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Incubating Innovation

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How to cook up meaningful innovation with an innovation lab.

The way businesses need to organize and behave has fundamentally shifted. Across industries, companies, and organizational functions, we have heard many of the world’s most innovative companies echo the same challenge: businesses must urgently embrace a more nimble and entrepreneurial approach in order to stay competitive. We call this challenge of how big companies can leverage scale while staying innovative “big entrepreneurship.” Incubating Innovation is one of five pieces in our report, Big Entrepreneurship, aimed at deconstructing some of the complex challenges around big entrepreneurship and provide actionable insights for business leaders.

This report was created by Fahrenheit 212, a global innovation strategy and design firm. We define innovation strategies and develop new products, services, and experiences that create sustainable, profitable growth for our clients. We challenge the belief that innovation is inherently unreliable and have spent the last decade designing the method, building the model, and assembling the minds to make innovation a predictable driver of growth for our clients' businesses.

Published in: Business

Incubating Innovation

  1. 1. How to cook up meaningful innovation with an innovation lab Incubating Innovation
  2. 2. Big Entrepreneurship The way businesses need to organize and behave has fundamentally shifted. Across industries, companies, and organizational functions, we have heard many of the world’s most innovative companies echo the same challenge: businesses must urgently embrace a more nimble and entrepreneurial approach in order to stay competitive. We call this challenge of how big companies can leverage scale while staying innovative “big entrepreneurship.” This report aims to deconstruct some of the complex challenges around big entrepreneurship and provide actionable insights for business leaders. Fahrenheit 212 Fahrenheit 212 is a global innovation strategy and design firm. We define innovation strategies and develop new products, services, and experiences that create sustainable, profitable growth for our clients. We challenge the belief that innovation is inherently unreliable and have spent the last decade designing the method, building the model, and assembling the minds to make innovation a predictable driver of growth for our clients’ businesses. www.fahrenheit-212.com | marketing@fahrenheit-212.com @fahrenheit212 | #bigentrepreneurship 5Big Entrepreneurship
  3. 3. 7kAsinnovationhasbecomevirtuallysynonymous withgrowth,theurgencytoinnovatehassurged. Withthathascomeequalurgencyforcompanies todevelopinternalinnovationcapabilities. Everywhereyoulookthesedays,there’san announcementaboutanotherFortune500 companylaunchingsomeformofinnovationlab, hub,orincubator.IntheU.S.alone,thenumber ofinternalinnovationincubatorshasgrownfrom twelvein1980toanestimated7,000today. 2Big Entrepreneurship Incubating Innovation
  4. 4. The rallying cries have a common ring to them: Businesses ranging from The Guardian to CVS have described the intent behind their labs in the same way: We need to keep innovating in a constantly changing environment! Google’s Government Innovation Lab puts it this way: We need to innovate more often and more consistently! Staples Innovation Lab says: We need to become more nimble and respond more quickly to customer needs! The ethos of Staples’ lab is well embodied in their effort to hatch a digital wallet product in just 9 weeks, the fastest deployment in the company’s history. The rationale for these innovation labs and incubators is clear. The catch is that the success rates of these incubators are wildly varied from company to company. While there is PR value and cultural topspin in simply having an innovation lab, the point is not to garner press clippings. It is to build more powerful innovation pipelines and attractive ROI for the organization. 3Big Entrepreneurship Incubating Innovation December 2014 March 2015 Mastercard Innovation Lab Sephora Innovation Lab January 2015 June 2015 Google Innovation Lab For Government CVS Health Digital Innovation Lab June 2015 The Guardian Labs
  5. 5. 4 A great deal of the surging impetus to innovate is coming from the boardroom, but it doesn’t stop there. It’s true: boards tasked with long-term stewardship (and that have historically biased organizations to stick to the familiar) have adopted a healthy new nervousness about whether or not the businesses they’re watching over are changing fast enough. But the impetus is also bubbling up from the street through pronounced shifts in consumer demand. Driving Forces Big Entrepreneurship Incubating Innovation
