Incubating Innovation

How to cook up meaningful
innovation with an innovation lab
Incubating
Innovation

Big Entrepreneurship
The way businesses need to organize and behave has
fundamentally shifted. Across industries, companies,
and organizational functions, we have heard many of the
world’s most innovative companies echo the same challenge:
businesses must urgently embrace a more nimble and
entrepreneurial approach in order to stay competitive.
We call this challenge of how big companies can leverage
scale while staying innovative “big entrepreneurship.”
This report aims to deconstruct some of the complex
challenges around big entrepreneurship and provide
actionable insights for business leaders.
Fahrenheit 212
Fahrenheit 212 is a global innovation strategy and design
firm. We define innovation strategies and develop new
products, services, and experiences that create sustainable,
profitable growth for our clients. We challenge the belief
that innovation is inherently unreliable and have spent the
last decade designing the method, building the model, and
assembling the minds to make innovation a predictable
driver of growth for our clients’ businesses.
www.fahrenheit-212.com | marketing@fahrenheit-212.com
@fahrenheit212 | #bigentrepreneurship
5Big Entrepreneurship

7kAsinnovationhasbecomevirtuallysynonymous
withgrowth,theurgencytoinnovatehassurged.
Withthathascomeequalurgencyforcompanies
todevelopinternalinnovationcapabilities.
Everywhereyoulookthesedays,there’san
announcementaboutanotherFortune500
companylaunchingsomeformofinnovationlab,
hub,orincubator.IntheU.S.alone,thenumber
ofinternalinnovationincubatorshasgrownfrom
twelvein1980toanestimated7,000today.
2Big Entrepreneurship Incubating Innovation

The rallying cries have a common ring to them:
Businesses ranging from The Guardian to CVS have
described the intent behind their labs in the same way:
We need to keep innovating in a constantly changing environment!
Google’s Government Innovation Lab puts it this way:
We need to innovate more often and more consistently!
Staples Innovation Lab says:
We need to become more nimble and respond more quickly
to customer needs!
The ethos of Staples’ lab is well embodied in their effort
to hatch a digital wallet product in just 9 weeks, the
fastest deployment in the company’s history.
The rationale for these innovation labs and incubators is clear.
The catch is that the success rates of these incubators are
wildly varied from company to company. While there is PR value
and cultural topspin in simply having an innovation lab, the point
is not to garner press clippings. It is to build more powerful
innovation pipelines and attractive ROI for the organization.
December
2014
March
2015
Mastercard
Innovation Lab
Sephora
Innovation Lab
January
2015
June
2015
Google
Innovation Lab
For Government
CVS Health
Digital Innovation
Lab
June
2015
The Guardian
Labs

4
A great deal of the surging impetus to innovate is
coming from the boardroom, but it doesn’t stop there.
It’s true: boards tasked with long-term stewardship
(and that have historically biased organizations to
stick to the familiar) have adopted a healthy new
nervousness about whether or not the businesses
they’re watching over are changing fast enough.
But the impetus is also bubbling up from the street
through pronounced shifts in consumer demand.
Driving
Forces
Big Entrepreneurship Incubating Innovation

5
In an era when attention spans continue to
get shorter and there is more willingness to
experiment with new products and services,
companies that once could milk a leadership
position for years without trying very hard are
now challenged to keep pace with escalating
consumer expectations in better, more
personalized, and more efficient ways.
Driving
Forces
In this pursuit, technology is a double-
edged sword for incumbent businesses.
It is simultaneously opening new possibilities
for companies to serve their customers
and create new value while also propelling
those customer expectations ever higher,
making stable customer satisfaction an
increasingly elusive thing.

Consumers want to connect
beyond the purchase
Engagement between company and customer has changed from
a simple matter of messaging and purchase to a more fluid and
context-specific set of thin and transient connective threads.
This is why many labs aim their explorations of technology
at creating new forms of customer engagement. Technology
plays like iBeacons open up a whole new opportunity to get
hyper-contextual with consumers.
For healthcare providers, wearable fitness trackers enable a
new level of understanding of individual lifestyle habits and
behaviors. 3D printing allows for custom-created products to be
made with unprecedented speed. Companies such as Levi’s are
experimenting as well: Levi’s has partnered with Google to
create “smart pants” that tell users when they have gained weight.
Driving Forces
CVS defines the goal of their Digital Innovation Lab as giving
customers a connected health experience “when, where, and
how people want.”

