How Corporate Innovation Labs End Up Preventing Innovation

We stepped off the elevator on the 34th floor of the bank’s headquarters, one floor below where the bank’s CEO sits. We walked across the hall, where the Senior Vice President of Experience Design swiped us into the secure area.

Waiting for us was the Director of the bank’s innovation team and several key members of his team. They were standing in a large room, filled with what looked like interactive museum exhibits.

The exhibits, it turned out, were interactive installments demonstrating the innovation lab’s future vision of banking. One by one, we walked up to each exhibit where a member of the lab’s design team told us how the new technology would make a better future banking experience.

Of course, the bank’s logo was on each exhibit piece. The message was clear: this bank would own the banking experience of the future.

This all happened about five years ago. Since then, many of the innovations we saw that day have come to fruition. However, none of them were introduced or delivered by that bank.

“We’re a startup inside our massive company.”

Around the same time, we were invited to the headquarters of a major commercial software producer. We met with the Vice President of Innovation and his team.

Sitting at the conference room table, the Vice President presented us with a box, a little bigger than a cigar box. It was labeled “Startup Kit.” This was the innovation team’s new experiment.

Inside the kit, we were told, were all the makings of a startup. There were sticky notes, a copy of Eric Reis’s Lean Startup, a deck of inspirational cards with helpful startup tips, and a pre-paid bank card with a balance of $1,000.

Employees could request to leave their current assignment and join the innovation lab’s in-house startup incubator. If they were selected, they’d receive one of these kits. That made them the “CEO” of their own startup, inside the company.

With it, they were told to do whatever they needed to create a brand new startup, including spending the bank card’s money as they saw fit. They had full autonomy. They didn’t even need to keep receipts.

Each new startup CEO had six months to create their startup and present it to the innovation lab’s committee. If the committee liked what they saw, they’d fund the second stage of the startup. If they didn’t, they’d go back to their old job, doing what they’d always done.

While the VP boasted of several promising startups in the early phases of this experiment, none of them have produced more than some interesting features and extensions to the existing product offerings.

To be competitive, companies must innovate.

Innovation labs and in-house startups have recently garnered much attention in the business management world. High-priced management consultants often promote them as a great way to guarantee the organization will dominate their own market, much the way companies like Tesla, Apple, and AirBnB dominate today.

Unfortunately, efforts to build successful innovation labs and in-house startups often fall flat. The labs can manage to produce a few ideas, but we rarely see them introduced into the market. The few times we do see their ideas come to fruition, it’s rarely from the company’s innovation efforts. Instead, it’s most often a competitor who end up bringing the ideas to market and benefiting from introducing the innovation.

It’s not for lack of trying. These companies invest millions in these efforts, staffing the team with the best of the best. The all-star teams are granted carte blanc to do what’s needed, often bypassing the organization’s traditional permission and bureaucracies infrastructure. They’re permitted to move fast.

Given all these advantages, why do these efforts regularly fail? It’s because they’ve missed two essential components.

Disney didn’t use an innovation team to innovate.

In 2014, Disney launched one of their most ambitious projects: The Disney Magic Band.With a billion dollar investment over seven years, this was a huge bet.

The result was a magical bracelet, which gives the wearer full access to everything in Disney’s parks. Guests can use their bracelet at the entry gate. It opens their hotel room doors. They can wave it at restaurants to pay for their meals. They can use it to FastPass wait times for popular rides.

While the Magic Band was underdeveloped, Disney’s team, like the bank’s innovation lab, built a working demo area. They commandeered a soundstage in the backlot of their Orlando studies and filled it with a working version of how every aspect of the band would work.

But, unlike the bank’s innovation lab, this wasn’t built with a special team. It was built by the same team that had day-to-day responsibility over the user experience of the parks. While they were working to make incremental improvements in the current park, they were also working on their new technological innovation.

