The Rise of the Innovation Center

If the word “innovator” appears in your company description, please review the following list: Silicon Valley, Tel Aviv, Los Angeles, Seattle, New York City, Boston, London, Toronto, Vancouver, Chicago, Paris, Sydney, Sao Paulo, Moscow, Berlin, Waterloo (Canada), Singapore, Melbourne, Bangalore, and Santiago.

If you don’t have an innovation center in any of those towns, you may not be as forward-thinking as you imagine. The problem with establishing an innovation center is finding innovative people to staff it. True innovators are few and far between, but they tend to congregate in these areas.

“One of the reasons that companies open innovation centers is to get the expertise of the talent they don’t have. Ford and Sephora have centers in Silicon Valley because that’s where a lot of the start-ups are,” said Brian Solis, author of What’s the Future of Business and analyst at Altimeter Group. The towns named above were the focus of a new study Altimeter undertook with Capgemini consulting called “The Innovation Game,” something many companies are losing by looking to their R&D organizations to carry the ball.

“So many R&D centers fail to innovate because they are built to focus on next-generation products, when what innovation centers focus on are start-ups and consumer behavior,” Solis said.

Altimeter and Capgemini’s research looked at the largest companies in the automotive, financial services, manufacturing, telecom, and consumer products & retail verticals, and included interviews with key executives at those companies. Two thirds of those managers said they are facing increased pressure to innovate, but that increased investment in traditional R&D centers are producing diminished returns. Tellingly, only 5% of R&D staff say they feel highly motivated to innovate, according to the report.

The answer, according to the report, is innovation centers that must act as fast as the plugged-in population if they hope to get their new releases to market before the market moves on to something new. Innovation today is already brewing among consumers before R&D centers can even begin the practice of catching up with them.

“The future of marketing has nothing to do with marketing. It has everything to do with experiencing what’s going on where the innovation begins,” says Solis (left). “You gain perspective by looking at the world through the eyes of your digital customers.”

To date, only 38% of the 200 companies studied have established innovation centers, but several have succeeded in adjusting to the faster pace of commerce. Zappos Lab launched the Ask Zappos personal assistance service in the space of 12 weeks, says the report. In nine months, Walmart Labs developed a new search engine that led to a 20% increase in online sales conversions. Staples’ innovation operation got its digital wallet into the marketplace in just nine weeks.

Manufacturing companies led the pack in numbers of innovation centers, with a penetration of 58%, followed by telecoms at 43%. Financial services companies, only 28% of which fund centers, brought up the rear. Locating the funds for the centers, not surprisingly, is the biggest thing holding companies back.

“There is no budget for innovation centers. If it’s not a top-down mandate, then some internal champion has to create a sense of urgency and make a case for it,” Solis says. “Everybody faces this challenge, and it’s often a case of starting small and working fast.”

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