Examining the Impact of Digital Innovation Labs

Through the creation of digital innovation labs, leaders enable employees to explore new strategies that will differentiate their brand and enhance customer experience.
Customer Experience

William Pollard once said that, without change, there'd be no innovation, creativity, or incentive for improvement. Instead, it's those who initiate change that will discover better opportunities to manage the inevitable. Thus, as consumer behaviors continue to shift, many companies are embracing change by creating digital innovation labs that allow them to experiment and invent.

Consumer expectations continue to transform the way companies approach experience and strategy overall. But, to understand their customer base, companies must grasp what these individuals care about most. R "Ray" Wang, principal analyst and founder of Constellation Research, Inc, explains that consumers make their decisions based upon both logical and emotional factors. Therefore, to meet diverse needs, leaders must create continuity across channels, experiences, and devices by playing off the drivers that spark consumer excitement. Digital innovation labs thereby expose employees to collaborators and technology that encourage them to work differently and think outside the box to generate fresh ideas.

"Most companies are currently designed to maximize operational efficiency, which really means that companies are usually overly optimized to meet quarterly results," Wang highlights. "Businesses need teams that think bigger and broader-beyond the bottom line. You can't just press a button or turn a faucet and have innovation come pouring out. Innovation takes time. It requires an internal culture where employees know the right questions to ask and how to tie these creative efforts back to the company itself."

Tony Costa, senior analyst at Forrester Research, notes that, when combined, digital and experiential innovation allow companies to expand internal operations and enhance external offerings. These innovation labs provide the space necessary to hone skills, test ideas, and promote engagement so companies may continuously pursue their goals for customer centricity:

  1. Build employee skillsets: As consumer expectations and behaviors continue to evolve, so must employee capabilities. Employees at every level within the enterprise need to master the skills necessary to innovate. For most, this means honing their ability to observe and identify customer needs so they may align their efforts accordingly. More than anything, companies seek new ways to sustain consumer engagement and maintain customer loyalty. Thus, focusing on the ideas that will likely resonate with their customer base enables employees to prototype and improve upon current products and services with maximum efficiency and effectiveness.
  2. Test emerging ideas: Companies often find it difficult to put ideas out in the marketplace and obtain direct customer feedback because, on many occasions, the concepts that seem smart from an internal standpoint fail to resonate with actual customers. However, by encouraging engagement throughout the testing phase of any project, companies can gain insights that will guide further development of the idea in question. Institutionalizing consumer feedback also allows the organization to broaden its mindset and challenge outdated thinking as it works to understand how things operate outside its own industry and how such strategies relate to the business.
  3. Rally the troops: While customer involvement offers an advantage, employee engagement remains even more critical, as these individuals drive progress across the entire enterprise. Companies must promote employee participation by creating formal, yet unstructured periods of time during which staff can brainstorm and develop ideas. Businesses may also benefit from fostering mentors that can assist others along their journey. Ultimately, being confined to an office or restricted by daily tasks isn't conducive to creativity. Thus, leaders must incentivize employees at all levels within the company to devote time to thinking outside the stereotypical box.

Experiential and digital innovation must work in tandem with the organization's current infrastructure, as these efforts cannot thrive if pursued separately. "Eventually, companies will have picked all the low-hanging fruit, meaning they'll need to reach higher to achieve innovation," Costa stresses. "Uncovering new sources of value has become the core element of business success. It's no longer exceptional-it's fundamental."

In today's marketplace, companies have moved beyond selling products and service. Instead, top brands are now focused on selling experiences. But, before leaders decide whether or not to create their own innovation lab, they should go out on site visits to explore the existing labs of their non-competitors, Wang adds. By doing so, leaders will be able to participate, examine the process, and learn what's worked for others in the past. Innovation labs are an investment that cannot be entered into lightly. Thus, companies must determine if they should build their own personal space, or utilize the resources available within active labs throughout the industry.

Regardless, Wang stresses that employees need innovation labs because they thrive in environments that allow them to see, touch, and discuss the potential all around them. Everyone wants to innovate, of course, but many fail to move beyond their superficial mobile and Web efforts. Innovation digs deeper, as all subsequent services, products, and experiences must be designed to support the brand promise at its core. Wang suggests that, within these spaces, teams should focus on maximizing simplicity, for consumers are increasingly willing to trade money and information as currency for convenience. Companies now operate within the attention economy, meaning all are competing for their consumers' time, and there's no engagement method more effective than streamlining the customer experience to cut the cost of time spent.

Digital Innovation Spans Industries as Labs Gain Momentum

Because companies recognize the need for constant innovation, leaders within their respective markets have come to build and utilize labs of their own. These designated spaces allow employees across industries to act upon their ideas and bring new concepts to life. Here are just some of the top brand names blazing the trail for this new era of digital and experiential innovation:

Retail-Sephora recently launched its innovation lab in an effort to stay one step ahead of their customers and the retail trends of the future. Designed to test an expansive array of digital experiences in-store and online, the space offers the innovation lab team an opportunity to meet and brainstorm by holding testing and feedback sessions to ensure digital in-store experiences align with customer needs. Sephora consistently puts its customers first, with many of its ideas coming from behavioral patterns and insights. Thus, this innovation lab was established in order to continually optimize in-store and online experiences, providing employees with the freedom necessary to think and discover "the next big idea" in the retail industry.

Healthcare-CVS Health has already established itself as an innovator within the healthcare industry, for this well-known drugstore chain currently operates 7,800 retail pharmacies and more than 900 walk-in medical clinics. But, this past winter, CVS Health launched its technology development center, which focuses on building customer-centric experiences in healthcare. This lab will aid CVS Health in its effort to support seamless experiences despite channel preferences. Strategically located at the center of Boston's medical and technological community, CVS Health expects to collaborate with local experts to explore new ways to bring more meaning to healthcare.

Financial Services-Wells Fargo opened its own digital innovation lab last fall in an effort to test ideas and develop demos that will eventually improve the customer experience. Because Wells Fargo recognizes the threat retailers and tech companies now bring to the financial services space, the brand remains eager to enhance current services and develop new products. For instance, innovators are presently working to develop an app that allows drive-up customers to schedule their transactions via smartphone so they no longer have to provide their driver's license as identification. With the goal of making banking quicker as the driving force behind all such developments, Wells Fargo also plans to experiment with wireless beacon technology, video banking, and mobile app enhancements.

Though only representing one small sample of the labs currently within the marketplace, these organizations now lead the pack with regard to innovation. Each respective center for experimentation and development serves as an example that will likely guide other brands that wish to stretch their boundaries and explore their potential.