When does a “lab” make sense?

I’ve been speaking to a lot of bank innovators lately who have established a “lab” facility as part of their innovation operations. They have various purposes, but most of the time, they’re about testing new technologies in a safe way, with as few of the restrictions of the parent as possible.

But here is an important question for you all: why isn’t testing new technology part of business-as-usual for your IT group? Surely they must have developed capabilities in this area, since so much of the business of banking is based on the technology that supports it? They must be doing upgrades and rollouts pretty much every day.

“Ah”, I hear you answer, “our lab is about testing new technology that supports new businesses”.

And in that case, I reply,”why do you have a technology lab rather than a business incubator?”

And in fact, if we go one step further, why do you need an incubator at all? Surely nurturing new business is business-as-usual for – at least – the product people in an institution?

So I am left with one final question: does it ever make sense to have a lab,  existing outside the mainstream and decoupled to a large degree from the parent?

I think the answer to that is yes in one case only: where the parent business lacks the foresight or interest to do something that innovators know will be important in the future. This is not an indictment of any kind: let us remember that the number one responsibility of a manager is to make sure that the business is managed successfully in the now. 

Why would an innovator be more expert at that decision making process than someone in a dedicated business group? They wouldn’t be, in terms of attributes of the product itself. But in general innovators have a quite different perspective from people running the main P&L: they think about the future every day, testing, trying, playing. They are – if they are any good at all – expert scenario builders and futurists.

They can see a strategic opportunity, even when the market might be too small to be interesting, or the margins too low, or the technical risks too high. But solving a problem in such a space can have dramatic, and long term consequences on growth.

The role of an incubator/lab, then, is that of an insurance policy against the natural – and rational – short-termism of anyone that has a major business to run.

This conceptualisation of the lab – as a place where stuff gets done that the business doesn’t want – is one of those difficult places innovators are often required to go if they want to do their jobs right. And this, in particular, is a challenging place: many innovation governance decisions get made by some kind of “innovation board”, composed of, you guessed it, senior people from the business.

Could you imagine a situation where high level executive support is more important? I can’t.

Nonetheless, this is an area that few innovators dare to tread. Challenging the established business line – who control all the money – is an exercise in tightrope walking. Necessary, perhaps, but politically dangerous.

So my question to all innovators out there who have a lab is, what are you doing with it, really? Are you the insurance policy, or are you, actually, doing business as usual, which probably ought to be done by someone else?

2 Responses to“When does a “lab” make sense?”

  1. Chris Simcoe
    June 23, 2008 at 1:51 pm #

    Could one not ask the same question of institutions which have “innovation” groups or departments and why innovation is just not part of doing business. Is it not something that should be part of the day to day business? If you make innovation someone’s specific job then it becomes someone else’s job.
    As far as the purpose of a lab, I would say that it is all about managing risk:
    1) Removing risk in the introduction of newer technologies into the mainstream.
    2) Removing risk in the selling of newer ideas to the mainstream business – if you can show them it is easier to convince them.
    Although one could argue that #2 is a lazy way to sell your idea, I would say that a demo is to a pitch, what a picture is to words.

  2. June 26, 2008 at 9:40 pm #

    When Orange was an Innovator in Mobile they had 9 Labs around the globe that worked on what was next in Mobile.
    In the Lab they had the opportunity to undertake Bluesky thinking. As a result of the work of the lab they bought some things that were wrong in the long term but thought them lesions that are important for today.
    The issue should not be do you have a lab but rather how many labs and where. What can your credit card team learn from looking at the behaviour of the South Americans and the Norwegians? What might you learn from Holland and Southern States of the US when it comes to Internet Banking? What might you learn from India and Kenya when it comes to branch networks? What are the Universities that you have a relationship with, are they using behavioural or attitudinal segmentation models?
    Does your bank see strategy as a PowerPoint presentation for a few smart guys or are you attempting to use War Gaming and/or Game Theory to place the business at the most profitable point in Banking today and in 60 months?
    If you get to talk to the Strategy Group in some of the big oil companies they we tell you that the role of the Lab to them is invite things that will destroy the business model.
    The problem with Innovation and Futurology is that at times it looks like you are in the lunatic asylum, from experience just before the break through.
    James you have my email address if you want to talk over a coffee lets see if we are in London at some stage over the next few weeks.

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