Experimenting with ideas

Companies are increasingly setting up innovation labs but is it all just a boardroom fad?

It’s the boardroom buzz-phrase that no company can be without. Tesco, British Airways, Barclays, KFC and even Ugg Boots - they’ve all boasted of opening a mysterious, elusive, room called an ‘innovation lab’.

The phrase has a hipster-ish ring to it, conjuring up an image of bearded, sandal-wearing 20-somethings brainstorming over soy lattes in a Shoreditch studio.

But what’s the reality of this modern corporate phenomenon? Are innovation labs simply public relations gimmicks to create an image of creativity? Or are these genuine centres of brilliance that can inject new ideas into the heart of stuffy multinationals?

Usage of the term is confusingly woolly. Levi’s, the jeans company, has established a lab named ‘Eureka’ in San Francisco to try out bleaches, fabrics and washing methods. It has, for example, established that the denim group can save vast quantities of water by lightening the blue colour of jeans with ozone gas, rather than washing them in bleach.

Meanwhile, British Gas has set up an ersatz living room and kitchen on premises in Leicester, which it dubs an innovation lab, to develop ideas such as remote controlled heating - whereby customers can switch on their radiators from afar while they’re on the way home.

Others, though, are entirely different, focusing far more on harnassing entrepreneurial ideas from start-ups in the local community.

‘An innovation lab is a real thing, it’s not just a buzzword,’ says Costas Andriopoulos, professor of entrepreneurship at Cass Business School. ‘But its usefulness depends on how you manage it and what its purpose is.’

Large corporations can be so focused on fighting short-term competition, he argues, that they risk neglecting creativity.

‘Discussions can be so bogged down in day-to-day issues that they lack the time to think about the future,’ he adds.

Brainy people, though, are expensive and even if their purpose is to think the unthinkable, they need to be managed. Andriopoulos warns that it is crucial that any such lab is plugged into the organisation as a whole, with access to senior executives and a clear path from idea to prototype to mass production.

‘There has to be space and time to allow failure but at the same time, you need to set very clear strategic priorities and you need to set clear timelines – otherwise, they’ll just go round and round in circles for ever,’ he says.

There is a suspicion that some multinationals have simply rebadged their research and development departments as ‘innovation labs’ to sound cutting edge and up-to-date. The phrase first cropped up during the short-lived dotcom boom between 1997 and 2000. But what does it truly mean?

One of the best known such facilities is at Harvard University, which founded an innovation lab in 2011 as a space where start-ups from the Boston area could work side-by-side with academics or students from its classrooms. It’s a substantial campus – it has 30,000 square feet of space with 250 workstations, 24 conference rooms, a prototyping room and, of course, a fully stocked kitchen.

This Harvard principle of outreach and collaboration is what truly sets apart an innovation lab from a traditional corporate research department. This is part of a much bigger business phenomenon: once mighty business behemoths are recognising that if they simply rely on generating ideas in-house, they will be left in the dust by start-ups which, in an Internet era, are capable of going global phenomenally quickly.

Jaideep Prabhu, an expert at Cambridge University’s Judge Business School, says: ‘Most companies in the past followed a particular model which is now showing its limits. That was to have corporate R&D labs doing their innovation, usually close to headquarters and in developed countries where they could be sure of good intellectual property protection. That was a very 20th century model but it’s been increasingly challenged by more frugal, agile, open models of innovation.’

Inventions in the 21st century can be scaled up very quickly, at minimal cost. It took Mark Zuckerberg just three years to turn Facebook from a university dorm room project into a business valued at one billion dollars. Disruptive technologies such as AirBnB and Uber have come out of nowhere to challenge hotel operators and car rental firms.

This is a far cry from the days when General Electric and IBM were the heartbeat of business creativity, complacent in the vast barriers of entry prohibiting start-ups from mass producing cars, engines or big-box computers.

Meanwhile, in emerging markets, the likes of Siemens and Philips have been jolted by the rapid rise of Chinese competitors able to come up with medical devices, x-ray machines and phones at lower cost than western competitors, without compromising on functionality.

‘If you simply house innovation in big R&D labs, you end up with huge white elephants,’ says Prabhu, who has written a book on the subject called Frugal Innovation. ‘Innovation labs are not just a question of creative types going crazy in a specific space, funded by a company. It’s about taking employees beyond the four walls of the company.’

Most truly successful innovation labs are, in reality, a cross between workshops, team-building rooms and incubators. They are locations where start-ups can join forces with employees, to the benefit of both sides.

