The Reasons Most Innovation Labs Don't Make It

Errors not in technology, but in design and execution of process. JL

Richard Turrin reports in LinkedIn:

In most cases, labs haven’t truly succeeded in bringing innovation into the parent, despite their marketing departments’ attempts to show otherwise. They are failing in their primary mission. This is not for lack of trying, but because they unwittingly apply patterns of behavior that destine them to underperform like: innovation teams isolated from product or business units; focusing on tech, ignoring people; a big plan with no stepping stones; build vs buy; undue focus on disruption; inflated expectations.
Digital innovation laboratories are everywhere -- and observant onlookers have had a few years to evaluate the results. I’ve had the privilege of meeting many of Singapore’s bank and insurance innovation teams and have heard numerous inside stories that give me a unique perspective on their successes and failures. In most cases, the labs haven’t truly succeeded in bringing innovation into the parent, despite their marketing departments’ attempts to show otherwise. They are failing in their primary mission. This is not for lack of trying, but because they unwittingly apply patterns of behavior that destine them to underperform.
At the risk of oversimplification, I will summarize these unique behaviors into what I call the “dirty dozen.” This list isn’t comprehensive; I look forward to comments suggesting other significant factors. I hope that if you recognise these behaviors in your own lab, it will help you initiate change to improve your results. Simple changes can mean a lot to lab employees and the business units (BUs) that the lab serves.  The following list of behaviors is not in order of importance; moreover it is likely that combinations of behaviors are inhibiting your lab, rather than any single one.

"I realised then that a lack of ownership at the core of a company is a hurdle. There were too many detractors, people on the sidelines, taking potshots."

Piyush Gupta, CEO DBS

1. Innovation Labs are Invisible to the BUs: I am amazed at how many innovation teams are isolated from the product or business units. They are housed in separate spaces, don’t bump into BU staff in the hallway, and are treated as though they are working for a separate company. While I understand the need to segregate the innovation team to a degree to reinforce a culture of creativity, that doesn’t mean that they should be treated as a breed apart. Innovation team members should be encouraged to sit in BU staff meetings to learn what the BUs are up against, both to build bridges and to convert detractors. This is especially critical for innovation lab members who have never worked in the industry. They need to understand the BUs just as a consultant needs to understand his/her clients.
2. Undervaluing Return on Investment (ROI): One of the most common complaints I hear coming from lab employees is that they can’t get funding for their favorite project. When the conversation turns to the potential return on the project, I never cease to be amazed at how many tell me that “hey we’re a lab, we don’t need ROI.” Really? While it is critical that the lab have the freedom to try new technologies, it is equally critical that they use ROI as an index to help promote their projects. Labs benefit from the discipline that basic ROI calculations, or other financial metrics, bring with them. A judicious ROI calculation builds common cause with the organization, fosters trust, and increases the likelihood of gaining the funding needed for the project.

"The first thing in terms of a digital strategy is not to chase technology; chase after your understanding of the customer,"

Tan Tong Hai, CEO, StarHub

3. Focusing on Tech, Ignoring People: Have you heard that blockchain is going to change everything? It just might, but focusing on the tech aspects of blockchain rather than the process and departmental positions affected by blockchain is a certain path to failure. Labs need to anticipate the concerns of the client and internal culture to deliver real results. This includes close cooperation with the BUs and the people who manage the processes impacted by the tech. Slavishly studying which blockchain solution is best just doesn’t cut it if you aren’t soliciting the BU’s support in deploying it. Labs easily get caught in this self-destructive behavior because it’s easier to show progress in mastering technology than people and culture. It is the path of least resistance.
4. Carte Blanche to Innovate Brings Pitfalls: We have all been warned to “be careful what you wish for” and it is the same with innovation labs. Having full freedom to innovate sounds great, but the lack of focus on real products or solutions may delay delivering innovation to the business. Innovation and creativity aren’t ends to themselves, they need structure. Bach and Mozart were creative geniuses but composed within the confines of the strict musical delimits of their time. Innovation teams need to innovate within the structure provided by real business constraints to be effective.

"Our agenda is to hire a range of different types of people. Design people, innovation people, people from industry--to weave them into the fabric of creating this new model of banking,"

Piyush Gupta, CEO DBS

5. Hiring Extremes. This entails two opposing tendencies that have equally bad results. The first and most common is to hire innovation managers with deep domain expertise. Granted, they bring a wealth of industry knowledge, but it is unlikely that these employees will be comfortable challenging a lifetime of established practice. Equally bad in the opposite direction is bringing in digital evangelists with little experience working in heavily regulated industries. Many become quickly disillusioned by regulatory constraints or the lack of internal support for transformation. Striking a balance between these extremes is like walking a tightrope. When the BUs say that the Lab “doesn’t get that we just can’t do that” or the lab employees say “we could do so much more if they’d let us do our job,” it’s a reliable indicator that the equilibrium is skewed.
6. A Big Plan with No Stepping Stones: Having a grand plan without a series of milestones is fatal. Fintech and Insurtech are like games of poker, you don’t expect to play a single large hand and expect to win. Instead, you win over many smaller hands over which you gain knowledge of your opponents; even lose a few hands to get to the prize. I’ve seen a lot of innovations operations betting heavily on the “one big project” that will put the lab on its feet and win respect from the BUs. The better path is to consistently put together small wins that show consistent forward motion. Most companies have limited patience waiting for the “big win” and it can contribute a sense that the lab is irrelevant or window dressing.

