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Why Businesses Back Innovation Centers

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Silicon Valley is the capital of global innovation, but it’s not just for startups anymore. Now big non-tech businesses are mimicking them by investing in innovation centers or labs that look and feel more like a boot-strapped venture rather than a global enterprise.

So why are the likes of Walmart, Sephora, BMW, Ford, Target, McDonalds and a slew of others investing in Silicon Valley and other tech centers around the world? That’s the focus of a recent report in innovation centers Jerome Buvat of CapGemini Consulting and I spent the past eight months studying and researching.

The study, which looked at 200 of the largest companies by revenue, across multiple sectors, found that 38% have already set up Innovation Centers. These digital innovation centers consist of teams of people and often physical sites that are set up by organizations in a global tech hub, with the goal of leveraging the ecosystem of startups, venture capitalists, accelerators, vendors, and academic institutions that these hubs provide.

Innovation Centers Map

It wasn’t a surprise that 61% of companies with innovation centers have a presence in the Silicon Valley. Of course other tech hubs are also emerging in places such as Austin, New York, Paris, London, Berlin and Tel Aviv. But even still, the top 10 locations represent only 35% of all innovation centers.

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Primary Purpose of Innovation Centers

The main focus of these centers is to explore tech and also humanize the evolving digital customer. We found it interesting in that while disruptive technology was the number one area of focus for innovation centers so was exploring the digital customer’s needs, expectations and behaviors. Right behind it was attracting outside expertise, which is exactly what’s needed to understand the relationship between both emerging technology and digital customer needs to translate insights and actionable strategy.

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Objectives: Focus Area

Innovation centers also help companies to stay abreast with the latest developments and upcoming technologies in the market. The primary objective of a digital innovation center is to accelerate digital innovation by rethinking the customer experience, improving operational efficiency and testing new business models through the use of digital technologies such as Big Data, the Internet of Things, Social Media, Mobile, Robotics, Augmented Reality and 3D Printing.

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Additionally, we looked at the sectors leading the way. After grouping industries, we were surprised by the fact that manufacturing was at the top of the list. We later learned that many of these companies are tackling developments, such as 3D Printing (for prototyping) and the Internet of Things (to constantly monitor supply chain or operations).

Similarly, telecoms companies, which have felt the full disruptive brunt of the digital revolution, have also invested significantly in innovation centers. For these companies, we learned that opportunities don’t just involve new products and capabilities but also customer services as well.

At the bottom of the list is the financial services sector. An industry that faces significant threats of disruption lags behind Consumer Product and Retail at 28%.

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Each sector in their own way are solving internal and external challenges and pursuing new opportunities as matter of focus and goals. Examples include:

Zappos lab enabled Zappos to launch its “Ask Zappos” digital personal assistance service in just 12 weeks.

Staples’ innovation lab helped launch digital wallets in 9 weeks—Staples’ fastest deployment ever.

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

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.

Innovation Drives Companies to Think and Act Like Startups

For the world’s largest organizations, innovation has never been more important – or more difficult. Without constant innovation, once dominant players are finding their tried and trusted paths to innovation are now dead ends. Innovation centers are proving an effective means to cultivate the agile startup mentality needed to remain at the forefront of the market, but the work is just beginning. At the same time, this is an opportunity for startups to recognize it has both a competitor and an ally in big businesses that get it.

Featured Image: Joey Gannon/Flickr UNDER A CC BY-SA 2.0 LICENSE