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Innovation labs: an experiment gone wrong?

When AT&T wanted to show off something new in 1927, it invited reporters and dignitaries to the Bell Telephone Laboratories Auditorium at 55 Bethune Street, New York. Guests were greeted by the familiar sight of secretary of commerce Herbert Hoover giving a speech. But what made this speech remarkable was that Hoover was reciting it from Washington.

Almost 90 years after America’s first glimpse of television, The Drum is on the 19th floor of a midtown Manhattan skyscraper thinking not all that much has changed. Because here, at AT&T’s modern-day lab, the company continues to invite reporters and dignitaries (though it now calls them clients) to demonstrations to convince them it remains at the forefront of television innovation. Only now, the demo screen is the length of a bus.

Although it is tempting to think of the innovation lab as a modern marketing, er, innovation, in reality it has been around for decades in one form or other. What has changed is that today just about every significant brand in the western world seems to have one.

In theory, the innovation lab is a unit empowered to invent or invest in technologies the main business can implement to futureproof itself. In reality, what these labs look like, and what they actually do, varies wildly. Some are R&D bunkers so secretive that it is almost impossible to glean anything insightful about what happens there; others, like AT&T’s AdWorks sales suite, with its internet-connected pool table in reception, are showrooms designed to convince clients (and internal stakeholders) that the business is moving with the times and won’t be the next casualty of the dreaded ‘D’ word – disruption.

Output that can’t be measured

Common to all these labs is the pressure to justify their existence, a challenge brought home by the closure of Ogilvy Labs in August as part of cost-cutting measures. Proving your worth isn’t easy when your output – and there is no guaranteed output – can’t be measured within the confines of traditional marketing KPIs and therefore doesn’t have a natural place on the profit and loss sheets, except under costs. How exactly do you measure the success of something that has never been done before?

David Polinchock, one of the founders of AT&T’s lab, and who, until last month, ran PwC’s ‘Experience Center’, knows that trial well. “The number one request I got from clients was: ‘I want something that’s never been done, that nobody has ever seen. Can you show me three case studies that show it works?’ I can show you something that’s brand new and has never been done or I can show you three case studies. I can’t do both.”

Playing politics and managing expectations are occupational hazards for the lab boss – and the bigger the organisation, the greater the need to be seen to be doing something to keep sceptical shareholders at bay. Paul Wilkinson, Tesco Labs’ head of technology research, talked candidly about this at a recent event when he said: “Tesco Labs has been around for three years and we operate on the fact that if we do something great once a year, then not a lot of questions are asked about our existence. Genuinely. We’ll do one big thing or a few smaller things each year.”

This is fairly typical of how big companies approach innovation, but it’s the wrong approach, according to Alex Dunsdon. A former M&C Saatchi business development director, Dunsdon runs The Bakery, a sort of Recommended Agency Register or Oystercatchers-style intermediary for agencies looking to work with startups. Having had a foot in both camps, he thinks marketers move too slowly when embracing technology.

“When a venture capitalist makes an investment, they make 35 bets across a portfolio for something to work,” says Dunsdon. “Marketers are used to the big pitching process, getting one thing right. They’re making one or two bets and investing a lot of money.”

Taking small risks

A better solution, he believes, is to conduct lots of ‘minimum viable trials’ at around £5,000-£10,000 a time, then commit to the most successful. “If you could put up a budget of a million quid for innovation, you could do a hundred trials at least of technology and then scale the winners at low risk. That way, you have automatically embedded this culture of innovation because everybody knows it’s part of their job to take small risks.”

It’s the kind of model drinks firm The Absolut Company has been transitioning towards. One of its pilots is a ‘connected’ Malibu bottle that takes users to an online playlist, cocktail recipes, a bar locator and competitions. “We have created a fairly robust evaluation framework for new technologies called ‘now/near/next’, and we measure technologies and possible initiatives against this,” says its digital innovation manager Markus Wulff.

At Absolut, Wulff says, innovation is “everyone’s responsibility”. This means departments working closer than ever to capitalise on opportunities: “The major shift is acting with speed and working in cross-functional teams. Often innovation comes as an opportunity within a field, but needs other departments on board to be impactful.”

Moving to this kind of model requires a shift in thinking many corporate organisations simply aren’t ready for, or aren’t willing to take. “Companies often miss the moment because they are stuck in an inflexible conception of what it is they do,” Andrew Bosworth, vice-president of ads and business platform at Facebook, said at IAB Mixx last month. “There are legal, social and technological barriers to innovation, but ideological is the biggest. What you do for the world isn’t necessarily the same as what you sell.”

Change does not come easy and for those who have been in the corporate environment, the ideological barrier is something they recognise. “There’s a lot of risk, a lot of ‘we know this way works’,” says Polinchock. “You have companies doing really well, companies doing OK and companies that suck. Are the companies in the middle the ones that change a lot? If you’re doing really well you don’t make any changes because you don’t know why you’re doing really well and you don’t want to risk it. And if you’re doing really crappy, you don’t have any resources. That’s a big challenge for companies: ‘We’re doing really well, why would we want to change something?’”

Good at propaganda

One former innovation lab boss, who left their role recently and spoke to The Drum on condition of anonymity, is even more blunt in their assessment: “Corporates inherently don’t trust their employees to make the right decisions or even to have innovative ideas because of their hierarchical structures. They’re very good at propaganda. They’re very good at talking about disruption. Last year it was digital, this year it’s robotics. But do they really understand what they should be doing and what their focus is? I don’t think they do. That’s a frustrating place to be.”

Even those forward-thinking organisations that appear to be doing the right things are acknowledging that they cannot do it all themselves. That’s why Absolut pulled in the internet of things agency SharpEnd to run its Malibu bottles experiment and companies like Heinz, Danone and Unilever have worked with The Bakery to find technology partners on their behalves. So is the answer to evacuate the innovation lab and just brief out all technology tasks to startups and freelancers? Well, not quite.

Nicole Yershon, who ran Ogilvy Labs, has lost none of her enthusiasm for innovation despite the disappointment of her baby – she founded the lab in 2008 – being closed by its parent company. A prolific networker who is just returning home from work trips to Miami and San Francisco when The Drum catches up with her, Yershon believes it is imperative that someone within a brand or agency is empowered with an innovation remit – even if it isn’t an entire team.

“[At Ogilvy Labs] I would see 10 to 15 different companies every single week,” she says. “From there I would be able to see who’s good, bad or indifferent from the mobile space, the data space, etc. Where does that go on someone’s timesheet? To learn what’s going on outside you have to put the legwork in – you have to go to events where you know no one and nothing and then bring it back. There is no one within brands and no one within agencies who do that as their day job. Innovation doesn’t just magically happen.”

This is the thing – innovation isn’t alchemy, it’s chemistry. And a lab that’s doing its job will incite a reaction. As Yershon says, it’s not easy for the chief executive of a legacy organisation to hear someone tell them “you’re fucked”, but they could be in a far more painful position if they fail to heed the warning to change. Like innovation labs themselves, resistance to technology is nothing new – even the New York Times’ enthusiastic report on that historic TV demonstration was tempered with the caveat: “commercial use in doubt”. For some in innovation labs, those words will sound frustratingly familiar.

This article was originally published in The Drum magazine.