Breaking Innovation's Chicken and Egg Debate

Do I establish a proper innovation culture first, or do I build a process and install a platform that will enable an innovation culture? 



While at Spigit, I have met with over 40 different innovation leaders from various industries in the global 1000 over the past 2 years, and this question has been uttered in almost every single discussion. And guess what?  Many of these organizations have innovation programs that are still stuck in neutral.  They have let their fear of failure prevent them from taking action, and are either still struggling, have moved on to other roles in their firms, or given up all together because they feel that this conundrum is unsolvable.

That being said, there have been many more great successes to observe, and an interesting trend has emerged that is proving to be a blueprint for success when starting or revitalizing an innovation movement in today's corporations. 

So let's look at the root of the issue.  The chicken and egg argument is an either/or discussion.  One comes from the other in an everlasting loop, and they cannot exist in the same moment.  Our customers have found, however, that characteristics of successful and sustainable innovation programs blend technology, processes and human relations together.  Each part works symbiotically with the other resulting in high engagement, and creates a repeatable process that delivers aligned ideas that fail fast or turn into projects with strong returns on investment, ulitmately leading to breakthrough innovations!

So how can one get started and break free from these chains?



First and foremost, setting up an infrastructure first is not the answer.  It is a simple fact that if you collect ideas on a platform but don't have a mechansim to act on it or do not have a collaborative culture, you are just going through the motions, and will have an innovation program with low credibility and executive backing.  These programs usually exhibit the following characteristics:

• A place or methodology that collects ideas from anyone at any point in time
• Lots of ideas that are incremental or unfocused
• Strong grass roots backing with dispassionate leadership
• Success metrics that are not linked to financial goals
• Dwindling employee engagement, passion and disillusionment

Conversely, attempting to build the right culture first is also a loser. It usually starts with the C-Suite stating something like, "We need to be more innovative, so we can (insert here, grow revenues, reduce costs, know our customers better, beat our competitors), and we need to do it by....  Pretty strong stuff, right?  Sounds like a plan, right?  9 times out of 10, this initiative gets handed of to department heads that look at their resources and budgets and take the path of least resisitance.   They don't allocate the proper budget or staff to fix the problem, and the results often look like this:

• Email blast asking for ideas
• Narrow, departmental focus
• Ideas disappearing into a black hole
• No plan for execution
• Disillusioned staff
• Innovation as 'one trick pony'

After reviewing the best practices of our customers, Spigit has found that the most successful innovation programs exhibit the following characteristics:

People:

Running successful innovation programs requires an equal focus on innovation strategy, process and deployment.  Some customers have the people skills and staff available to handle all three, others have 1 or 2 skill sets, and still others have no staff, but the desire.  All can be successful if they budget for these resources and make them an intergral part of their program, but let me be clear, ALL 3 areas must be accounted for, or failure is on the horizon. Successful companies will either recruit new employees, have their innovation partners train exisiting ones or simply outsource the functions, so that they can concentrate on their core business.

Repeatable Processes:

Another sound business practice is to create repeatable processess that help to gather, manage and qualify ideas that are aligned with business goals.  This does not mean you have to throw away your "Always On" idea community.  What is does mean is that companies that are the most successful at creating sustainable innovation run timed, focused challenges that solve specific business issues.  This creates focus, increases engagement and credibility, and tangible measurable results.   Something that can be easily repeated and understood  by department leaders and provide a framework a company can believe in.

Adaptable Technology that is like a surgeon's suite of tools:



The least expensive part of running an innovation program is the technology used to motivate individuals to interact with ideas to make them better, however, it is also an incredibly important element.  It must have the flexibility, the diversity and the power to keep people engaged, provide analytics and reports, and help ideas grow and expand (or fail out).  There is a reason a surgeon has multiple tools for similar procedures. The same can be said for innovation platforms.

