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Research and development teams at large, traditional corporations are ill-equipped to rise to the challenge of digital Darwinism, a global report claims.
The report, The Innovation Game: Why and How Businesses are Investing in Innovation Centres, by Altimeter Group and Capgemini Consulting, uncovered a shifting approach to digital innovation as companies try to overcome the challenge. It found businesses are increasingly looking to launch physical ‘innovation centres’ or 'innovation labs' in major global technology hubs such as Silicon Valley to leverage an ecosystem of startups, venture capitalists, accelerators, vendors, and academic institutions.
Researching the innovation centre efforts of the largest 200 companies globally across five sectors - automotive, financial services, consumer products & retail, manufacturing and telecoms - Altimeter and Capgemini Consulting found 38 per cent have set up innovation centres in a global tech hub. The report also noted that innovation centres help to accelerate the generation and implementation of new ideas, attract talent, drive employee engagement, and establish partnerships with startups.
However, too many organisations are using these centres in isolation and not bringing the innovative thinking necessary to digital transformation into internal teams.
“Many organisations are solving the issue of embracing innovation by partnering with or acquiring technology startups, but too often this is a sole focus,” global head of research at Capgemini Consulting, Jerome Buvat, said.
“A more equal balance between external and internal thinking is required. Innovation centres are proving an effective means to cultivate the agile startup mentality needed to remain at the forefront of the market, but it is clear that establishing an effective centre has many challenges.”
The most popular areas of research for innovation centres remain well-established technologies such as mobility (63 per cent) and big data/analytics (51 per cent). Less mature technologies, including 3D printing (5 per cent), virtual reality (13 per cent) and robotics (13 per cent), are currently lower down on the priority list.
Penetration varied significantly between sectors, with manufacturing a clear leader at 58 per cent. But despite facing increasing pressures from digital disruptions, the report found the financial services sector only lagged at 28 per cent.
According to principal analyst at Altimeter Group, Brian Solis, for the world’s largest organisations, innovation has never been more important – or more difficult.
“We find ourselves in a world where disruption is imminent and can come from anywhere and these digital-savvy competitors are threatening the very fabric of many established industries,” he said. “Without constant innovation, once dominant players are finding their tried and trusted paths to innovation are now dead ends. It’s time to innovate or die.”
Despite innovation centres receiving substantial investments from many global organisations, with some seeing significant benefits, establishing a successful centre is still proving a challenge. In fact, the report suggested 80-90 per cent of these centres ultimately fail.
In order to successfully deploy an innovation centre, the report stressed their purpose must be clearly defined and well aligned to the business’ needs.
The report recommended:
- Businesses deploy an innovation centre bearing in mind a strong governance model, with senior leadership support, to implement innovations across the enterprise;
- Have an optimal focus that is neither too futuristic, nor too close to current business operations;
- Closely involve business units to avoid isolation;
- Create a truly cross-functional team that thrives in both structured and unstructured environments;
- Operate with a degree of budgetary freedom, but know when to abandon projects; and
- Work with a diverse group of partners in the innovation ecosystem, but use sound judgment when selecting them.
One successful innovation centre is BMW’s “Future Lab” in Mountain View, set up with the aim of developing cutting-edge digital products and services. Its flagship product, BMW ConnectedDrive, provides a suite of infotainment features such as MP3 connectivity and weather information. One of the latest projects, currently in progress, is to develop virtual reality goggles that will help drivers park in tricky spots by enabling them to ‘see through’ the car.
Medical technology company, Medtronic, recently opened its centre for business model innovation in Singapore. This new centre has the mandate to design, test and scale new business models for developing Asian markets.
The report also cited the integration of Walmart Labs within the larger Walmart global ecommerce unit, as a good example of how an innovation centre can be used to run a company’s global websites and enable ecommerce innovations to be seamlessly plugged into its online sites. According to the report, the team at the Walmart Labs helped develop Walmart’s internal search engine in just nine months, driving a 20 per cent increase in online sales conversions.
“The advent of thriving technology hubs, and the appetite of new digital entrants to relentlessly disrupt and innovate, has created an innovation ecosystem that traditional organisations can tap into,” Capgemini Consulting’s global chief digital officer, Fernando Alvarez, said. “By combining the culture and approach of innovation centres with the budget fire power and access to customers that they enjoy, traditional organisations have an excellent opportunity to innovate and re-energise their capabilities.”
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