How to Build an Innovation Lab

Published: 13 August 2019 ID: G00382889

Analyst(s): Erik Van Ommeren

Many innovation labs close a few years after launch for lack of impact. To
ensure your new or rebooted innovation lab remains valuable and
sustainable is challenging. This research provides best practices for CIOs
focused on innovation to establish practical, pragmatic and outcome-driven
innovation.

Key Challenges
■ Leaders creating innovation labs often struggle to establish useful goals that align with the
organization’s strategy, causing the labs to lack impact or waste resources.
■ Scoping the work of an innovation lab and keeping the work focused on key goals are difficult.
■ The “hand-off” moment — when an innovation leaves the lab — still often fails because the
transition wasn’t designed well enough.
■ Innovation labs often go stale after a while, slowing down or halting altogether as novelty wears
off and strategic relevance isn’t evident, leading to a much smaller impact or no impact at all.

Recommendations
CIOs looking to accelerate innovation and considering starting or restarting their innovation lab
efforts should:

■ Establish clear strategic or recognized business goals and outcomes for their innovation lab.
■ Design the lab by working with stakeholders to make guiding decisions about the organizational
position, activities, staff and space of the lab.
■ Keep the lab fresh by using an iterative approach to its design, to optimize on outcomes; start
now, measure results and change to improve.

Table of Contents

Introduction............................................................................................................................................ 2

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 Analysis.................................................................................................................................................. 3
Define Your Desired Outcomes......................................................................................................... 3
Sanity Check.............................................................................................................................. 4
Design the Lab................................................................................................................................. 5
Financials, Decision Rights and Performance..............................................................................5
Organizational Structure............................................................................................................. 6
Ways of Working — The Activities of a Lab................................................................................. 6
Liaise With the Outside — Sourcing and Alliances.................................................................... 10
Talent........................................................................................................................................10
Tools and Places...................................................................................................................... 12
Iterate.............................................................................................................................................12
Gartner Recommended Reading.......................................................................................................... 15
Acronyms and Terms............................................................................................................................13

List of Figures

Figure 1. Innovation Tactics.................................................................................................................... 3

Figure 2. Operating Model...................................................................................................................... 5
Figure 3. Example of a Lab Organizational Structure.............................................................................11

Introduction
In the 2019 Gartner Tech Innovation Study, 89% of respondents with a formal innovation program
1
indicated they have an innovation lab with a physical space related to innovation (see Figure 1).
This makes the creation of an innovation lab one of the most often used innovation tactics,
especially considering there are also “virtual” innovation labs that don’t have a dedicated physical
space. Enterprises using innovation labs for transformational innovation on average report higher
revenue growth and customer satisfaction. Still, many enterprises struggle to achieve significant
impact and many labs get shut down a few years after launch. Capgemini even reported that due to
2
bad design, up to 90% of innovation labs fail.

One of the issues may be that the terms used for an innovation lab are vague and indicate a variety
of different types of centers. That variety ranges from pure R&D-type labs that focus on technology
breakthroughs to development centers that aim to quickly deliver working software using agile
methodology. In this note, we explain how to create a lab that serves to accelerate innovation and
deliver very specific business outcomes related to innovation. There is one type of lab that we don’t
specifically discuss in this note: customer experience centers. Even though these centers often
showcase innovations, their core function is aimed at marketing and sales, making it somewhat
different than the labs that have true innovation as a function.

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 Other innovation tactics, such as the creation of an innovation team, engaging academics or
startups, or doing hackathons or brainstorms are often initiated or coordinated from an innovation
lab. Well-designed labs can accelerate many innovation-related activities.

Figure 1. Innovation Tactics

Analysis
Define Your Desired Outcomes
An innovation lab is a practical tool to deliver business-relevant outcomes. While the execution may
involve exploration, free time and creativity, the viability of the lab hinges on its contribution to the
strategic objectives and goals of the organization.

