Digital Labs Need Runways To Take Off

Digital technology is now a part of our everyday lives and has been around for well over two decades. But despite its seeming ubiquity, and the fact that it’s on the core agenda of every enterprise, digital technology has only just begun to impact industries—and it’s about to make its biggest disruptive impact yet. This goes beyond channel disintermediation, advanced personalization, or customer engagement (not that those opportunities are being exploited exhaustively either), as enterprises are somewhere between 30 to 40 percent digitized, and still haven’t figured out or harmonized that digital is the core of omni-channel and everything else is just an extension.

The next generation of digitization is not about improving access and convenience. It’s about transforming market leaders into intelligent enterprises so that they can become the super-unicorns, even though they were not born-digital. This handful of companies will capture disproportionate economic gains and market valuation. GE is an example of one of those.

Eventually, economic performance of each sector will be concentrated on a few companies when digitization is leveraged by use of artificial intelligence. Other firms who are not willing, capable, or are not able to afford these investments will have to rethink their strategies in value creation and how they play this game by attaching to one or more of the stronger players in the ecosystem. Their value propositions will need to change and they may have to settle for a less desirable market valuation in terms of multiples. Many will only be producing returns only just above their cost of capital.

It will be tough even for established firms, because the market may not provide enough runway for their transformations to take off. These companies’ fates are ultimately determined by their best talent, so talent will be everything. The runway (cash and time) is needed for talent to take off. The “unicorn” phenomenon heavily depends on companies’ ability to pursue an aggressive impossibility with the appetite and resources to support the proverbial runway and attract top talent. The downside and risk to these investments is that they can become worthless—even if they are kept alive—as a result of an illiquid market. The question is, how do we create the same kind of environment in a large corporate setting, and provide the runway and rewards system for the talent required? Without this question answered, no one would want to take on this type of risk. Everything would be business as usual, while an innovation banner flies outside the “corporate innovation lab” or “hipster money pits.”

The results of these labs are very mixed and, I would say, overall less desirable. BuzzFeed is closing its Open Lab this year. Nordstrom downsized its innovation lab, while Microsoft’s Silicon Valley Research Lab, Disney’s research lab, and Coca-Cola’s Founders initiative were closed down too—and there were many more. Yet everyday, new ones keep popping up. IKEA, Porsche, and various US Banks just opened their labs this year. The pursuit of digital transformation is never-ending. And it goes beyond the lab. If you want your lab to succeed, make sure it has enough runway and a good ground crew. Not fancy chairs.