I was working with a senior leader on a recent call who was debating about whether they should set up dedicated innovation labs and was looking for insights on how they might be structured. This is a very common question when people look carefully at the implementation needs for their strategies. At the outset, it seems to be quite straightforward: let’s put together a team to find, vet and mature new products and services for our business.
The reality is much more challenging. In businesses complex enough to consider an innovation lab, the establishment of a standalone group creates the need for a carve out of budget, headcount and managerial bandwidth. Well put, they can create value, but the tensions involved in creating this highly cross-linked group that is typically funded from the core business’s P&L is substantial.
There are many flavors of innovation labs. They range from being at arm’s length to being tightly coupled to the business. In many cases, they seem to have a “shelf life” of about 3-4 years before the firm reconsiders the investment and dissolves it. Typically this happens when the initial impetus that led to the formation of a standalone team has been accomplished, and the funding business unit wins the case for re-investment in the core.
Whenever I hear this question, my mind reels backward to experiences both positive (and not so positive) of outcomes in firms. In my more than 20 years of working with organizations on their growth, I’ve seen the right reasons and the wrong reasons for setting up a lab. Here are some examples of the wrong ones…
- A founder needs a sandbox
- The board is asking for a longer-term strategy
- The stock price has gotten ahead of the earnings and you need to provide a rationale for it
Every reason cited above is short-term or relieves a team of a task that should be on their remit. The only valid reason for a standalone team is to consistently serve emerging clients beyond the core business that will benefit all the stakeholders.
Innovation labs can help capture real value when they are able to find and accelerate opportunities outside the core (what we call the edge of the headlights space) and they provide skills and services not present in the core business. For a fairly complete list of innovation labs, see the link here.
Rolling up our Sleeves
To get to the heart of this discussion, we began to talk about some deeper diagnostic questions to see if the lab is the right solution, at this time, for these unique challenges of this firm. These questions start at the customer the client serves and then moves towards the client’s firm and the best way to meet those needs. Getting to charter involves asking the who, what, when, why and how until you are on bedrock.
Starting at the strategic imperatives, we talk through the key areas that the group has targeted for growth, and what is perceived to be the area that will be those most challenging to engage. Only then do we talk about whether a lab is the right approach.
For example, in this firm, the channel (the people, processes and facilities that move the goods to market) is a very significant part of the market ecosystem. Like many long-tenured organizations, this structure tends to be very resistant to shifting to meet the emerging needs.
The second area of resistance is the internal team – particularly in achieving resourcing for any area that does not have line of sight to paybacks within a short time horizon.
By taking these and talking through how a stand-alone group would address them, we get into the complex forces that surround building new offerings and services. For example, having a stand-alone team would help provide an ongoing way to do the early work on concepts, avoiding having them get pushed out of the way by the need for the core team to complete its day-to-day work. It wouldn’t, however, be able to solve the resource issue once a bit of scale became necessary.
For the issue of channel resistance, a central team might be able to form a “customer advisory” team that allows key channel partners to have some input and early access to the thinking of the firm.
This leads me to the central tenet of whether you need a stand-alone vs. a more flexible structure: how a firm develops its insights.
What I see typically is that the catalyst for an innovation team getting started is when a strong mid-leader develops a piece of organic insight and it catches the attention of the leader’s vice president who provides sponsorship. They execute on this program, and their success leads to the chartering of a central group. The group then runs into what I call the second book syndrome (so named because authors can rarely back up their first breakout book with a sequel).
Digging deeper, we find the issue is that the piece of insight that made the team successful was only found when that mid-level leader was immersed in the business team, close to distribution and the customer. Once that person is put in on a “central” team, they tend to get firewalled from those day-to-day discussions that led to that breakthrough.
The Dilemma
The innovation lab gets sandwiched between R&D (whose charter is to create investable options) and advanced portions of the product development team (who needs to have a very high success rate of programs). This creates a duel tension – creating business options, and having a high hit rate that leads to an expectation gap.
Once established, the lab’s sponsoring team is under pressure to produce a string of winning growth projects. This demand puts significant pressure on “lab” members to create inventions on demand.
Those deep insights that are the fuel for winning projects don’t punch a time clock and rarely show up in a quarterly cadence.
This pressure forces a quiet competition with the core business team who is also committed to a foundational level of growth of the core products and services. When these two go head to head, firms choose to strengthen the core product group and disband the lab.
A Hybrid Solution
I have helped teams develop, consider and deploy hybrid approaches where they are able to have a handful of carefully chosen specialists to come on board. This group assists with helping the core business teams capture their insights, and when needed, form a stand-alone cross-functional team to develop the insight carefully…typically in a dedicated “temporary” location.
It is important that this team be well trained and equipped. We use the Complete Growth Leader individual coaching and the STRIDE tool for fast cycle exploration of the new product or service.
By doing this, we are able to maintain the lifeblood of clear communication, and provide the necessary “cocooning” that needs to take place to assure the group is able to lean into the work for the new offering or service. Depending on the specific items to be solved, a dedicated senior staff member outside the business team may need to be the sponsor to assure full C-suite engagement and the best use of key resources.
Wrapping Up
The senior leader in our opening paragraph is working with me to develop an approach that is very “light” on overhead and high performance in its design, without having the shortfalls of a larger stand-alone unit. Based on the work they need to complete in the next 24 months, the stakeholder analysis showed us that a cross-functional team was the way to go. This will provide the option of further formalization, and also allow participants to “test drive” a dedicated cross-functional team experience without committing to a permanent change.
If you are a member of an existing team, a sponsor in your firm or doing the organizational design of next year’s strategic approach, I would be happy to talk. The easiest way to reach me is at 847-651-1014 or use this link to set up a short call.
Related posts you can benefit from…
