Innovation in the UK Retail Sector - Nesta

. Types of Measures
Innovation in the UK Retail Sector
7.6 Although the precise nature of the retail measures of innovation varies among companies,
depending on sub-sector or upon managerial choices, there are broadly two main types:
(1) financial and (2) non-financial measures (Figure 7.1).
i. Financial measures
7.7 Financial measures provide visibility about the concrete contribution of innovation to the
top and bottom lines of the business. The role of these measures is to ensure continuous
performance improvement based on the evaluation of the data about rates of return,
profit margins, costs-benefit ratios etc. They are seen as essential for delivering the
necessary data for setting the strategic objectives (where do we want to go?), for deciding
upon resource allocation (how might we get there?) and for continuous tracking, review
and corrective actions along the way (how do we check progress?).
7.8 84% of our respondents essentially use at least one or more financial measures, the top 3
measures being sales and market share measures, rate of return measures and measures of
profitability:
“I look at all the things that are going to affect change, ninety-nine of them are financial-related- they have
a financial benefit. There are some that have a financial cost, [such as] ‘we were innovative in the way
that we pay our store managers’, that’s going to increase our costs - but we think long-term it will reduce
training, so it’s an economic deal”
(CEO).
“Well fundamentally we measure sales, margin, and return on invested capital”
(Marketing Director).
• Sales and market share measures have a 78% share of responses. These include
measures of sales in volume and value, incremental sales from new products and
services, like-for-like sales since launch, sales densities (per sq ft/sq m) of new
products, categories, or retail formats. Some retailers have sales targets for new
products or share of new products in the range, whilst others use broader measures
such as overall share of market, share of customers or share of wallet.
“For a first year we actually set a target for a number of fresh products. That will be one of the
KPIs, where historically it has not been a KPI”
(Marketing Director).
“Like for like sales volumes, and sales per sq ft of the different brands and how they compare
with the overall performance of the chain as well two-year payback for new initiatives. Very, very
simple, it’s part of the mechanics of the business”
(CEO).
• Rate of return measures i.e., ROI, ROIC, ROS 13 . (64%). The sector uses rates of
return of new products, services or other innovation initiatives as financial measures
of innovation. These include ROI from 6 to 12 months for new products (depending
13 ROI – return on investment, ROIC – return on investment capital, ROS – return on sales
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