Leah Zitter

Leah Zitter

Do Innovation Labs Work?

ASEAN Today | February 12th, 2017

Innovation labs dot Singapore like the stars on its flag. Citi launched its Innovation Lab in January 2011. MasterCard followed in 2012. HSBC came next in 2015, while Monetary Authority of Singapore (MAS) opened its own, August 24, 2016. In fact, 2016 may be the year of Singapore’s innovation labs, as banks harness the nation’s highly skilled workforce to boost fintech developments. The latest names included Leonteq, German Allianz, Standard Chartered Bank and Visa.

Observers point to mixed results. On the one hand, companies such as Citi talk about the next-generation ideas that their labs produced. On the other hand, skeptics say that innovation labs swill money down the drain.

Here’s an analysis of how profitable it may be to invest in innovation labs.

Innovation Labs

Major institutions in Singapore always had research centers, but the first "innovation labs" launched in 2011, with companies such as Citi, Eli Lilly and the Grameen Creative Lab at the National University of Singapore leading the way. From then on, innovation labs spiked into various sectors: social, education, and banks. All aim to uncover unconventional, even radical ideas, that could enhance different aspects of the company.

In the fintech sector, labs scrutinize customer service, operations, finance, service delivery, and so forth. MasterCard lab, for instance, focuses on researching and developing new payment solutions that include emerging payments, chip, contactless, mobile and e-commerce. HSBC works on payments, trade and supply chain, as well as fostering alliances between the bank and corporations. Allianz’s Asia Lab works with Asian companies to develop next-generation market concepts and prototypes. To this end, innovation labs are permitted so-called fintech sandboxes, where participants can ignore conventions to innovate.

Do Innovation Labs Work? A 2013 Econsultancy polling for SoDA reported that innovation labs reduced turnover because employees were happier. This makes sense since it allows the company’s workers to continue with their tasks, while the 12 or so people in the lab focus on innovation.

Debby Hopkins, chief innovation officer at Citi, lauded her lab’s results:

Over the past several years, we have built an innovation ecosystem that enables us to identify and pursue growth opportunities in an integrated way, from the earliest outreach into the external startup community to the commercialization of new capabilities that deliver value to our customers. Citi's Innovation Labs, and our global network that connects them, play a critical role in our ecosystem by providing a focused, rapid experimentation environment that explores, validates and brings to market the most promising new ideas for Citi's businesses around the world.

On the other hand, skeptics claim that innovation labs are unnecessary, since innovation can emerge from the company’s own workforce. Google, among many organizations, claims that it spurs innovation by empowering its talented and creative employees. Enthusiastic employees do not need to be told to innovate. They are, naturally, always innovating, because all they can think of is their work. Stephen Bohanon, founder and chief strategy and sales officer of Alkami Technology, told American Banker, "Why would you need to create a lab in order to have innovation? To me, innovation is something that should be a part of the underlying culture of the company," And that's what companies like Google believe.

Other observers, like Sam Kilmer, senior director at Cornerstone Advisors criticize innovation labs for bandaging minor issues and neglecting major ones.

To be fair, evidence does show positive results. Citi Innovation Lab, for instance, won the Citi Working Capital Analytics solution at the FinTech Innovation Awards in London, 2016. Eight of Asia’s leading fintech companies, which included KYC-Chain, TNG Wallet, and Lattice, have developed a range of innovations from wealth management solutions to know your customer (KYC) services that leverage blockchain and a fraud prevention program that uses Chinese-based algorithms to flag risk. Fifty-two percent of businesses surveyed by the 2013 Econsultancy polling said the labs benefitted them. A later PricewaterhouseCoopers survey showed that most corporations seemed to recognize the need for innovation. At the same time, innovation labs are too new for scientists to adequately analyze their results.

Furthermore... Other factors may depend on internal conditions. Some Innovation Labs work better than others for infinite amount of reasons that include team spirit, compatible environment, clear instructions and so forth. Rob Enderle, an analyst with Enderle Group, advises that companies need to find the right mix of employees to run the lab:

“Having a group of folks focused on innovation can be far more effective, but only if there is some kind of cross pollination, otherwise you can have an independent group coming up with products that aren’t implemented and processes in search of problems.”

Geographical location of the lab is also important, as well as are organizational and leadership factors. The manager makes or breaks the lab.

In short, innovation labs may be wonderful ideas for next-generation plans. On the other hand, they may also drain corporate money. Results seem promising; they’re incomplete.

Only time will tell.