7. Build vs. Buy: I am still surprised at the number of labs trying to build technology internally when acquiring it from external vendors is faster and cheaper. In most cases a fintech’s cost is a fraction of an insurer or bank using their own teams to recreate the wheel. Even more critical, committing your innovation team to build chatbots, for example, is unlikely to result in a product superior to that of your local specialized chatbot company, run by four twenty-somethings. These resources are better used scouring the market for the best talent possible, and then putting them to work on seamlessly integrating the tech on your systems.  
8. Poor Project Management: Innovation loathes a schedule and there is no doubt that many innovations fall behind due to genuine difficulties in developing or implementing technology. Innovation is hard work. That said, many of innovation projects get put on indefinite life support as they wait for their “big break” in the form of resuscitation by emergent technology, or a BU that is willing to dump large sums of money to fund completion. The problem is that these zombie projects bleed resources that should be deployed elsewhere for quicker or more predictable gains. Killing projects off is humane.

Hackathons, with their feverish pace, scant parameters, and winner-take-all culture, don’t just sidestep this process (of innovation), they discourage it.

“Why Hackathons Are Bad For Innovation” 12/01/15 Fast Company

9. Meaningless Hackathons: Hackathons and other competitions are yesterday’s solution to scoping out talent and exposing your employees to new tech. Unfortunately, more often than not the end results aren’t great for the winning team or your institution. Without a real plan to integrate the technology, or willingness to pay the winning team to build a version that you can implement, you aren’t going to get that much utility out of the experience. I’ve spoken to a number of winning teams and lab staff that were left dispirited after the competition because they knew full well that the tech could never be implemented. There are better ways to reach universities, engage fintechs and train your staff. Instead of a hackathon, try offering university students internships, pay a fintech for a POC, and run focused innovation training for employees.
10. Undue Focus on Disruption: There is a fixation in many labs on disruption as the end goal of their labour. It is driven by the fintech culture where disruption is seen as a mantra to be repeated at every opportunity. If your laboratory and staff are sending out this message they may be doing more harm than good. Pity the BU employee who meets with a member of the lab staff who talks about disrupting the company. Their first thoughts will be “how much longer can I keep my job” and “why are you telling me what I’m doing is wrong.” It sets up a potential conflict between the lab and the BU that will only hinder the adoption of new technology. Staff have earned the right through years of hard service to be coached on how they can be a part of new digital offerings, and be made to feel a part of this new culture, rather than the victims of disruption. 

“The path to the CEO’s office should not be through the CFO’s office, and it should not be through the marketing department. It needs to be through engineering and design.”

Elon Musk

11. The CIO/CTO/CINO Dilemma: When my lights go out I call an electrician, not a plumber. I will blur the distinctions between CIO and CTO, but in most cases neither is best suited to running an innovation program. These people have done a great job at optimizing your systems over the years, and I do not mean to diminish their accomplishments. At the same time, CIO/CTOs are typically not the right candidates to run an innovation program. I have seen a number of labs that struggle with the dichotomies inherent in these reporting lines. The creation of a “chief innovation officer” (CINO) position is critical for labs to flourish as it reinforces the “two speed” IT development environment necessary for rapid innovation. The CINO develops new tech that is responsive to business needs and built in a fast, agile environment. Your CIO/CTO develops steadfast and durable core systems. Confusing these roles is still common, despite the rise in numbers of CINOs in financial services.
12. Inflated Expectations: You’ve paid for a shiny new office space that just drips creativity, recruited a team of bright young stars, and expect innovation to start flowing on schedule, much like the crafted coffees they favor. But the big results aren’t coming in. What’s gone wrong? In the best possible reading, your lab may not be failing, rather its successes are flying below the radar. Indeed it’s the accumulation of small wins that are really required to bring a successful digital transformation to fruition. In a darker scenario, the funding was misplaced. It’s shockingly common to see costs sunk in flashy office space and pricey staff, with too little outlay available for the actual projects.
Thanks for reading. Do feel free to comment, like or share the article if any part of this post sparks an interest. If you want to discuss innovation labs or find expertise in Singapore, drop me a line.
Rain and excavation of a garage without support caused the dramatic collapse at Lotus Riverside