Part one of this series discussed the reasons why product teams cannot replace innovation labs. Part two discusses the reasons why organizations need digital innovation labs to nail their digital strategy and how these labs have become the secret sauce to organizational success.
A simple definition of a digital innovation lab is; a team of fast-learning developers led by an innovation specialist whose objective is to transform the company’s business by experimenting with emerging digital trends and building novel solutions.
Innovation labs act as an agent of change through digital. They often research the latest technologies that are ready to scale and build solutions using them. A digital innovation team can bring the following perspectives to an organization beyond what a product team can:
Digital labs can build disruptive solutions by rapidly prototyping features multiple times. Before they get it right, they don’t mind failing multiple times. In fact, research highlights that 80 percent of every experiment by labs never makes it to production. An efficient lab tries out relevant technologies and trends to see why they might not be right for the business. Labs fail so the product teams and business don't have to – otherwise termed, failing right. This failing right pushes the pilot towards an eventual breakthrough.
Spotting the disruptor on the horizon
Product teams continuously improve on their product. Often, during this process, organizations discount disruptive ideas as insignificant or beyond their scope while new entrants gain market share with that same idea. Most product teams are too busy in product development to make time for these big-ticket items. Kodak, a leader in the photographic film market using conventional films, totally failed to jump onto digital photography. This, in spite of the fact that Steve Sasson, a Kodak engineer, actually invented the first digital camera in 1975, many decades before digital photography took off. Had Kodak listened to its R&D department, it would have been the leader of digital photography.
A well structured digital innovation lab would experiment with disruptive technologies and let CXOs experience the potential of an emerging disruptive technology, helping leaders make better decisions at the right time.
Exercising incumbent advantage
Existing systems are often seen as a burden – incumbency as a disadvantage. Digital innovation labs can overturn this mindset.
Established organizations that use labs as a way of testing the waters can successfully monetize their market leadership. For instance, Walmart Labs tried out an expensive and difficult to implement experiment called direct-to-fridge in 2017. Customers who signed up would have a Walmart employee visit their home, gain access to the customer’s house, unlock a smart lock (connected lock with a pinpad), place items in the customer’s refrigerator or countertop and leave.
Walmart piloted it to check if customers were ready to allow Walmart employees into their homes in return for the benefit of ordering online and completely skipping in-store shopping and arranging items in the fridge at home. It worked and in 2022, Walmart announced the expansion of this program. In effect, Walmart exercised its incumbent advantage of trust, proximity to customer homes, ability to deliver at short notice and its deep pockets to bring this program to its customers. With labs, big organizations can innovate in ways smaller ones cannot.
Shielding against black swan events
Companies were facing challenges due to VUCA (volatility, uncertainty, complexity and ambiguity) long before the pandemic struck. With the pandemic, enterprises realized that unforeseen macroeconomic events, often called black swan events were not as rare as once imagined.
The shelved ideas are as important as the ones that go in to production because when one or more of the macroeconomic variables change, shelved ideas could go from unnecessary to becoming most wanted. In one of my roles as innovation strategist for a digital lab, we leveraged Augmented Reality (AR) tech to find the right sized TV depending on the customer’s wall size. The idea was shelved due to feedback that it cannot replace the experience of physically checking the TV in the store. However, when the pandemic hit, customers couldn’t come to the store to experience products. The previously piloted and shelved idea was quickly rolled out, enabling customer to visualise the TV in AR on the physical wall so that customers could order the right sized TV for their home without having to visit the store.
Many shelved ideas in labs are simply too radical because their time has not come. That also means when their time time does arrives, the ideas can be implemented confidently and in less time with the experience gained during the pilot.
Moving the industry forward
Companies that sustainably innovate decide the future of their industries. For instance, Apple’s changes to the iPhone dictate the direction of the smartphone industry. When the iPhone eliminated the swappable battery, other companies followed despite first mocking it. The same thing happened with the audio jack.
Product teams can improve the company’s offerings by incrementally adopting new technologies and changes. Digital labs, on the other hand, go beyond this and experiment by adopting emerging technologies and potentially restructuring the organization for the future. Due to this fundamental difference, product teams will never be able to replace digital innovation labs. Digital innovation labs have the potential to be the birthplace of such industry and even world-changing developments.
Disclaimer: The statements and opinions expressed in this article are those of the author(s) and do not necessarily reflect the positions of Thoughtworks.