Expectations bleed from
one experience to the next
Driving Forces
7
Across industries, there are new consumer expectations around
speed, responsiveness, and personalization. Uber is certainly a
poster child for this dynamic. In the 6 years since Uber’s launch,
it has leapt out from ride sharing to shape the future of how
physical things are delivered on-demand. Uber’s success has
inspired other innovators to mobilize their own equivalents in
other verticals, and spawned the term “Uberfication” as a strategic
encapsulation of the transformations they’re unleashing.

Driving Forces
8
for what is acceptable: the products and services that people interact
with across other aspects of their lives do. Traditional R&D practices
of benchmarking new products against things just like them have
to be called into question. The better framework is to evaluate new
offerings relative to where life and meta-expectations are headed.
You can now get errands (TaskRabbit), home cleaning
(HandyBook), babysitting (Urban Sitter), vet services (BarkCare),
deliveries (Shyp, Postmates), storage (MakeSpace) and even
bodyguards (Bannerman) on demand with the tap of a few buttons.
The permeation of these services has set expectations much further
and wider than the scope of what each service directly offers, causing
consumers to expect this same level of seamlessness anywhere.
This cross-fertilization of expectations across thoroughly unrelated
businesses seems to be playing out with unprecedented frequency
and velocity. The result is a consumer whose expectations are
not necessarily being driven by your direct competition. A poor
user experience or lack of contextual sensitivity could be all it
takes for them to move on. This is a big shift for companies to
grapple with as direct competitors are no longer setting the bar
Expectations bleed from
one experience to the next

Since 2002, 52% of
Fortune 500 companies
have merged, been
acquired, or gone bankrupt.
The innovation
imperative is heating up
Driving Forces
9
Company leadership is anxious to prove their genuine
commitment to innovation, while also producing ongoing
results. A recent survey of senior executives conducted by
Capgemini revealed that 65% face increased pressure to
innovate. And with good reason: since 2000, 52% of
Fortune 500 companies have merged, been acquired, or
gone bankrupt. In addition, it is projected that 40% of
Fortune 500 companies will be extinct in 10 years. As
VentureBeat recently quipped, the way for big companies
to compete with startups is to “innovate or die.” Or, said
another way, the choice is simple. Disrupt or be disrupted.

Things will keep changing—
keep up or be left behind
Driving Forces
10
Innovation labs are an answer for many companies as a way to
rapidly ignite once-moribund pipelines, foster a culture more
conducive to innovation, and also attract talent and future
innovation leaders.
It is also a way to ensure the company is keeping pace with
rapid and often unpredictable changes playing out in real
time all around them. Technology is often at the heart of
these changes.
It is little wonder then that while 38% of the world’s top 200
companies have established innovation labs, and most of them
are explicitly or implicitly focused on harnessing technology.
For leaders, this isn’t just about stirring up innovation activity;
it’s also about hedging against the omnipresent intangible
threat of disintermediation from digital startups.
38% of the world’s top 200
companies have established
innovation labs.

Innovation activity goes
beyond the SKU
Driving Forces
11
For many businesses, there is also a realization that these
labs need to catalyze more than shiny new products, but
a shinier new company—which manifests as impact on
company processes, approaches, and culture. The desired
end state is a virtuous circle where the lab is not only
producing high-potential innovations ready to enter the
company pipeline, but where the organization itself is
sufficiently influenced by the brave work of the lab and more
likely to rally around its outputs, driving them to market
instead of into the ground. The hope is that inspiration and
momentum become contagious and self-perpetuating.
In the push to compete online, WalmartLabs has created small
teams of “mini-startups” that work to solve specific challenges.
This nimbler approach has led to the development of an internal
search engine that drove a 20% increase in sales.

For innovation labs, that’s a lot of pressure to deliver to both the
needs and expectations of consumers while also helping serve
company requirements for growth and insulation in the face of
less predictable change.
An innovation lab can help push the company into new territories,
reassure stakeholders, and entice consumers. But, how that lab
is structured, funded, and run is critical to ensuring that it is able
to deliver innovations that the organization can adopt while also
meeting and foreseeing consumer demands. The key to ensure
the success of your innovation lab is to ensure the fundamentals
are clear. Here’s how we would frame those fundamentals.
Taking
Action

