Innovation in the UK Retail Sector - Nesta

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5. What drives retail innovation? Innovation in the UK Retail Sector 5.1 This section focuses on exploring the specific drivers of innovation in retailing as seen by the interview component of our research. Managers’ perceptions about the drivers of innovation help us to understand how organisational responses are shaped in terms of strategies, structures, directions and the ways in which innovation is measured. In most cases, there is broad agreement on what these drivers are and that they fall into two broad categories: those external to the firm and those internal: • Drivers external to the retailer drivers comprise (1) customer/consumer trends, (2) the competitive environment, (3) industry cycles and organisational growth, (4) the regulatory environment, (5) technology, and (6) retailer-supplier relations; • Drivers internal to the retailer comprise (1) strategy and business planning, (2) top management vision and leadership, (3) operational efficiency, (4) organizational culture and structure, (5) innovation reward mechanisms, and (6) availability of resources (financial and human) (Hristov 2007). Figures 5.1 and 5.2 summarise the relative importance of the six main drivers as seen by a sample of 34 interviewees. a. External to the retailer Figure 5.1. External drivers of innovation 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 65% Customer/consumer trends 53% The competitive environment Source: Company interviews content analysis, (Hristov, 2007). 47% Industry cycles and organisational growth 18% 18% Technology The regulatory environment 5.2 Customer/consumer trends: By a long way in terms of share of responses (65%) of managers consider changing consumer trends to be the major external driver of retail innovation. This is unsurprising because of the very nature of retailing as a consumer facing activity. Consumer trends are multidimensional and include socio-economic, technological, demographic components, like changes in terms of mobility, sustainable 12% Retailer-supplier relations Page 34
Innovation in the UK Retail Sector consumption, consumer welfare, use of technology, fragmentation of demand, or the emergence of a global consumer. Interviewees acknowledged that commercial survival and success are intrinsically linked to their ability to innovate simultaneously across all these areas of change. This results in plethora of retail initiatives around the retail offer, delivery channels and the underpinning operations. One-stop shopping, the dollar store concept, in-store theatre, multi-channel retailing, fast fashion, EDLP or more holistic customer centricity initiatives are all innovative responses to changing consumer trends. Here the dilemma for senior managers seems to be to what extent retailers need to be customer-driven (focused on expressed consumer needs) and to what extent they could actually drive consumer demand by focusing on latent needs. “Ultimately of course all adds up to innovation in the proposition to the customer because the customer’s buying the product and the service and it’s happening through the supply chain and they're buying it through different channels” (Marketing Director) “I think the need to have competitive advantage over other people on the High Street, they want to be able to have that product that nobody else has got ahead of everyone else. I think they are very keen to improve the customer environment… I think they [retailers] are quite focused on the customer areas in terms of delivering innovation” (Senior Manager, Industry Association). 5.3 The competitive environment: (a 53% share of responses.) Growing international competition coupled, with continued industry concentration and the effects of the Internet on consumer demand and shopping habits invariably affects the pace with which retailers innovate. Interviewees distinguished between two types of competition: the first are ‘competitive pressures’ from direct competition in the marketplace from incumbents in pursuit of market share and customer patronage. The second is what many retailers referred to as ‘fear from industry disruptions’ coming within or from outside the sector. These might include radically new retail business models, enabling technologies or even new product propositions which compete with retailing for share of consumer wallet. By definition, these often indirect competitive challenges are much more unpredictable. While ‘sustaining’ innovation is about incremental improvement along established industry trajectories, innovations that result from ‘disruptive’ competition are often simpler and cheaper, but require very different set of commercial capabilities which incumbents may find difficult to develop. “I think a lot of it is down to competition, it’s always trying to be one step ahead other people or watching the competition lead and then trying to follow very quickly” (Innovation Director). “A disruption to your normal business model from competitive activity, rapid market change - I think these are main drivers on a macro level.” (Marketing Director). 5.4 Industry cycles and organisational growth has a 47% share of responses. Here managers associate industry cycles with their own organisational lifecycle. In this respect innovation is seen as the means for continued existence. Retailing experiences distinct phases of development, and change through innovation is seen by incumbents as critical for developing new differential advantages and revenue streams. This is nowhere more relevant than to retailers in mature and saturated markets. According to one Commercial Page 35
Page 1 and 2: Report for NESTA December 2007 Inno
Page 3 and 4: Contents Innovation in the UK Retai
Page 5 and 6: Innovation in the UK Retail Sector
Page 9 and 10: 2. The nature and contribution of r
Page 23 and 24: v. Retailers’ reverse innovation
Page 33: Innovation in the UK Retail Sector
Page 41 and 42: Vignette 5.3: Currys customer recyc
Page 43 and 44: 6. What are the barriers to retail
Page 47 and 48: 7. What are the measures of retail
Page 49 and 50: . Types of Measures Innovation in t
Page 65 and 66: . Promoting innovation in sustainab
Page 69 and 70: Conclusion/Next Steps: Innovation i
Page 73 and 74: Recommendation 4: Innovation in the
Page 77 and 78: Appendix 1 Research Methodology 350

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