TORONTO, Canada — In 2012, US grocery chain Kroger announced what it hailed as a significant innovation in customer experience. The company had begun employing a technology platform that would help shorten the time its customers spent waiting in line to pay. With checkout lines being one of the oldest and most persistent points of friction in retail, Kroger had been exploring potential solutions to the problem for a number of years. As one executive put it, "We asked a question: If we could open up a lane exactly when we needed it, what would happen?" What happened was that the average waiting time in Kroger line-ups went from 4 minutes to less than a minute — a significant improvement to be sure.
A mere five years later however, Amazon would announce the advent of its Amazon Go store concept. Go store shoppers need only to scan their mobile device on the way in, take what they like and go. No lineups, no cash registers, no cashiers. Amazon Go not only eliminated checkout lines, it obliterated the check out entirely.
And Amazon wasn’t alone. Chinese start-up Bingo Box had actually been operating its own un-manned store concept for some time in Shanghai.
Examples like this highlight the fundamentally different headspaces between incumbent retailers and disruptors like Amazon and others. While retailers talk at length about radical innovation, much of what they produce pales when compared to the concepts and ideas that relative outsiders bring to the market.
So why are retailers struggling to reinvent themselves and their industry when the existential threat posed by the status quo seems so abundantly clear? If the battle cry is truly “innovate or die” why are so many retailers seemingly choosing death? There is a myriad of reasons but here are the most pressing among them.
Innovation Versus Iteration
I speak with retail leaders frequently who describe “innovative” projects and initiatives within their organisations. In truth, however, much of what they’re describing is not innovative at all, it’s iterative and there’s a big difference between the two. By definition, innovation means developing products or processes that are entirely new, that have never existed before, while iteration is a process of incremental experimentation and development along a known path. While there’s nothing wrong with linear, continuous improvement, problems arise when we start characterizing it as innovation. It simply is not.
The bias toward iteration stems from the fact that it’s generally more readily accepted than innovation. Iteration is safe and non-threatening whereas truly innovative ideas carry inherent risk — something executives, board members and markets alike often fear. The funny thing about innovation is that while most leaders say they want radical ideas, few demonstrate a willingness to embrace them when they’re presented. Innovation can be messy, scary and unfamiliar.
A good starting point for fixing this problem agreeing on an organisational definition of innovation. Think about it this way: if the thought of launching a new idea doesn’t make you a little queasy, it’s probably not very innovative.
Fear of Failure
If you’re innovating, you’re failing and if you’re not ok with failure, you’re not going to be innovative. It’s that simple.
If you’re genuinely creating daring concepts, processes and products that are original, a high rate of failure is implicit. Unfortunately, most organisations have an extremely low tolerance for failure. And worse, many organisations encourage their executives to be innovative but then structure their compensation and reward systems solely around success and compliance.
The most truly innovative organisations treat success and failure equally. What matters is whether the effort — successful or not — moved the organisation forward in its understanding. The only real punishable offence in innovative companies is the unwillingness to take risks.
Most shoe stores compare themselves to other shoe stores, most coffee shops to other coffee shops, and so on. The problem with this thinking is that consumers no longer compare their experiences vertically within a given category. Rather, shoppers are now asking why their apparel buying experience can’t be as easy as their Uber ride, their Airbnb booking or their Genius Bar appointment.
The tendency by incumbents to measure their success relative to competitors within the same vertical creates gaping blind spots that leave the door open to disruptors.
Leadership culture, and in particular Western leadership culture, is built around the notion that effective leaders should exhibit certainty and the capacity to zero in on solutions to problems. Investor expectations have been built around the notion of executive certainty and rationality. In turn, many such retail leaders breed an organisational culture of convergent thinking that seeks only to solve problems in a systematic way.
Leaders who cultivate innovation, however, are not afraid to embrace uncertainty. Rather than focusing on solving problems, they display openness to possibility and an intense curiosity that causes them to question accepted norms and paradigms. These leaders promote divergent thinking that creates opportunities.
Moreover, while leaders are increasingly becoming more data-driven in their decision-making, innovative leaders aren’t afraid to push forward in the absence of data. After all, if something has truly never been done before, there is no data… until you create it.
If your company was staffed entirely with children between the ages of 3-5 years old, studies indicate that 98 percent of your workforce would be wildly creative. Regrettably, for any company with an employee population above the age of 25, that number plummets to just 2 percent! Life has a way of beating the creativity out of most people by the time they’re adults. Consider this the next time your company pulls together 25 people at random to come up with creative ideas. The probability is that not one single person in that room is significantly creative.
So, the first step for many companies should be to deepen their creative bench and this begins with hiring demonstrably creative, divergent thinkers. Secondly, test your current employees for their creative capacity. You may be surprised to learn that the employees you thought were creative aren’t and vice versa.
The Urgency to Innovate
When change happens, it happens fast. Consider that the time between the Wright brother’s inaugural flight at Kitty Hawk and the Apollo 11 moon landing was a mere sixty-six years. Today, over 3 billion people hurtle through the air each year — complaining about the Wi-Fi as they do. Eight different companies are promising to begin offering space tourism by as early as 2019. One innovation on a desolate North Carolina beach created a cascade of change that redefined the bounds of space and time.
The retail sector is well beyond its Kitty Hawk moment, and the time to innovate is now!
And while it’s extremely encouraging to see legacy players such as LVMH, Topshop, John Lewis, Nordstrom and others building innovation incubators and accelerators, fledgling brands, such as Reformation, Everlane and Farfetch are actually changing the way consumers shop.
So, as we move rapidly into the future know this; one of the very few certainties in this turbulent and fast-evolving retail market is that someone will eventually reinvent what you do. What you need to determine now is whether that someone will be you.
Doug Stephens is a retail industry futurist, founder of Retail Prophet and author of ‘Reengineering Retail: The Future of Selling in a Post-Digital World.’