Companies often set up digital innovation labs to fast track their novel offerings. These labs are set up within the technology unit under the guidance of the CDO or CTO, are staffed with talented developers and are led by an innovation specialist. Companies hope for big innovations in the form of new services and products to follow in the subsequent months from the lab work.
However, a recent HBR article highlights that despite pumping in resources and providing autonomy, almost 90 percent of the labs never achieve their intended purpose. This begs the question; what do innovation labs need to succeed?
Unlike a research and development lab, the success of digital innovation labs relies on a few critical strategic, tactical and operational decisions.
Innovation's success is guided by
Empower the leadership
In most organizations, labs are be an additional responsibility for a senior leader handling multiple other products and reporting to one of the CXOs. This is one of the biggest mistakes that leadership make. The nature of digital labs is to empower companies to create new products and services by leveraging emerging technologies and driving business through the newly developed capabilities. In many instances, these new services or products can become a nuisance for existing teams – which will negatively impact leaders' existing responsibilities.
Consider a scenario where you, the head of products for mobile apps at an online retail company are also responsible for your organization's innovation lab. Today, if the lab proposes to build a virtual showroom in the metaverse and seeks a big investment to build it into the existing mobile app as well, would you agree? Most likely not, as most product directors see metaverse as a fringe technology that has yet to go mainstream. While that might be true, would it be completely useless to invest in metaverse today? As head of products, you might be more inclined to spend on your existing product.
Successful innovation labs are usually structured to directly report to a CXO to be able to disrupt their own business, if necessary and move the company forward. The expectation is that CXOs understand the larger picture of the business beyond products.
Have smart processes
In today’s agile-native environment, teams try to force-fit their operating model into an agile methodology. However, innovation requires an improvised approach that is built on agile. The innovation process must allow for extreme flexibility while also enabling leaders to measure progress. It is important to empower the talent with a process that doesn’t hinder agility but ensures order and traceability.
Have a clear scope
Every organization needs to have an objective way of filtering the most appropriate ideas from others. What might be a great idea for one company might not be applicable to another. As Steve Jobs famously said, “Innovation is not saying yes to the things you’ve got to focus on, but saying no to the hundred other good ideas that your company shouldn’t be working on.” An innovation framework helps prioritize the best over the rest. Each company needs to come up with their own framework based on their market position, digital maturity and risk appetite. Learn more about what constitutes a good innovation framework in this blog.
Define the MVP
Minimum Viable Product (MVP) is a version of a product with just enough features to be usable by early customers who can provide feedback for future product development. Innovation labs must define an MVP in their organization’s product landscape. The lab needs to determine how it will pilot MVPs without rebuilding what is already available in production while ensuring security.
Collaborate with product teams
Collaboration with product teams is one of the most under-rated skills needed for the success of an innovation lab. It is most helpful to spend time (every month) with the product teams to understand customer pain points and track competitor and start-up activities in the field. Valuable insights can be sought from labs that try to solve some of the most relevant problems that development teams are unable to solve for the end customer. Learn more about why product teams cannot replace innovation labs in this blog.
Have intelligent KPIs
More than 80 percent of ideas generated by labs never make it to production; that means success of ideas making it to production alone cannot be used as a KPI to understand the effectiveness of innovation labs. Tracking the right KPIs helps recognize if the team’s failure is actually helping the organization or not, in other words – failing right and fast so that product teams do not have to. Here are a few KPIs that are a good start:
Idea generated (bi-weekly report)
Piloted ideas rate: percentage of ideas that reach the pilot stage
Success rate: percentage of ideas that make it to production
MVPs per month
Disruption rate: percentage of proposed ideas that are disruptive
Innovation requires rigor, extreme agility and the ability to quickly fail and learn from it. Labs that are driven by influential leadership and sport clear metrics can help the company keep their existing products top-notch and future-perfect.
Disclaimer: The statements and opinions expressed in this article are those of the author(s) and do not necessarily reflect the positions of Thoughtworks.