Innovation in the UK Retail Sector - Nesta

Innovation in the UK Retail Sector
which retailers innovate. In terms of internal drivers, the majority of retailers think that strategy drives
innovation in terms of its direction, the resources available for it and the timelines devoted to it, since
innovation often requires sustained support. Many also talked about ‘the will to implement new ideas’
being as important as the ideas themselves and highlighted the role of the vision and leadership of
senior management as ‘entrepreneurs of the business’ and in creating a culture within innovation
could flourish.
Barriers to retail innovation
6. The majority of retailers do not perceive there to be any barriers to innovation within their businesses.
Amongst those that do, the biggest barriers are reportedly in relation to costs, in particular the cost of
finance and the perceived economic risks of innovation (especially for SMEs). Shortages are seen in
relation to technical, leadership as well as project management skills. The majority of retailers claim to
know their markets well and to have little concern that lack of knowledge about technological
possibilities works to prevent innovation. In relation to regulation, the majority of retail firms report
no experience of barriers preventing innovation, although a number of specific issues do emerge.
These include: the availability of allowances for mitigating some of the risks of innovation, as well as a
lack of a common agenda across Government to stimulate investment in sustainable innovation,
which often results in conflicting outcomes on the ground for firms.
Measuring retail innovation
7. Innovation needs to be measured in order to be successfully managed. Retailers tend to focus most on
short term tangible performance outputs, based on cost benefit analysis and captured through
traditional measures of performance but much less on the longer term commercial impact of
innovation as a value added activity. Measures are adapted from existing KPIs, rather than being
innovation-specific, since retail innovation is often incremental and dispersed across different
divisional budgets. The vast majority are financial are relate to sales and market share impact, rate of
return and measures of profitability. Retailers also recognise that the soft benefits of innovation - in
terms, for example, of brand value, or total impact on the business - are less well measured, due to
limitations in management accounting systems, but some progress is being made in tracking the share
of new activities in the broader context of the business, including customer perceptions about the
retail and its brand.
Stimulating and supporting innovation in retailing
8. Governments around the world have recognised their responsibility for supporting and stimulating
innovative activity by firms. Similarly, however, many governments have also historically shared a
preoccupation with the manufacturing sector over services, and support for technological over nontechnological
forms of innovation. This is now changing and the present UK Government initiative
into Innovation in Services forms part of this broader response. Existing Government policies
towards innovation can be adapted to the needs of service sector firms in three particular ways:
• Deepening of existing policy (making innovation policies more ‘service-friendly’);
• Broadening of existing policy (recognising that innovation within the service sector are more
likely to span firms as well as whole value chains); and
• Horizontalisation of existing policy (recognising that other policies not explicitly designed to
stimulate innovation may – indirectly – improve the climate for service sector innovation.)
9. We identify four distinct areas of policy focus which provide the basis for our recommendations:
a. Provision of support mechanisms for retail innovation;
b. Promoting innovation in sustainability by the retail sector; and
c. Fostering skills and organizational innovation in the retail sector.
10. We also make recommendations for those areas in which the Government might better focus and
communicate existing activity, in addition to potentially providing new stimuli which might matter
particularly to retailers because of their commercial benefits.
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