3 Reasons Innovation Labs Fail and How to Overcome them

Daniel Saunders

Chief Executive Officer

Why do innovation labs fail?

When done well, an innovation lab channels the power of open innovation to generate new solutions, technologies and products. It helps businesses discover long-term competitive advantages and drives significant growth. But those working in the industry estimate that 80-90% of innovation labs fail. With such high odds of failure, why would any company pursue it?

Firstly, consider the alternative. Without ongoing innovation, where will your company be in five years? The average lifespan of firms in the S&P 500 is in steady decline as the market leaders of old are acquired or overtaken by disruptive competitors.

Secondly, the underlying cause of failure is not what you do but how you do it. Innovation labs themselves aren’t inherently high risk. If anything, they provide a systemic way of de-risking innovation through a test-and-learn process that uses experimentation to validate each iteration. Innovation labs also provide the opportunity for unrivalled due diligence during a 10-week programme, working side by side with potential commercial partners. The root cause of innovation labs failing is how they are implemented and run. The good news is that you can implement well-documented processes and strategies to avoid such consequences.

Three reasons why innovation labs fail

1. Lack of alignment with business strategy or goals

Way too many businesses approach innovation labs in the following manner;

• Feedback from the board is that we need to be more innovative.
• Let’s dedicate some office space to create an “innovation lab” with beanbags and kombucha-filled fridges. This is where the team will come up with “innovative ideas.”
• We’ve done some blue-sky thinking and found some cool startups that combine NFTs, Blockchain and VR. While we’re not sure how these ideas will work commercially, we’re pretty sure we can use them.

I’m exaggerating, but the reality often isn’t that far off. This scenario captures what we call “innovation theatre”, where the underlying agenda is to be seen doing “innovation.” As expected, such a goalless, unfocused endeavour equates to very little.

Ideas are selected based on arbitrary criteria, unconnected to core business goals or challenges. These ideas quickly lose internal support as no one wants to champion such ideas.

How to overcome this problem

For an innovation lab to succeed, it must weave corporate priorities and strategic objectives into the process. Strategy, goals and metrics should be in place to align the innovation lab with key business opportunities, challenges and themes.

For L Marks, this is achieved through category identification—the first stage of any innovation lab. A category encompasses a key opportunity or challenge and must be;

• Impactful: it must deliver a positive impact on the business. Both the innovation itself and the lab as a whole.
• Measurable: based on KPIs and metrics that feed into the overall business metrics.
• Achievable: There’s no point in setting a challenge that can’t be achieved. Moonshots are OK but should only represent a small percentage of your overall innovation endeavours.

To establish the categories, you should conduct interviews, market research, and strategic workshops with various stakeholders. Examples of categories could include the customer journey, manufacturing efficiency, supply chain optimisation, or materials innovation. Within each category, you can then define specific goals and metrics which roll up to the core business metrics.

Getting alignment and setting the categories at the start of any innovation lab provides a focus for all subsequent work, from writing scouting briefs to creating judging criteria.

2. A lack of process

Innovation needs rigour. Sure, whiteboard ideation sessions and demo days are fun, but they quickly descend into mayhem without structure.

Innovation requires a fast, agile test and learn process. A process that is centred around experimentation and validation. It must fit within the corporate framework whilst also working for startups and allows for creativity, pivots and failure.

How to overcome this problem

In short, you should have;

• An overall innovation lab process. For example, our innovation lab process is;
  • Category identification
  • Global scouting
  • Pitch day
  • Onboarding
  • Programme live
  • Review & integrate

• Processes for individual elements where necessary; you will frustrate teams and slow things down otherwise. Our scouting process enables us to identify and evaluate over 10,000 companies annually across the globe. It’s not just volume; our approach helps us find the most promising innovations; 76% of those who joined our innovation labs have continued to work with the corporate partner after the programme. Prior to scouting, we go through the following stages to assess the areas we focus on;
  • Landscaping interviews & assessment
  • Market intelligence & analysis
  • “How Might We?” interactive workshop
  • Identification of innovation opportunities

Having such processes in place allows you to move fast. No one is held up debating how to innovate but is instead focused on moving through the stages.

Remember to refine your processes. Our processes mentioned above represent the current iterations refined throughout 84 innovation programmes. Each innovation lab we run also includes an evaluation stage where we gather feedback about the programme from key stakeholders, analyse successes and areas for improvement and make recommendations.

Lastly, having processes in place is great, but you need a single source of truth where project information and progress are managed. While we use proprietary software, The Bridge, many companies opt to use popular project management software such as Trello, Basecamp or Clickup. Whichever software you choose, it should help foster engagement with the programme, and all parties can track team progress.

3. An unsupportive culture

A key driver of innovation success is openness. Openness to new ideas and new ways of working.  A willingness to collaborate with people outside of the business. Being humble enough to accept that you don’t have all the answers, failure is okay, and some innovations might make the existing business model obsolete. It’s this culture of openness that allows innovation to thrive.

Without a supportive culture, innovations rarely succeed—ideas are quashed, and individuals are unmotivated to get involved.

How to overcome this problem

Cultural change is the hardest of the three problems to overcome. It requires a mixture of understanding the traits and motivations of your stakeholder and the ability to change mindsets by building relationships and proving value. The latter can be achieved by proposing a proof of concept innovation lab to validate the idea and show the results.

For those with a supportive culture, it’s essential not to rest on your laurels. Innovation labs should include elements that help foster an open culture. For example, on pitch day, form a judging panel of stakeholders who will ultimately champion a selected startup’s progress through the Innovation Lab. Working in such close collaboration helps reinforce the innovation mindset.

Summary

Innovation labs usher organisations on a path to highly innovative solutions—however, three elements cause them to fail. The culprits are a lack of business alignment, a lack of process, and an unsupportive closed culture—three areas which can prevent significant growth and competitive advantage. Businesses serious about innovation must address these problems if they want to achieve more than innovation theatre.

20 April 2023