02
01 Identify the problem
the lab is there to solve
Don’t mistake a symptom for a problem. Contrary to popular opinion, “my
pipelines are barren” isn’t actually a problem; it’s a symptom of something
else that’s broken—be it a flawed growth strategy, talent problem, or
technology gap.
Ensure the lab is designed to solve a core problem or it will fall victim to the
same issues that bogged down other innovation efforts that came before.
13
Prioritize
socialization
Define the
metrics
Motivate
your talent
Don’t let the making
overrun the thinking
Bring in the right partners
03
04
05
06

03
02
04
05
06
01
Prioritize
socialization
Define the
metrics
Motivate
your talent
Identify the problem
14
What’s measured matters. Is the primary focus of the lab on driving
strategy, revenue, adding capability, or attracting talent? Ensure
there is clarity on the goals and metrics for what the lab will measure
will be judged against. The count of colorful sticky notes and tattoos
in the lab aren’t the metrics that will give it staying power.

03
02
04
05
06
01
Prioritize
socialization
Define the
metrics
Motivate
your talent
If you keep opening the oven to see if the
muffins are cooked, they never actually cook.
The lab needs runway to explore and develop
ideas without hordes of company stakeholders
looking in. But working in isolation can reduce
the odds of incubated ideas successfully
re-entering the business. Successful labs make
smart choices about when to socialize, what
to socialize, with whom, and how often.

Designing the careers of the talent in the lab is as important as the
working process, because without world-class talent, you’ll never have a
world-class lab. A key piece of this is defining performance metrics and
incentive schemes for lab staff. The incentive scheme put in place is essential
to having an entrepreneurial culture and behavior take root within the lab.
03
02
04
05
06
01
Prioritize
socialization
Define the
metrics
Motivate
your talent

Find the balance between developing the
right strategy and building. The rush to start
prototyping can divert attention away from big,
unanswered questions around the strategic and
commercial value of an idea. A great feature
set or sexy UI on a bad idea is just a more
enjoyable bad idea. Make sure you understand
how the idea will meet customer demands
while also supporting the business first.
03
02
04
05
06
01
Prioritize
socialization
Define the
metrics
Motivate
your talent

03
02
04
05
06
01
Prioritize
socialization
Define the
metrics
Motivate
your talent
Great labs run lean. They may not need a certain skillset full-time, but
knowing when to bring in specialized help in key moments will ensure
more effective problem solving while containing the head count in the lab.
The skill sets of external partners are widely varied, so when outside
expertise is needed, make sure you are clear on where you are in
the journey and which capabilities are best suited to that stage.

For the talent in the lab,
is it an outpost or a durable
career path?
When do I need to strategize,
and when do I need to build?
What are the lab’s measurable
goals and deliverables?
What’s the relationship
between the lab and the
company’s growth strategy?
What problem is my innovation
lab really trying to solve?
01 0302
04 05
Key considerations
for big companies

The Paradox of Scale
Incubating Innovation
Winning the Next Generation
of Innovators
The Rising Billion
The Chief Innovation Officer,
Redefined
Big Entrepreneurship
01
02
03
04
05
As Co-Founder and President of Fahrenheit 212, Mark has
spearheaded innovation projects for Fortune 500 companies,
emerging businesses, and private equity firms. He is the architect
of the firm’s Money + Magic philosophy, its outcome-based
business model, and its breakthrough Two-Sided Innovation
Method of fusing analytical commercial strategy with user-
centered creativity. He is a front-line innovator shaping new
product and service pipelines for the world’s greatest companies.
Mark’s insights on how innovators, from big organizations
to startups, can transform the odds of innovation success
rates are captured in his book, How to Kill a Unicorn, with
behind-the-scenes stories from the firm’s work with the likes of
The Coca-Cola Company, Samsung, Procter & Gamble, and GE.
About the author
Mark Payne
Founder, President
mpayne@fahrenheit-212.com

Fahrenheit 212 defines innovation strategies and develops
new products, services, and experiences that create sustainable,
profitable growth for our clients.
We challenge the belief that innovation is inherently unreliable
and have spent the last decade designing the method, building
the model, and assembling the minds to make innovation a
predictable driver of growth for our clients’ businesses.
www.fahrenheit-212.com
marketing@fahrenheit-212.com
@fahrenheit212
#bigentrepreneurship
New York
665 Broadway, New York, NY 10012
+1 (646) 654 1212
London
31 Great Sutton St, London EC1V 0NA
+44 0 20 3567 0820
Copyright © 2015 Fahrenheit 212.

Incubating Innovation

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