Innovation in the UK Retail Sector - Nesta

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.
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