The reason to start an innovation lab is to bring extra focus and attention to innovation, and to
achieve one or more of many potential outcomes:

■ New products or services, develop new customer segments

■ Entry into new industries or markets
■ (Radical) cost savings, optimizations, risk reduction

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 ■ New viable business models
■ Gain knowledge about new potential capabilities, opportunities and threats in technology
■ Improve marketing, brand, perception
■ Build a new culture, increased employee engagement and motivation
■ Help in recruitment and retention
■ Share price impact, influence analysts and press
■ Successful customer interaction, customer engagement, customer satisfaction
■ Knowledge building, staff development

As we see in Figure 1, across companies of over $250 million in worldwide revenue, the goals for
innovation labs vary between the categories of transformational innovation (31%), incremental
innovation (30%) and organizational cultural impact (28%). And while most labs have a physical
space, a minority does not.

Labs can be used for goals, and it doesn’t really matter which of these goals are chosen, as long as
they are clear and honest and align with what’s important for the organization. For example, if the
real goal is marketing, but the language is about creating innovative products, the lab will achieve
neither. The goals should translate into measurable outcomes that can be used to track success.
Even if the exact direction of innovation may not be known (“We don’t know where the opportunities
lie”), the goals will have an organizational expectation expressed (“We do want to create a new
revenue stream of at least X% of revenue after two years”).

If clear, measurable goals cannot be defined, the CIO should walk away from any initiative to create
an innovation lab as the initiative is destined to fail. More on this is found in “Successful Innovation
Begins With the Business Strategy: Use Business Objectives and Goals to Start Your Innovation
Journey.”

Sanity Check
Before kicking off the innovation lab design, the question that must be asked is, “Is this the right
thing to do?” Ask yourself these questions as well:

1. Is the lab essential or important for the future of the enterprise? How? What would happen if the
organization doesn’t have an innovation lab?
2. Are the desired goals achievable by an innovation lab (alone), or should other or additional
tactics be used?
3. Is the lab the best tool for the job at the time? Are other innovation tactics more promising or
easier to implement?

The most important reason to not pursue a lab is if the desired innovations are so disruptive that
they are barely tied to the original organization anymore. An innovation lab most often retains a
connection to the “mother organization.” If truly groundbreaking innovation is desired, perhaps a

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 corporate startup model would be more apt, or even a pure venture capital approach for a portfolio
of startups could be pursued. In these cases, a new entity could be started that can apply a true
“greenfield” approach.

Design the Lab

To design a lab, we must decide on the operating model: the workings of a lab are defined across
the nine dimensions shown in Figure 2.

Figure 2. Operating Model

Financials, Decision Rights and Performance

Some important choices are on the business side of the lab:

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 ■ Financials — Business model of the lab. Is this a cost center from central budget, or sponsored
from a specific line of business or the marketing department? Does it exploit external funding,
such as government grants or sponsorships? Is it a collaborative lab between multiple parties (if
it is, spend extra time on goals alignment!)? Or is it self-funded through revenue from, for
example, licensing or new channel sales? Generally, the more innovative, future-oriented the lab
is, the more centralized the funding and the more “cost center”-like it will be. For incremental or
marketing innovation, other models can be viable.
■ Decision rights — Operational governance. What does day-to-day governance look like? Who
decides on ideas, who decides when to abandon an idea? A best practice is to create one
(senior) steering committee that decides on context and the general workings of the lab, and a
more practical group (with a much higher interaction and decision-making frequency) who
decide on individual ideas and projects underway. A lab usually has one director in charge of
daily operations.
■ Performance — How do we track progress? What are the measures used to determine that the
lab is performing well? This is notably difficult for innovation, but essential to be able to iterate
on the design and execution of the lab. Typically, organizations track impact on the innovation
process (number of ideas, speed of the process, etc.), on culture (impact on organization culture
through surveys among others) and of course business outcomes and their leading indicators
(revenue, cost saved, but also number of users, usage, time saved, etc.). More on this is found
in “Overcoming Innovation's Measurement Problem.”

Organizational Structure
Sometimes the organizational positioning is a given (for example, if the lab is started from IT), but if
there is a free choice, the following must be decided upon:

■ Ownership/reporting line. Ideally, an innovation lab reports to the board level, to guarantee
support and good alignment with corporate strategy. Regardless of the formal reporting line,
however, open communication with the strategic level of the organization is needed.
■ Level of freedom. How much freedom is granted to the innovation lab? Are lab activities allowed
to fail? Are they beholden to the same requirements as any other group with regard to
architecture, security, branding, technology, risk management, etc.? Or do they have an
exceptional position? Here, the faster and more innovative outcomes are desired, the more
freedom needs to be given. This may mean extensive negotiations with existing governance
bodies on how they can help make this possible without relinquishing their organizational
responsibilities. More about this can be found in “How to Scale Innovation Beyond Pretty
Prototypes.”