Our most successful do all three of these things at once, and get the budgets and buy-in from their leadership to be successful.  If you are having trouble getting the approvals to accomplish this, you need to question how committed you, or your company really is to innovation.

Is it better for retailers to be where the puck will be or where it is now?

The Great One, Wayne Gretzky, probably the most talented hockey player that ever lived once stated:

"A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be".

If you think about that, he is essentially attributing his success to his ability to predict the immediate future of the hockey puck. Gretzky had an uncanny ability to assimilate massive amounts of information about his opponents and team members, and then make decisions based on that data.  The end result...he scored more goals than any of his peers, and it is a record that may not ever be broken.

In today's changing landscape of consumer purchasing behavior, I think that retailers can learn a lot from Gretzky's advice (works in Chess too, if you are the cerebral type).

Let's face it, consumers not only have choices about who they buy from, but how they buy and where.  That is creating a dramatic shift in how retail marketers need to message and drive store/website traffic, and it also creates challenges for merchandisers and store operations leaders as well.

Case in point, my son wanted a Steelers jersey in time for the Super Bowl, and even though there is a Dick's and a Sports Authority located about 5miles from my house, I decided to buy it on line.  Why?  Because I wasn't certain I would be able to find a Troy Polamalu jersey in his size, in black in Tampa Bay Buccaneer territory.  I ordered it using my Motorola Droid, and my buying decision was based on using an online retailer that had my credit card info stored already.

Think about what just happened.  Because of convenience and access, my buying behavior was influenced by a number of related small events, that combined with a deadline date (ship and recieve before the Super Bowl), made my decision really simple.

So what does that mean?  If you assume that the consumer is the hockey puck, what is the best strategy for a retailer to score?  Should the retailer be where the consumer is, or where the consumer will be?



My simple answer is both.  A retailer needs to gather information about where their customers are going to shop and how.  What is important is they also need to gather that information in context.  For example, if you are looking for ideas about how consumers use facebook to shop, well why not ask them while they are in a facebook session? If someone is out and about and uses a smartphone heavily, well doesn't it make sense to gather idea via a mobile device such as an iPad or a Droid phone(OK, OK or a Blackberry)?  Gathering information and ideas from customers in this manner will provide retailers with credible, predictable behaviors because the info was gathered in context.  Guess what?  Credible information leads to better decisions, and can guide retail business unit leaders to make their decisions about where their customers will be, and provide their customers with appropriate resources to make their buying decisions simpler....and faster....and larger.

In closing, Gretzky was a great scorer of goals, because he could anticipate where the puck was going to be and when he arrived at the puck, he had the skills to execute.  He scored more, because he had more chances.  Retailers need to give themselves more chances at shots on goals.

Retailers Take Note: A Shark Never Stops Swimming Forward for a Reason.

Susan Reda, the Editor of the National Retail Federation's "Stores" website (www.stores.org) recently published her 2011 predictions for retailers and made the following statement in her article "Opportunity Comes Calling":

The pace of change [in retail] in 2009 and 2010 was nothing short of extraordinary, yet insiders expect that rate to be five times faster over the next two years. The possibilities are both invigorating and frightening — retailers need to transform their business and adapt at the pace of the marketplace if they’re going to survive and flourish.

I think most retailers will agree that keeping up with “the pace of the marketplace” is one of their greatest challenges. Consumer behavior is in a constant change of flux and buying decisions can be predicated on one or many emotional, environmental and economic factors that vary for each individual. A few well known examples include:

• Convenience
• Peer & Social Exposure
• Income
• Generational Experience
• Technology
• Entertainment Factor
• Price v. Value

This is where the shark comes in. The shark is essentially a living fossil and has been on our planet for over 400 million years, and is still (at least in my opinion) the most prolific eating machine in the oceans! If you have ever watched National Geographic’s shark week, you will know that most sharks don’t have muscles that can independently flush freshly oxygenated water across their gills and into their bloodstreams. As a result, they must constantly swim forward or they die.



