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Are Innovation Centers the Secret to Survival?

Sept. 14, 2014
As far as evolution goes, the Galapagos Islands have nothing on today's constantly changing manufacturing environment. A recent report shows that innovation centers could be the key to staying on top.
As far as evolution goes, the Galapagos Islands have nothing on today’s constantly changing manufacturing environment. A recent report shows that innovation centers could be the key to staying on top.
As far as evolution goes, the Galapagos Islands have nothing on today’s constantly changing manufacturing environment. A recent report shows that innovation centers could be the key to staying on top.

Charles Darwin believed evolution takes many generations to develop even the slightest changes to give a species a competitive edge. That’s fine for iguanas and finches, but for today’s companies and brands, six months is sometimes too slow to make necessary changes to stay alive.

Many companies have turned to innovation centers, which attempt to leverage startups, industry and academia to speed up the process. A recent global report from Capgemeni Consulting and Altimeter,“The Innovation Game: Why and How Businesses are Investing in Innovation Centers,” explains the effects of this rush to improve.

“We live in an era of digital Darwinism,” the authors argue. “As technology and society evolves, it becomes imperative that organizations also evolve their business models. Companies that don’t invest in counter-disruptive measures will learn that evolution doesn’t wait."

Their findings indicate that innovation centers are a great way to promote change, though simply housing one or more of these idea incubators under your roof doesn’t guarantee survival of the fittest. After all, having wings doesn’t guarantee flight.

If you’re worried about your company going the way of the dodo, the 18-page report is worth a read.

We emailed one of the authors, Subrahmanyam Kanakadandi, manager at Capgemini Consulting’s Digital Transformation Research Institute, to explain the facts and figures in more detail.

NED: Why did Capgemeni decide to write this report?

SK: Companies are under increasing pressure to innovate with tech startups disrupting entire sectors of the economy. The weaknesses of traditional innovation approaches—90% of companies think that they are too slow to market—have led a number of organizations to launch innovation centers in major technology hubs with the explicit mandate to accelerate digital innovations. We were keen to understand how this new innovation approach would help companies achieve their objectives and thrive in the digital world.

What data surprised you the most while writing the report?

There were quite a few surprising findings from this research. Most notably, we saw that innovation is no longer confined to the top few tech hubs – several cities across the globe are emerging as innovation destinations. In fact, the top 10 locations in our analysis represent only 35% of all innovation centers. We were also surprised to see that manufacturing companies have set up the highest number of innovation centers across industries.

What wasn’t a surprise?

What was not a surprise was the domination of the Silicon Valley—61% of companies with innovation centers have a presence in the Silicon Valley—and the low penetration of innovation centers across sectors. Out of the 200 companies we researched, only 38% have set up Innovation Centers.

What’s the most important thing manufacturers should know about your research?

Innovation centers offer a range of benefits. They can help manufacturers accelerate the speed of innovation, provide a fresh source of ideas, enhance risk-taking ability and build a culture of innovation. However, there is a slippery slope of challenges that innovation centers must overcome to succeed in digital innovation. The challenges range from lack of leadership support and an unclear focus to companies’ inability to scale the innovation at an enterprise level.

The paper mentions more than 85% of new products fail. We also noticed only 5% of the innovation labs focused on 3D printing. Do you think an increase in 3D printing innovation and proliferation would lead to the success of more products, due to the shorter lead time for prototype development and overall economic benefits?

Yes, we strongly believe that 3D printing can help manufacturers reduce lead times for prototype development, offer greater flexibility in product design and lower product development costs. 3D printing has the potential to alter traditional value chains as cost of 3D printing comes down dramatically. Our research shows that few innovation centers focus on 3D printing; given the potential benefits, we believe manufacturers should consider putting more emphasis on this technology.

The report mentions 58% of the top 200 companies who have innovation centers are in the manufacturing sector. Which specific companies do you think are the most successful and what basic practices should other manufacturers’ try to emulate?

DuPont is a good example. They have established a network of 13 innovation centers across the globe. These geographically distributed centers are able to leverage the relationships with their respective local ecosystems, and in turn, collaborate closely at a corporate level. Thus, DuPont is able to harness these synergies to great effect and deliver impressive innovation outcomes.

One senior bank exec said, “80-90% of innovation centers fail and end up being a massive waste of resources." Should this be seen as a warning or challenge to businesses? And please explain why.

This is definitely a major challenge. Most innovation centers fail because some key critical success factors are not adequately addressed. For example, some innovation centers struggle to find the right focus. Either they look too far into the future and end up becoming showpieces of academic interest, or they get involved in routine projects and become indistinguishable from normal project teams. Some companies also fail to realize that the role of the innovation center is not be at the origin of every single innovation – ultimately the mission of the innovation center is to create a culture of innovation throughout the organization.