Can Innovation Centers Shape the Future of Latin America?

Latin America has tremendous, and growing, purchasing power—due in part to economic giants like Mexico and Brazil—yet this has not led to strong innovation capabilities. While exceptions always exist, for the most part Latin American firms and subsidiaries are limited in their ability to develop innovations that make a global, let alone regional, impact. As practitioners in innovation and business leadership in Latin America for more than 15 years, we believe that one solution is innovation centers, similar to those that exist in developed countries.

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The two groups with the most potential in the region are the multilatinas (Latin American multinationals) and the subsidiaries of large international corporations. However, both are currently underperforming. In a 2013 report, the World Bank states that Latin American subsidiaries are less innovative than their counterparts in other emerging markets. In the case of the multilatinas, other research has found that they too are much less innovative than other emerging market multinationals.

Why does the region fall short? In part, the problem is a lack of needed structural elements, such as intellectual property protection, access to capital, and open markets across the region. A shortage of skilled—particularly tech-savvy—workers, and a concentration of government-owned companies in the services industry also present challenges for innovation. In fact, the World Bank states that public sector dominance in the services sector might be the single most important factor impeding higher innovation levels in Latin America.

While these structural elements will ease over time, innovation centers offer a viable—and immediate—solution to fostering innovation today. The idea behind innovation centers is to be “living labs” that bring together cross-functional talent in an environment conducive to risk-taking therefore leading to improvements in an organization’s operations and development of new products and services. Internationally, companies as diverse as Capital One, Aetna, and Nordstrom, are using innovation centers to develop new processes and new ways of connecting with customers.

Within Latin America, Dupont is an early leader in the use of innovation centers; its facilities in Mexico and Brazil have led to collaboration across various industry sectors, with both public and private partners. In one notable result, Dupont’s efforts in Brazil led to the development of locally manufactured, bullet-resistant body armor used by police and security personnel.

We looked at two companies—one multinational subsidiary in the region and one multilatina—to discover the results of these innovation centers and what lessons we can learn from them. The first company, BBVA, is a multinational banking group based in Spain with a strong interest in overseas expansion, particularly in Latin America. The bank has developed a plan to become the leading digital bank in the region, investing more than $2.5 billion over four years; 40 percent of this investment is allocated to technological projects, including innovation centers.

The company’s strategy is to insert its centers as close to its customers and the business and entrepreneurial hub of a given country or area as possible, so that it can tap into local insights and issues, in order to develop the best solutions. BBVA’s innovation center in Bogota is the first such facility in the banking sector in Colombia, the second that BBVA has opened in Latin America—along with Mexico—and the company’s third worldwide (the first was opened in Madrid in 2011).

The center in Bogota has both laboratory and ideation space and the center’s goal is to function in part like a mini Bell Lab: a pocket center for basic research on digital banking applications in Latin America, with the objective of developing new products and cross-functional solutions for BBVA’s customers. It relies on BBVA’s corporate innovation center in Spain for its strategic direction as well as financing. All three of BBVA’s centers also host workshops, contests, and conferences with select groups inside and outside the BBVA world; fostering innovation beyond the banking industry—and beyond the region of Latin America.

BBVA points to a continuous succession of innovations; the next generation ATM called ABIL is one example of BBVA’s efforts. The ABIL is a result of studying how consumers behave at BBVA’s ATMs in Mexico, Spain and the US. BBVA’s focus on innovation – and innovation centers – is working by creating new customer centric products and services.

The second company we looked at, Stefanini, is a multilatina founded in Brazil in 1987 that provides IT services worldwide. Stefanini currently runs an innovation center in Brazil that focuses on key trends in cloud computing, big data, social media, and mobility, where it hopes to define areas of synergy with operations and business verticals.

Stefanini has notable M&A activity in the last five years; among Stefanini’s recent acquisitions are Brazilian start-up Document Solutions in 2009, US-based TechTeam Global in 2010, credit card processing company Orbitall and core banking solutions firm Top Systems in 2012. Their innovation center is used to foster learning and idea exchange across various units and companies within the Stefanini organization. According to Stefanini, a portion of $400 million is earmarked for innovation projects in the next three years; projects that are essential to the “business” side of Stefanini and not just development of technology itself.

While some companies may not have an innovation budget like Stefanini o BBVA, many of their lessons can apply to fostering innovation in companies and in a region, like Latin America, that does not necessarily have an “innovation reputation”. To achieve similar successes, there are four basic guidelines that companies should follow.

1) Focus on talent: innovation centers help connect companies with talent that might not otherwise be discovered and developed; this talent may be a result of a company acquiring a strategic resource or company through an M&A (as is the case with Stefanini) or an organization’s proximity to entrepreneurial and business ecosystems (as is the case with BBVA).

2) Take an open approach to innovation: innovation centers are “living labs” and therefore should foster innovation in a cross functional environment conducive to risk-taking and integrative thinking; centers should be open to insights gained through collaboration with their stakeholders; BBVA’s ABIL is a good example of co-creation and their openness to community interaction through events and contests is also noteworthy.

3) Test and prototype: centers enable organizations to successfully administer the Prototype-Pilot-Product triad and manage cost and risk without directly impacting the company’s core business; in other words, putting products and services in front of people – and having them interact and “play” with them – can provide rich feedback before rolling out the innovations on a larger scale.

4) Focus on small “wins”: as we have mentioned, the Latin America region is characterized by lack of access to capital and public sector dominance in certain industries. Our last guideline illustrates why innovation centers work so well in this environment: they focus on effective innovations – small “wins” – that have the potential to be scaled in the region given the right conditions and early successes.

Can innovation centers be the catalyst for increasing investment in innovation and changing our view of innovation in Latin America and in emerging markets? We believe that by fostering more cross functional collaboration and mitigating some of the risks associated with large scale innovation investments in developing countries, innovation centers have enormous potential to make a positive impact on the future of business growth in the region.

Authors:

Diego Vallarino is Managing Director at BEXTON Research, a Latin-American Innovation and Management Research Boutique. He is author of “Innovation from the South: How Latin American companies face new competition” (2005). PhD in Business History, GCP (Wharton), SEE (Babson), MBA IP (Adolfo Ibáñez). Follow @diego_vallarino

Esther Clark is the business and strategy lead at Hipona Consulting, a niche firm that specializes in Latin America in areas related to strategic communications, corporate governance and marketing. Follow @ClarkEsther

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