Some organizations empower the Chief Technology Officer with managing all aspects of the innovation process. Alternatively some companies create a central fund that invests in innovation. The budget for an Innovation Board is allocated and managed separately from the main businesses. This allows investment in innovation be managed with different expectations in terms of the ROI. Access to the fund can be open to all employees who have to go through some application processor or win an innovation competition. The investment decisions of the board can be informed by an innovation thesis and the company portfolio goals. Funding can also be released incrementally at certain stages and Gates. In this regard the Innovation Board can deliver on the innovation strategy and be involved with auditing innovation management. In this model the Innovation Board is often led by the Chief Innovation Officer. The Chief Innovation Officer reports to the CEO. The business development functions supporting incremental and mild next-generation work report to the Chief Technology Officer, who then reports to the COO in this model. See the section on Fourth Generation R&D.
For companies that work on products with high levels of technical risk, and Arnie that can be a great investment to make. What are the key innovation questions for any product service is can be done? Answering this question is particularly important for industries such as healthcare, energy and transportation.
Work of the R&D lab is directed by an innovation thesis and/or technology strategy. The main limitation of a pure R&D lab is that it often fails to answer the second key question of innovation. This is “should it be done?” This means that business model validation work is often lacking. The option some companies choose to use is to move promising technologies from a R&D lab into an Innovation Lab. Alternatively, R&D organizations include business stakeholders in their product development teams to make sure the “should be done?” question is answered. Which works best depends upon a company’s culture.
This is like an in-house startup accelerator. It combines elements of an Institute, competitions and an Innovation Board. Labs are often set up as separate institutions that are tasked with investing in ideas and managing innovation teams. The budget for the lab is allocated and managed separately from the main business. Labs are open to all employees who can apply to join on a cohort by cohort basis. Competition for places is managed using application templates and/or an idea pitching process.
There are two options for managing an Innovation Lab. The company can manage the lab themselves internally with hired staff or they can partner with an external accelerator to do so. The external partners bring their knowledge expertise and networks to help the company with innovation. The disadvantage is they often don’t understand the company’s culture. Teams that are chosen to work on new projects spend time working in the lab on their ideas. For innovation labs based on a venture capital model, the investment and acceleration processes are usually separated into two parts. The first seed stage is comprised of a period during which teams get an initial investment to test their ideas and validate their business models. The second growth stage occurs when teams get further investment to take their ideas to scale.
An innovation lab can be used to support innovation strategy and innovation management. Investments can be based on clear innovation theses and funding can be done incrementally for each project with the stages used to track progress. Innovation labs also deliver well on innovation management practices, as teams can be trained and supported by innovation trainers. Since the lab is often a physical location it can function like an Institute in terms of community.
Major risk innovation lab face is isolation from the main business. The innovation lab can have its own great innovation culture, but have very little impact on the innovation practices within the parent company. This is more severe than for the R&D lab because innovation labs by definition host business and technical personnel. R&D labs in contrast are designed to be inclusive of the main business marketing and product development personnel. To overcome this problem the innovation lab should be managed by making sure there is strategic alignment between the parent company and the ideas that are being developed in the lab. The Chief Innovation Officer is often the person who does the hard work of managing relationships between the lab and the parent company.
The R&D Games Model is an ideal mechanism to determine which industries can benefit most from R&D Labs versus Innovation Labs.