Furthermore, all that swimming around expends a tremendous amount of energy, so a shark needs to refuel. They do that by eating. A lot. All the time.

For a retailer, keeping pace with consumer change is as essential to its survival as it is for a shark to swim forward. That requires effort and fuel. For retailers, that fuel is not fish and the occasional beachgoer, it is instead identifying ideas and innovations that can help them:

• Make the consumer experience exciting and memorable
• Leverage the emerging and ubiquity of mobile communications and shopping
• Identify “new and cool” products that match changing demographics
• Create and maintain communicative and lasting relationships with consumers
• Increase revenue and gross margin while reducing inventory

Developing and maintaining a pipeline of truly innovative ideas that will help achieve goals is rapidly becoming an emerging business practice for major retailers. Some, including Walmart, Lowe’s and JCPenny have established innovation departments with the sole responsibility of gathering, qualifying and managing ideas that are aligned with their business goals.

They are like the Great White Sharks that hang out near Seal Island in South Africa. They feed where the food is.

These retailers have also established specific policies, procedures, infrastructure and architectures that make the mining and management of ideas highly efficient, which gives their merchandising and store operations leaders timely and accurate data points upon which they make decisions.

These companies are all leaders in their space because they learned from the shark. They are now built to survive and thrive for the next 400 million years.

Why are retailers afraid to look for the needle in the haystack when it comes to growing profits and growth?

Our CEO, Paul Pluschkell, shared this quote with us today about crowdsourcing:

""...finding the needle in the haystack is much easier when the hay helps you look."

http://twitter.com/#!/timoreilly/status/3861275117355008

Think about that for a second.  I live in Florida, and my family and I pretty much go to the beach every other weekend.  I've lived here for 7 years and was lucky enough to find a 17" whelk shell one day in the sand.  I look for one bigger every time I go to the beach, and have failed to find it's successor every single time.
The scary thing is that at the particular beach we visit. there are more than likely a few hundred, if not thousand bookshelf worthy shells hidden right under the surface.  I probably stepped on a few lugging my cooler onto the beach! 

Now consider Paul's reference.  If I could get sand particle to align themselves into little arrows to point me to the spots where one of these heirloom shells might exist, I'd more than likely have a pretty good shell business cooking wouldn't I.

Here's the thing.  Every business I talk to is looking for the next disruptive innovation in their space.  For retailers, that means they want to be the next Amazon or eBay.  They want to change the paradigm and give consumers the newest, latest, greatest in the ultimate shopping experience, and hope that their internal team of experts can sift through the surveys, the focus groups and the trials to figure out why offering earrings in the women's tennis apparel section will give same store sales a lift of 2.6%.

The problem with this is that sometimes, the needle draws blood because you sat down on it while you were looking somewhere else.  You, the merchandiser gets credited for a win, and you are now expected to repeat that performance again & again.  So why not ask the haystack (the customer), whether or not they would buy earrings while they were in the middle of purchasing tennis apparel?  Most retailers would say, whoa....that's kind of expensive.  The reality is that perception is simply not true.  With many of today's crowdsourcing tools, a retailer can ask their most loyal customers, that simple question, for the same cost as one focus group.  Getting customers engaged in helping you find solutions that they want to pay for seems like a no brainer, doesn't it?  So why don't retailers do it more often?

