Why Your Firm Needs A Separate Innovation Unit

By Tim Williams

By Tim Williams

While no one can predict the future, one thing is abundantly clear regarding what it will take for agencies and other professional services firms to be successful in times to come: we need much more innovation infused into our offerings.  Far too many firms are still dependent on a harvesting strategy, milking the last bit of revenue from dying business models.  Even farmers know that to be prosperous in the years to come, they had better plant some new seeds.

But innovation is infernally difficult within existing organizational structures, particularly in organizations that see themselves as being in the “service” business.  No doubt we want to provide clients with excellent service, but if that’s all we do, we’ll never rise above these daily demands to develop ideas, innovations and invention that represent the equivalent of seed corn for professional service firms.

Innovation is not a part-time job

Many firms have discovered that a “lab” concept is the answer, for a number of reasons:

First, they’ve learned that innovative product/service development can’t be a side job, something you do when you have spare time.  Rather, it requires an investment of resources, and people who can be dedicated to working outside the current structure, identifying and developing new forms of intellectual property that can add value to client business as well as contribute to the company’s bottom line.

Second, firms with successful lab concepts understand that it must be a separate organization with its own management, governance, and budget.  If the lab is just a division or department of the parent company, it will always be subject to the priorities and resource allocation of the institution as a whole, and legacy organizations are structured to support the perpetuation of client relationships, not disrupt the market with new inventions.

Third, labs must not be held to the same standards and metrics of success as the parent company.  Existing businesses measure success through a financial lens.  And while labs can should eventually generate their own margins, their initial mission is to create the potential for new revenues in new ways.

To get started, consider the following steps:

  1. Begin by identifying a leader for the lab. This position can come from outside, but often there is a talented and motivated individual within your organization who would be well suited for the job.  Don’t expect this person to be “billable.”  The whole point of a separate lab is to develop sources of income that are not based on billable hours or “work for hire,” but rather recurring revenues from the development, sale or licensing of unique, productized forms of IP.
  1. Give the lab is own name, brand, and structure. Avoid duplicating the structure of a service business and instead adopt a framework that more closely resembles a software development company or technology start up.
  1. Make your first step to catalogue the strategic assets and intellectual property you already have. Some firms have a remarkable inventory of existing IP that can easily be developed and marketed.  Other firms have a storehouse of intellectual capital that could be packaged with a little creative thinking.  Even firms who feel they possess none of the above often have strategic assets in the form of owned URLs, databases, trademarks, media properties, certifications, software code, etc.
  1. Identify no more than three key projects that will become the focus of the lab for the coming year. Do not, under any circumstances, burden the lab team with assignments from the parent company.  Their exclusive job is to develop opportunities and models for the future, and must therefore not get sucked back into the model of the present.

This isn’t to say there can’t be some information and asset sharing between the parent company and the lab.  This is the concept of a “capabilities exchange” as described by Gilbert, Eyring and Foster in a recent article about disrupting your own brand.  The idea is that the two organizations should be able to share their knowledge but each is protected from interference from the other.  Teams from both the parent company and the lab can meet to exchange ideas, but for this co-existence to work effectively, each organization must operate as though future success depends on it alone.

Profits of the future

Most importantly, the owners of the enterprise must view the lab as an incubator of future profit pools which will require 18 to 24 months of investment.  Just as most of your clients have a line item on their expense budgets called “R&D,” agencies, law firms, and accounting firms need to allocate financial capital to further develop their intellectual capital.  It’s literally the future of your business.