Innovation strategy Innovation Digitization - 5 min
Innovation a case for specialists?
Companies are currently looking for ways to adapt their innovative capacity to the challenges of the future. That’s why corporations are increasingly setting up innovation labs.
"There's a way to do it better - find it!" said inventor Thomas Edison once. In his time, the 20th century, that may have been true. Back then, one brilliant mind was often enough to change the world with an innovation. Today, it takes far more than a single genius to do so. However, digital innovation is the elixir of life for companies. That's why corporations are increasingly setting up corporate venturing „innovation labs” to guarantee this.
New circumstances, new economic world
It is entirely due to changing, increasingly difficult circumstances that „innovation labs" are growing in number. In the past, large companies enjoyed a status of untouchability: monopoly position, pricing, and lack of competition. That changed completely in just a few decades. The reasons for this were complex: In 1989, the Soviet Union collapsed. A third of the previously isolated world population, including the Chinese, was then quickly integrated into the world market. This is reflected in the figures. Sea, air, and freight transportation costs fell by an estimated 65 to 96 percent over the past 70 years. The cost of interpersonal communications dropped 99 percent from 1990 to the present. Every product, as well as skilled workers, became more globally mobile, while world markets became more intertwined. According to World Bank data, global goods exports increased from $5.1 trillion to more than $26 trillion from 1985 to 2019. Territorial borders have become more permeable. The globalization process will continue despite Corona. These new circumstances, created in the last 30 years, caused a global entrepreneurial competition for the best products and minds. The pressure on corporations is increasing from all sides. Because despite the ever-increasing complexity of products, the speed of innovation is increasing. On the one hand, the global economy has experienced a division of labor and has become increasingly specialized.
From the mechanical to the digital loom of the fourth industrial revolution
At the same time, as globalization is increasing, the fourth industrial revolution is also taking its course. The previous technical level of electronics allowed to automate a few manual processes within a company. The increasing computing power of chips, the more sophisticated and refined software of recent years, completely changed the way of producing. This new technical framework allows machines to communicate with each other, configure themselves and control each other in a data-driven way through sensors. This fact also increases the speed of change in production, in innovation, but also in management. An Mc-Kinsey study has identified 11 strategic and operational practices that are closely linked to the implementation of digital modernization. They asked 1500 executives to what extent they were using these eleven practices. The result was that so-called „digital leaders" move four times faster than their peers. The speed of change caused by digitalization and globalization is pushing corporations that work and forecast for the long term ahead of them, as no forecasts or long-term plans are possible anymore.
Corporate innovation labs trying to be corporate venture builder
For the reasons mentioned above, companies are investing more in research and development in order to stay ahead of the global competition. The consulting firm PwC found that the Global 1000, i.e. the 1,000 companies worldwide that invest the most money in research and development (R&D) in relation to their sales, increased their financial resources by 70 percent to $680 billion between 2005 and 2015. But they are not only spending huge sums of money on this, they are also setting up their own „innovation labs”. These are physical or virtual rooms in which the focus is on the creative exchange of information, findings from experiments, ideas, and knowledge. In these spaces, the necessary infrastructure, services, and methods are provided for the respective members. Often, these facilities are characterized by a cross-innovation approach. This means working in an interdisciplinary and cross-sectoral manner in this set-up. Companies specifically try to create new ideas with the help of external experts of all kinds.
Innovation is no longer a one-man show
This has to do with the ever-increasing complexity of innovation and is also logical. The Wright brothers, who took to the skies with the first plane, the „Wright Flyer”, needed about a few thousand parts to complete the machine. Today's „Boeing 747” requires six million parts. Thomas Fink, a researcher at the London Institute for Mathematical Sciences, and Martin Reeves compare simple innovations like new cooking recipes with complex innovations like software. Both look at these in terms of how the various components can be combined. They have calculated that 56,498 different meals can be made from 381 ingredients. In technology, on the other hand, since the innovation is more complex than simply mixing ingredients together, the effort is much greater. For 1158 software products, you need 993 developer tools. The more complex the new creation becomes, the more ingredients are needed for it. A genius who develops new things on his own is increasingly relegated to the background since there is almost always a well-coordinated team behind it.
The approaches of these innovation labs
The German-speaking labs are therefore increasingly focusing on interdisciplinarity, with people from different fields working together on new designs across disciplines. A practice that has always been traditional in the Anglo-Saxon world. Whereas in German-speaking countries, the professional structure is still very rigid. This practice is being tried to change because it is recognized that technical developments are much more complex than they can be reduced to 1-2 specialties. The organizational structure in these labs should attract different user groups and remain open to exciting minds. The framework conditions must be optimal so that new things can emerge. They also try to give free play to free thinking. Everything should and may be critically questioned. That's why corporations spin off these units to give them the necessary freedom to do so. One example of this is the pharmaceutical company „Bayer", which maintains one of its R&D departments in Berlin, even though its headquarters are in Leverkusen. This amalgam of knowledge, diverse minds, resources, and experiments in the laboratory, away from the day-to-day business, is intended to systematically promote change. As Edison said, there is a way to do it better. You just have to find it. The innovation labs at least dare to try.