Why Don’t More Retailers Have Innovation Labs?
Through a special arrangement, presented here for discussion is an excerpt of a current article from Insight-Driven Retailing Blog.
One of the trends I noticed in 2012 was retailers creating standalone innovation labs. The ones that seem to get the most notice are Walmart Lab and Nordstrom Lab, most likely because they have great marketing to complement their inventions. Two new labs that just started are the Staples Velocity Lab and the Home Depot Lab. In most cases these labs stem from acquiring a start-up and, not wanting to crush the start-up spirit, the retailer keeps the company separate.
Having a separate lab has a few important advantages. First, since it’s not part of the larger IT organization it doesn’t get sucked into fire fighting, which can be a huge distraction. Also, it’s not bogged down by enterprise-class software development processes that tend to slow things down. An important part of innovation is constant tweaking that can’t be documented up-front. Having labs focused on retail-specific solutions keeps a retailer’s edge.
At Oracle Retail we established the Retail Applied Research (RAR) team a couple years ago under the leadership of John Yopp. They research emerging technology, collaborate with other labs, and convert ideas into prototypes in a nimble fashion. Their efforts help us better assess the value of ideas and de-risk some of the technology.
To foster the innovative spirit, we also have an annual Science Fair in our R&D organization. Small teams with innovative ideas are given the week of NRF to build prototypes, which are then judged based on originality, execution and presentation. Last year we had some pretty cool ideas using iPhones and Twitter that led to patent applications.
Technology doesn’t stand still, so I’m hoping that more retailers create separate labs to incubate ideas in 2013. Nobody can afford to stand still.
Discussion Questions
What are the advantages of innovation labs for retailers? What’s driving the trend and how do you think labs should be created and run to achieve the greatest amount of innovation for the organization?
Technology is fundamentally changing retailing. In today’s news Barnes & Noble (once the dominant brand in book retailing) announced it is closing at least a third of its 4-wall operations over the next ten years, a victim of the e-readers.
All retailers need to better understand and embrace the changes that technology is bringing if they hope to survive, much less prosper in the years ahead. Innovation labs are a great way to do this, although buying a separate company to do this seems a bit much. The fact that Oracle mentions this as a way to keep ahead of the curve speaks to a reluctance by retailers to experiment and try new ideas, which goes way beyond technology.
It is always the latest song that the audience applauds the most … and therein lies the rationale for a retailer having an innovation lab.
Retailers, like everyone else, love the applause of customers. When that aura is created, it rubs off on employees and creates a need by a good many in an organization to seek out new innovative ideas.
Just the concept of staying on top of trends and asking questions around new ideas and new technologies will help keep retailers up-to-date and up-to-speed with innovations that could help move their businesses forward.
Too often executives get bogged down with day-to-day activities and don’t take the time to step away, think outside the box and consider new ideas. With an Innovation Lab in place, that type of thinking will occur on a continuing basis and prepare the company for changes and challenges in the marketplace.
This is especially crucial during a time when new technologies are entering the business just about on a daily basis.
First, “standing still” isn’t an option for anyone. You’re going to move one direction or another, it’s really about which way you’re going to go. But you WILL be moving.
Second, look at the list of factors that result in an enterprise having to protect innovative thinkers and keep them isolated from the enterprise itself. They do this in case they “crush the start-up spirit,” they’re kept away from evil IT departments, and they’re kept away from the constant fires. Any way you look at it that doesn’t sound like a healthy, innovation-friendly environment. Then to get all the innovators excited they have a science fair where people can show their science projects. Are we in grade school here? Do innovators get stickers?
And why is innovation automatically equated to technology?
When an organization insists on looking outside of itself for innovation and/or “best practice,” it indicates they aren’t ready for either one.
There are always unanticipated consequences of new initiatives. There are always new technologies with much potential. Using a lab setting to try new ideas, to get consumer reactions, to identify potential impact on other parts of the organization in a lab setting is much less expensive than building or retrofitting stores.
Only a few years ago, the idea of an innovation lab was a luxury, and savvy CIOs short on cash would set up modest skunk works operations. Today it’s a must, because anyone who’s standing still is sliding backward. I’m talking with very small and innovative tech companies that are getting lots of traction with Tier 1 retailers. This year is going to be fun to watch!
Ian’s comments may seem cranky, but I think his insights are worth consideration: Why is innovation assumed to be technlogical? It MAY be, but it also need not be exclusively related to automation, technology, and IT.
The “show and tell” aspect of it also seems like window-dressing more than an honest effort to integrate innovation into a true business-building initiative or business model.
If we are talking about innovation in the broad sense, it goes beyond an IT lab and needs to be a culture in the organization for constant improvement. I’m not sure having a lab helps other than pulling them out of the day to day.
It’s seems a bit like the ‘fun committee’. Employe morale is down, so we are going to form the fun committee to address the issue.
Innovation labs help retailers to work on projects which could in turn be leveraged to gain competitive insight/advantage—such as customer analytics that no one has attempted before, new ways of checkout, or competitive pricing. As rightly mentioned in the article, for any project to succeed, it needs strategic focus and these labs provide the same.
Innovation labs could also be leveraged to prototype and test disruptive technologies and vendors. Retailers should collaborate with vendors to build the innovation ecosystem
The term “Reinvention for Relevance” comes to mind when thinking of the reasons retailers are anxious to leverage innovation labs. What does this mean? Mainly that speed to findings is critical.
Retailers want to find out what works (and doesn’t) for operational efficiency, customer experience, and the better blending of technologies for in-store and online shopping.
