Inside the innovation lab: How institutions can learn, adapt, and scale like startups

• by Nishant Kumar
• Dec 31, 2025
• 6 min

At MSC, we show how well-designed innovation labs enable institutions to test ideas safely, learn fast, and scale their impact. We bridge the agility of startups with public systems to drive lasting change.

“We want to work with startups, but I am terrified our systems will break, or someone will say we wasted public money.” This was the frank admission from a senior government official in a meeting. Such fear is not unfounded. Institutions carry reputations, rules, and people with careers tied to “doing things right.” Startups carry urgency, unproven ideas, and lack a safety net.  

Yet, the world demands that institutions and startups come together if we want to solve problems at scale across areas, such as climate, inclusion, and health. 

Through the years, many public and private institutions have attempted to bridge the gap between these two worlds. One of the more promising constructs is the innovation lab. A lab is a structured, institutionally anchored space where startups, policymakers, and teams can safely test, learn, and scale innovations without disrupting day-to-day operations. It helps institutions stay future-ready as it systematically phases out outdated processes and embeds new ones, which ensures they evolve continuously – as we have seen in cases like UIDAI (India), City Exchange Program under MoHUA (India), and the governments of Singapore and the UK. Strong models also come from Rwanda’s IremboGov, Colombia’s Public Innovation Team, and Portugal’s LabX—all of which demonstrate measurable impact in digitising services, improving policy design, and scaling public-sector innovation. But poorly designed or poorly run labs can easily become stalled projects—promising on paper yet irrelevant in practice. 

This blog draws from MSC’s experience and conviction on how to improve labs. This belief is grounded in our work. MSC has built and run innovation labs inside ministries, state departments, regulators, and financial institutions, not as side projects but as embedded capability engines. :In the last 3 years alone, MSC has built  

• The Bihar Krishi Lab unified 50+ state agriculture schemes into a single digital window, enabling 0.75 million farmers to access advisory and input services more efficiently. It is now gearing up to reach 4 million farmers. 

• FinLab Bangladesh worked with a2i and Bangladesh Bank, accelerating 8 pilots, strengthening regulatory sandboxes, and influencing reforms in payments and agent banking benefitting 100,000 female garment workers and 50,000 microenterprises. 

Below, we have documented what works, what often fails, how MSC builds labs that scale, and why institutions and funders must step up.  

Lessons about innovation labs from the Global South 

When we discuss innovation labs, we often cite examples, such as MindLab from Denmark or other Western countries. However, valuable lessons have emerged from the Global South, from Peru to Bangladesh, Chile to Botswana, where institutions must innovate as a necessity, and not as an experiment. Across these countries, governments, large private entities, and development agencies have quietly reinvented how they learn, adapt, and scale ideas. Some have succeeded in turning labs into institutional muscle—a repeatable capability to test, learn, measure, and channel innovation back into the institution’s growth cycle. Others have encountered challenges along the way, and their experiences offer equally valuable insights. 

What worked are the labs that breathe with the institution 

1.  MineduLAB, Peru, turned evidence into policy: Peru’s Ministry of Education created MineduLAB with J-PAL and IPA as an embedded unit that tested interventions inside real programs, with findings directly shaping policy.
   Lesson: Labs work when embedded within institutions and have access to budgets and decision-makers. (J-PAL case study) 
2. Laboratorio deGobierno, Chile, built a culture, not a project: Chile’s Laboratorio de Gobierno became a permanent institution working across ministries to redesign services. It earned legitimacy by working directly with frontline officials and sustained itself across political cycles by embedding innovation as a public-sector culture rather than a short-term project
   Lesson: Political legitimacy and continuity matter. Labs designed to outlast administrations turn innovation from a one-off experiment into a routine government practice. (OECD-OPSI) 
3. a2i Innovation Lab, Bangladesh, made innovation a civil-service function:a2i began with digitizing public services and later embedded innovation officers within ministries, turning innovation into a routine civil-service role and significantly improving service delivery. Lesson: Labs last when innovation becomes everyone’s job. Institutionalized innovation roles ensure it outlives any one project or funder.  
4. Botswana’s GovTech Lab transformed hackathons into vehicles for meaningful reform:The GovTech Lab in Botswana, backed by Botswana’s SmartBots strategy, evolved into a structured cycle of scouting, incubation, and integration into national e-government systems.
   Lesson: Labs can start small, but they should be systematic.  

Innovation must move from one-off events to embedded, continuous cycles. As NITI Aayog’s 2023 paper notes, labs should help institutions turn innovation into a sustained habit—not isolated bursts of activity. 

Labs that lost the rhythm and connection with institutions and users failed 

• Labs that stayed outside the system: OPSI–OECD analyses show that many donor-funded labs ran as parallel units with little institutional embedding, and often disappeared when funding cycles or leadership changed—along with their learning and momentum. 

• Labs that became innovation theatre: Labs organized hackathons without follow-through and prototypes without adoption. Promising ideas never left the pilot stage without early alignment to procurement, budgets, and regulation. 

• Labs that could not adapt to political or leadership change: The fate of MindLab in Denmark is a cautionary tale repeated in many developing contexts. When labs depend on individual champions, they risk being dismantled when leadership changes. 

How MSC’s labs work to bridge current gaps 

At MSC, we believe innovation labs should be engines of capability. Here is how we build them, rooted in a customized institutional reality: 

1. Problem first, tech later: Every lab begins with the question “What problem truly matters to the institution and its beneficiaries?” and not “Let us explore AI.” We co-diagnose with leaders and frontline staff to pick two to three mission problems. 
2. Anchored sponsorship and internal champions: From day one, our senior leadership backs a lab. We establish a steering committee or “champions circle” inside the institution. This ensures labs against cuts when leadership changes. 
3. Overlay but embed: Labs under MSC work with the external startup ecosystem, such as accelerators, funders, and domain NGOs. They also place a small team or liaison inside the institution, in strategy, planning, and program units. This ensures that the labs are neither external nor isolated. 
4. Be ambitious but stay focused: Innovation demands ambition, but without focus, it risks losing direction. The lab defines its niche within the innovation value chain, whether it involves early-stage support, commercialization, adoption, or scalability, and delves deeply into it. Labs need to stay focused to ensure measurable progress while they collaborate with other innovation centers that handle complementary stages. 
5. Portfolio of experiments and scaling plan: We run safe and riskier pilots in parallel with clear metrics, timelines, and budget. However, before pilots, we design how each pilot will scale through the procurement route, budget line, policy clearance, and necessary legal or regulatory changes. 
6. De-risking demand and adoption: We go beyond building solutions to help users adopt them. That means field testing, trust building, education, collecting feedback, and iteration. Many labs fail because they forget this side of the loop. 
7. Lessons, transparency, evolution: Labs publish interim lessons, dashboard metrics, failure logs, and playbooks. At fixed intervals, we revisit the portfolio, reset focus, and adapt to new leadership or institutional shifts. 

MSC labs are more than experiments, they  are institutional engines of change designed to scale pilots to system-wide levels, iterate with feedback, align policies, and design for adoption. 

Yet, even with the right design, innovation labs bring their own evolving challenges, especially in the public sector, which balance agility with accountability and experimentation with institutional rhythm.  

The solution is to keep them dynamic, mandate-driven, and KPI-focused. At MSC, we view each lab as a living system that constantly adapts, learns, and aligns with institutional goals so that innovation remains both practical and lasting. 

Why should institutions and funders consider labs? 

Innovation labs are not luxury experiments. They are the scaffolding through which large institutions can learn to become adaptive. They can turn friction into rhythm and promote collaboration between institutions and startups. 

Let us build these bridges together.