Trend Watch: Doubling Down on R&D—Firms are Betting Innovation Hubs Will Fuel the Next Wave of Consulting

These types of creative interactions are one of several selling points of the new innovation centers many firms are opening.

Rapidly Co-Creating Prototypes via Immersive Experiences

Press releases and related content describing the opening of new innovation hubs tend to contain similar terms, including co-creation, immersive experience, accelerated, prototypes, configurable, digital, and state-of-the-art.

Firms have been churning these press releases out since about 2015. EY has launched 17 of its innovation hubs, which the firm trademarked as "wavespace" centers (along with related capabilities and intellectual property), in North America, Europe, the Middle East and Asia. PwC operates more than 30 if its "experience centers" around the world. KPMG has a network of a half-dozen "ignition centers" in the U.S. Accenture plans to open 10 new innovation hubs in the U.S. within the next few years. The Boston Consulting Group (BCG) currently operates six "innovation centers for operations (ICOs)" in the U.S., Europe and Asia. Mercer operates three globally.  McKinsey also has a global network of digital capability centers including one in Chicago through a partnership with the Digital Manufacturing and Design Innovation Institute (DMDII). Deloitte, North Highland and a number of other firms operate their own innovation centers. The focus of these innovation hubs varies significantly.

Based on visits, photos, video clips and comments from visitors, the centers look extremely impressive from a design and technology standpoint. The cutting-edge office architecture and advanced technology create a genuine wow factor.

Some innovation centers are geared more toward specific industries or sectors. BCG's ICOs, which center on the use of digital and advanced technologies and include model factories, address manufacturing's digital transformation. "The greatest value for clients is to experience the direct impact in productivity gains and the rapid return on investment from implementing Industry 4.0 technologies," reports Moundir Rachidi, the director of BCG's ICOs.

Other hubs are much more broadly focused on helping clients across industries conduct some form of digital transformation—often by applying a combination of design thinking, agile software development approaches and traditional business process improvement—to an equally broad realm of functions, processes and challenges. Many centers have some element of localization. Roughly half of the clients who visit EY's New York wavespace center come from the financial services sector, and the firm is looking at top New York universities as well as Silicon Alley start-ups as potential partners to involve in the center.

As the trademarked names and branding activities surrounding innovation centers suggest, marketing is another key objective. Accenture's 2017 announcement that it would open 10 new innovation hubs in the U.S. highlighted that the firm's "innovation investment in the U.S." would create 15,000 new high-skilled U.S. jobs.

ALM Intelligence Senior Director of Research Nathan Simon, who has visited innovation centers and examined their offerings and origins, points out that a consulting firm's size does not necessarily determine whether or not it can open an innovation center, but rather how many they build.

Why Innovate Here

The specific factors driving firms to build new physical spaces to interact with clients vary, although the difficulties most companies experience keeping pace with digital technology represents a common, overarching driver.

"There's so much innovation happening so quickly that it's really hard to stay ahead of it," says Jonathan Kestenbaum, managing director of Talent Tech Labs, a New York-based innovation hub that evaluates and promotes technological developments in emerging talent acquisition technology.

EY Americas Advisory Digital Transformation Wavespace Leader Woody Driggs, says that his firm's innovation hubs are designed to help clients "continuously rethink and reimagine business processes, business models, and new products and services" in response to intense disruptions occurring in what firms have described as a "transformative age." Maintaining a laser-like focus on customer experience while collaborating with clients represents a core quality of the consultant-client interactions within EY's wavespace centers, Driggs notes.

Trebino says that one of the underlying objectives of KPMG's ignition centers is to "bring together functions from across the entire firm into one physical location. Somebody on our digital mobile team could be sitting right next to somebody on the data analytics team, who could be sitting right next to somebody from our Oracle solutions group." Placing those experts together generates new ideas, solutions and consulting opportunities, Trebino adds.

PwC Experience Center Leader David Clarke also emphasizes the value that the diverse perspectives of his firms' user experience designers, business strategists and industry experts provide to experience center clients while working with them to "connect the dots to solve business problems that can't be tackled within any one silo."

Those silos along with traditional workflows and organizational hierarchies can bog down digital transformation and related strides, Clarke notes. The working sessions that take place in PwC's experience centers condense months of regularly paced traditional work into three-day exercises. One of those exercises helped the Make-A-Wish Foundation address a $100 million gap between wishes and donations.