  6. 6. 5 In an era when attention spans continue to get shorter and there is more willingness to experiment with new products and services, companies that once could milk a leadership position for years without trying very hard are now challenged to keep pace with escalating consumer expectations in better, more personalized, and more efficient ways. Driving Forces In this pursuit, technology is a double- edged sword for incumbent businesses. It is simultaneously opening new possibilities for companies to serve their customers and create new value while also propelling those customer expectations ever higher, making stable customer satisfaction an increasingly elusive thing. Big Entrepreneurship Incubating Innovation
  7. 7. Consumers want to connect beyond the purchase Engagement between company and customer has changed from a simple matter of messaging and purchase to a more fluid and context-specific set of thin and transient connective threads. This is why many labs aim their explorations of technology at creating new forms of customer engagement. Technology plays like iBeacons open up a whole new opportunity to get hyper-contextual with consumers. For healthcare providers, wearable fitness trackers enable a new level of understanding of individual lifestyle habits and behaviors. 3D printing allows for custom-created products to be made with unprecedented speed. Companies such as Levi’s are experimenting as well: Levi’s has partnered with Google to create “smart pants” that tell users when they have gained weight. Driving Forces CVS defines the goal of their Digital Innovation Lab as giving customers a connected health experience “when, where, and how people want.” 6Big Entrepreneurship Incubating Innovation
  8. 8. Expectations bleed from one experience to the next Driving Forces 7 Across industries, there are new consumer expectations around speed, responsiveness, and personalization. Uber is certainly a poster child for this dynamic. In the 6 years since Uber’s launch, it has leapt out from ride sharing to shape the future of how physical things are delivered on-demand. Uber’s success has inspired other innovators to mobilize their own equivalents in other verticals, and spawned the term “Uberfication” as a strategic encapsulation of the transformations they’re unleashing. Big Entrepreneurship Incubating Innovation
  9. 9. Driving Forces 8 for what is acceptable: the products and services that people interact with across other aspects of their lives do. Traditional R&D practices of benchmarking new products against things just like them have to be called into question. The better framework is to evaluate new offerings relative to where life and meta-expectations are headed. You can now get errands (TaskRabbit), home cleaning (HandyBook), babysitting (Urban Sitter), vet services (BarkCare), deliveries (Shyp, Postmates), storage (MakeSpace) and even bodyguards (Bannerman) on demand with the tap of a few buttons. The permeation of these services has set expectations much further and wider than the scope of what each service directly offers, causing consumers to expect this same level of seamlessness anywhere. This cross-fertilization of expectations across thoroughly unrelated businesses seems to be playing out with unprecedented frequency and velocity. The result is a consumer whose expectations are not necessarily being driven by your direct competition. A poor user experience or lack of contextual sensitivity could be all it takes for them to move on. This is a big shift for companies to grapple with as direct competitors are no longer setting the bar Big Entrepreneurship Incubating Innovation Expectations bleed from one experience to the next
  10. 10. Since 2002, 52% of Fortune 500 companies have merged, been acquired, or gone bankrupt. The innovation imperative is heating up Driving Forces 9 Company leadership is anxious to prove their genuine commitment to innovation, while also producing ongoing results. A recent survey of senior executives conducted by Capgemini revealed that 65% face increased pressure to innovate. And with good reason: since 2000, 52% of Fortune 500 companies have merged, been acquired, or gone bankrupt. In addition, it is projected that 40% of Fortune 500 companies will be extinct in 10 years. As VentureBeat recently quipped, the way for big companies to compete with startups is to “innovate or die.” Or, said another way, the choice is simple. Disrupt or be disrupted. Big Entrepreneurship Incubating Innovation
  11. 11. Things will keep changing— keep up or be left behind Driving Forces 10 Innovation labs are an answer for many companies as a way to rapidly ignite once-moribund pipelines, foster a culture more conducive to innovation, and also attract talent and future innovation leaders. It is also a way to ensure the company is keeping pace with rapid and often unpredictable changes playing out in real time all around them. Technology is often at the heart of these changes. It is little wonder then that while 38% of the world’s top 200 companies have established innovation labs, and most of them are explicitly or implicitly focused on harnessing technology. For leaders, this isn’t just about stirring up innovation activity; it’s also about hedging against the omnipresent intangible threat of disintermediation from digital startups. 38% of the world’s top 200 companies have established innovation labs. Big Entrepreneurship Incubating Innovation
