Building an efficient innovation lab
Almost every IT business has innovation labs, in one form or another. It might be a team, a department, or even just one person.
What is an innovation lab? How to build an efficient and measurable innovation lab in your company? How to avoid creating a team that will just consume huge chunks from the cash flow without having proper ROI? Let’s find out.
“We need innovation labs!”. This is a sentence that many founders and C-level executives heard in the past years from their investors and board members. The reason:
Innovation drives businesses forward.
And this conclusion is no wonder — many types of research have been conducted on the matter, all confirming the same basic idea; a company dies without innovation.
Taken from a brilliant paper “Innovation Effects in the Company’s Value” by J. Tabas:
The only tool, how to “survive” on highly competitive global market are innovations. According to Wright (2012): “to innovate means to regenerate”. Number of companies fell into decline or recession phase righty because they did not regenerate — did not innovate (Wright, 2012).
Such conclusions drive founders to thrive for something new that will keep them alive and gain them with a competitive advantage in this dynamic market. And that is the origin of Innovation Labs.
What is an innovation lab?
An entity designated to the sole purpose of creating new capabilities for the business, based on the company’s vision and purpose. These capabilities shall grant the company with a competitive advantage and new solutions that are not a part of the mainstream product development.
This entity can be a team, a person, a department or even a whole company (if it is an innovation labs only company, providing another party with new and innovative solutions).
Now that we have the “why” and “what”, let’s explore the “how”, specifically:
- How to run an efficient innovation lab
- How to measure its success
Running an efficient Innovation Lab
Hiring several engineers and calling their team an Innovation Lab will not really bring any results. Your business must have a very clear vision and purpose, which the innovation lab has to serve. Not goals, not regular-business related KPIs, but purpose.
That being said, a vision and a purpose are not enough — the lab must have good and transparent communication channels with everyone in the company’s domain; the management, the rest of the employees and the clients. Clear communication and transparency are a must, in order for the innovation to thrive, and to avoid the development of useless solutions.
The people in the team must be resilient and have great communication skills, as all of their projects will be subject to countless conversations and a fair level of criticism.
🏗 Structure
You want to have the combination of a fresh point of view joined by an in-depth understanding of the business, in order to drive innovation efficiently. To translate this sentence into actions, I suggest the following:
Have a combination of a permanent employee with at least 6 months of prior experience in your company with a new contractor that will work for 4–8 months in your innovation lab. The contractor would most definitely bring an external point of view, a fresh outlook on things, and a cross-industry experience, while not being limited to the company’s constraints as the permanent employee. The permanent employee, on the other hand, would bring in-depth experience with previous experiments in the company, lessons-learnt from failures and wins, and a relationship with the rest of the employees.
Make sure to change the contractor every 8–12 months, so the contractor doesn’t become a permanent employee following the existing business constraints and ‘permanent’ mindset.
Good example:
Have a hands-on innovation lab leader + 2 permanent employees (Dev and QA) + 1 or 2 contractors (Devs). These can easily form one small sized lab, which will deliver ready to use blackboxes which will then be integrated with the mainstream delivery pipeline.
Bad example:
Build a team from permanent employees only, lead by a manager who is not hands-on, while working on one of these two: either whatever comes to mind, or whatever the business is asking for (only that and nothing new).
✏️ Process
The lab must have a clearly defined working methodology. Creative mess won’t do here, rather a well-structured methodology which can still be dynamic enough to support continuous changes and improvements. Such example would be Scrumban — a combination of SCRUM and Kanban. On one hand, you have the helpful rituals and boards of SCRUM, on the other hand, you have the prioritisation and quick delivery of Kanban while still being dynamic in what you do and when you do it.
More information can be found in this article: [Our working methodology is inefficient. What should we do?] and on this page: [AgileAlliance Scrumban].
📊 Monitoring
How do you monitor the success of your innovation lab? How can you make sure that you are not simply wasting resources on a trend?
There are numerous advanced ways to monitor the efficiency and delivery of your innovation team, but let’s start with the most basic KPI and its definition.
What is the purpose of an innovation lab? Let’s get back to our definition:
…creating new capabilities …[which] grant the company with a competitive advantage and new solutions that are not a part of the mainstream product development.
So, in simple words, the lab has to deliver packages, and these packages have to be useful (meaning — used in production in, let’s say, a period of 6 months since delivery).
x = (production_used_packages / total_packages_delivered_by_innovation_lab)
bad 🛑: 0≤x<0.5
ok 🍋: 0.5≤x<0.7
great ✅: 0.7≤x≤1
⬆️ these definitions can vary between companies. Some R&D centers might have a way wider “ok” margin, it really depends on the purpose of your company.
Using this simple equation to measure the success of an innovation lab might not be 100% accurate, but it is a good and rather bulletproof solution to avoid a waste of money and resources. I wish more companies used this equation, it could have saved them so much time and resources.
There are additional ways to monitor the efficiency of the innovation labs — these include pace, finance, stability, etc. Such metrics require more advanced and in-depth evaluation of the company, which are beyond the scope of this article.
🎪 Innovation Circus
It is not uncommon for one to encounter an innovation lab that is built with the sole purpose of making the board happy. Its whole existence is destined to failure, but nobody cares — as it is just a tick in a box of the ‘features’ that the company has.
I like to use the term “innovation circus” to accurately describe such scenarios. In my opinion, it is not hard to extract real value from a room full of professionals and highly-skilled, motivated people. It is the management that has to do that, and on many occasions — it fails to do so. Teams exist for the sole purpose of existing and making someone happy, instead of bringing real value.
Examples of such circuses would be:
- Adding Litecoin support to a regular, simple, dating app.
- Adding AI technology to the simplest, useless tasks like pressing a button, and saying “our business innovates in the AI sphere”.
Examples of good use of innovation labs:
- Adding ML to easily and quickly spot fraud users in the KYC flow.
- Adding Cryptocurrency support to a currency conversion app.
Innovation labs cost money. If you are not going to put it into good use — don’t waste your organisation’s resources and people’s time. If you are not sure that you need one — make sure to hold a real, transparent conversation with the board and management, and express your opinion on the matter.
If you need and want to have an innovation lab but just aren’t sure how to do it properly — get in touch and I will be happy to help, advice and accompany you in the process of structuring, monitoring and running an efficient innovation lab.
Happy innovating 💡