By working closely with clients during these condensed product and solution-development activities, innovation centers also are helping clients learn how to develop or strengthen their own innovation capabilities, according to some consulting leaders.

In addition to holding a variety of workshop events and meeting with clients, Mercer's innovation hub consultants also identify and develop new products and solutions consulting teams through the firm can use in their work with external clients, notes Mercer Global Innovation Leader Barbara Marder.

Mercer and other firms use their innovation centers as a mechanism to participate and nurture certain "ecosystems," such as FinTech or talent management. Mercer also invests in Talent Tech Labs, and serves on that incubator's board. "We spend a lot of time with startups and partners in the external world to really understand what's happening and what's likely to happen," says Marder. "Sometimes, we'll buy a partner to get to what we think we need to bring to the market to serve clients in a new way."

Purpose-Built

The notion of inviting clients to an off-site location is alluring—perhaps increasingly so, due to the overwhelming nature of digital-technology changes—but not entirely new.

Simon points to the recent precursors to McKinsey's digital capability centers. Those model factories enabled clients to see and touch the latest manufacturing technology and techniques, obtain a vivid picture of what improvements and innovations were possible and then have their workers participate in experiential learning on the model factory's advanced production lines.

That model helped McKinsey zero in on two longstanding and pervasive consulting challenges, Simon notes: 1) Getting clients to think big enough in terms of the scope of improvements and services they should commit to; and 2) Helping clients achieve the behavioral and mindset shifts necessary to sustain the improvements after  the engagement concluded. 

This offsite offering, Simon adds, hit upon a "sweet spot" of providing something familiar for clients to relate to (e.g., a production line, albeit a state-of-the-art one) while getting clients "far enough from their own world so that they can think differently."

The current crop of more broadly-focused innovation centers are carefully architected to help clients think differently, thanks to their sleek design and impressive technology offerings – and also to the condensed product- and solution-development sessions that many firms conduct with clients. Rather than serving the purpose of sustaining improvements, many of these activities are designed to give clients a taste of the longer and larger collaborations and projects that firms want to take place once their intensive session within the innovation center concludes.

Trebino describes a consumer products client that visited a KMPG ignition center to discuss a procurement challenge. As the ignition consultants listened to and probed the problem, they brought in colleagues with other forms of expertise—including data analytics, digital visualization and tax technology—to contribute to the brainstorming session. A challenge that the client initially thought centered on procurement efficiency turned out to be larger, and the potential solutions featured some alluring tax-planning opportunities. Trebino notes that the work inside the ignition center frequently starts with a client problem or idea, or even the rapid development of a prototype, and then progresses to an actual client-site implementation as well as post-implementation support.

EY's recent wavespace engagements include helping an agricultural company's IT function develop new digital capabilities while embracing agile implementation; helping numerous healthcare and life sciences stakeholders rethink the cancer-treatment supply chain; and guiding a number of client teams through activities related to blockchain and digital corporate finance opportunities.

The primary focus of BCG's ICOs is to deliver an interactive Industry 4.0 experience for visitors, according to Rachidi. A client team from an industrial good company recently visited one of BCG's innovation centers in hopes of gaining a more comprehensive and precise overview on market opportunities, including those related to 3D printing,  in additive manufacturing. The team left the ICO with a list of potential acquisition targets, a business strategy for launching a new technology offering and a roadmap for implementing the new strategy.

Key Measures and Long-Term Questions

The comparatively narrower focus of BCG's ICOs (companies with manufacturing operations and vendors with offerings in those areas) enables Rachidi and his colleagues to deploy a mix of high-level and specific success measures. While noting that clients who participate in ICO activities achieve improvements in their data infrastructure and governance structures, Rachidi also says that the purpose of the ICO is to help global companies notch more quantifiable improvements, such as productivity gains and ramp-up time reductions.

Leaders of innovation centers that attract visitors from a broader range of industries also emphasize the importance of performance measurement even when the metrics are necessarily less precise. "The number-one thing we're measuring is our impact on our clients' ability to transform digitally," Driggs asserts. He and his team also monitor the how wavespace activities influence EY's brand as a firm that helps clients digitally transform and deliver innovation.

