Are Innovation Labs the Best Way to Innovate?


innovation-1-15-18.pngThese days, companies as diverse as Lowe’s and Blue Cross are touting a shiny new innovation lab—and banks are no different. These special divisions, designed to incubate new ideas and technologies, are on the rise. According to a report from the website Innovation Management, the number of innovation labs jumped 66 percent in a 15-month period from July 2015 through October 2016. But even though some banks like to think of themselves as technology companies, does it really make sense for them to build standalone innovation teams?

Bank innovation labs are unlikely to replicate the secret sauce found in many successful startup companies because they are artificially engineered environments that cannot recreate the parameters that allow the most successful technologies to thrive. As described by Anderee Berengian, CEO of Cie Digital Labs, in-house innovation labs are missing three key ingredients:

  1. A passionate leader: Apple had Steve Jobs, Facebook has Mark Zuckerberg and Amazon has Jeff Bezos. The most successful technology companies in the world have one thing in common: a passionate, obsessive founder. Bank innovation labs miss out on this key ingredient. Even if they’re able to hire a technical wunderkind to run the lab, they simply can’t have that kind of passion. Part of this is because of a lack of ownership. Part of this is that labs are rarely, if ever, founded to pursue a specific idea or product. Bank labs are conjured up to digitize the company, explore new products or pursue any myriad of equally vague directives. These directives do not inspire and, without a visionary founder to lead the way, labs flounder about trying to build something that will meet undefined and unmeasurable objectives.
  2. Room to fail: Banks expect a reasonable ROI when they make a large investment. As Berengian described, “[p]icture Thomas Edison trying 5,000 light bulb filaments before settling on tungsten . . . [t]he reality is, most profit-focused companies would stop after 500 tries. Edison would then go start his own company.” Many of the “innovations” banks expect to come out of labs will not immediately add to the bottom line, or may be difficult to measure in any meaningful capacity for that matter.
  3. Constraints: Bank innovation labs also lack the constraints that force startups to either succeed or burn out. Bank innovation teams have security. So what if they don’t make that iteration deadline? It’s not like they need to ensure another funding round. Without clear objectives and high stakes, it’s hard to push an innovation lab to the lengths necessary to be truly groundbreaking.

Banks are, by nature, the direct opposite of startups; so why are they striving to artificially recreate that environment? That’s not to say that banks are incapable of invention—quite the opposite. To meet the demands of the digital world, banks don’t need innovation labs. They simply need to harness the creativity and ingenuity their teams already possess.

We know that innovation works best when it’s engrained as a corporate cultural value (see the book “Driving Growth Through Innovation,” by Robert Tucker). Too often, responsibility for innovation is limited by organizational silos that relegate the task (typically seen as merely one of many check marks on a CEO’s to-do list) to a small pocket of individuals. Technological advancement shouldn’t be a pet project for an executive team, or a nebulous directive for an innovation lab. It should be a goal that’s shared by every employee—from the retail teller to the CEO—so that ideas can flow freely from those that have a good handle on the way the bank actually works.

Instead of investing in new innovation labs, banks should strive to encourage organic innovation by fostering a culture that prizes critical thinking and new ideas. For example, USAA stays on the cutting edge of technology by utilizing the ideas of its 30,000 employees through events, challenges and its “ideas platform,” which allows any bank employee to post and vote on new ideas. Over 1,000 employee ideas were implemented in 2017. (For more on USAA, read the article “Crowdsourcing Innovation” in the May 2017 issue of Bank Director digital magazine.)

That’s not to say that remaking a bank’s culture is easy. Cultivating culture is hard, especially at a large institution, and can be even more difficult than creating an in-house innovation lab. However, the rewards of culture shift can be more far reaching and long lasting than a lab because new talent—especially tech talent—wants to work in an open, inclusive environment that encourages collaboration.

Innovation is not new; it’s something humans inherently do when faced with a problem. To truly innovate, banks don’t need new office facilities or new branches on their organizational chart (and, really, who needs more of those?) Instead, they need to embrace the natural creativity in their organizations and harness ideas to create specific solutions to real issues.