Innovation in the UK Retail Sector - Nesta
Innovation in the UK Retail Sector - Nesta
Innovation in the UK Retail Sector - Nesta
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v. <strong>Retail</strong>ers’ reverse <strong>in</strong>novation cycle.<br />
<strong>Innovation</strong> <strong>in</strong> <strong>the</strong> <strong>UK</strong> <strong>Retail</strong> <strong>Sector</strong><br />
3.21 F<strong>in</strong>ally, retail<strong>in</strong>g can experience a reverse <strong>in</strong>novation cycle (where f<strong>in</strong>ancial and<br />
organizational costs are <strong>in</strong>curred at <strong>the</strong> end of <strong>the</strong> <strong>in</strong>novation process ra<strong>the</strong>r than at <strong>the</strong><br />
beg<strong>in</strong>n<strong>in</strong>g). This has also been observed <strong>in</strong> <strong>the</strong> f<strong>in</strong>ancial services sector (Barras, 1986). But<br />
among multiple retailers we can also see both reverse <strong>in</strong>novation development and<br />
<strong>in</strong>novation <strong>in</strong>vestment cycles similar to those of many manufactur<strong>in</strong>g firms. In<br />
manufactur<strong>in</strong>g, <strong>the</strong> biggest f<strong>in</strong>ancial outlays tend to be associated with R&D and <strong>the</strong><br />
follow<strong>in</strong>g NPD process. Once <strong>the</strong> product gets to market radical <strong>in</strong>novation gives way to<br />
<strong>in</strong>cremental improvements throughout <strong>the</strong> product life cycle (as <strong>in</strong> <strong>the</strong> software <strong>in</strong>dustry).<br />
In retail<strong>in</strong>g, <strong>the</strong> <strong>in</strong>itial idea - even at <strong>the</strong> stage of <strong>in</strong>itial prototyp<strong>in</strong>g - is relatively cheap<br />
and largely experimental. However, <strong>the</strong> process of scal<strong>in</strong>g up an idea across a large<br />
portfolio of stores often requires radical <strong>in</strong>novations (such as <strong>in</strong> organisation and process)<br />
and major <strong>in</strong>vestment and management resource. For example, it took Tesco nearly 12<br />
years from 1994 to 2006 to br<strong>in</strong>g to full scale <strong>the</strong>ir <strong>in</strong>itial idea of an Express store. That<br />
<strong>in</strong>cluded trials of <strong>the</strong> concept, limited rollout, location plann<strong>in</strong>g, ref<strong>in</strong>ement of <strong>the</strong><br />
concept and subsequent scal<strong>in</strong>g up through <strong>the</strong> acquisition and re-brand<strong>in</strong>g of T&S<br />
Stores as well as organic growth to what is now a portfolio of over 730 stores. Once at a<br />
critical mass this <strong>in</strong>novation had a transformational effect on <strong>the</strong> market and led to a<br />
range of radical <strong>in</strong>novations <strong>in</strong> logistics and market<strong>in</strong>g.<br />
“I th<strong>in</strong>k <strong>the</strong> actual development of a concept is not complex and as soon as you know it works, <strong>the</strong>n you<br />
do it. However let’s take PC World, it would have taken ten years from <strong>the</strong> po<strong>in</strong>t that it was clear that<br />
it was a success to hav<strong>in</strong>g rolled out through <strong>the</strong> <strong>UK</strong>, and I don’t know how much longer it will take to go<br />
out to Europe”<br />
(CEO).<br />
Vignette 3.1: Best Buy<br />
Context: <strong>Retail</strong>ers as <strong>in</strong>novation hubs<br />
Example: Best Buy, <strong>the</strong> biggest US electrical retailer has set up what it refers to as a Venture Capital Network (VCN) for<br />
identify<strong>in</strong>g promis<strong>in</strong>g technologies for new products or services. The role of this VCN is to speed up <strong>the</strong> transition of <strong>the</strong>se<br />
technologies from concept to market. This is achieved through <strong>the</strong> creation of external <strong>in</strong>novation networks l<strong>in</strong>k<strong>in</strong>g up venture<br />
capital firms with <strong>in</strong>novation start-ups work<strong>in</strong>g on particular retailer projects. Best Buy stores are <strong>the</strong>n used to hot-house and test<br />
<strong>the</strong> <strong>in</strong>novations <strong>in</strong> a retail environment.<br />
For a number of years <strong>the</strong> retailer has also been pursu<strong>in</strong>g a ‘customer centricity’ program of segment<strong>in</strong>g <strong>the</strong>ir market and<br />
develop<strong>in</strong>g bespoke retail formats for each of <strong>the</strong> target segments, for <strong>in</strong>stance affluent professionals seek<strong>in</strong>g <strong>the</strong> best technology<br />
experience, younger males want<strong>in</strong>g cutt<strong>in</strong>g-edge new technology, fa<strong>the</strong>rs look<strong>in</strong>g for technology to improve <strong>the</strong>ir lifestyle,<br />
mo<strong>the</strong>rs seek<strong>in</strong>g technology to enrich <strong>the</strong>ir children's lives or small-bus<strong>in</strong>ess people us<strong>in</strong>g technology to improve <strong>the</strong>ir bottom<br />
l<strong>in</strong>e. The range and <strong>the</strong> services offered for each segment are tested <strong>in</strong> what <strong>the</strong> company refers to as ‘lab stores’, 68 of which are<br />
located throughout California.<br />
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