  12. 12. Innovation activity goes beyond the SKU Driving Forces 11 For many businesses, there is also a realization that these labs need to catalyze more than shiny new products, but a shinier new company—which manifests as impact on company processes, approaches, and culture. The desired end state is a virtuous circle where the lab is not only producing high-potential innovations ready to enter the company pipeline, but where the organization itself is sufficiently influenced by the brave work of the lab and more likely to rally around its outputs, driving them to market instead of into the ground. The hope is that inspiration and momentum become contagious and self-perpetuating. In the push to compete online, WalmartLabs has created small teams of “mini-startups” that work to solve specific challenges. This nimbler approach has led to the development of an internal search engine that drove a 20% increase in sales. Big Entrepreneurship Incubating Innovation
  13. 13. For innovation labs, that’s a lot of pressure to deliver to both the needs and expectations of consumers while also helping serve company requirements for growth and insulation in the face of less predictable change. An innovation lab can help push the company into new territories, reassure stakeholders, and entice consumers. But, how that lab is structured, funded, and run is critical to ensuring that it is able to deliver innovations that the organization can adopt while also meeting and foreseeing consumer demands. The key to ensure the success of your innovation lab is to ensure the fundamentals are clear. Here’s how we would frame those fundamentals. Taking Action 12Big Entrepreneurship Incubating Innovation
  14. 14. 02 01 Identify the problem the lab is there to solve Don’t mistake a symptom for a problem. Contrary to popular opinion, “my pipelines are barren” isn’t actually a problem; it’s a symptom of something else that’s broken—be it a flawed growth strategy, talent problem, or technology gap. Ensure the lab is designed to solve a core problem or it will fall victim to the same issues that bogged down other innovation efforts that came before. 13 Prioritize socialization Define the metrics Motivate your talent Don’t let the making overrun the thinking Bring in the right partners 03 04 05 06 Big Entrepreneurship Incubating Innovation
  15. 15. 03 02 04 05 06 01 Prioritize socialization Define the metrics Motivate your talent Don’t let the making overrun the thinking Bring in the right partners Identify the problem the lab is there to solve 14 What’s measured matters. Is the primary focus of the lab on driving strategy, revenue, adding capability, or attracting talent? Ensure there is clarity on the goals and metrics for what the lab will measure will be judged against. The count of colorful sticky notes and tattoos in the lab aren’t the metrics that will give it staying power. Big Entrepreneurship Incubating Innovation
  16. 16. 03 02 04 05 06 01 Prioritize socialization Define the metrics Motivate your talent Don’t let the making overrun the thinking Bring in the right partners Identify the problem the lab is there to solve 15Big Entrepreneurship Incubating Innovation If you keep opening the oven to see if the muffins are cooked, they never actually cook. The lab needs runway to explore and develop ideas without hordes of company stakeholders looking in. But working in isolation can reduce the odds of incubated ideas successfully re-entering the business. Successful labs make smart choices about when to socialize, what to socialize, with whom, and how often.
  17. 17. Designing the careers of the talent in the lab is as important as the working process, because without world-class talent, you’ll never have a world-class lab. A key piece of this is defining performance metrics and incentive schemes for lab staff. The incentive scheme put in place is essential to having an entrepreneurial culture and behavior take root within the lab. 03 02 04 05 06 01 Prioritize socialization Define the metrics Motivate your talent Don’t let the making overrun the thinking Bring in the right partners Identify the problem the lab is there to solve 16Big Entrepreneurship Incubating Innovation
  18. 18. Find the balance between developing the right strategy and building. The rush to start prototyping can divert attention away from big, unanswered questions around the strategic and commercial value of an idea. A great feature set or sexy UI on a bad idea is just a more enjoyable bad idea. Make sure you understand how the idea will meet customer demands while also supporting the business first. 03 02 04 05 06 01 Prioritize socialization Define the metrics Motivate your talent Don’t let the making overrun the thinking Bring in the right partners Identify the problem the lab is there to solve 17Big Entrepreneurship Incubating Innovation