Ways of Working — The Activities of a Lab

The activities that are executed in labs mainly consist of the four detailed below: scan, idea-to-
value, communicate and liaise with the outside.

In addition to those activities, education is sometimes a side responsibility of a lab as well. If the lab
is first to gain experience on a technology or area of expertise, its members may be requested to

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 spread that new-found knowledge to others. Similarly, sometimes labs are used to give technology
experts hands-on experience with novel tools.

If the innovation lab has other goals outside of direct innovation, for example marketing or direct
revenue generation, other activities may also be included, such as sales, marketing, experience
design or customer support. Also, there will obviously be some activities related to coordination,
planning and measuring impact, as with any business function.

Scan

The scanning activity of an innovation lab is trendspotting that keeps the organization abreast of
what’s coming that will be of interest. What are opportunities and threats that come from emerging
trends and technologies? Effective scanning prevents the organization from needlessly chasing
hypes.

Practical execution consists of finding sources of information, digesting these and filtering them
through the lens of the organization’s strategy. It’s important to notice that the result of a scanning
exercise can be seen as an “information product” (a document, presentation, briefing) that has a
user and an intended use. Who will receive the outcome of the scan and what should they do with
it? Track usage and tune the content and presentation to optimize its use. There could be different
variations for different stakeholders.

Though scanning may involve hands-on experimentation — for example, to learn more about
technology or its application — the goal here is not to create real innovation just yet. The output of
scanning goes to the decision makers, who decide to pursue ideas and opportunities and turn them
into real value. Decision makers are usually a representation from the business, the sponsors of the
innovation lab or even the board.

More details on how to do trendspotting or create a technology radar can be found in “Toolkit: How
to Build an Emerging Technologies Radar,” “Use a Trendspotting Method to Identify the Technology
Trends You Need to Track” and “How to Determine Your Response to a Technology Trend.”

Best practices for scanning:

■ Use strategy as an input to scanning (to help prioritize). Use scanning as input to the strategy
(to help prepare for the future).
■ Use diverse channels. Think about online sources, events, partners, universities, analysts,
government bodies, etc.
■ Evaluate the opportunities and threats, as well as the possible side effects of developments.
Think about ethics, social impact, regulations, the environment, etc. Present well-rounded
topics to the organization and resist the urge to oversimplify.
■ Make it graphical to make a larger impact.

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 ■ Use business terminology wherever possible. Even when describing technology trends, think
about business capabilities, market opportunities and language that resonate across the
intended audience of the scan.

Idea to Value

This is the core of a lab: Innovation happens when we turn ideas into value. It’s when a vague and
often risky concept is gradually made more concrete, up to the point of delivering on the promise.
An innovation lab is the ideal place to take ownership of how an organization does this. What is the
process of innovation? What is the philosophy?

An organization should know how ideas get selected, how to deal with the associated uncertainties,
how to scale ideas once they are proven and what to do when something new needs to replace
something that exists. This doesn’t necessarily mean that a lab needs to execute the entire process.
Some labs merely scan and surface up ideas. Others organize ideation across the organization and
then execute on these ideas, and yet others create prototypes or proofs of concept. Still, the lab
should take ownership of making sure that whatever the lab contributes, will result in business
impact. De facto: This means the lab must make sure that end-to-end innovation happens. It’s
useless to create ideas and not care about the success of implementing them.

The starting point for the idea-to-value activities of a lab is to closely examine how innovation works
in the organization today. What are the paths that work, where does funding come from and how is
it made available, who are the decision makers and what criteria do they use? Once we know all
this, we can propose to make the processes more rational, professional and efficient, if needed.
Start from reality, not from utopia.

The process that brings ideas to value uses concepts such as design thinking, lean startup and
agile. More on this is in “Executing on Innovation: Design the Process From Idea to Value.”