Barclays, for example, has a set up a programme called Barclays Accelerator in collaboration with Techstars, a mentorship and funding firm. Each year, the bank invites applications from promising developers of financial technology. The lucky ones get access to a 13-week programme at innovation labs either in New York or in Whitechapel, London where they work alongside Barclays’ technological experts, swap ideas and eventually pitch for funding. Santander and Visa have similar schemes. The benefits for both sides are glaringly obvious.

Similarly, Ford, in its recession-hit home city of Detroit, has partnered with a firm called TechShop in what it describes as ‘a mission to democratise access to the tools of innovation’.

Hoping to benefit from a renaissance in youthful dynamism in Michigan where cheap buildings have attracted start-ups, the motor manufacturer’s experts work alongside anybody from ‘backyard tinkerers to software engineers’ to develop ideas that could, eventually, find their way into the next generation Fiesta or Focus.

For certain industries such as pharmaceuticals and aerospace, multi-billion pound research budgets have always been the cornerstone of success. Beating the competition means constant, incremental improvement in products, smart decision-making and an appetite for risk. The distinctive aspect of the new era of innovation is that corporations are thinking in a much more ‘macro’ way. Not content with building the world’s most comprehensive search engine, Google has examined concepts varying from jetpacks to space elevators. These may sound barmy but not so long ago, self-driving cars and Internet-enabled spectacles seemed ridiculous, too.

David Percival, global lead partner for innovation at PwC, says: ‘The fastest growing companies around are investing more money much further from their core. Rather than saying to their R&D departments Let’s have more of what you gave us last year, but let’s have it better, they’re saying Can you find us something different?.’

Percival says there’s an appetite, among a younger generation of business leaders, to explore adjacent technologies and industries in order to stretch the scope of companies. That doesn’t mean lurching in a completely arbitrary direction – there must be some logic to expansion. In Google’s case, everything is supposed to be about accessibility – helping people to tap into the world’s resources of information.

Innovation labs, says Percival, are a useful tool in this. They’re not necessarily standalone units. Sometimes, they’re staffed by a handful of teacher-like figures who supervise teams of employees seconded on a short-term basis from other parts of the company.

‘It will be an actual room, an actual place – it’s not just a concept,’ he says. ‘You’ll often send a team in, allow them to do their thing, then pull them out again and you’ll have a small, permanent team of what you might think of as bearded, sandal-wearing hipsters who will facilitate, enthuse, support and guide them through the experience.’

The objective, says Percival, is to trigger lateral thinking. ‘The big problem in most corporations is that they’ve got a shed load of people who know exactly how to do what they’re doing, and they know how to do it very well. But that leads to a static atmosphere and eventually, if you’re not careful, a company can implode,’ he explains.

‘It used to be that innovation was purely the realm of hi-tech companies, pharmaceuticals companies or manufacturing industry. Now it’s everywhere – refuse companies, recycling, banks, energy firms.’

Britain’s biggest supermarket chain has got in on the act. In spite of its recent trading difficulties, Tesco has been something of a trailblazer in technology. Its Dunnhumby analysis business, which is on the auction block and likely to be sold for close to £1 billion, provides lucrative number-crunching capabilities on the habits of its Clubcard holding customers. Aware of the value of such innovations, Tesco set up a lab to develop mobile apps, siting it in Shoreditch, east London, specifically to tap young talent.

Meanwhile, Deutsche Bank is creating three innovation labs - in London, Berlin and Silicon Valley, to encourage its staff to experiment with new ideas and technologies. The three locations have been chosen, according to a bank spokesman, because they’re all vibrant areas for start-ups. ‘We want to strengthen our relationships with start-ups to get access to the best technologies and the best entrepreneurs.’

Deutsche’s innovation lab in London will be on the 19th floor of the Heron Tower in the City. Still a work in progress, it is being fitted out with concertina doors so that space can be cordoned off for projects of varying sizes, collaboration zones and audio-visual technology to allow people in all three labs to work simultaneously on the same presentations and documents.

Still, such is the pulling power of a business buzzword that the term ‘innovation lab’ has been attached to the loosest of concepts. British Airways proudly declared in 2013 that it was establishing an ‘innovation lab in the sky’ with the aim of delivering solutions to the world’s pressing technological problems. A closer examination revealed that the ‘lab’ constituted a single flight from San Francisco to London with 130 creative types on board, who were encouraged to discuss with ideas to make the best use of young people with science, technology, engineering and maths talents.

Still, there was a hint of bearded, sandal wearing zaniness: all those aboard were given ‘brightly coloured hoodies’ to get them in the mood for a Eureka moment. Not quite on the scale of Harvard’s innovation lab, but at least it’s a start.