At Innovation Labs, Playing With Technology Is the Easy Part




Innovation can emerge from the rank and file. Other times it comes from executives at the very top. And sometimes, ideas from both worlds come together

Not too long ago, MasterCard Inc.MA +0.32% CEO Ajay Banga had an informal conversation with Jeff Fettig, CEO of Whirlpool Corp.WHR +0.90%, about digitizing washers and dryers in laundry rooms at dorms and Laundromats. Mr. Banga came home and asked Garry Lyons, who oversees MasterCard Labs, to look into the business potential.

Spotting an opportunity for digital payments in what historically is a cash – well, quarters – transaction, Mr. Lyons talked to John Sheldon, group head of innovation management. Mr. Sheldon then ran development exploration sessions with Whirlpool’s Maytag division, in the warehouse of a Whirlpool customer outside Philadelphia. By the end of a week, the group had a washing machine spinning on command from a mobile phone.

The project, named Clothespin, is going into production, using MasterCard’s Qkr mobile payments technology.

Companies across industries are setting up innovation labs in hot spots such as Silicon Valley, New York and Tel Aviv. The idea is to attract new talent to experiment with emerging technology, sometimes unshackled from the corporate establishment. But assimilating whatever these new thinkers produce into the core product stream can be tough, said Eric Reis, an innovation consultant and author of The Lean Startup.

For many companies with innovation labs, the road from eureka to real product isn’t as smooth as it has been for the MasterCard-Whirlpool partnership, which was paved by the CEOs of those companies. Often a lab builds exciting stuff but then is frustrated in bringing it to the broader organization for commercial use, Mr. Reis said. Classic management science dictates that stable, repeatable processes keep companies in business. Innovation, by definition, disturbs equilibrium, threatening what has gone before, he said. “You are causing disruptions to a system that has an immune response to repair those disruptions.”

As Mr. Sheldon puts it, he’s attentive to “how to get the body not to reject the organ.” MasterCard, Starwood Hotels & Resorts Worldwide Inc.HOT -0.41% and American Express Co.AXP +1.21% each approach assimilation differently, learning what works in their respective cultures. Nordstrom Inc. revamped its approach to technology innovation recently. The retailer scaled back its central lab in favor of inserting technology innovators in business groups to work more closely with customers. 

Typically at MasterCard, for example, once prototypes are deemed commercially viable, Mr. Sheldon and his team seek executive sponsors in business units that could make money or better serve customers with the invention. Last month, the company created a new position, chief commercial officer, to usher digital payments technologies and other projects from development to mainstream product.

Companies must make sure their labs aren’t a dream factory but a central part of how strategic advancement happens, said Steve Hill, vice chair of strategic investments and innovation at KPMG. “Companies have been disintermediated and taken out because they weren’t agile enough to respond to it,” Mr. Hill said. “You don’t put a lab in place if you don’t have a board and management team and a mindset in leadership willing to challenge the status quo.”

The lab at Starwood Hotels & Resorts Worldwide Inc. is tightly integrated with the operations team, to target mobile technology ideas to improve guest experience. The company, which owns Westin, St. Regis and seven other brands, recently finished mobile technology that lets guests check in and unlock doors with their smartphones. For travelers, said Chris Holdren, senior vice president of Starwood’s preferred guest program and digital group, “mobile apps need to be navigated with one eye and one thumb – that simply.”

Starwood has rolled out keyless entry to 150 of its high-end hotels in 30 countries, changing 30,000 traditional door locks. The work continued even as the board looks for a new CEO and explores financial options for the company.

American Express Co. experiments wildly but its lab won’t put forward prototypes until it’s clear the new technology will push the company ahead but not be radical for customers, said Neal Sample, group president of enterprise growth. It’s a concept Mr. Sample calls “the adjacent possible,” in which existing products serve as the foundation for technological advancement. The lab recently demonstrated to business executives how facial recognition could authenticate mobile users.

Still, his group continuously tests theories, even if no one sees an immediate business case. “They get free rein to evaluate ideas of their own or from the business team,” he said. An app for the Apple Inc. Watch went into production quickly this year. But one recent experiment with Google Glass didn’t. That work showed the team what kind of data customers might want on the device. Full account statements? No. Account balance and the most recent transaction? Probably. Google Glass is still a rare sight in the consumer populace, so American Express waits.

“We figured out how far we can go,” Mr. Sample said, “and it’s not far enough to make it useful for us yet.”