What is an innovation lab?

Jake Pincombe

Head of Open Innovation

What is an innovation lab, and how can it help your business?

Photo by Tim Mossholder on Unsplash

Defining what the term innovation lab means can be tricky, with different organisations and practitioners using it in vastly different ways. For some, the term innovation lab conjures up images of white lab coats and test tubes but this is rarely the case. But such nomenclature likely arose because early innovation labs grew from corporate research and development departments where scientific advancements were crucial to business success.

Others use the term to refer to physical co-working spaces, but this usage underplays the true extent of an innovation lab. A dedicated area where people congregate to work on innovation projects is helpful. But an office with colourful beanbags and whiteboards on every wall does not make it an innovation lab.

What is an innovation lab?

While there’s no universally accepted definition, to clarify the remit of the topic discussed here, I’ll offer up my definition;

“An innovation lab discovers external innovative solutions and, through a rigorous, fast-paced, result-driven process, embeds those which address key business needs into the company.”

Innovation labs are a form of ‘open innovation’, where external partners such as startups, scale-ups or suppliers work with internal teams from an organisation to address corporate challenges and opportunities. This differs significantly from R&D, a form of closed innovation involving only internal parties.

Defining characteristics of innovation labs we typically see are;

1. Programmes are organised around a theme. While themes are often kept relatively broad, they provide direction and a focal point for lab participants and ensure top-down objectives are incorporated into the work.
2. They rely on collaboration between a diverse group of participants. Innovation labs draw together people who would not usually collaborate, from a cross-section of internal roles who don’t necessarily work together to scholars from universities, startup teams from across the globe, or other corporations in different industries.
3. They follow a structured process. Innovation labs can encompass a wide range of models and methods, reflecting the diversity of approaches used by different organisations to foster innovation. While there is no one-size-fits-all approach, commonly used methodologies include a test-and-learn approach, user-centred design techniques, and agile/lean practices.
4. They move quickly to commercialisation. Ideas are great, but they aren’t worth pursuing if a business can’t develop them into commercially viable solutions. Innovation labs test and validate ideas against commercial objectives. They utilise access to customers and markets to help with real-world validation made available through the parent company.

There are different subtypes of innovation labs, too, with the same characteristics as above but focusing on specific types of participants. Examples include incubators and accelerators. As expected, these concentrate on incubating start-ups or accelerating early-stage businesses through the scale-up phase. Such businesses may be spin-off ventures created by the parent organisation or independent companies in which the parent company wishes to pursue an interest.

The history of innovation labs

For decades, companies have pursued innovation via R&D programmes. During this period, the idea of expanding a corporation through new products or business models was considered diversification, not innovation.

By the 1990s, emerging digital technologies and fast customer adoption threatened traditional businesses. The old guard needed an alternative to the closed internal R&D departments they had previously relied on to remain competitive.

As such, large corporations began to create opportunities to work openly with the very businesses attempting to disrupt them. This approach developed into a structured innovation lab approach, gaining popularity in the early 2000s. It was in 2014, for example, when L Marks created the UK’s first retail innovation lab.

While the numerous benefits of innovation labs helped increase their popularity, push factors also played a part. One significant push is the skills shortages in many roles responsible for leading-edge innovations, such as data science and technical engineering. Combined, such reasons have led to a profound shift in innovation sources used by large firms from internal closed sources to predominantly using open external sources. As such, a study in 2019 found that 71% of companies thought that innovation labs would be one of their top three innovation sources in the next five years.

What’s the purpose of an innovation lab, and how can it help businesses?

Broadly speaking, the purpose of an innovation lab is to foster creativity, collaboration, experimentation, and risk-taking to generate innovative solutions to complex problems and to drive growth and competitiveness.

The nature of an innovation lab, the methodologies employed and the open nature of bringing together a range of stakeholders are all aspects that provide specific benefits, which I’ll explore in greater detail below.

• Innovation labs introduce fast, agile methods of working. Large established organisations are typically slow, with excessive processes and lengthy decision-making approaches. This can stall the development of new ideas and cause organisations to lose out to faster competitors. Thus the innovation lab provides methodologies that enable agile and rapid progress. Labs often introduce collaborative working relationships between large organisations and startups, reinforcing such working methods and cultural mindset shifts.
• Innovation labs bring together expertise and ideas which aren’t available internally. It can be hard to hire specialist experts, but innovation labs bypass this problem through collaborative partnerships with subject matter experts, universities or startups. Innovations are no longer limited to internal capabilities.
• Innovation labs are separate from the main organisation. Labs provide distance from the core business operations so that teams involved in the labs are free from the demands, expectations and distractions of their regular day job. However, resources such as capital and access to markets are still available to the innovation lab participants. Access to such resources gives innovations an advantage during their development stage compared to if they were solely pursued by a startup.

Summary

Innovation labs provide a tried and tested approach to developing disruptive innovations and help companies stay ahead of startup and established competitors.

If you or your organisation are interested in running an innovation lab and want to understand how L Marks operates such initiatives for corporate partners such as Lloyd’s of London, United Utilities, BMW and Arsenal, do check out our innovation lab programme.

29/03/2022