Disney produced their wonderfully successful innovation without a dedicated innovation lab. They didn’t sequester “the best of the best” for seven years to produce this marvel. They used their regular production teams to deliver an innovation that has changed their entire industry.

Intuit discovered a game-changing opportunity.

In 2016, personal and small-business financial software maker, Intuit, released a niche product that became a huge revenue maker: Quicken Rental Property Manager.  Like Disney, they didn’t build a special innovation team or create an in-house incubator to do it. They discovered the opportunity through old-fashioned user research.

A few years earlier, a couple of product managers were out visiting customers, observing how they use the company’s flagship Quicken product. These customers were individuals using Quicken to track their daily finances, creating budgets, and tracking expenses

During the customer visits, the product managers noticed a pattern they hadn’t seen before. Many of their users had a side hustle of owning one or more rental properties. For these customers, these properties were bringing in a steady revenue stream of rent, on top of their regular income.

Many of these customers were using Quicken to track the finances of these rental properties. Quicken wasn’t designed for this purpose and, to make it work, these customers had to jump through some serious hoops.

The customers were making it work. Across the Internet, rental property manager support forums helped tremendously, sharing tricks and techniques for making Quicken work for this niche purpose.

While Intuit had Quickbooks, a financial management product for small businesses, these part-time rental managers found the product’s functionality to be overkill. They didn’t need most of the functionality of Quickbooks, but needed more than what Quicken was providing.

The Quicken product managers took their research and went about building a new product. No special innovation team required. Just the tried-and-true method of identifying a problem and solving for it.

Innovation comes from those closest to the products.

On the surface, it may look like the bank’s innovation lab was the same as Disney’s Magic Band, and the software maker’s in-house startup program was similar to Intuit’s Retail Management team. Looking under the covers, we see two important differences.

The bank had a separate team who owned the job of producing innovations. This sent the message to the rest of the bank, especially those working on delivering products every day, that they weren’t supposed to produce innovations.

Yet, it’s these production workers who are closest to the problems that challenge the users. They know what constraints they’d have to overcome to make these ideas real.

A specially-staffed innovation team won’t have in-depth experience about how the product works. There are those who say that’s a good thing—that it won’t “bias” or “constrain” the ideas of the innovation team. However, our research suggests those the benefit of understanding the product and users far outweighs naiveté that comes with the “blue ocean” approach.

Disney had their members of their product design team involved in the Magic Band design from the start, even though it would be years before that effort showed any value. Their input about the subtlety and nuance of park experiences were invaluable insights to the project. When it came time to start executing, that team knew exactly what needed to be done.

Innovation comes from those who do the research.

The software maker enticed their smart, entrepreneurial employees to join their internal startup incubator. They’d hoped that the employees would come to the table with rich ideas because they were already familiar with the products and the users.

Yet, that isn’t what happened. The software maker just recreated, in a somewhat expensive form, another variant of “let’s all sit in the room and brainstorm innovations.”

Yes, they took a lean approach by turning those brainstormed ideas into hypotheses to test. Unfortunately, the hypotheses rarely proved to be close to something customers wanted and the company never got the runaway hit they’d hoped for.

Intuit did what Intuit has always been good at: getting into the field and meeting their customers and users where they are. The product managers weren’t looking for innovation when they started their research.

Instead, their open approach to field research and their desire to get constant exposure to their users, provided them valuable insights and patterns. They explored the users’ needs and challenges. They learned what would make a truly innovative product. And they knew what to do to deliver it.

Make every product team an innovation team.

Expensive innovation labs or internal startup incubators won’t get your organization the innovation it needs to become a leader in the marketplace. Instead, you need to use the resources that are already at your disposal.

Make every product team an innovation team. Send them in the field to conduct some deep hanging out with customers and users. Train them to look for ways to imagine what their product or service could be without its current constraints. Give them the time and resources to sort fleshing out those ideas.

Every product team has everything it needs to be an innovation team. We only need to empower them to see that’s their job.