Best practices for taking ideas to value:

■ Measure outcomes along the way, track the process and the impact on culture and business
outcomes.
■ Differentiate between strategic innovations and regular (incremental) innovations; for example,
by providing extra support for strategic innovation, but building skills to ignite innovation
everywhere.
■ Resist the temptation to centralize everything. A lab can be facilitative and let others do the
work (brainstorm, experiment, organize, scale) or it can focus on execution itself. In the life cycle
of a lab, in the beginning there is usually more execution to gather experience and momentum.
■ Investments should follow proof. Ideas with little proof should receive little funding. Only after
more proof has been gathered is more funding allowed; for example, after an experiment that
proves something related to demand, viability, feasibility, etc. This makes the idea-to-value
processes much more iterative and efficient. It also reduces organizational risk.

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 Communicate to Prepare the Organization

An innovation lab does not live in isolation. It is tied to the surrounding organization. If ideas are to
be successfully implemented, the organization must be prepared. If the responsibility of the lab is to
make the entire organization more innovative, this activity aims to do this: improve innovation
maturity of the organization.

Think of the innovations as seeds or seedlings that need to be planted in the ground of the
organization. This ground needs to be prepared to prevent ideas from wilting after being handed off
to the organization. We look for sponsorship, understanding, support, funding and alignment.

When a lab is started, this activity has the highest priority and takes most of the effort of the lab: to
tell the right stories and find the potential fertile grounds where innovation is most welcomed or
needed. We launch the first round of a two-phase sell: we explain to the organization what the
importance of innovation is, how innovation works and what culture we need for innovation to work.
This makes the second phase sell much easier, when specific individual innovation is presented and
ask for attention and real practical support. More on this can be found in “Three Innovation Stories
CIOs Use to Justify, Explain and Engage in Innovation.”

Best practices to prepare the organization:

■ Manage your own brand carefully. Does the organization see the lab as an extension of the
technology-focused IT department, or is the lab a business innovation lab? Is the lab seen as
academic or as closely tied to the market? Is the lab easy to work with or very procedural?
■ Do extensive stakeholder management. For each stakeholder, determine whether they are
important and if they support the lab. What are their KPIs and top issues? What vocabulary do
they normally use, how do they define success, what decisions are they used to making and
what information sources do they use?
■ Iterate continuously. Check the impact and adjust activities accordingly.
■ Employ open innovation to engage: Involve customers and employees to submit ideas and take
part in hackathons and innovation competitions. Give people hands-on experiences.
■ Create a communication strategy and a channel. To bring innovation to the attention across the
organization, it helps to have one or more channels to talk about it. Use this channel to
showcase internal and external examples, to talk strategy, to engage and inform. This can also
be a less conventional channel such as Instagram or some video channel. Also, see “Eight
Steps for Modernizing Employee Communications in the Digital Workplace.”
■ Sometimes it’s easier by going around the outside. Use the press and other public forums to
project innovation narratives into the organization. For example, look for opportunities to speak
at conferences or appear on a local TV channel or be featured in a blog.

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 Liaise With the Outside — Sourcing and Alliances
Organizations can use many outside parties to accelerate innovation. Startups, universities, industry
groups, government, competitors, organizations in different industries: all of them can offer ideas,
technology, IP or even execution capabilities for innovation.

Usually, the formal procurement procedures of organizations are not ideal for working with startups,
academics and other nonconventional partners. The innovation lab is the ideal place to engage and
liaise with these partners.

The level of engagement can range from very light to intensive. On the light end of the spectrum,
organizations read about startups, track trends and look for ideas. They use the startup ecosystem
as a sensing apparatus to signal changes in the market. With increased engagement come actual
interactions, collaboration, investing or even complete buy-outs.

A special case of dealing with the outside is if the innovation lab also has a clear marketing purpose
and organizes customer visits — a so-called experience center. This is somewhat outside the scope
of this document, but this would include many other activities that relate to sales, experience
design, customer engagement, service delivery, etc.

