How to establish a thriving IT innovation hub

Aerospace and industrial giant United Technologies depends on innovation to meet the demanding needs of its corporate and government customers. To ensure a steady pipeline of profitable new ideas, the company created United Technologies Advanced Projects (UTAP), a startup-like organization that builds and pilots products and services with the potential to positively disrupt the company’s various business units.

“Innovation hubs of all sizes and scope are truly accelerating innovation by enabling organizations to move with speed … and embrace a culture of collaboration and agility,” says Jason Chua, UTAP’s executive director. “These groups help a company to think differently and approach customer challenges through a new lens.”

The rapid pace of innovation requires enterprises to understand and leverage an ever-changing pool of emerging technologies. “Having your own technology hub that can research new areas of innovation and equate those back to your business imperatives is critical,” states Nelson Petracek, CTO of TIBCO Software, an integration and analytics software developer that depends on its hub to remain competitive in a rapidly evolving and highly competitive market. “A hub can help you determine which of the 5,000 different acronyms that are thrown at you each day actually apply to your business and can be used to drive imperatives forward,” he notes.

Building a tech hub and ensuring that it delivers a reliable flow of business-enhancing tools and services requires careful planning, intelligent management and a long-term financial commitment. Here’s how to get started.

1. Define the mission

Understand that the hub’s mission should be to uncover and develop potentially useful and/or marketable technologies, not to meet pre-determined goals. “An innovation hub enables organizations to quickly experiment with ideas to determine the feasibility of those concepts becoming actual products,” says Rob Krugman, chief digital officer at Broadridge, which provides advanced communications, technology, data and analytics solutions to the financial services industry and businesses. “Creating the hub outside of the primary business lines enables this experimentation to be performed independently without concern for disruption of existing businesses and operational models,” he adds.

Kevin Baril, national managing principal of innovation at professional services and consulting firm Grant Thornton, recommends that a hub should follow a two-path approach focused on cultural transformation and the eventual deployment of foundational, innovative technology platforms. “The culture journey should be grounded in the democratization of the process — everyone participates, everyone innovates,” he explains. Ideas must be refined, progressed and prioritized based on their merit. “Teams need to see [that] their ideas are heard, considered and acted upon in some fashion,” he notes. “The collaborative process of ideation and innovation fosters agility and requires individuals to incorporate other colleagues’ points of views into their own.”

2. Organize management and staffing

Baril believes that a hub should be organized and managed by a leader who reports directly to the CEO. “The role should have an enterprise-wide mandate, and the individual should be well-versed in the firm’s mid- and longer-term strategy,” he explains. The hub director should also work closely with human resources, IT, marketing, communications and business line leaders, he says.

At UTAP, talent from engineering organizations across United Technologies is acquired via an “employees-in-residence” model. The approach allows team members to contribute to UTAP projects full-time and then return to their respective home business units when their work is completed. “We are also recruiting the world’s top talent with flexible compensation models, agile contracting and partnership mechanisms to ensure that we are always working with the brightest minds,” Chua says.

Petracek says he looks for team members with a sharp attitude and aptitude. “Picking staff members for a particular skill set is kind of impossible in this context because you’re looking at new and innovative technology,” he explains. “I’m looking for people who play with technology as part of their life and are self-motivated to try out new and different types of technologies, not just for their own use but also to discover how these technologies map to the enterprise.”

3. Arrange financing

Enterprises use various methods to finance their hub operations. Baril believes that operating and capital expense budgets should be centrally allocated. “Funding for innovation efforts should be viewed akin to research and development — essentially an investment in future competitiveness,” he advises.

Many enterprises, however, tap into their IT budgets to fund hub activities. While apparently logical, this approach can actually be unfair and shortsighted unless enterprise leaders recognize that supporting ongoing IT services and conducting future-oriented research are two distinct needs and allocate sufficient funds to adequately support both functions. “With IT budgets being what they are, it can be difficult for that department to be the sole financier,” Petracek notes. “The business side of an organization has to appreciate the potential and value this type of [research] work can bring,” he says. “Typically, it has to be prioritized by the CIO who decides to fund it as part of the overall IT budget.”

4. Select a location

A tech hub can be located almost anywhere — at an existing business or manufacturing facility, a new site or even spread across multiple venues. Opinions differ on which approach works best. UTAP, for instance, is structured as a distributed organization, with project teams located within United Technologies’ engineering and business sites worldwide. “The proximity enables the UTAP team to deeply collaborate with other … employees and ultimately further the company’s baseline knowledge,” Chua reports.

Krugman, on the other hand, believes that a hub should be situated in a location that offers easy access to a deep pool of talented innovators. “Typically, today, that means access to world-class designers, developers and product strategists,” he says. “Ideally, the location can serve as a studio where clients can be brought in to innovate with the internal teams.”

Regardless of location, hub teams should be assembled on the basis of skills and capabilities and led in a way that’s consistent with any professional consulting organization, Baril says. “It’s also important for client-facing innovation activities to occur in close partnership with the client — not off in a distant center,” he adds. “A close working relationship between an engagement team and the client allows for experimentation and iteration to reach the right solution to solve a particular business challenge swiftly.”

TIBCO decided to position its hub at its Palo Alto, Calif., headquarters, a location with no shortage of skilled developers. Yet Petracek feels that proximity to the CTO and business departments should be the most important factor when deciding on a hub location. “The [hub] team needs visibility into what the company is doing,” he states. “You’re trying to see how the technology can work across different business functions and, ideally, it’s somewhere in the organization that has a broader view.”

Proximity aside, Petracek believes that hubs need to be given the ability to operate independently and without interference. “The last thing you need is team members being pulled onto other projects, but these labs are often the first place people look to for additional support or cutting costs,” he notes.

5. Consider partner involvement and collaboration

Business partners are critical to the hub model from a capability, capacity and time-to-value perspective, Baril says. “Organizations that tap both internal and outside communities tend to gather the diversity of thought and experience that together deliver the most innovative solutions,” he recommends.

Partners can be a great extension to your organization, Petracek observes. “They see different things, work with different customers and have a larger focus on innovation,” he explains.

6. Establish performance evaluation procedures and metrics

Both traditional and nontraditional business metrics are useful for establishing a hub’s value over time. Innovation should directly drive revenue, margin and share of market expansion or preservation, Baril says. “Also, organizations should consider qualitative and quantitative metrics that cover the entire enterprise related to ideation and innovation progression activity and, ultimately, outcomes.”

Krugman advises keeping a close eye on KPIs. “Some of the key items we look to be evaluated on are the number of experiments completed, how those experiments influenced existing and future products and improvement in brand positioning as a result of innovation with clients,” he reports.

Petracek, however, believes that evaluations should be more qualitative than quantitative, since many traditional performance metrics can’t be logically applied to hub research. “In some cases, the fact that something didn’t work is just as important as finding something that did,” he observes. What’s most important, Petracek says, is “what we’re delivering, how it maps to our other solutions and whether customers are interested in these new technologies and the value they can bring.”

Your takeaways

“Our industries are evolving at rapid speed, and if businesses don’t disrupt themselves they can become open to disruption,” Chua cautions. “Innovation hubs are critical to this mission.”

A popular mantra applied to today’s startup culture is having the ability to fail quickly. “Within innovation hubs, organizations are able to apply this type of agile approach without affecting existing businesses,” Krugman says. “This benefits both the existing business by not introducing risk, and the future strategy by enabling organizations to move forward without first answering all of the go-to-market concerns typically raised in a larger organization.”