Digital transformation is hard. Tried and true approaches never work. On the other hand, a digital innovation lab — if built to decentralize innovation — does work.
Here is how one bank built a digital innovation lab to help it accelerate its transformation journey. And why others are following suit.
Executives are being asked to do the impossible
Digital transformation poses a unique challenge for executives.
Executives are being asked to,
1. Create products, unique experiences and new businesses
2. Fundamentally change the way they operate (innovation, product management, to software development)
3. Build a digitally savvy workforce
And given the dynamic nature of our current environment, they need to do all three quickly and simultaneously.
But how? Digital is so new, there are no clear roadmaps to follow and the tried and true approaches from the past don’t work
To meet this challenge, executives are trying out a variety of different approaches
Some are letting each business unit / team / group do their own thing. A few are looking to IT to figure it out for them. Others are turning to consultants — hoping that they can come up with a plan.
And all of them are trying to hire digital SMEs as fast as possible.
There is only one problem. None of them work.
Letting each BU / group / team sounds empowering but it ends up causing confusion
“Ground up”, “from the front line”, “empowered” all seem like the right thing to do. So for many executives their first instinct is to leave it up to their BU / team / groups to figure it out.
Unfortunately, that does not work. Executives quickly find out that many of their employees don’t know digital, don’t understand technology, and are risk averse (for good reason).
The lack of direction and support ends up confusing employees, who are already confused and very much out of their elements.
IT may understand technology but they lack the business acumen to lead the transformation
Given that so much of digital transformation is driven by technology, for a few non-technical executives it is natural to let IT lead the digital charge.
However, IT departments may (and that is a big may) understand technology but they lack the business acumen. For example, the company’s best engineers could easily build an AI chat robot, but telling it what to do, where to use, and how to have a business impact is beyond their realm of expertise.
Plus, after 20+ years of outsourcing the IT talent pool has significantly hallowed out. Many departments are still trying to figure out what to do with the most basic of building blocks — such as cloud, agile, and devops.
Outsourcing to a consultant may sound like a safe bet but they themselves are being disrupted
Which then leaves us to outside advice. Going to a Big 4 or non-digital-specific consultant may sound safe, but here too danger lurks.
First, consultants were facing similar challenges. They can create a great deck, but when it comes to implementation their ranks were spread pretty thin.
Second, consultants are not truly interested in helping him build the right skills in house and promote self-sufficiency, despite their rhetoric.
Third, given what we saw with IT outsourcing, do you want to be reliant on consultants replacing internal capabilities?
Hiring sounds great but there are not enough SMEs to go around
Given the dismal success of the above three approaches, executives are doubling down on hiring digital SMEs. But that is easier said than done.
There are too few of them to go around. Finding them is hard, attracting them is impossible, and their salary expectations are astronomical.
And even if you do manage to hire them, their impact is debatable. Peppering a few SMEs across the organization is not going to dramatically improve your digital capabilities. Most likely, many of them will simply succumb to your organization’s inertia and quite a few will leave.
So what do you do? Here is what a bank did — they built a Digital Innovation Lab
When a large Midwestern regional bank wanted to deliver a world class digital experience across several of their products. The executives shunned traditional approaches.
Instead, they built a Digital Innovation Lab — where business, IT, and SMEs could actively work together leveraging modern innovation principles to overhaul their products and create new digital experiences.
What made their lab unique is that it was designed to distribute innovation
Most innovation labs are inward looking. They hoard talent and try to centralize innovation. Their modus operandi is to innovate for the organization.
The bank wanted to do just the opposite.
Their goal was to accomplish all three of its digital challenges — innovate, change processes, and upskill teams.
And so, they built the lab with the intention to innovate with the organization. They wanted to decentralize innovation, democratize it, and empower everyone to do it.
The bank designed their lab like a Japanese Dojo
Dojos are extremely effective in providing an immersive learning experience — where teams learn by doing under the strict guidance of the sensei.
Like a dojo, the bank set up the lab as both a learning and innovation center. The operating model was fairly simple,
1. The lab provided an open environment for product teams to work with digital SMEs to ideate, prototype, and test new experiences with real users
2. Product teams would do the work, the lab would provide the proper structure, frameworks, and hands on coaching
3. And it was time bound. In 6–8 weeks, the team would leave the lab with an executive go / no go decision to build out the experience.
And it worked, in less than a year they have improved 50+ products
What started off with an experiment with just 2 product teams, quickly mushroomed to over 20 product teams.
The bank innovated at a pace and scale that was previously unheard of. On average, a product team was able to develop 100+ hypothesis, translate that into 20+ prototypes, and interview over 30 users at least 5–6 times over an 8-week period.
By the end of the year they have over 50 products and 200–300 employees cycle through the lab. It was far more effective than anything else that they had done.
There were three reasons why the lab worked for the bank
First, everyone was in it together. No longer was the retail BU left to figure it out on their own. Nor was it just left up to IT. The labs brought all of these stakeholders together, built cross functional teams, and gave them a common mission. Everyone learnt, participated, and contributed equally.
Second, it invested in itself first. Through coaching and structure (delivered through the innovation lab), the bank ended up providing the most effective type of training and building its own digital muscle. Outsourcing would have robbed the team of the learnings.
Third, it was far more practical. Digital expertise is expensive and in short supply. By turning them into coaches, the executives were able to hire the best talent, dramatically scale access, and serve multiple groups (as long as they cycled through the lab) simultaneously.
The bank is not alone in its success. Other companies from various industries are following suit
In the last 6 months we are helping a
1. Large health services provider set up a lab where doctors, data scientists, and IT could work together to come up with new medical diagnostic models
2. European Insurer built a lab focused on exploring machine learning uses cases
3. Leader in travel and transportation industry, built a joint innovation lab with key industry partners to ideate on new business models
And while each of the above organizations have their own twist on innovation, their goals are the same — create a catalyst that will allow them to innovate, change the way they operate, and upskill teams.
In part 2 of this series we will deep dive on the several benefits on investing in a Digital Innovation Lab.
Photo by Marília Castelli