Innovation in the UK Retail Sector - Nesta

iii. Predominance of non-technological innovation.
Innovation in the UK Retail Sector
3.18 Thirdly, retail innovation for the most part appears to comprise non-technological,
customer facing activities which are driven by social-economic rather than technological
forces. Of course, technology is a high profile and important enabler in what retailers do,
as well as providing the capability for reaching out into untapped markets. Nevertheless,
in contrast to manufacturing, technological trajectories are seen by retailers to have a
relatively limited impact on the overall characteristics and focus of their innovation
(Hristov & Reynolds, 2005).
“I think technology is always important, however it’s not the be all and end all because, you
know, at the end of the day customers don’t buy technology, not in our business, they buy the
results of technology. So I think as long as it’s seen in terms of what the customer wants, does
this provide things faster or better or cheaper, then you're in the right place.” (HR Director).
iv. Hybrid characteristics of retail innovation.
3.19 Fourthly, some vertically integrated retailers have their own production units or design
facilities, such as Zara (Spain) part of Inditex, Migros (Switzerland), Tchibo (Germany),
the S-Group (Finland) For instance Migros, the largest Swiss retailer is the second biggest
chocolate producer in Switzerland (Hristov, 2004). Others consider themselves
‘manufacturers without factories’ in the sense that they exert significant upstream
influence over suppliers. These characteristics have specific consequences in terms of
innovation. We might expect such retailers to exhibit many characteristics in common
with manufacturers, such as a focus on step-wise rather than continuous innovation. On
the other hand, all retailers provide services of various kinds and we might expect
innovation here to be different from the predominantly linear innovation patterns of
manufacturing.
3.20 Therefore retail innovation displays ‘hybrid characteristics’ which are consistent with the
complex nature of retail output. For instance, in the introduction of certain new product
lines, there may be obligations on retailers to undertake scientific and quasi-scientific tests
and trials. In many cases the NPD processes of retailers can be analogous to that of
manufacturers. Sainsbury’s operate a five stage-gated system of NPD of (Stage 1) capture
and develop ideas, (Stage 2) develop project, (Stage 3) develop concept samples to own
brand strategy (Stage 4) production, trials and launch (Stage 5) product analysis and
project performance. This is not an isolated example: similar linear innovation pipelines
are used by ASDA, Boots and Marks & Spencer in their NPD. However in areas such as
trading, customer services or sourcing, innovation appears non-linear and, at times, even
ad-hoc. For instance some winning retail formats emerge from an opportunistic,
experimental and incremental process, sometimes based more on intuition than rational
analysis.
“Inside the business development area, under the Business Development Director, there's a very
structured point to the way we do things. But in some cases innovation is much less structured,
in some cases it’s quite ad-hoc”
(Managing Director)
“But I would guess in retailing there isn't much organisation of innovation, I think it’s more
experimental and haphazard and opportunistic because of the nature of the business”
(CEO of Industry Association).
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