Innovation in the UK Retail Sector - Nesta

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Innovation in the UK Retail Sector Figure 6.3. Comparisons of perceived barriers to innovation: retail trade vs. engineering Other factors Cost factors Knowledge factors Market factors Need to meet EU regulations Need to meet UK Government regulations Uncertain demand for innovative goods or services Market dominated by established enterprises Lack of information on markets Lack of information on technology Lack of qualified personnel Avaibility of finance Cost of finance Direct innovation costs too high Excessive perceived economic risks 0 50 100 150 200 250 300 350 400 Retail trade Engineering Extent of barrier (weighted score, max= 1,000) Source: Community Innovation Survey 2004 (CIS4), 2005. Page 46
7. What are the measures of retail innovation? Innovation in the UK Retail Sector 7.1 Innovation needs to be measured in order to be successfully managed. The focus of this section is to explore the ways in which the senior managers interviewed as part of this research seek to measure innovation. Wider meanings of innovation as ‘new ideas to market’ are typically cascaded across the business and translated into business specific operational terminology and targets such as, new SKUs, new product categories, new retail formats, number of new products in the range or share of customers, etc. In this case retailers strive to put measurement systems into place in order to be able to monitor and review levels of business performance and the extent to which their initial strategies are being realised. Measurement of innovation in retailing can be categorised in terms of its ‘type’ (1) financial and (2) non-financial and its ‘level of application’: (1) project specific, (2) functional and (3) corporate level (Hristov, 2007). The Community Innovation Survey does not ask questions about innovation measurement. a. The extent of measurement 7.2 With some notable exceptions, most senior managers pointed out that retail firms tend not to use innovation-specific metrics or KPIs 12 , rather they measure their innovation activities by adapting existing performance measures. In part, this is because retail innovation is largely incremental, iterative and often dispersed across different divisional budgets, considerable perceptual differences exist as to what exactly is recorded as innovation as opposed to simply good business practice within different functional areas such as product design, buying or retail operations. Measuring retail innovation tends to be focused most on short term tangible performance outputs, based on cost benefit analysis and captured through traditional measures of performance and much less on the longer term commercial impact of innovation as a value added activity. “It's very difficult, I mean it is very, very difficult, to define and measure innovation in some parts of the business. For instance funnily enough, our design team don’t get financially bonused for being innovative, that’s part and parcel of what they do … our buying teams on the other hand do get heavily incentivised on bonuses and operations” (CEO, Fashion Retailer). “People traditionally tend to overestimate the short term impact of innovation and technology and underestimate their long term benefits, and I think that's probably happening here” (Strategy Director). 7.3 From the 37 senior managers who were asked to think about how innovation was measured in retailing, all gave examples where aspects of innovation are measured by non-specific performance measures, nearly a fifth were of the opinion that retailers generally do not use specific measures related to innovation while 16% of practitioners pointed out that although they use general performance measures they adapt these and attach to then predetermined or completely adapted success criteria designed to give innovations the chance to succeed. “So each product you launch has predetermined success criteria, and the sales of new lines are monitored against such criteria on a weekly basis. But only a third of what we launch hits its success criteria” (Director NPID). 12 Key Performance Indicators (KPI) are metrics that management managers have identified key important variables reflecting the organisational or operational performance. Page 47
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 41 and 42: Vignette 5.3: Currys customer recyc
Page 43 and 44: 6. What are the barriers to retail
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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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