Through a special arrangement, presented here for discussion is an excerpt of a current article from Insight-Driven Retailing Blog.
One of the things our Retail Applied Research team tries to do is "fail fast." That doesn’t mean we’re trying to fail, but we want to arrive at a failure or success assessment quickly so we minimize investments in failures. But just because a project isn’t deemed a success doesn’t necessarily mean it’s a failure.
In many cases we can pivot, reusing some of the knowledge and technology but applied in a different context. There are many famous examples of pivots, like the emergence of Fab.com from a social app targeting gay men or the pivot of Tote into Pinterest. Sometimes the original idea just didn’t fit and other times the market changed and required re-assessment.
Agile retailers need to test (a step Ron Johnson skipped over) lots of concepts before finding the ones that work and then not stay married to those concepts forever.
These days, more and more retailers are establishing labs where technology innovation can be better cultivated, perhaps only to be pivoted. Below are three common approaches I’ve seen from retailers.
1. Organic approach. Some retailers, like Tesco and Wet Seal, fan the flames of innovation within their four walls. Tesco has continued to innovate with their website, loyalty program and mobile apps, much of which are developed internally. Wet Seal, one of the early pioneers of social retailing, learns through trial-and-error, finding out which ideas have legs. This approach requires strong leadership, vision, and a willingness to fail, so its not for every company.
2. Kickstart with acquisitions. In April of 2011 Walmart acquired Kosmix, a social startup, and formed @WalmartLabs. This was followed by a string of additional acquisitions in the social and cloud spaces. Home Depot took a similar path by acquiring BlackLocus to form a lab, then following with the acquisition of Red Beacon. This can be an effective approach if there’s no existing culture of innovation, so buying the start-up mentality can form a basis for building a lab.
3. Partner collaboration. The danger retailers face is losing focus on their core competency — retailing. Running a start-up within a large company can be costly, reliant on key individuals and sometimes a distraction to the core business. An alternative approach is to partner with technology companies so as to share some of the burden. Lowe’s, for example, invites technology partners to present innovative ideas, then chooses a few projects for collaboration. This can be an excellent way to stay on the leading edge of innovation without some of the mentioned downsides.
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Discussion Questions
What is your evaluation of the varied approaches retailers are taking to establishing innovation labs? Which appears to foster the greatest experimentation? Which best balances investment risks?
Poll
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The appetite for innovation in retail is as substantial as I’ve ever seen. A lot of retailers have skunkworks operations, investigating ways to leverage tech innovation. Unfortunately, most are underfunded, and compete with multiple other priorities at every retail company. But retailers understand that they need to create new customer engagement strategies, or fade away.
At the end of the day, retailers are going to select an innovation process that is within their comfort zone, what they feel is palatable for the marketers and C-suite as well. What I urge them to do is not only to allow for failures, but to get the answers to the question “why?”
In my experience, it’s not just about selecting what appears to be the most viable new concept, but to insure that the least viable, the turn-offs, those that rub customers the wrong way are isolated before major investments are made. In truth, finding the least likely contenders is a whole lot easier than selecting the best new idea. However, once there is understanding what makes a concept risky, if not a downright disaster, the learning can carry over to modifying and building successful innovative solutions that have made it through the introduction gates and that will bring solid returns on the associated investment.
In the near future, we will see more retailers working via their lab arrangements with Universities that focus on retail and leverage the latest in retail and consumer understanding. The right schools have the resources that can help retailers look beyond today’s shopper and deeper into how family science is shaping tomorrow’s shopper. Technology is important, but understanding the shoppers’ mind is even more critical.
I agree with Cathy on the need being more urgently recognized currently than at any other time. I, however, think that the focus on TECHNOLOGY is a mistake. Technology is an enabler, not the goal. Doing things because we can or because we have the power, memory, speed, etc., to do it has overtaken identifying what truly needs to be done.
I think the innovation required is in better understanding the less technical/technological things (though technology may assist in acquiring the information)—how to differentiate the store from competition, how to market more effectively so that messaging is clear and distinct, understanding how the shopper shops, appreciating what frustrates the shopper/what educates the shopper/what surprises and amazes the shopper, etc.
Innovation for innovation’s sake is costly and a difficult business model to sustain. Innovation that provides solutions to opportunities makes good practical business sense. We need to identify the targets far better.
Skunk works are common in technology companies and while retailers have announced labs with sustained and well funded initiatives, many are relegated to “let’s play with it as long as there isn’t anything more important to do” and is usually first on the chopping block when resources are tight. Another issue is the lack of institutional memory sometimes to learn from these innovation projects if they fail, and extract the nugget of insight and store it for the future.