At KPMG's Denver ignition Center, Trebino tracks most of the same metrics—opportunities being pursued, wins, revenue, consultant utilization rates, etc.—that  he would use to manage one of the firm's traditional consulting offices. And he frequently compares his ignition center's performance to the performance of some of the firm's traditional offices. Notably, Trebino also places great emphasis on the results from the engagement surveys that Ignition Center consultants periodically complete. "We take those very seriously," he asserts. That emphasis shows the value that the firm ascribes to its ignition centers from a recruiting/employer-of-choice perspective.

These types of measures will be important as the returns on firms' investment in innovation centers take shape in the coming months and years. Today, many firms appear eager to increase their investment in this not-inexpensive capital, and leaders of these innovation hubs sound extremely optimistic about their offerings. Clarke reports that there is a months-long waiting list for sessions within PwC's experience centers. "It's been inspiring to watch how this has all unfolded," he says, "and I'm really proud to be part of this team."

The extent to which this type of client interest and internal optimism sustains seems dependent on how firms address some important questions in several key areas, including:

• How much are firms willing to invest in real estate, and for how long? Many consulting organizations, especially partnerships, are not financially structured for capital investments. Although some innovation center leaders emphasize that they have ways to stretch their design and building dollars, these facilities cost significantly more than traditional office space.

• Which purpose will prevail? Consulting leaders identify a range of different objectives for their innovation centers, including marketing and branding, opening clients' eyes (and wallets) to more ambitious changes, assisting with digital transformation (broadly or in specific sectors), incubating start-ups and ecosystems, and showing clients how to innovate and incubate. Which one or two of these goals will provide the most tangible returns?

• How does space scale? Larger firms—even those with numerous innovation hubs—can only invite a fraction of their clients to innovation center programs and events. While high-value clients are no doubt at the front of the line (and waiting lists), firms will need to figure out how to run much larger numbers of clients through their hubs if facility-based interactions begin leading to more and/or more lucrative engagements.

Consulting leaders uniformly report that their clients are eager to participate in innovation center events and workshops, which is a positive sign for a new investment that, thanks to its very nature, is designed to be adapted to address changing business conditions, technology disruptions and client needs. One new offering that innovation center leaders may already be considering relates to the design and construction of innovation spaces.

Trebino recently caught up with a client that told him the company was considering redesigning its own office space, in part, because of the experience some of its leaders enjoyed at the ignition center. "We're seeing a lot of change in our client base in terms of the way they work, and even how they're building, or renovating, office space," he adds. "We're starting to help them think through that and learn from what we learned."

Step inside one of the new innovation hubs that more consulting firms are opening and you'll see advanced touch screens, enticing brainstorming nooks, stand-up desks, cutting-edge conference rooms and perhaps even a foosball table or two.

You won't see many walls, however. That seems fitting, given that the brainstorming, problem-solving, prototyping flourishing among the open floor plans are designed to help client teams adapt to the rapid demands of digital transformation while sidestepping the obstacles posed by traditional functional silos and other organizational barriers.

If you look even closer you may see signs that traditional approaches to consulting are being disrupted. Leaders of innovation hubs frequently promote the benefits of housing a wide variety of consulting expertise in an interactive setting—not only to help address specific client challenges, but also to stimulate conversations and inquiries that can seed enhancement to consulting services.

Mercer Global Innovation Leader Barbara Marder reports that one of the objectives of Mercer's innovation center is to develop new products and solutions for use throughout the entire firm. Lou Trebino, who serves as the leader of KPMG's Denver ignition center, says that consultants who work in the center frequently get pulled into client sessions when brainstorming sessions suddenly swerve into their area of expertise.

When a discussion with a client team from a consumer-products company hit upon a tax issue, Trebino recalls that he "just walked out of the room and went around the corner to our tax innovation team. I said, 'Hey, we've got so-and-so in the room right now, and here's what we're talking about. I know you did something similar recently—could you come in and share with them an example of what they should be thinking about?'"

These types of connections and discussions cannot be scheduled in advance, and Trebino asserts that these off-the-cuff interactions really appeal to clients.

"There is a magic that happens when you bring these [consulting] teams together more organically, Trebino continues. "…It doesn't always result in new work, but it enhances our brand and our credibility. There is generally something beneficial that comes out of those interactions."

