What convinces retailers to innovate?

Wyzerr - Winner of CART's Retail Innovation Pitch Event 2016 - Photo: Wyzerr
Nov 30, 2016
Sterling Hawkins

When CART (Center for Advancing Retail & Technology) recently hosted the Retail Innovation Pitch Event, which put retail technology startups in front of a panel of retailers, we gained some insight into how retailers make decisions when assessing new, innovative solutions.

The industry has a reputation for moving slowly and being adverse to change. Retail organizations are performing a balancing act in maintaining older systems and processes while also trying to adopt new ways of doing business that they know they need to stay competitive. This lack of decisiveness has paralyzed many retailers and left others creeping along with slow, incremental improvements. Only a handful are confidently embracing new innovation.

Few retailers are thinking about retailing from a fresh perspective; they’re merely thinking about how to make current retailing better. Today, there are entire schools of technology, such as 3D printing, virtual reality and robotics, which have the potential to completely change the game. When pitch contestants in our recent event presented such ideas, we had a chance to observe retailers weighing the cost of innovation against the potential benefits.

We saw the decision making process break out into three main areas:

Traditional retailers have a big problem and a big opportunity — their brick & mortar stores. The existing ecosystem of hardware and software in a store needs to work synergistically with any new solutions, especially when moving beyond a pilot. Solutions that require little to no integration are easier to work with moving forward and tend to be more rapidly embraced.

Peer feedback
Many retailers, especially those on the smaller side, simply don’t have the skill-sets, processes or capabilities to properly vet new solutions. Before committing to move forward, it’s natural to want to know if the solution works in a scalable way and if the initiative is financially justifiable. Peer experiences may not be perfect in understanding these risks; however, they do provide a certain comfort level. The question here is: if several other retailers are already working with something new, is it truly innovative?

Chain size ultimately has little to do with a retailer’s ability to innovate — it’s the leaders within an organization that create a culture that accepts innovation and all that comes with it, or rejects it. While the iteration cycle of trying new things is slightly different in-store than online, continuing to push the envelope is more of a mindset than anything else. Even if it’s not broken, it can always be better.

Understanding current trends and engaging with the latest technology is only the first step. Taking steps to do something about it has to come next.

DISCUSSION QUESTIONS: How should retailers structure their decision making to stay on the leading edge of innovation vs. the bleeding edge? How can retailers foster a culture that embraces change?

"Fear of failure is the enemy of change."
"The problem is that most retailers operate in a CFO-centric world where IT budgets are based on a “hard savings” perspective..."
"I find that a lot of companies struggle with the discipline and attention span required to implement their ideas well."

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21 Comments on "What convinces retailers to innovate?"

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Mark Ryski

When it comes to innovation, retailers need to focus on the critical few versus the trivial many. I recently heard the CEO of a major chain say, “we literally get pitched hundreds of solutions a year … we’d love to do a lot of them, but we simply don’t have the time and resources to evaluate them all.” Herein lies the challenge that retailers face: there are so many solutions available that determining which solutions to evaluate let alone implement is a problem. Retail executives need to be clear about their business objectives, set priorities and then narrow their focus to explore the solutions that can help them achieve these.

Senior leadership is the key to creating a culture of innovation and change. The retailers I have seen do this best formally allocate people/budget to help establish priorities and oversee the testing of potential solutions.

Charles Dimov

Mark, thanks for sharing this perspective from a retailer. With so many pitches, creative new ideas and innovative possibilities, it is important for retail executives to focus on what is critical to their success and what will drive their business: Keeping an eye on what makes it easier for the customer to find and buy products and services (grow sales), improving customers satisfaction (grow loyalty) and decreasing costs (reduce the need for discounting, inventory impacts, etc). Key lessons for the innovators among us.

Bob Amster

Innovation is dictated by a combination of imagination, perceived return, trends, culture and the personality of individuals making those decisions. Executives are exposed to some innovative approach and some get it immediately. Others can’t see past their nose. Some are daring and will try a bunch of things and some lack the imagination to try much. As soon as we say “leading edge” we narrow the number of executives we can include in the mix. Most follow, few lead.

Ryan Mathews
It all starts with culture. Historically, retailers have demonstrated a shared culture that is risk-averse, favors proprietary solutions, uses retail industry benchmarking as a primary metric for success and has shown a disdain for people who haven’t grown up in the business themselves. This is a losing culture for anyone interested in getting serious about innovation. Retailers also need to understand the difference between “new” and “new to us.” Much of what retail accepts as leading edge technology is a decade or two old if you go back to beta forms. So how do you fix this? Start by making certain strategic hires outside the industry — from areas like high technology, anthropology, design thinking, etc. Next give them a full voice at the table. There’s no point in hiring somebody for show and then not listening to them. Then you want to develop a true customer-centric culture, thinking through the business on the basis of customer desire, need and expectation rather than force-feeding everything through a logistics and efficiency model. And finally retailers should… Read more »
Peter Sobotta

Fear of failure is the enemy of change. And the majority of decision makers are unwilling to make a major bet on an unknown innovation with no proven ROI. To counter this we have seen some organizations such as Walmart and Target create “labs” where innovative ideas are explored and perhaps implemented, e.g., Walmart Labs. But this is very different than an internal change agent that champions an unknown future state. I don’t believe large retailers can structure their decision making to foster change. Instead they must accept that change is inevitable and disrupt themselves into a new category.

