Innovation in the UK Retail Sector - Nesta

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Innovation in the UK Retail Sector in terms of direction, resources availability and timelines. Evidence of that is the existence of ‘organizational routines’ such as annual planning cycles, regular board meetings with innovation on the agenda, strategic and range reviews in the course of which innovation is discussed and planned. “Innovation is not always about ideas, many people have ideas, it is not even about skills - many have these as well - it is about the will of implementing new ides, the dogged determination to bring them the market through a well thought-out strategy” (Marketing Director). 5.9 Top management vision and leadership: 32% of respondents highlighted the role of the top management team in innovation. Practitioners see the role of retail directors as the ‘leading entrepreneurs’ of the business who provide strategic and operational support for innovation, sponsoring as well as producing new ideas (Hristov and Reynolds, 2005). Beyond their strategic role, senior executives see the need to get involved in front-end decisions, which keeps them in touch with the operational side of the business and ensures a feedback loop for bottom-up creative ideas. “As a manager I deal with both strategic and operational issues. At present we have more than 750 stores across five markets … I have approved every single location and have personally opened most of our major stores. I travel a lot between the markets, meeting managers and people important to our business. With our store managers I discuss the local ranges, what sells and what doesn’t and how we can improve our position. There is always room for improvement” (Executive Chairman). Senior management also see their role in achieving the right balance between the ‘business as usual’ which generates revenues ‘here and now’ and the need for new revenue streams which will deliver future growth. Many of them acknowledge the potential tensions between these two seemingly disparate business areas. “Innovation is a balancing act. I feel conscious that even if an organisation is doing well I still have to provoke its innovation instincts” (CEO). 5.10 Operational efficiency: 21% of practitioners emphasised that much innovation in retailing is driven by the need to improve operational efficiency. There are fundamentally two ways of increasing output: (1) to increase the number of inputs into the value creation process, or (2) to find new ways of increasing the output from the same number of inputs. The second one gives rise to cost driven innovation. Evaluation of key performance indicators such as space productivity, asset productivity, financial productivity or employee productivity provides scope for innovative solutions to reduce operating costs. Therefore considerable innovation occurs in the ‘support areas’ of a retail business – its systems, logistics or store operations. “The efficiency side, yes, seeking to do more for less, if you like, to drive profit growth. I guess that’s because we feel that that’s more under our control” (Marketing Director). “…we've had to really kind of refine and refine our processes and our systems to make ourselves a much more productive beast” (Business Development Director). Page 38
Innovation in the UK Retail Sector 5.11 Organizational culture and structure: This driver accounts for 36% of responses. Senior managers see culture and structure as closely related. A retail culture is manifested through patterns of shared beliefs, values, attitudes and behaviour (“the way we do things around here”) in relation to organisational goals and strategies. A particular organizational structure (including innovation delivery mechanisms) has the capacity to reinforce a culture of innovation by channeling and streamlining the decision making process. This must be carefully handled, however. Some interviewees pointed out that ‘over structuring’ the culture could actually work to stifle a more entrepreneurial culture. “For us innovation is a strategic priority, we made this conscious decision a few years ago. It is part of our intention to continue as the market leader. This meant that we had to instil a culture of innovation consistent with our heritage and the structure to support it. It seems simple but not that easy, it takes time”. (Marketing Director) “In a turnaround situation it is somewhat easier to be innovative in a radical way. I had to change the business and to take away a whole management layer to make sure that innovation ideas do not loose their edge by the time they get to me” (CEO). 5.12 Innovation reward mechanisms: This factor featured in 12% of the responses from senior executives. This relatively low score could be explained in that some retailers do not have specific mechanisms for rewarding innovation, most appear to maintain broader staff development or appraisal systems which reward job performance but may not necessarily encourage innovation orientated behaviour. Nevertheless, there are some examples of innovation specific schemes among some retailers. “We have clear performance appraisals and people have growth targets which hopefully encourages innovation, we don’t give a specific reward for innovation, so there's nothing direct but there is something indirect” (Head of Format Development). “No, I don’t think we do specific mechanisms for rewarding innovative behaviour, perhaps with the exception of a suggestion scheme which is primarily targeted at staff in-store, and they do receive a small share of any saving or benefit that comes from the suggestion up to a capped amount” (IT Director). 5.13 Availability of resources (human and financial) as a driver featured in only in 9% of the responses but nevertheless it pointed towards the fact that any lack of such resources can be a significant barrier to innovation. Resource availability determines the scope, scale and timing of the innovation initiatives undertaken during the planning cycle. According to some retailers, ‘good’ resource allocation means funnelling the right resources at the right time, others suggest a ‘fixed capacity approach’ to innovation, recognising the limits of how much innovation a business can cope with at any one point: once one initiative is through the innovation funnel then another can replace it. “Sometimes people have too much on, too many priorities in the business. We don't have the spare capacity or time to innovate. Innovation needs a separate delivery framework and ring fenced resources. Page 39
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 37: 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

Innovation in the UK Retail Sector - Nesta

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