The rise of the innovation lab

Apple’s founder Steve Jobs once famously said: “Innovation distinguishes between a leader and a follower” – but how a business can best foster this innovation is
another matter.

Today, more than one-quarter of companies see themselves as innovation leaders, according to PwC’s recent Innovation Benchmark Report – almost a third of which say their innovation is either all or mostly technology-led. And this could explain why more and more businesses are setting up their own innovation labs to get ahead of the curve when experimenting with and adopting emerging technologies.

“In today’s rapidly changing world, business models are being disrupted at an exponential rate, with competition coming from all angles,” explains Jasnam Sidhu, AI and disruption expert at PwC. “Innovation is critical for companies looking to survive disruption and thrive in the future, and launching innovation labs is one way of doing this,” he explains.

A 2016 Capgemini Consulting report found a significant jump in the number of new innovation centres launched globally, with 88 new centres opened between March and October 2016 compared to 67 between July 2015 and February 2016. In October 2016, there were 456 innovation centres globally, up from 301 in July 2015. PwC’s report found that organisations are now breaking down traditional barriers, tapping into a much wider ecosystem for ideas, insights, talent and technology and incorporating the customer into the innovation process.

More-inclusive operating models such as open innovation, design thinking and co-creation with partners, customers and suppliers are also proving to be more popular ahead of traditional research and development (R&D). Of the 1,200 executives surveyed in 44 countries, PwC found that 61% use open innovation, 59% opt for design thinking models and 55% choose to co-create with customers, partners and suppliers, ahead of 34% that opt for traditional R&D. With so many different ways for businesses to harbour and grow innovation capabilities, it’s hardly a surprise that the growth of innovation labs and innovation centres has continued at a pace in recent years.

Technology companies are leading the way in breakthrough innovation with 58% making this the focus of most or all of their innovation efforts, according to PwC. This is followed by the pharmaceutical and life sciences sector, health services, communications and the automotive industry, leaving the online gaming sector with plenty of case studies to take inspiration from.

Travel tracking

Retail is another sector renowned for being forward thinking and a step ahead in terms of adopting new technologies. Online travel company Expedia, for example, has set up its own usability labs in Bellevue and London, with the latest opened in Singapore this April.

The labs use scientific techniques to understand consumer behaviour and identify global differences in user needs that will influence UX design and product decisions. And they were originally set up to understand the frustrations and areas of friction customers were facing with its products.

“Through those insights we would come up with new changes to our website and product innovation. We wanted to use science to understand consumers and simplify the process for them,” explains Clint Hayashi, head of communications, EMEA, Expedia.

The two primary technical capabilities of the labs include eye tracking and electromyography (EMG) technology. Using a test-and-learn approach, Expedia’s product or UX team first come up with a hypothesis about how a design change might impact user behaviour. “We put that on the live site and use analytics to determine whether or not that hypothesis is correct. We learn from our failures and iterate until we get it right,” explains Tammy Snow, director of user experience research, Expedia.

With EMG, small sensors are placed on the cheek and eyebrow of test subjects, which record tiny changes in the user’s facial muscles. The sensors work by picking up subtle muscle movements creating an electrical impulse, for instance above the brow to detect feeling tense or frustrated and on the cheek to detect happiness or delight. Expedia’s researchers then track the changes in the EMG readings to understand the real-time impact that the experience is having on the subject as they go through the booking process.

The two primary technical capabilities of the Expedia usability labs, including in London (pictured), are eye tracking and electromyography technology

The insights gathered from EMG are used to identify patterns or themes that create a positive emotional response as well as testing new design ideas to see if they have increased or introduced emotional engagement.

The other technique used in the labs is eye tracking, which works by using cameras to read the reflection of a person’s eye to locate exactly where someone is looking on a screen. “We can use eye tracking to create heatmaps so that will tell you across several participants where people are spending the bulk of their time focusing. That allows you to optimise your design so you can put the things you believe are most important for decision making in the best places,” says Snow.