Lyle Bunn (Ph.D. Hon)

Innovation only happens when somebody is expected to do it, otherwise the force of deadly slow (or rapid) death by inertia will prevail. Everybody in the enterprise must expect it from everyone above and below as a culture of innovation. When this is slow to emerge, innovation centers should be established to be a force for improvement by identifying and advancing business, marketing, operating and technical opportunities that others may overlook or that span across organizational boundaries.

Dynamic in-store signage is an example of an approach that improves the productivity of place, processes and people and positively impacts many areas such as customer engagement, location appeal, branding, merchandising, supplier support, associate training, safety improvement, hiring, loss prevention and others. Introducing this approach requires executive or innovation group stewardship.

Patricia Vekich Waldron
Patricia Vekich Waldron
Retail and Marketing Expert; Former IBM Executive
1 year 14 days ago

The vast majority of retailers are merely trying to be incrementally better than the shop next door. This is the wrong metric. Consumers are measuring everyone against their last great experience regardless of what it was. Retailers need to diversify to innovate: people, business models, partnerships and processes.

Kenneth Leung

Agreed, in particular given the new online-based specialty retailers who are built on innovating in customer experiences and product selection, the traditional incremental model in retailing leaves them further behind. Part of the challenge traditional retailers need to overcome is the short-term measurements and “not losing” which makes it impossible to pivot or make radical changes.

Lyle Bunn (Ph.D. Hon)

Change management challenges most retailers. Those that have focused on developing this capability are the most successful in the industry and have growing brand equity. Executive sponsorship of change agents is key to this capability.

Lee Peterson

Generally it’s competition that moves the needle. Capitalist factor number one. There’s an old expression in retail that it’s better to be a fast second than a bleeding first.

However, in the age of Amazon, I believe that’s all out the window now. The speed of retail is such that being second is tantamount to losing a LOT of money and loyalty. Today, innovation has to be part of your life blood and culture, not just something you do “or else.”

And therein lies the problem with most “old school” retailers today: they’re stuck in the fast-second world and are not actually capable of innovative thinking.

Lee Kent

The first step to saying yes to innovation is to be innovation-ready. No, that does not mean a retailer must get rid of all the legacy software clogging up the computers, but it does mean creating an infrastructure based on a core. A core is established by looking at mission-critical processes — processes focused around customers, suppliers and employees. Once this is in place and with the right culture, retailers are better prepared to say yes to innovation and to even know what innovation best suits their brand.

I also agree with other posts here that retail needs to bring in some fresh blood in order to accomplish this. It is too easy for the long-term staff to become inundated with the chicken wire and duct tape that is holding it all together today.

But that’s just my 2 cents.

Jeff Sward

The one-word answer is — TEST. Or probe, or explore. Listen and learn, as one of my early bosses encouraged. Last year’s data used to be a good starting point. Now it’s last week’s and yesterday’s. What’s trending and what’s next? You can guess or you can test. Testing is replacing opinions with data in real-time.

It might not be possible to operate an entire retail entity on this premise, but you can operate enough of it to make the whole business reflect a patina of fresh and forward. Needless to say, merchandising, design and the supply chain have to have the mentality and infrastructure to execute this kind of strategy. I am reminded of a conversation I had last week about Fall ’17. To paraphrase, “It’s done. We are starting to look at Spring ’18.” Change happens. You either create it and manage it or constantly play catch up.

Guy Hillier

Relevance and ease of implementation are crucial. Even if the proposed solution meets the business needs of the retailer, a complex integration can stymie a proof of concept before it gets off the ground. As the author suggests, solutions which can be deployed in a “light-touch” manner (ideally requiring very little involvement from IT) will be more likely to advance to pilot, especially if they are backed up by proven reference customers. Such “light-touch” deployments are likely to involve much less risk from a technical perspective and will give the business a decent idea of what their ROI will look like should they decide to deploy the solution across their estate. Retailers who are prepared to have a sandbox or pilot environments for relevant new solutions which are easier to deploy will reap the benefits.