  19. 19. 03 02 04 05 06 01 Prioritize socialization Define the metrics Motivate your talent Don’t let the making overrun the thinking Bring in the right partners Identify the problem the lab is there to solve Great labs run lean. They may not need a certain skillset full-time, but knowing when to bring in specialized help in key moments will ensure more effective problem solving while containing the head count in the lab. The skill sets of external partners are widely varied, so when outside expertise is needed, make sure you are clear on where you are in the journey and which capabilities are best suited to that stage. 18Big Entrepreneurship Incubating Innovation
  20. 20. For the talent in the lab, is it an outpost or a durable career path? When do I need to strategize, and when do I need to build? What are the lab’s measurable goals and deliverables? What’s the relationship between the lab and the company’s growth strategy? What problem is my innovation lab really trying to solve? 01 0302 04 05 19Big Entrepreneurship Incubating Innovation Key considerations for big companies
  21. 21. 46Big Entrepreneurship Incubating Innovation The Paradox of Scale Incubating Innovation Winning the Next Generation of Innovators The Rising Billion The Chief Innovation Officer, Redefined Big Entrepreneurship 01 02 03 04 05 As Co-Founder and President of Fahrenheit 212, Mark has spearheaded innovation projects for Fortune 500 companies, emerging businesses, and private equity firms. He is the architect of the firm’s Money + Magic philosophy, its outcome-based business model, and its breakthrough Two-Sided Innovation Method of fusing analytical commercial strategy with user- centered creativity. He is a front-line innovator shaping new product and service pipelines for the world’s greatest companies. Mark’s insights on how innovators, from big organizations to startups, can transform the odds of innovation success rates are captured in his book, How to Kill a Unicorn, with behind-the-scenes stories from the firm’s work with the likes of The Coca-Cola Company, Samsung, Procter & Gamble, and GE. About the author Mark Payne Founder, President mpayne@fahrenheit-212.com
  22. 22. Fahrenheit 212 defines innovation strategies and develops new products, services, and experiences that create sustainable, profitable growth for our clients. We challenge the belief that innovation is inherently unreliable and have spent the last decade designing the method, building the model, and assembling the minds to make innovation a predictable driver of growth for our clients’ businesses. www.fahrenheit-212.com marketing@fahrenheit-212.com @fahrenheit212 #bigentrepreneurship New York 665 Broadway, New York, NY 10012 +1 (646) 654 1212 London 31 Great Sutton St, London EC1V 0NA +44 0 20 3567 0820 Copyright © 2015 Fahrenheit 212.
  23. 23. International Business Innovation Association, “Business Incubation FAQs” (2015) http://www.nbia.org/resources/ business-incubation-faq Fast Company, “Breaking News: Mastercard launches innovation lab in Nairobi unlocking the benefits of a cashless society with support from the Gates Foundation” (2014) http://www.fastcompany.com/3039332/change-agents/ breaking-news-mastercard-launches-innovation-lab-in-nairobi-unlocking-the-bene Google Innovation Lab for Government, http://www.govtech.com/products/Google-Reveals-its-Innovation-Lab-for- Government.html CVS Health, “CVS Health Opens Digital Innovation Lab in Boston” (2015) http://www.cvshealth.com/content/cvs- health-opens-digital-innovation-lab-boston Fast Company, “First Look: Inside Sephora’s New Innovation Lab” (2015) http://www.fastcompany.com/3043166/ most-creative-people/first-look-inside-sephoras-new-innovation-lab The Guardian, “Guardian US to launch news innovation lab focused on using mobile technology to create deeper journalism with $2.6 million from Knight Foundation” (2015) http://www.theguardian.com/gnm-press-office/2015/ jun/15/guardian-us-to-launch-news-innovation-lab-focused-on-using-mobile-technology-to-create-deeper-journalism- with-26-million-from-knight-foundation Jawbone, UP2™ by Jawbone, https://jawbone.com/productshots/up2 Uber Press Kit Photos, https://www.uber.com/press_kits Handy Press Kit Photos, https://www.handy.com/press Capegemini, “The Innovation Game: Why and How Businesses are Investing in Innovation Centers“ (2015) https:// www.capgemini-consulting.com/resource-file-access/resource/pdf/innovation_center_v14.pdf Harvard Business Review, “To Jumpstart Growth, Flip the Company’s Priorities” (2015) https://hbr.org/2015/05/to- jumpstart-growth-flip-the-companys-priorities CNBC, “A decade to mass extinction event in S&P 500” (2014) http://www.cnbc.com/2014/06/04/15-years-to- extinction-sp-500-companies.html Wall Street Journal, “Hacking HQ: New Study Looks at Non-Tech ‘Innovation Centers” (2015) http://blogs.wsj.com/ venturecapital/2015/07/22/hacking-hq-new-study-looks-at-non-tech-innovation-centers/ Flickr, “Walmart” https://www.flickr.com/photos/jeepersmedia/ References

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