Lean startup pioneer Steve Blank said “there are no facts inside the building so get the hell outside”. That’s exactly what large businesses are doing when they open innovation centers.
Innovation centers drive companies to think and act like lean startups. They focus on customer-centric problems, build and iterate on Minimal Viable Products (MVPs), while measuring and learning through continuous customer feedback. Innovation centers can be the solution for large companies to accelerate the “Build-Measure-Learn” (BML) loop used in lean startups.
As discussed in our previous articles, the challenge for large firms implementing a lean build model is a misalignment of culture and capabilities with the speed, flexibility, and risk-taking that are necessary for the process. Lean startups rely on agile project methodology to quickly deliver products to the market. These products (or MVPs) may not be the typical fully-functional products a large company is accustomed to releasing.
Innovation centers offer an opportunity for companies to short circuit the traditional waterfall project approaches in R&D and create entrepreneurial pockets within their organization. In 2011, Walmart established @WalmartLabs to build products around social media, big data, mobile, and cloud computing.
In just nine months, @WalmartLabs was able to build, test, and implement a completely new ecommerce search engine from the ground up. This was accomplished in an atmosphere and culture of experimentation and innovation far from its headquarters in Bentonville, Arkansas.
By establishing technology outposts, businesses are improving their access and exposure to the latest digital technologies and the young talent who help drive these innovations. It is often easier to change the culture of a small division than an entire company. Better yet, it can be built in-house using agile methodology and fail-fast mentality. These centers can be incentivized to take risks and release MVPs where larger divisions or business units cannot.
As the current discussions surrounding big data show, measuring the world and deriving useful insights is proving difficult for large companies. The principle guidance from the lean startup approach is to measure what matters and to measure as close to the customer as possible.
The key challenge for large firms is that they often measure too much of the wrong things. While innovation centers don’t implicitly solve this challenge, they do offer a chance to reboot the thinking around measuring customers, to focus on metrics that matter.
The primary objective of an innovation center is to accelerate digital innovation and bring enterprises closer to their customers. Innovation centers utilize technologies, such as big data, the Internet of Things, social media, and mobile to enhance the measurement and collection of feedback directly from the customer.
Combining these measurement techniques with the use of high-fidelity MVPs helps to ensure that subsequent iterations and enhancements to products and services are focused on the features that really matter to the customer.
Lean startup hinges on the ability of an organization to learn from its activities and MVPs. This unquenchable need to learn and improve drives the robust innovation from many startups. With this approach comes the need to accept risk and failure.
These cultural concepts are difficult for large organizations, especially in risk adverse industries. However, innovation centers are given different guiding principles than those given to owners of mature products or traditional R&D efforts. Historical R&D models are not always working.
According to research done by Capgemini Consulting, global R&D spending was approximately $1.6 trillion last year. Despite this, some sectors like consumer goods experienced an 85% failure rate for new products. In order to combat increased pressure to innovate and failing R&D models, companies are decentralizing their R&D processes and opening innovation facilities far from their corporate headquarters or manufacturing facilities.
Risks to Consider
Despite the benefits of an innovation center, there are also risks to consider. Lack of leadership support, an unclear strategy, and scalability issues can all undermine the value of a center. Through our work at Capgemini Consulting, we have identified the critical success factors to help mitigate these risks:
- Defining the right focus for the center
- Establishing a proper governance model
- Engaging diverse cross-functional teams
- Ensuring closely involved business partners
- Engaging a diverse partner ecosystem
The lines between traditional global firms and technology-based firms are blurring. More and more companies are developing their own solutions and innovative technologies.
As Jeremy King, CTO of @WalmartLabs, said, every global company is becoming a tech company. In order to capitalize on these digital innovations, a growing number of large firms are starting to think and act like lean startups. Innovation centers can provide the right environment and scale to effectively leverage these technologies and Lean Startup methodologies.
Lean startup when you are neither Lean nor a Startup
Disruption is the new normal. Those companies that can respond quickly and even disrupt themselves will survive. This fight will be easier for the companies that have a strategy to manage transformation and innovation. Through our research, Capgemini Consulting and MIT have shown that companies who successfully manage this change are 26% more profitable than their peers.
Lean startup principles will help companies maintain their competitiveness by enabling them to rapidly innovate both their products and their business models. The “Build-Measure-Learn” loop provides a core approach for companies to build upon. The innovation center provides the environment for this approach to flourish and expand. The innovation center is not where the solution ends, but where it begins.
You can read more on Capgemini Consulting’s research on Innovation Centers here: “The Innovation Game: Why and How Businesses are Investing in Innovation Centers”