One particularly interesting observation that came out of the Bellevue lab was the impact of immersive photos that allow people to see themselves in a particular setting. For example, a photo of a hotel room view overlooking a destination or landmark such as the Eiffel Tower elicited a more positive response. “People were more attracted to that and we saw that in the way their eye was registering. Ultimately those types of photos give them the ability to imagine themselves in that room on that trip rather than just what the room and bed looks like,” says Hayashi.

One of the new product innovations that came out of the lab research was Expedia’s intelligent personal assistant, Scratchpad. When customers log in and search for a trip, on any device, their searches are saved. Prices are also automatically updated with the latest information eliminating the need to start the search again. Since its launch, Scratchpad has been updated to include price trends and price prediction functionality.

Another observation that came out of its research in Asian markets, mainly in Japan and Korea, was that people wanted to know how close public transport links were to hotels. And as a result of that, the product and design team made improvements to the content, which was rolled out globally.

Fintech expertise

Other industries that are also forging ahead with innovation are banks and financial institutions. In May this year Barclays opened a new innovation centre in London, claimed to be the largest fintech co-working space in Europe, for its inhouse banking and tech teams as well as more than 40 co-located fintech start-ups.

Similarly, Deutsche Bank has been pushing ahead with its own innovation strategy by opening its fourth innovation lab in March this year. The lab, based in New York, joins the bank’s existing labs in Silicon Valley, Berlin and London. The bank set up the labs to take a very practical and applied approach to innovation, according to Elly Hardwick, head of innovation, Deutsche Bank.

“You’d be crazy not to use AI in any kind of solution because of the potential it offers” Elly Hardwick, Deutsche Bank

The Deutsche Bank Labs have three main objectives, with the biggest being technology transfer. The goal here is to bring in new technologies from fintech companies and apply that within Deutsche Bank. “The way we do that is not by acquiring or investing but it’s by signing contracts with fintechs to provide services and products to Deutsche Bank,” explains Hardwick.

The second goal of the labs is cultural transformation and the bank regularly holds events like hackathons and brainstorming sessions to infuse the organisation with innovation culture. The final aim is to contribute to the digital element of the bank’s Strategy 2020, where it plans to spend up to €1bn on digital initiatives over the next five years.

The location of the labs is no coincidence and these have been deliberately placed in the leading fintech ecosystems around the world to act as observatories. “They build a network and relationships with the venture capital firms, accelerators, external incubators as well as with the start-ups,” says Hardwick.

The labs act as a connecting or docking point for start-ups to find their way in to Deutsche Bank. “Sometimes it can be challenging for fintech start-ups to navigate through large, complex organisations, so we provide a first port of call to put startups in touch with the right area of the business and the person who will eventually be their customer,” she adds.

This also means that by working with the labs, it’s possible to circumvent some Fintech expertise. “We provide an offline environment where technologies, concepts and ideas can be tested without having to go through the full process of approval that you would need to plug something into a live bank system,” she says.

Aside from the four dedicated labs where the bank has its own full-time staff located, there are also additional innovation capabilities in its HQ in Frankfurt and also in India.

In the newest lab in Lower Manhattan’s Fulton Center, new technologies such as AI, cyber-security and cloud technology are evaluated. These technologies are not normally looked at as standalone but often AI and robotics will be combined to produce a successful solution.

In the newest Deutsche Bank Labs in Lower Manhattan’s Fulton Center, new technologies such as AI, cyber-security and cloud technology are evaluated.

While the labs do come out with insights, the primary aim is not just to investigate an area of technology and come up with conclusions about it but the end goal is to adopt the technology within the bank.

Some recent examples of this include adoption of a piece of technology that allowed its credit risk teams to conduct their stress testing faster and increase the scale at which they could run scenarios.

