Innovation Labs Merging the Enterprise and Startup Worlds

Innovation labs have become a mainstay for corporate entities over the years.

As industry turns to the startup community more and more to push their innovation agendas, the variations on the innovation lab theme have expanded well beyond the confines of the enterprise or classic incubator spaces.

Christian Magsisi, vice president of enterprise solutions at Wavefront, a government-funded Centre of Excellence, says the need for greater focus on innovation from the corporate community is pressing as Canada’s R&D spend as a proportion of GDP has been declining since its peak in 2002.

In the latest report, Canada’s rank was 13, well behind countries like Switzerland and Sweden that have far smaller populations, he says. “Yet their R&D spend is double ours.”

The pressure is on enterprises to adopt new ways to bring more innovation to compete on a global scale, he argues. One increasingly popular approach is integrating startups with enterprises in a way that allows them to work together. “It takes a lot of time, money and effort to get a [startup] to the point where it is actually able to do business with a bank for example,” Magsisi says.

The co-working innovation lab model in its various forms is proving to be highly effective, he adds. “The one that is really pushing innovation is taking a corporate team and setting them up in the same location where they work side by side with startups and have the autonomy to make business decisions. We’ve also seen great success for startups and enterprises using intermediaries like Wavefront, Communitech, Invest Ottawa and MaRS.

Communitech was, in fact, the first to establish a co-working space with GM, LCBO, Canadian Tire, and others.”

Kevin Paget, vice president of digital strategy and user experience at CIBC says its CIBC Live Labs initiative at MaRS Discovery District is one of several it has initiated with the accelerator community. For them, the model works because it allows ideas to flourish and operate outside of a controlled large bank environment.

“It has allowed us to put a team with a dedicated focus to tackle client-focused opportunities in digital. We can innovate and move the dial on long-standing issues that we simply didn’t have time to get to inside CIBC.”

MaRS also facilitated the tenancy of like-minded entities like Manulife and Moneris, which Paget says allows them to have conversations about common challenges. Last May, CIBC formed another partnership with Communitech to establish the CIBC Data Studio, where it works with partner companies in the Waterloo region to test new data models. Both labs are staffed by CIBC employees who work closely with the available startups within the accelerator environment.

“One of the biggest benefits is that we are able to learn how we need to change and do our work, and inspire innovation that we can take back into the organization and apply on a larger scale,” he says.

For some multi-nationals looking to break into new markets, a vendor approach can provide an effective means to leverage the innovation ecosystem.

Chris Kay, co-founder of Multiplicity Media in Toronto is the program manager for the INFINITI Lab program in Canada. “Running labs like this accelerates existing startups outside core companies while allowing them to get access to technology and business models outside their standard way of thinking.”

He compares what they do to the model of a VC portfolio. In using that approach, a company like INFINITI can work with 500 to 100 companies a year across the world with minimal risk, he adds. “If a company takes off or the idea doesn’t work out, they didn’t waste a year. But when they make connections, that when interesting stuff gets done.”

Another benefit is that in traditional industries, the odds are enterprises are not seeing things that are happening in the market, Kay says. “There may be things happening at the grassroots level they simply aren’t paying attention to.”

While there are circumstances in which an in-house proprietary approach is appropriate —or necessary, in some cases—there may be the risk of bias when incubating internally, Kay says. “The question they need to ask is, can a corporation act like a startup founder? Being a startup founder and working for a corporation are driven by different incentive and compensation structures, as well as different personalities and risk tolerances. Working together is a great model because it not only creates autonomy, it leaves entrepreneurs free to do what they do best.”

Beyond the creative output, engaging in co-working environments with the startup community makes perfect economic sense, Magsisi says. If a large multi-national company is interested in setting up a lab, it would cost $2 million annually to hire 10 engineers based on an average $200,000 salary.

“The problem is, with this approach you have only one shot at doing something great. Why not take a quarter of that and spread it across intermediaries to run 10 to 15 startups in a cohort. Better yet, why not take half of that $2 million and spread to B.C., Ontario and Atlantic Canada for a shot at 45 to 60 projects. For a multi-national CEO, it’s a no-brainer. Do I give $1 million to 60 projects or $2 million to one?”