create a dedicated innovation lab. Evangelous Simoudis and Steve Blank wrote a great piece in VentureBeat about the process of building an innovation lab. It’s a step-by-step guide that works for any business leader who considers to setup their own lab. I briefly want to outline the process:

Step 1: Identify Your Technology Connectors

So called technology connectors, are according to Simoudis and Blank, people who truly understand the overall corporate strategy and can help to execute it accordingly. Their main task is to identify what the purpose of the innovation lab would be; for example, BASF wanted to keep pace with university R&D in inorganic materials and biosciences or automakers likeMercedes and BMW and automotive parts suppliers like Delphi are focused on keeping pace with self-driving car technology.

Next, the lab needs to be connected to the outside world, and not stay an internal R&D department. You need to build a strong network amongInvestors, Academics/Consultants/Incubators andStartups/Entrepreneurs/Management Teams in order to create an ecosystem. This will ensure that you can capitalise on your innovations in the future and perhaps more importantly, it’s a way to build a two-way value exchange. You must be willing to share your data, findings and technology with startups and invite them to be part of your network.

Companies unwilling to empower their outposts with the ability to exchange data with startups have set up the outpost for failure. — Evangelous Simoudis and Steven Blank

Then, it’s also important to understand the implications of inviting corporate VC early on in creating your corporate innovation lab. “Companies often initially staff their innovation outpost with a venture investing group. This isnot the the optimal way to start. Corporate VC needs to be part of an innovation investment portfolio with a mix of incubate, invest, and acquire. (Time horizons for return on investment from a VC investment may be 7+ years, ROI from the acquisition of an earlier stage company, 4–5 years, and the ROI from acquisition of a mature company, 2–3 years.) Until a company has enough data from its Stage 1 innovation outpost, starting an innovation outpost with corporate VC often results in ready, fire, aim.”

Key tasks in the first phase:

Understand ecosystem
Establish partnerships
Assess investments
Assess aquisitions

Step 2: Adding Capital

In the first step, you have successfully identified your technology connectors and how your new lab can connect with the overall corporate strategy in order to promote (sustainable) growth and solve problems.

Now, the corporation needs to add capital to fund the lab. This can be done by engaging the corporate VC but also by engaging outside investment partners, preferably a combination of both. “Examples include include BMW’s Silicon Valley development group, working on self-driving vehicle technologies, while their venture group has been making investments in companies like ChargePoint and Nauto. Another example is Qualcomm, which invests around robotics and incubates in collaboration withTechstars.”

But basically the Partners/CEO/Executives need to decide whether investing in the corporate innovation lab will successfully contribute to the company’s innovations goals — but I would also add, to their business goals. Since creating a lab is a timely effort that will span over several years (or decades) everyone on board — including the investment committee — need to truly understand the longterm perspective. Innovation can be done, but not implemented, quickly.

In overseeing projects, this investment group could copy some standard VC operating procedures:

  • Venture capital partners often disagree about investment opportunities. In fact, seasoned VCs will tell you that the best investments are the most polarizing.
  • A decision to invest in a start-up is considered very carefully, but most day-to-day spending decisions are left to the start-up’s CEO. Corporate innovation leads should set a threshold investment amount that project teams can spend themselves without asking for leadership approval.
  • Major VC funding doesn’t follow quarterly or annual budget cycles. When a start-up resolves a key risk, it gets further investment. And when a big issue arises, the board of a venture-backed company gathers within 36 hours. You should ensure that your team are capable of assembling and making decisions that quickly.

If you are not into creating a longterm innovation lab, consider setting up a skunkworks (or Skunk Works). The term skunkworks originates from the legendary innovation lab of Lockheed-Martin, setup during WWII to build a worldclass fighter jet. A skunkworks consist of a small group of people who work on a project in an unconventional way. The group’s purpose is to develop something quickly with minimal management constraints. Skunkworks are often used to initially roll out a product or service that thereafter will be developed according to usual business processes.