Similar exchanges crop up among consultants with different specialties. A tax technology expert, a data scientist, and a retail consultant can routinely compare notes while taking a break over a game of pool, for example, and that may lead to some interesting idea related to service enhancements.

The growing importance of the customer experience and digital transformation in most industries has many firms hustling to staff innovation centers with a mix of designers, user experience experts, technologists and traditional analytical problem-solvers. There is also a need (one that has been intensifying over many years) to address client problems and design solutions by integrating thinking and improvements that cuts across traditional organizational silos—and that come from a blend of traditional vertical and horizontal consulting functions.

In this way, the simple act of placing a new mix of expertise in the same office may turn out to be one of the most valuable breakthroughs that come out of innovation centers.  —E.K.

Sidebar: How to Nurture and EcoSystem

The word "incubator" pops up in some discussions with leaders of consulting firms' innovation hubs. The idea is for the hub to attract a broader range of participants, including start-up companies with offerings that may add value when integrated into consulting services. In some cases, firms have invested in start-ups that work within the facility.

By nurturing startups they have a stake in, some innovation center leaders want to use that experience to help teach clients how to invest in and groom start-ups on their own.

That's easier said than done, says Jonathan Kestenbaum, managing director of Talent Tech Labs, a New York-based innovation hub that evaluates and promotes technological developments in emerging talent acquisition technology. Most of the consulting innovation centers he has seen tend to "focus on building a small number of companies rather than investing in a sector," he notes. "They will never be able to stay ahead of innovation this way."

Expanding that focus, Kestenbaum says, requires a stout research capability. He identifies a number of enablers of operating a successful incubator, including the following:

• Meeting: Talent Tech Labs' business operators meet with as many companies as possible. They do so to get past the marketing language while getting a feel for the start-up's founding team, employee morale, the revenue model, the five-year roadmap and the financials.

• Modelling and Manipulating: All of that information is fed into a success model Talent Tech Labs developed to help determine if a new company's concept is sufficiently unique (i.e., innovative and influential) to make an impact it its market.  "All the information that we extract gets stored in our proprietary database," Kestenbaum says. "We structure it and analyze it … we've created this taxonomy that allows us to see what's working and what's not."

• Measuring: The organization carefully tracks its performance. Key metrics include purchases of the firm's research as well as the number of individuals engaging with its content (i.e., reading, downloading, quoting and sharing those reports).

"In the end," Kestenbaum adds, "everything ties back to the research."

—E.K.

Sidebar: Innovation Centers May Transform Consulting Teams, Too

The word "incubator" pops up in some discussions with leaders of consulting firms' innovation hubs. The idea is for the hub to attract a broader range of participants, including start-up companies with offerings that may add value when integrated into consulting services. In some cases, firms have invested in start-ups that work within the facility.

By nurturing startups they have a stake in, some innovation center leaders want to use that experience to help teach clients how to invest in and groom start-ups on their own.

That's easier said than done, says Jonathan Kestenbaum, managing director of Talent Tech Labs, a New York-based innovation hub that evaluates and promotes technological developments in emerging talent acquisition technology. Most of the consulting innovation centers he has seen tend to "focus on building a small number of companies rather than investing in a sector," he notes. "They will never be able to stay ahead of innovation this way."

Expanding that focus, Kestenbaum says, requires a stout research capability. He identifies a number of enablers of operating a successful incubator, including the following:

• Meeting: Talent Tech Labs' business operators meet with as many companies as possible. They do so to get past the marketing language while getting a feel for the start-up's founding team, employee morale, the revenue model, the five-year roadmap and the financials.

• Modelling and Manipulating: All of that information is fed into a success model Talent Tech Labs developed to help determine if a new company's concept is sufficiently unique (i.e., innovative and influential) to make an impact it its market.  "All the information that we extract gets stored in our proprietary database," Kestenbaum says. "We structure it and analyze it … we've created this taxonomy that allows us to see what's working and what's not."

• Measuring: The organization carefully tracks its performance. Key metrics include purchases of the firm's research as well as the number of individuals engaging with its content (i.e., reading, downloading, quoting and sharing those reports).

"In the end," Kestenbaum adds, "everything ties back to the research."

—E.K.