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The Innovation Game: Why & How Businesses are Investing in Innovation Centers

With tech startups rapidly eating into traditional sectors, large organizations face an increased pressure to innovate. The challenge is that traditional innovation approaches are broken. A recent study revealed that only 5% of R&D staff feel highly motivated to innovate. In certain sectors, more than 85% of new products fail and an overwhelming 90% of companies consider they are too slow in launching new products and services.

The weaknesses of traditional innovation approaches have led some organizations to explore different avenues and seek new inspiration. These organizations have launched innovation centers in major technology hubs with the explicit mandate to accelerate digital innovations. These innovation centers, comprising teams of people and often physical sites, are established in a global tech hub. The goal is to leverage the ecosystem of startups, venture capitalists, accelerators, vendors, and academic institutions that these hubs provide.

Major global technology hubs are the preferred destinations for setting up innovation centers. 60% of companies that have set up these centers have a presence in the Silicon Valley but many more hubs are emerging – the top 10 cities in our analysis represent only 33% of total innovation centers. The US and Europe have the largest share with 29% of total innovation centers closely respectively, followed by Asia at 25%. Penetration varies significantly between sectors; manufacturing is a clear leader at 58%, but despite facing increasing pressures from digital disruptions, Financial Services lags at only 28%.

It is extremely challenging to make a success of innovation centers. Success factors include clarity on the role of the innovation center, governance for innovation implementation, and a strong connection with the rest of the business.

The Innovation Game: Why & How Businesses are Investing in Innovation Centers

  1. 1. … But success is difficult, and hinges upon multiple factors Innovation Centers help companies accelerate innovation... But the penetration of centers varies dramatically across sectors Define the right focus— not too futuristic, not too current Ensure strong CEO support for the innovation centers Set up a governance model with stakeholders from across the business Create a diverse cross-functional team Prove value and extend innovation across the enterprise Ensure that business units are closely involved Engage with diverse partners in the innovation ecosystem Quickly sunset infeasible programs, but at the right time Hire employees that thrive in both structured and unstructured environments The Innovation Game: Why and How Businesses are Investing in Innovation Centers 65% of senior executives face increased pressure to innovate 52% of Fortune 500 companies have merged, been acquired or gone bankruptsince 2000 ...However, the traditional innovation approaches are broken R&D investments increasing, but R&D returns decreasing Only 5%of R&D stafffeel highly motivatedto innovate In certain sectors, more than 85%of new products fail The main focus is a mix of Technology and Customer aspects Staples’ innovation lab helped launch digital wallets in 9 weeks— Staples’ fastest deployment ever Zappos lab enabled Zappos to launch its “Ask Zappos” digital personal assistance service in just 12 weeks AT&T’s Foundry innovation centers have significantly cut the time from idea to launch—collaboration with startups has delivered successful solutions such as a personalized video bill service and a self optimizing network Walmart’s search engine was developed at Walmart Labs in 9 months with just a handful of employees—the tool drove a 20% increase in online sales conversions “As many as 80-90% of Innovation Centers fail” - Seasoned innovation expert Main focus of Innovation Centers % of companies 35% 65% Gaining access and exposure to latest technologies Deeper Understanding of Customer Needs Innovation Centers Map Top Ten Locations 53 centers Silicon Valley Chicago (4) North America LLLoooooonnndddoon (10) Paris (9) BBBBBeeeerrrrllllliiinnn (((5555)))) Municcccchhhhhhh ((((((5555555))))))) Europe Asia Singapore (7) Tokyo (6) Seoul (4) Bangalore (4) Shanghai (6) TTTT Tel Aviv (4) Shanghai Silicon Valley Chicago Tokyo Berlin London Paris Munich Tel Aviv Singapore In response, companies are beginning to set up Innovation Centers 29% 29% 61% of companies with innovation centers have a presence in the Silicon Valley of all innovation centers …But other hubs are also emerging—the top 10 locations represent only 35% Breakdown of innovation centers by region 58%Manufacturing Telecom Automotive Consumer Product & Retail Total 43% 30% 30% 38% Financial Services 28% Sector-wise penetration of Innovation Centers % of companies 25% Asia Innovation is more critical than ever... Innovation has never been more important ... or so difficult 38%of the largest 200 companiesby revenue, across sectors, have set up Innovation Centers Follow us on Twitter email Learn more at: @capgeminiconsul