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Getting started.Managing them.Delivering results. INNOVATION LABS CONTENTSIntroduction3Establishing the mission4Who staffs them?7Structure and governance10How they work: Tools, practices, philosophy12The physical space15Project examples16Measuring impact18What’s next?20Graphic: Lab linkages21CASE STUDIESHow CVS Health connects new Digital Innovation Lab to HQ22Lego CEO on toymaker’s Future Lab29Three objectives for Home Depot’s innovation lab at Georgia Tech31How the LOFT is helping Manulife experiment with new technologies34How Walmart remade its global network of e-commerce labs38Kyle Nel of Lowe’s Innovation Labs on the importance of speed-to-market42Why Visa set up new innovation lab focused on digital payments44IKEA’s Space10 Future Living Lab46How the lab at Express Scripts leverages data to predict47— and prevent — healthcare problemsInside the entrepreneur-led innovation group at Eastern Bank50Audio: Creating the innovation lab at Hearst Business Media53Innovation Leader is an information service that serves corporate innovation executives.If you’ve received this report as a pass-along copy, we encourage you to learn more about Innovation Leader’s corporate innovation coverage, events, and other researchreports at www.innovationleader.com. Introduction Whatexactlyisaninnovationlab? Ask ten companies, and you’ll get ten different answers. (At least.) But we increasingly see large companies creating something they call a lab as a way to cultivate and testnew ideas, separate from the demands and pressures of the business units. More often than not, they existwithin companies that haven’t traditionally had research and development teams. And they typically havesome kind of “showcase” element to them — they’re intentionally designed to look and feel different from therest of the company, serving as a place to expose employees to new tools, approaches, and technologies; tobring in outsiders like entrepreneurs or customers for collaboration; or to help with recruiting. But to achieve impact, innovation labs need to be much more than a Google-esque showcase full of beanbags, espresso machines, and whiteboards. They need: »A clear mission, which can evolve over time»Proper staffing and resources to pursue that mission»Support from senior management»A way to communicate with and test ideas with actual customers»Strong relationships with business unit executives who will eventually bring projects to market»A way to measure results, if they hope to survive over the long-term. To understand how those elements actually get put in place in real compa-nies, and how labs can generate real value, we’ve spoken to more than 20 exec-utives who run innovation labs over the last six months. (We’ve also included atthe back of this report a collection of recent articles and interviews from Innova-tion Leader’s website on this topic.) One of the longest-running, and largest, labs we spoke to was Fidelity Labs,part of privately-held Fidelity Investments in Boston. It was started in 1998, andhas more than 100 dedicated employees. The mandate, says Fidelity Labs vicepresident Rick Smyers, is “incubating products and services and entirely newbusinesses.” At Royal Dutch Shell, with 94,000 employees and $265 billion in revenue, Shawn Murphy of the ShellTechWorks lab says that “our primary mandate is to bring technologies, methodologies, and entrepreneur-ship from outside oil and gas to the larger group.” There is no standard recipe for creating an innovation lab, and at many companies there may not be theresources or motivation to start one. But where we found labs that are working well, they can help to keepthe business looking ahead, exploring new technologies and business models, defending markets, buildingskills among employees and loyalty among customers, and sustaining a company’s competitive advantage. There are plenty of potential pitfalls to avoid. “I’ve seen a lot of businesses in which a lab gets started and they’re not clear what the goals are,” saysSmyers. “Focus on things that really matter. Work on something that’s critically important to your business,or a customer segment that is important.” Murphy says one of the biggest challenges for a lab is what he terms “the Val-ley of Death,” that place between a proof-of-concept trial, a startup’s prototype,or an academic experiment, and an actual commercial product. “99 percent ofall products die in this valley,” he says. Getting through it “is one of those holygrails. It takes a lot of different pieces, but that’s the greatest mandate for thecompany.” At MasterCard Labs, “we’re not guys in white coats doing deep research,”says Oran Cummins. Instead, the focus is on building businesses around andbeyond a payment transaction. “It’s very product-focused. We do enjoy explor- Murphy ing and researching new technologies, but we are definitely not a toy factory or PR engine.” Every company will be situated at a different point of the “innovation urgency” spe