Another option not mentioned is partnering with academic institutions to either host or run lab facilities and/or collaborate on lab projects. This can often lead to novel solutions as the academic partners are free from the encumbrances of the organization. Also, academic institutions can help insure lab tests are valid and, when testing in the retail environment (e.g., in a store), provide the experimental controls necessary to draw good conclusions from the test.
I agree with Cathy’s comments about the growing appetite for innovation, yet scant resources for setting up innovation labs. There are efficiencies of scale with the academic lab option, as one academic lab can serve many retailers.
Sitting on the sidelines, waiting for early adopters to lead the way in the new amalgam of technology/marketing/CRM is so last year. The decision to play in this arena is an investment decision, with no forecastable return. It’s pretty much all experimentation, so it’s good to see retailers thinking of these projects in those terms. Last time that happened was during the dawn of category management.
I find it interesting that the amalgam is referred to here as technology. Methinks the real geeks are in the background and the social scientists are running the experiments. At least I hope so. But maybe that’s too scarey.
I also agree with Cathy that many projects are underfunded and compete with other priorities. Additionally, many projects compete with other hierarchies/organizations within their companies, which is often a key factor in their premature failure and minimal learning.
Whether retailers build internally, acquire or partner, they need to set up cultures that promote innovation.
The gold standard is Amazon. Everything they do is tested and evaluated, generating lots of data. Lots of A|B testing. (My favorite conference room had “In God we trust, all others bring data” written on the wall.) They have developed the technologies, methodologies and culture to take advantage this approach. They also have a unique blend of testing and incremental changes while keeping their eyes on the long-term plan.
How innovation is accomplished is secondary to creating the foundation for doing it/letting it happen.
(Side note: it looks like if you want to be acquired by Home Depot, you should start your company name with a color….)
The most important thing to retail has been, and always will be, knowing what customers want and then giving it to them.
Right now, the word innovation is at the forefront because the consumer expectations/demands have catapulted way beyond what retail offers. There is a need to re-invent and fast!
Let this be a lesson to retail. Slow and steady, wait and see, does not a winning racer make. They must stay up with consumer direction to avoid this kind of “revolution” again.
Do they need a lab to do this? Not necessarily. Do they need to invest in new businesses? Not necessarily. What they do need is to invest in customer experience/customer ownership leaders who will make sure they have their finger on the pulse of what the consumer is up to and where they are headed.
These people should be joined at the hip with ongoing research in this area, thought leadership, emerging technologies, etc. And they must have a seat at the board room table!
That’s my story and I’m sticking to it.
Although the above mentioned companies are innovating from a digital perspective, we’re not really seeing anything in the stores, any stores. Still a long way to go on that front.
FWIW, I’m for organic growth for any innovation, which means acquiring the right people. That M.O. may be slower (depending on the hire), but will definitely be longer lasting.
The best way for retailers to innovate is through pop-up shops and concept stores, not labs.
Target has come a long way and innovated a lot from their early pop-up shops and concept stores and store-within-a-store initiatives.
The only way a retailer is going to understand their customers is in the field and with boots on the ground, not in some sanitized office space that look cool and hip.
Innovation labs must experiment to determine if an idea/innovation works or not. Quick to fail is a good strategy, but we also have to be careful about success.
Too many companies fall into something referred to as a “Success Trap.” It may be successful, but is it in alignment with what the business is trying to accomplish, be known for, etc. If the idea/innovation is congruent with the business and has a high enough return to make it worthwhile, move forward. I know this sounds like common sense — even very basic — but it is important to remind yourself over and over again. Ask yourself this question: If this is successful (define what success is), is it synergistic with what we do?
To remain relevant, retailers have to be innovative and adaptive. A smart strategy is to embrace pivoting and explore new retail concepts through pop-ups and concept stores. These are cost effective ways to test new ideas, explore new markets, integrate new technologies and even try different social media channels.
Labs facilitate creative ideas and improved predictive analytics and CRM, thereby proving necessary for retailers to bring in-house or consult with. I am waiting to see what comes from Zappos Labs. The idea of curation as a driver in retail, done Zappos style, may very well be a game-changer.
This is closely related to today’s other topic on Retail’s “digital hiring problem.” This is definitely a way for large retailers to make themselves more appealing to digital talent and Nordstrom has done so to good effect.
For these labs to have lasting impact, their mandate should extend beyond just technology. Lab teams should be empowered to take on innovation in the entire customer experience, not just how technology fits into it, and with a few wins under their belt they can earn the mandate to take on business model innovation which could lead to concept stores or pilots of new banners.
Collaboration with a trusted solution partner to create on-going pilot experiments in real-world settings is the approach that I’ve seen deliver the greatest value back to the retailer. Acquisitions are problematic in the short and long-term. Not too many retailers have been able to acquire start-ups and continue the culture of innovation essential for ongoing value and success.