Ken Morris
The problem is that most retailers operate in a CFO-centric world where IT budgets based on a “hard savings” perspective and the annual planning processes are based on a goal to reduce IT and business spending by X percent. This hard savings approach is short-sighted and lacks the ability to consider innovative projects and investments in the future. Retailers need to consider the “soft benefits” of investments in innovative technology that drive increased satisfaction and so-called soft sales benefits. Retailers that will be successful in the long-run will use soft analysis to help drive investment decisions and will invest in the infrastructure that enables innovative technology that drives a better customer experience. Innovation is powered by the “soft” approach. Some of the key areas that should be focus areas for innovation relate to real-time retail capabilities. The truly innovative companies are moving as much technology and as many applications as possible to the cloud (or hybrid-cloud) to enable real-time visibility and access to customer information and products. Real-time retail improves the efficiency of operations, such… Read more »
Shep Hyken
Why innovate? Is it declining sales, competition, old/outdated business models? Yes to all. What brought retailers to where they are today may not keep them there without change and innovation. The key is knowing what to innovate. Unfortunately, too many companies are afraid to innovate for fear of investing in something that won’t work or return on the investment. And, with so many ways to innovate they get “analysis paralysis.” That’s why smart leaders get paid what they get paid. As for creating a culture of change … ask all employees to participate in sharing at least one idea that will change something in the company. It can be focused on making money, saving money, safety, a green idea, etc. Every submission is read. Everyone gets feedback. And, the company shares which ideas are going to be implemented. Do this exercise on an ongoing basis — once a quarter or once a month. I have some clients who do this once a week. Some of the best innovation ideas don’t always come from the outside… Read more »
Martin Mehalchin

Two thoughts here in addition to what has already been said:

First, decision making around innovation or the adoption of new technologies needs to be grounded in a fundamental understanding of your current and/or target customers. Knowing not only how they shop but what their broader needs are should be a primary filter on where a retailer decides to focus their resources available for innovation.

Second, it’s a lot easier to come up with innovative ideas than it is to put them into practice. Integrating innovative experiences, services or products into an existing business requires a lot of attention to less sexy aspects like governance and project management. I find that a lot of companies struggle with the discipline and attention span required to implement their ideas well. Sam Stern at Forrester has done some great work illustrating the importance of these more difficult and “less fun” aspects of CX and innovation.

Mohamed Amer
Steering a ship in stormy weather takes significantly different set of skills and decision-making than during calm seas. Retailers are like mariners, they need to excel at running the steady state (highly predictable) as well as being adept at dealing with abrupt changes and gut-wrenching storms in real-time (survival). With the onset of the digital economy and its disruptive character in the form of fundamentally changing consumer behavior and technological innovations, retailers are facing unprecedented challenges — and opportunities — to running the business. Playing catch-up is not a viable strategic option and taking comfort that peers are in the “same boat” saves no one from the dangers ahead. So, rather than framing the options in front of the c-suite as a technology issue: “leading edge” versus “bleeding edge,” the focus needs to be on effecting a complete revamp of the fundamental assumptions used to inform the company strategy, its organizational structure, and the relationships among the parts of the business. This requires establishing a fresh mindset that seeks out and embraces change, always brings… Read more »
Craig Sundstrom

If I may offer a contrarian view (at least insofar as the questions are concerned, not so much Sterling’s essay): I think there’s a difference between being an “early adopter” (of technology), which I believe most businesses try to be, and being on “the leading edge,” which is a much riskier proposition. IMHO, many of the latter try to be first simply for the sake of being first. Isn’t embracing tech for its own sake often just as bad as avoiding it?

Ralph Jacobson

As the saying goes, “Necessity is the mother of invention.” Retailers need to address many perennial challenges, like in-stock conditions, COGS, etc., while managing emerging issues including e-commerce shipping charges, differentiation, etc. All of these lead to opportunities for innovation. There are some great examples around the world of retailers taking advantage of the newest tools while minimizing the risk of being first-movers. The leadership of these organizations needs to initiate the need and potential for innovation to gain enthusiasm throughout the enterprise.

Steve Johnson

It’s normally external forces that convince retailers to innovate. Reactive as opposed to proactive. Using a construction analogy, it’s easier to build a new structure than an extension. Therein lies the added challenge for traditional, established retailers. They’re building extensions all the time. With limited funding and a marketplace that’s getting more and more competitive. Plus their key resources are too busy trying to integrate the basics as well as getting caught up in (often traumatic and expensive) transitions. Charles Dimov nicely summarises where to focus.

For me, retailers need to be easier to approach, open to ideas from outside their organisation and agile to test.

Roger Saunders
Retail, like so many businesses, has to challenge itself to get out of the rear-view mirror, and start looking forward. By continuously using hindsight, we are blinded when it comes to looking ahead and permitting innovation to spring forth. Retail is an uncertain world, yet in trying to make it more certain, too many planners choose to use last year’s patterns. Look forward. Daniel Kahneman stated matters succinctly at the Wall Street Journal CEO conference a couple of weeks ago: “Hindsight blinds us to the uncertainty with which we live. We exaggerate how much certainty there is. After the fact, everything is explained. Everything is obvious. Hindsight in a way mitigates against the careful design of decision making under conditions of uncertainty.” Satchel Paige, perhaps, said it a different way when he noted, “Don’t look back. Something might be gaining on you.” In retail, find out what the consumer is going to do next, and then be prepared to meet them with your innovation skills — it’s more fun that way, as opposed to wringing… Read more »
"Fear of failure is the enemy of change."
"The problem is that most retailers operate in a CFO-centric world where IT budgets are based on a “hard savings” perspective..."
"I find that a lot of companies struggle with the discipline and attention span required to implement their ideas well."

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