Differentiate with digital

Digital Labs Can Do More Harm Than Good

Oliwia Berdak
Senior Analyst
June 17, 2016

Exposed brick is replacing marble at many banks, insurers, and payment firms. Warehouses are deemed a better location for digital labs, digital centers of excellence, innovation labs, and innovation centers. But why are these spaces proliferating from Silicon Valley to Singapore?

A cynic could say it’s a marketing exercise aimed at making the respectable (if a little slow) financial institutions seem more innovative — and more attractive to both customers and developers. But it’s more than that. Frustration and ambition are pushing business executives out from their traditional locations.

Digital labs promise speed by unshackling product and software development from slow business, technology, and compliance processes. They embrace new approaches, such as design thinking, customer centricity, and Agile development. They can drastically cut the time it takes to develop a proof of concept (POC).

But that’s where the dream ends.While these separate digital units aim to be disruptive, they often deliver just front-end apps or proofs of concept that are impossible to integrate and scale. Why? Because software-driven innovation requires a connection to systems of record, rigorous testing, an understanding of security and compliance threats, an analysis of impact on business units and revenue, and someone with the resources to own, love, and keep developing the product — all the things that made digital innovation so slow in the first place. All that labs achieve is to postpone these reality checks.

The bi-modal approach — isolating Agile development teams from the mainstream — doesn’t work. What should you do instead? Rather than bypass your technology management colleagues, you should try to understand their concerns and jointly build a case for investment to address these. Diego Lo Giudice and I have just published twin reports — one for digital business strategy professionals, and one for application development and delivery leaders — that propose a better approach, one that has implications for your organization, architecture, and operations.

We don’t want to downplay the enormity of digital transformation. Last week, attendees at Forrester’s Digital Transformation Forum had a chance to listen to Jon Webster, Chief Information Officer for Digital and Transformation at Lloyds Banking Group, and Dave Murphy, Vice President and UK Managing Director at SapientNitro, talk about the bank’s transformation journey. The sheer scale of the transformation and its price tag of £1 billion are not for the faint-hearted.

An intermediate step of WaterAgileFall may help — but only if you do it right as, explained in this brief. Don’t lose sight of the end game, though. Fintech and digital innovation are getting a lot of attention from top executives at the moment. Don’t let them think that launching a lab is sufficient. Strike while the iron is hot: Ally with your technology peers and push for end-to-end digital transformation.

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