Innovation labs remain a popular way for large enterprises to accelerate digital transformation.
Popular, but not always successful.
The idea seems brilliant on the surface. Let the best creative minds dabble in the latest technologies, understand what works, and share insights with the mothership. So why do close to 90% of innovation labs fail?
In the past few months, I have talked to several leaders with a proven record of groundbreaking digital initiatives. The conversations revealed a common approach toward innovation, best exemplified by this quote:
“Innovation needs a sense of urgency and a challenge. It’s important that what you do is critical to the organization’s health.” — Andreas Sicheneder, CEO of Audi Business Innovation
This sense of urgency transformed ABI into one of the most successful innovation labs in the automotive industry. It is what transforms innovation labs from cost centers into revenue generators
Island of Misfit Toys
Many innovation labs succumb to making cosmetic/experimental changes rather than working on real user problems. They often lose alignment with strategic goals. Innovation labs working on “nice-to-have” improvements find it much harder to survive crises than those with a clear impact on ROI.
For example, ABI used Unreal Engine to create the Automotive Visualization Platform (AVP) that visualizes the configuration of any Volkswagen car based on CAD data in real time. The goal was not just to experiment with Unreal Engine but to solve real user problems. With AVP, Audi’s marketing team doesn’t need to fly to exotic locations, hire a movie crew, and shoot expensive commercials. They can render it all in seconds. This reduced their TTM from weeks to hours.
ABI realized that to get respect from an automobile company, it needed a connection with cars. By saving resources, ABI proved its mettle and gained an executive mandate for innovative, more ambitious projects.
Open Source > Closed Doors
Traditionally, businesses believed that developing a competitive edge required trade secrets and black-box operating models. Innovation was seen as an elusive project run by a select few.
The open source revolution has turned this approach on its head.
Today, some of the most innovative projects across cutting-edge disciplines like autonomous driving, AI, ML, and data analytics are fueled by open-source collaboration. In 2021, Microsoft mentioned that it had learned a lot from its increased engagement with the open source world, adding that open source is now the “accepted model” for collaboration between companies. It’s quite a turnaround for a company that once called open source communism.
Image source: microsoft.com
Innovation labs collaborating with fellow technologists make much more rapid progress than those operating in secrecy. For example, ABI collaborated with several technology companies, including Modus Create, on its work. Similarly, Modus Labs frequently contributes to several open-source frameworks like Ionic, Vue, Basel, and Haskell.
Fail Fast. But Within Reason.
The fail fast mantra has enabled several businesses to move fast and disrupt their markets. But it has also spelled doom for a large number of companies.
“Failing fast is good, but you must know what failure means. A tax form filed incorrectly is not an okay failure.” — Seth Webster, Director of Transformation, Brinks Home
Seth further states that leaders must communicate explicitly what failure means and where to draw the line, including financial limits. For example, if you’re launching new features on your mobile app, you’re bound to occasionally introduce bugs. That’s okay if you learn from each release and continuously refine your response to performance issues. But a cybersecurity vulnerability caused by blatantly ignoring established processes is a failure that requires deeper introspection.
Clear Goals, Clear Priorities
A few months ago, I was discussing innovation with Raj Banga, Director of Technology Innovation at Bialek. Raj made some interesting points about how he prioritizes digital initiatives, i.e., how he ensures that only those initiatives that move the needle get funded.
Raj highlighted three categories of such initiatives:
- Revenue-generating initiatives — projects that will either increase revenue or decrease costs for the company
- Customer/client experience initiatives — projects that might not make an immediate impact on revenue but improve client experience
- Employee experience initiatives — projects that increase employee engagement and create a more exciting workplace
Innovation labs have a finite capacity, and these categories help them evaluate what to focus on. If a project doesn’t fit into the above categories, it’s probably not worth committing resources to it. Similarly, depending on the existing OKRs, leaders can prioritize whether revenue-generating initiatives should take precedence over employee experience initiatives or vice versa.
As organizations gain digital maturity, innovation starts getting decentralized. It transforms from an esoteric concept to an essential cultural value. Employees are not only encouraged but expected to innovate.
Innovation labs that embrace open source and establish clear links to ROI boost their odds of success. Innovation can come from any direction. Labs have long been known to open their minds. Now, it’s time to open their doors.
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