Best practices when engaging with the outside:

■ Present a real person, not an anonymous entity. Allow for personal connections and make, for
example, your startup-liaison visible to the ecosystem.
■ Prepare a clear value proposition for startups that consists of more than just funding. What is
your vision for the future, what can you bring, what are you willing to invest in success? Think
about data, systems, sales capacity, administrative support, brand endorsements, etc.
■ Embrace the uncertainties that come with working with startups. In essence, a startup can be
treated like any idea that goes through the idea-to-value chain: We do experiments and small
steps until we have gained more certainty and mutual trust.
■ Prepare the contracts so this does not become a hurdle later in the process. Think about IP,
contingencies, rules about engaging with the competition, financial risks, etc.

Talent
Staffing a lab follows the definition of goals, design and activities. Generally, there are two types of
staff involved: a core to support and own the processes and concepts, and people who will work on
individual ideas and innovations (see Figure 3). At the beginning, there is often a small core that
does both in parallel.

The core staff will have skills related to the innovation process, such as design thinking, lean startup
and agile. The staff will also have communicative skills and be able to connect with sponsors and
stakeholders across the organization. As the innovation lab becomes more mature, the skill set
expands to include portfolio management, strategy, etc.

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 The people who work on individual ideas are sometimes part of the lab or often they may be from
other parts of the business. For example, if a blockchain concept related to insurance is going
through the innovation process, the lab may involve developers and a product owner from other
insurance products to do the actual work. This way, when the product reaches its scaling phase, the
staff can “follow” the innovation to the receiving entity. People who work in ideas and innovations
often are a mix of technical people (who understand and can create applications with new
technology), designers (who understand human behavior and design) and more business-focused
people (who build the network and support for a specific innovation; sometimes this is a core
support staff function).

Figure 3. Example of a Lab Organizational Structure

Figure 3 shows an example structure of the lab, where, depending on size, some of these teams
may be merged (for example, scan and incubation and innovation support, or innovation support
and communication and culture). Incubation in this context is to take fledgling ideas and do the first
few experiments until the idea gains enough momentum to warrant its own dedicated team. The
director can also be the one fulfilling the communication and culture role in smaller teams. The size
of an innovation team is determined based on the needs, and will grow as more innovations are
being developed. The smallest team size tends to be around 15, but they can grow to more than
100 people if multiple ideas are developed in parallel.

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 Tools and Places
Finally, after all considerations, we end up at the gadgets and technologies of a lab. Here form
follows the function: only things that we know are needed should be there. The term “innovation
lab” conjures up images of brightly colored rooms with bean bags and dartboards, soda machines,
3D printers and augmented reality headsets. The real design is very functional: We design the space
and technology for the activities that we will perform. If there is a dartboard, it’s there because, as
part of our networking activities, there is a Friday night social hour, where we hold a darts
competition. It is undesirable to have anything there that just stands idle as it projects the image of
“innovation is not happening here.” The same applies to the space. If we decide to invest in a
3
dedicated space for innovation, we have to make sure it is used as often as possible. If the
innovation lab becomes a room filled with silent, dusty gadgets (“the innovation museum”), it
projects a message to the organization. Or when the lab becomes an overflow meeting room, not
much innovation will result from it.

The best way to guarantee use is to make sure it’s fit for purpose. For example, if education is an
important part, there should be a space for that. If the creation of prototypes is an important part,
there should be space for developers. If vendor briefings and technology demonstrations are a
regular occurrence, there are facilities for that. If we envision many workshops, there is space for
boards and interaction. If prototyping becomes important, a cloud or sandbox setup helps to
quickly create the right technical environment to create new solutions easily.

Finally, staff and space are related: If this is just a space with a virtual team, and nobody “lives” in
the lab, it’s hard to make it come alive. Think of the lab as an airplane: There is nothing on an
airplane that isn’t there for a reason; an airplane rarely sits idle and there is always staff on board.
(And it’s going places!)