I think an intriguing question is, how should the labs manifest themselves for customer-facing scenarios? Should these be implemented in test stores under the same brand and banner as the other stores, or should it be with a unique brand or store type? Risking customer confusion is a factor, but benefiting from the traffic and visits of a regular location can yield useful results.
Retailers, CPG companies and literally all businesses need a constant, intentional pipeline flow of innovative ideas throughout their organizations. One way to help drive this innovation is through a “lab,” however, there are additional ways to encourage a culture of innovation. These processes can highlight both internal and external, customer-facing innovations. Quite often these innovative ideas can spur true differentiation versus competition, which is the most difficult advantage to maintain.
Retail over the years has gotten far too complacent and it’s time for payback. Retailers, not known to be early adopters, are now looking to become more nimble and thus ready for their demanding, armed consumers. If this means skunk works, buying a lab, or partnering with out of the box thinkers, it’s time to rumble!
Innovation labs are a wonderful idea and kudos to the retailers that recognize their importance to staying in step with various technologies that can enhance the brand experience as well as meet the continually changing and evolving expectations of the digitally-empowered shopper.
As to why more retailers don’t have innovation labs, the answer lies in a cold fact. Most retailers are uncomfortable with innovation and far more comfortable with the term ‘operationalize’. A retailer must have the fortitude and culture starting at the boardroom to actually activate an innovation, whether disruptive or not, that has proven successful (by their metrics). Unfortunately most retailers will not activate an innovative and validated initiative if its implementation is disruptive to the status quo.
Les Wexner always says that he looks at his portfolio of brands like a merchant. Which ones are good/bad, which need to grow and where are the holes in his assortment—and acts accordingly.
I think that’s smart. Why not spread your ‘brand assortment’ out to areas your existing brand(s) don’t have permission to go? That way, you can address consumer needs and changes without changing the existing brand(s) and alienating existing customers.
The entertainment industry has been doing just that for 30 years. Look at the Disney ‘family’.
We must not ignore the possibility that retail innovation labs are a status symbol for executives who are desperate to demonstrate value creation to shareholders.
To me, the lab trend is reminiscent of the “dot-com strategy” wave that washed over the business community circa 1999. At that time, a mere press release could push values up by 10 – 30%. Has anyone out there studied whether acquiring and/or promoting an innovation lab correlates with a bump in share prices for retailers?
OK. This is a far less hysterical time. Then again, I’m far more cynical now.
There is something of a tradition of corporate labs delivering great returns to some very large companies (not to mention lasting benefits to society). Bell Labs (ATT) and Xerox PARC come to mind from a previous era. Today retailers stand among the world’s largest corporations, so it is not beyond the pale for some to invest in pure learning.
Still, captive labs are a lottery ticket for companies whose finances are large enough to play. The hope is that some jackpot will result in the form of new intellectual property or proprietary know how. But the odds are long and innovation life cycles get shorter every day.
Innovation Labs are a great idea but unfortunately not one that many independent supermarket retailers can afford at any significant scale. The good news is that there are other effective ways to foster a culture of innovation inside of an organization such as operating as a learning organization, finding ways to encourage associate to put forth new ideas, and rewarding creative, futuristic thinking and problem solving.
Innovation labs can be the laboratory for new products, ideas, and technology. Many retailers have used certain stores to test new products, shelf sets, etc., but as CPG partnerships and Private Brands shape the retailer landscape, innovation labs are a much better place to experiment with new products and packaging, as well as to consider new technologies.
By having a neutral space to test and discuss ideas, labs allows corporate and/or supplier teams to work together, away from shopper eyes. So much easier to work in 3D to look at product/package possibilities and also conduct consumer research in actual shelf sets.
Most CPG companies and many packaging suppliers have innovation labs to consider/present new ideas for clients. For retailers, protecting new ideas until ready for market test is critical to foster growth in today’s competitive market.
The earlier acquisitions by Walmart and Home Depot are so much more than “status” symbols. They are sophisticated acquisitions (vs. aqui-hires) that snapped up some pedigree cultures and technologies.
Venky Harinarayan from Kosmix, the technology underlying Shopycat, is a total stud with an amazing track record along with Anand Rajaraman. (I am thinking Rivera and Jeter here.) And the folks at Red Beacon (Home Depot’s acquisition) also come to the table with best in class cultures and design smarts.
This is not play time. It means Board of Director upgrades, business development savvy and CEO participation as in when Walmart CEO Mike Duke videoconferenced Jeremy King to recruit him away from eBay.
To your question: what are the advantages? Depending on your product category, it could be everything. Venky was a GM at Amazon, as in Walmart v. Amazon. Home Depot sales are hugely influenced by service providers; this acquisition was probably splashed all over Yelp as in “I love Red Beacon.”
How should labs be created? Since most retailers don’t have deep pockets like the Yankees and the Red Sox, I mean Walmart and Home Depot, I think they need to play money ball. There are many tech teams with great talent who are products of known incubators that have run out of runway that might join a quality brand that’s languishing. (Are you listening Ron Johnson?!)
So why is RAR, RARE? We need GMs who know the zeitgeist. Perhaps Tobias Peggs, a recently departed member of Walmart labs, might be able to add some color regarding what it takes.
A dedicated Innovation Lab can focus on emerging technologies without getting bogged down by day-to-day operational issues. Also, the recent trends in consumerization have increased the pace of new applications development. Innovation Labs should focus on developing applications of technologies rather than developing technologies.
I’m a fan of innovation labs. They can provide a terrific opportunity for collaboration between retailers and key suppliers as new approaches are considered.
The challenge always lies in execution thereafter. Moving from the safety of a lab to the reality of a storefront is quite daunting. However, for organizations truly committed to innovation this can be achieved … and it can produce amazing results!