Another piece of technology has added robustness to its network management, looking at load balancing across many different networks that Deutsche Bank operates. “We have also brought in a natural language processing technology that helps our business development teams find and convert more clients,” adds Hardwick.

Other areas of interest are blockchain and distributed ledger where Deutsche Bank is engaged in a number of different initiatives through the labs, and looking at the future of payments via design thinking workshops and brainstorming sessions.

Exchanging ideas

Aside from banking, consulting firm Capgemini has also been actively growing its own network of applied innovation exchanges (AIE) which are designed to help companies discover relevant innovations.

Through more than 10 AIE locations globally, including San Francisco, Munich, Mumbai, Singapore and London, the exchanges focus on exploring cutting-edge technologies such as blockchain, bots and AI and how they can help organisations solve complex challenges.

The AIEs serve both Capgemini’s existing clients as well as prospective clients that are looking for a new type of technology to address a particular problem or to find new ways of working. “A lot of our existing clients are interested in being part of the digital agenda,” says Priscilla Li, leader in digital innovation at Capgemini.

Capgemini’s clients often have a variety of different problems and use cases that the exchanges can help with. It could be a question about how emerging technology can help grow revenues, increase footfall or help clients make better choices. Or it could be looking at how AI can help assist the workforce in making better decisions when it comes to servicing a customer’s needs.

Capgemini’s London AIE recently worked with the Department for Food, Environment and Rural Affairs on a two-week design sprint to make better use of flood data

The exchange locations have their own dedicated full-time staff as well as extra resources from the larger Capgemini organisation. The employees will work on problems and hypotheses which they trial and test on a week-by-week basis. In addition, there are partnerships with external bodies such as start-ups and accelerators.

The consulting firm’s London AIE recently worked with the Department for Food, Environment and Rural Affairs on a two-week design sprint to make better use of flood data.

The collaboration involved testing out a new way of working and assessing whether it could deliver outcomes in a short two-week period.

“With AIE, we only focus on emerging technologies that really transforms organisations or inspires them to change what they do by applying those emerging technologies. In those two weeks, we were able to build a tool that assesses the amount of progress in a particular region,” explains Li.

She also points out that there are applications for all these technologies across all industries. While finance might be heavily focused on AI and blockchain, the automotive industry has also been using blockchain technology to verify who the user is before they enter a car using a biometric scan. “What I’m seeing emerging with these technologies is also not in isolation. Blockchain can be used in the supply chain to understand the origins of a product – where was it built, where was that particular material sourced, do people care about that? Do customers want to know what they are buying? If you combine that with image recognition you can identify the product without having to search for it,” she explains.

Future disruptors

Looking ahead, what’s on the horizon as the next technology disruptor? Li cites cognitive AI as one exciting area to keep an eye on. “I’d like us to continue pushing the boundaries of what that would entail in terms of furthering the capacity of what it can do like neural networking and mind thinking.”

Looking ahead, Hardwick also expects artificial intelligence, as well as cyber security, to continue to be hot topics in the technology world. “I see AI playing a role in so many areas of technology as a supporting factor. You’d be crazy not to use AI in any kind of solution because of the potential it offers. Cyber security is a hugely hot topic across the venture community at the moment and everybody is interested in staying at the cutting edge of that,” she adds.

At Expedia, one area of focus is natural language interfaces that will interact with people based on their language and needs. The online travel firm is also assessing whether there are different patterns emerging from the London lab compared with Bellevue, US. Snow explains: “Do people emote differently? Are there cultural differences that might be impacting the way people respond? So far we haven’t seen those cultural differences but if we do the plan is to look at modifying our site globally or potentially optimise it for a particular point of sale.”

As companies battle to keep up with rapid technology and market change, the pressure to innovate remains in order to stay ahead of the curve. While the growth of innovation labs looks set to continue, organisations are also placing a great deal of importance on the need to nurture a culture of innovation both within and outside of the business. So those companies that can successfully engage customers and bring together the right expertise and innovative thinking will be the true innovative leaders.