Iterate
As with everything in innovation, iteration is the only path to perfection. The design and working of
an innovation lab is very situational: it depends on your context and your goals, your culture and
your skills and many other dimensions. This means that no blueprint for your lab exists and the only
way to design it is to get started and improve over time. This implies two important things:

■ We need to negotiate the freedom to change course and prevent committing to a specific
structure for a longer period. Six months from conception, the lab may change focus or working
methods as our insight grows and the first lessons start coming in. Especially in traditional
organizations, it is frowned upon to change course too often, so extra care must be taken to
present all plans with the caveat “this is based on current insights, this may change over time.”
■ To be able to iterate, we must be able to measure. Are we doing well? Are we having the impact
expected? If we can’t measure, it’s hard to say if we’re going in the right direction. This is where
we complete the circle to the goals and outcomes.

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 Acronyms and Terms
The terms in the following table are related to the concept of an innovation lab and sometimes used
more broadly. The definitions are not “pure,” but they do highlight the emphasis of each term. Each
is used to indicate a construct used to accelerate innovation in one way or another.

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 Acronym Key and Glossary Terms
Accelerator Term generally used to indicate a program for startups to accelerate their growth,
strengthen their value proposition, find funding and build the company. Also used to
indicate organizational programs that support people with ideas to achieve impact.

Customer A facility to create (customer) experiences that showcase what an organization can
Experience deliver. Mostly a marketing and sales instrument, sometimes used as part of actual
Center or service delivery (for example to gather requirements or develop joint solutions). Often
Experience used to showcase innovations or the innovative capabilities of the organization. Often
Center a beautifully designed space featuring lots of cutting-edge technology.

Customer A facility where user interfaces can be shown to customers and their responses can
Experience Lab, be analyzed. Sometimes takes the shape of home-like environments where a see-
Interaction through mirror is installed to see people behave ‘as if they were at home. Sometimes
Design Lab or used by innovators to do A-B testing of solutions or expose potential clients to novel
User Experience solutions and technology and gauge their responses.
Lab

Design Center Related to innovation, but more focused on building and facilitating the design skills
for the organization. This may include graphical design, interaction design, service
design and other activities. Like in an innovation lab, there will be customer focus,
iteration, an interest in new ideas and aim for (and measurement of) business impact.
A design center often has certainty about something being delivered, where an
innovation lab is allowed to be more experimental and tentative.

Hub A building or geographic region where there is a concentration of (startup) innovation

taking place. Often sponsored or initiated by government or large organizations, often
with a specific focus (e.g., healthcare, logistics, smart government etc.).

Incubator Term generally used to indicate a low rent space with extra support facilities that can
be used by startup companies. Can have similarities to an accelerator (services,
networking, coaching), but for earlier stage startups.

Innovation A space and/or group of people who aim to accelerate innovation for the
Center or organization. As described in this document.
Innovation Lab

Innovation Space More loosely defined term, most often in a technology department where there is
or Maker Space space and technical facilities for people with passion and ideas to explore and play
with technologies. Maker spaces are also sometimes made available to the general
public.

R&D Lab or Facility to do fundamental research and create new intellectual property. Often
Research Lab measured by the number of patents or publications. Mostly at technology companies
such as device manufacturers, car companies or companies that have a research
focus.

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 Gartner Recommended Reading
Some documents may not be available as part of your current Gartner subscription.

“How to Effectively Strengthen the Synergies Between Innovation Centers and Digital Design
Teams”

“Executing on Innovation: Design the Process From Idea to Value”

“Seven Best Practices to Create an Innovation Center”

Evidence
1 The2019 Gartner Tech Innovation Study was conducted online from September 2018 through
February 2019 with 273 innovation leaders in the U.S. and U.K.

The study explored effective approaches to innovation, including goals, enablers and inhibitors of
innovation, and the importance of emerging technologies on meeting future innovation needs.

Study participants either lead an innovation program directly or have direct knowledge and
involvement with the organization’s innovation initiatives and strategies. A mix of industries at end-
user organizations with revenue of at least $250 million participated — with the majority of
respondents at organizations of worldwide annual revenue of over $1 billion.

Gartner analysts and the Gartner Primary Research Team who follow innovation for enterprise
architecture and CIOs developed the study.

2 “Capgemini Consulting and Altimeter Global Report Reveals Leading Businesses Continue to
Struggle With Innovation, With Traditional R&D Model ‘Broken,’” Capgemini.

3 Some innovation labs don’t have a dedicated space, but consist purely of people and activities
taking place in common spaces or, for example, in the regular IT department space.

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