What makes a digital lab successful?

Without doubt any business that wants to survive, let alone thrive knows that innovation is the name of the game, specifically “Digital Innovation”.

Whilst there are many definitions[i] of what Digital Innovation entails most agree on a number of key factors:

• An unwavering focus on the customer, their needs, experiences and how best to engage with them;
• Using digital technology to rapidly accelerate development of new products and services;
• Structuring differently, moving away from traditional hierarchies into flatter more agile teams, squads and tribes.

As Forbes[ii] states Digital Innovation is different to Digital Transformation, its all about the ‘new’ rather than just trying to digitise the existing business.

With this in mind, an increasing number of organisations have created some form of offshoot, where they can incubate and grow a different type of business. There are a plethora of names for these offshoots – Digital Lab, Garage, Foundry, Greenhouse and Studio. Some even enjoy the opportunity to create an acronym, such as the Cisco Hyper Innovation Living Labs (CHILL) who take the concept of a lab to the extreme by tackling ‘really big problems’ in just 48 hours[iii].

The appeal of a Digital Innovation lab is unquestionable but what do you need to consider when creating one? And most importantly, how do you set it up for success?

What to Consider

There are many factors to consider when embarking upon the creation of a Digital lab (or noun of your choice!).

What’s the purpose?

Before creating the lab, a clear vision and understanding of its purpose should be defined and communicated. Some labs are created with a very clear definition of the type of product or service they will be focusing on. Others (such as the Barclays Rise Lab[iv]) are set up to engage with customers and a broader innovation ecosystem. There is also the ‘skunk works’ model (such as the famous Google X Research Center[v]) where there can be freedom to explore everything and anything. These purposes need not be mutually exclusive, but clarity of purpose – even if it may change in the future – is important.

Where is the lab?

Whilst exposed brickwork and an onsite barista doesn’t necessarily make a lab, the level of separation and differentiation from the main business is a key decision to take. If the purpose of the lab is to focus on Horizon Three[vi] then a radically different environment and culture is likely to be needed to enable the required level of thinking and culture. A lab that is more closely linked to a business line, product or service may benefit from being more closely located with the core business, both geographically and environmentally.

Who is in the lab?

A fundamental question is how – should you staff the lab? One thought might be, ‘well this is technology so let’s just put our current IT function in a lab’. It is fair to say this is unlikely to garner success, the wholesale move of an existing business function into a lab (whilst temptingly simple) is far from innovative.

This is not to say that a lab needs to be staffed wholly by new recruits. There are examples of successful labs that have been created with the majority of members being sourced from across the organisation. In fact, it is that cross organisational approach that is key, bringing diversity of thought, experience and skills from existing employees, coupling this with an intimate knowledge of the broader organisation and its market and strategy that can be very beneficial.

New thinking from external sources is generally seen as an accelerator to the establishment of a lab, whether that be temporary via experts and consultants, permanent new hires or a combination of both. Building a sense of integration and camaraderie will be more difficult with this mixture but the need for new thinking and challenging ideas combined with business and market knowledge is well worth the effort.

Another choice to make is – who leads the lab? Will the introduction of a Silicon Valley style tech wunderkind provide the radical innovative thinking needed in a lab? Maybe, however consider how the ideas generated will then be received by the wider organisation? Another approach might be that of Johnson and Johnson who rotate business leaders through their Innovation Centers[vii], this has the added benefit of continually delivering fresh thinking and perspectives to the labs.

How do you define success?

The innovative nature of labs means they don’t necessarily lend themselves to measurement by traditional success metrics and therefore performance management and reward must reflect this. Depending on the purpose of the lab it may be possible to assess things such as new product/service revenue generation or number of ideas generated, although the definition of an idea and whether it is successful may be more challenging.

Some organisations look to labs to provide direct internal benefits, for example the number of employees trained in agile ways of working or adoption of digital tools across the whole organisation.

Deborah Arcoleo[viii] of The Hershey Company looks to measure what teams have learned: “As you conduct learning experiments, the amount that you know goes up so the amount that you don’t know goes down … then you feel more comfortable starting to invest a little bit more.”

The home improvement store, Lowe’s, has innovated the measurement of innovation, by partnering with Neurons Inc. They use neuroscience technology to measure customers’ emotional reaction to potential new products and services.[ix]

Whilst labs may be created to design and develop innovative products and services, it is often left to the rest of the organisation to deliver and ‘run’ these new innovations. With this in mind it is important to consider how you not only transition the products and services back into the wider organisation, but also how you transition lessons learned, methods and ways of working from the lab so that the whole organisation gets the benefits and starts to adopt a digital mindset.

Conclusion

It is important to realise digital innovation is not just technology. It requires a customer focused innovation culture, suitably structured to offer the flexibility to identify new opportunities and rapidly develop offerings to take advantage of them.

Digital disruption presents all organisations with both challenges and opportunities. Creating an innovation lab may well be part of a strategy to address these challenges and accelerate your ability to benefit from the opportunities, but it is not as simple as moving part of the business to an environment more suited to start-ups.

Be comfortable with the fact the lab will be a different type of business, be clear on the purpose of the lab, what the lab workforce will look like and what skills they will need; most importantly think how the rest of the organisation will work with the lab, and how they can benefit from the creation of this lab.

Finally, with organisations in all industry sectors creating labs, learning from peers in your ecosystem can be an excellent way to get started.

If you would like to explore how Wharton Business Consulting can accelerate your digital journey through people change, and connect you with other likeminded organisations on this journey, please get in touch or visit www.whartonbc.co.uk

[i] http://oecdinsights.org/2016/06/03/digital-innovation-what-does-it-really-mean/

[ii] https://www.forbes.com/sites/startupnationcentral/2018/05/31/digital-transformation-doesnt-mean-innovation/#25ffba457c0f

[iii] https://www.forbes.com/sites/westernbonime/2018/02/04/how-cisco-chill-turns-ideas-into-companies-in-48-hours/#126ed258cbb7

[iv] https://www.home.barclays/news/2017/05/barclays-launches-new-home-of-fintech.html

[v] https://x.company/

[vi] Horizon Three is a reference to the The Innovation Horizons Model from The Alchemy of Growth. by David White, Mehrdad Baghai, and Stephen Coley. Horizon Three is where “Visionaries create viable options”

[vii] https://www.jnjinnovation.com/innovation-centers

[viii] https://www.innovationleader.com/hersheys-exec-on-metrics-and-how-they-keep-innovation-focused/

[ix] Lowe’s Innovation Labs & Neurons Inc. https://www.youtube.com/watch?time_continue=3&v=o_8wAoh93jw