Half of the rules (with a few word changes) can be applied to any skunk works project, and they prescribe a robust framework within which to operate:

  • The Skunk Works manager must be delegated practically complete control of his program in all aspects. He should report to a division president or higher.
  • Strong but small project offices must be provided.*
  • The number of people having any connection with the project must be restricted in an almost vicious manner. Use a small number of good people (10% to 25% compared to the so-called normal systems).
  • A very simple drawing and drawing release system with great flexibility for making changes must be provided.
  • There must be a minimum number of reports required, but important work must be recorded thoroughly.
  • The contractor must be delegated the authority to test his final product in flight. He can and must test it in the initial stages. If he doesn’t, he rapidly loses his competence to design other vehicles.
  • Access by outsiders to the project and its personnel must be strictly controlled by appropriate security measures.

Key tasks in the second phase:

Identify solution to productize
Have budget
Have solution roadmap
Have solution home (setup new Business Unit)

Step 3: Bring Solutions To Your Problem

At this stage, you are ready to solve problems, whether it is building new products or services, or disrupting your existing business model. Now’s the time to truly bring solutions to the challenges that led you to setup the lab in the first place.

But as Simoudis and Blanks points out again and again, you should never stop questioning the whole process and before you invest further time and resources into the project, consider these questions:

  • Do you have a corporate buy-in to build a product?
  • What solutions are we productizing?
  • Where in the company will this solution fit?
  • Who will lead this new effort?
  • Do we have a Lean Startup Methodology in place?

The Alternative: MVIS

As already mentioned, before you setup a corporate innovation lab you can start by creating skunkworks. Somewhere in-between those two models, you can set up a Minimum Viable Innovation System (MVIS). Minimum viable innovation system refers to the essential building blocks that allow a company to begin creating a reliable, strategically focused innovation function. An MVIS will ensure that good ideas are encouraged, identified, shared, reviewed, prioritized, resourced, developed, rewarded, and celebrated. But it will not require years of work, fundamental changes to the way the organization runs, or a significant reallocation of resources.” The architects behind this system are Scott Anthony, David S. Duncan Pontus M.A. Siren.

MVIS requires senior management attention, that might be the chief executive officer or a chief innovation officer, but it doesn’t have to be. If you’re responsible for innovation in your company at the highest level, you’re the catalys. With a little help from other executives and innovation practitioners, you can set up an MVIS by completing four basic steps in no more than 90 days, with limited investment and without hiring anyone extra. And as early success builds confidence in your innovation capabilities, it will set the stage for further progress.

Here’s the outline of the 90 day process:

Learning By Doing

I personally believe in any process, as long as you are willing to test by trial-and-error. There is no one right way to do it, but several solutions that can help you spark true innovation. You just need to start learning by doing.

Harvard Innovation Lab (I-lab) was launched in 2011 to help develop students’ interest in entrepreneurship and innovation. The lab has been the incubator for more than 600 startups since its launch. Over the years, the Director Jodi Goldstein has learned some important lessons about how to create an environment where innovation thrives. Here are seven essentials:

  • Be a sponge. Innovators are intellectually curious and thrive on absorbing new information that may help their ideas.
  • Narrow is a good place to start. Big ideas are great, but most of us have limited resources. Trying to be the next Amazon or Google right out of the gate is going to lead to burnout and frustration.
  • Competition is good. Whether it’s in the marketplace or between peers, competition can create a sense of urgency and motivation that can spur innovation.
  • Ideas are great — but execution is what matters. Many people can come up with a good idea…
  • Spend time with people who are different from you. If you have a group of people who all have the same experiences, viewpoints, and backgrounds, you’re limiting the potential for innovation.
  • Getting better is messy. Being creative and innovative means that you’re going to try many things that don’t work.
  • Innovation isn’t lightening, it’s simmering. You learn more from mistakes — and from hearing about mistakes — than from successes.