Here are a few reasons why retailers are reluctant to try, and ways to change that mindset:

1. We have over 1 million customers, and we don't want to ask them for help because we are not staffed to acknowledge everyone's comments.   This is a legitimate comment, scaling customer insights is the reason that focus groups and trials exist.  That being said, today's innovation management platforms can ask specific questions from a large group, and the group can qualify the answer in front of the entire community, making the discussion completely transparent.  What this means for resource challenges staffs is that the crowd can qualify (and disqualify) ideas publically, absolving the core team from the responsiblity of replying to every post.  This gives the marketing staff the time to analyze real opportunities more completely, and deliver information to the business units they support faster and with more confidence. We have found that this kind of community interaction is scalable far beyond traditional marketing intelligence tactics.   A simple way to accomplish this is to set up an innovation community and ask your customer how they might solve the problem you are looking at fixing. You might be surprised at the results.
2. The business units aren't compaining, so why should I bother?  This is a good one.  The pace of retail forces business managers to react to market demands, and as a result they marshall their teams forces to fix issues that crop up unplanned.  The business units themselves only care about the here and the now, and as a result never have time to ask for more complete customer engagement, even if they know in their hearts that would be helpful.  You might want to consider asking your internal customer what their goals are for the year, and what they think might be obstacles to making those goals.  Asking your customers about what you should do to overcome those obstacles, would not only give you more credibility with the business units you support, it would also help your team get ahead of the market and potentially introduce a disruptive product/service into the marketplace.
3. Dude.  I'd love to do that, I just can't get out from behind my current responsibilities.  Hmmm. so what is this person saying?  To me it sounds like s/he recognizes their company has a problem, but s/he is not empowered to fix it.  If you are in this camp and feel this way, you are not alone.  You more than likely need help, and if you find the right innovation partner, you should consider asking them to help you.  The cost of their short term consulting will easily pay for itself because their expertise and extra personnel will easily return an ROI of 10X+.  You just have to ask!

In conclusion, it is important for retailers (and any other business for that matter), to add their customers into their product development mix.  If you can organize them to solve a common problem, not only will they help you find the needle in they haystack, they will also buy the needle!

Does collaboration hurt a retailer's ability to innovate?

I had an interesting week talking with retailers that are using collaboration tools.  I'm not going to name names in order to protect my sources (their innocence or guilt is for you to decide), but what I found was extraordinary.

Each one of the retailers that I talked to (companies we all recognize) are using multiple collaboration, idea management and social tools to communicate with their employees and customers.  I don't mean one tool for customers and another for employees, I mean that they are using multiple tools for each!

I think we all know why.  I argued in my earlier post, "Does the Pace of Retail Preclude Innovation?" that the pace of retail retards innovation because business unit leaders can't look beyond this quarter's results. While that may be true, I also think that another major challenge retailers have when it comes to creating a healthy, innovative culture is the fact that they operate in silos.

Now the buiness silo has its merits.  It provides focus, creates experts, teams can form, goals can be set.  Good stuff, right?  Now throw the quarterly Wall Street number into the mix.  They whole team works together for a common goal!  That's good, right?  Of course it is.  Good department heads that have made this formula work are usually rewarded with more budget (and bonuses) to make themselves and their teams more successful.  Funds they spend on themselves, or jealously guard for a rainy day.  No sharing allowed, because they paid for it with their own budget money....

Sorry, I digress.

For all of the strengths this lends to a business unit, this focus can actually hurt the overall enterprise.  Retailers always say that "retail is different". Each of the major business units, Merchandising, Marketing, Store Operations, Logistics and Information Technology, often take that attitude when they talk to their peers working in other units in their own company, and as a result, they discount their opinions because they cannot speak the right language.  So when a ground breaking technology comes around like social innovation software, that is designed to get large groups to collaborate, you know what the first thing the business units do?  They only ask the people on their team for help, and they are unwilling to extend their budget to accommodate other perspectives because it's their money.

Listen, I am not going to argue with retailers here because these silos create more opportunities for social innovation platform to be deployed, and the type of innovation that this model spawns is pretty tactical, so we can generate pretty ROI charts that show big black numbers!  In addition, when it comes to collaboration & innovation, you need to start somewhere, and the business units are a great place to get started!

Real sustained innovation, however, is about marshalling the forces of your entire organization to contribute and comment on ideas.  Without a wider perspective, departments run the risk of doing the same things over and over and expecting different results.  In most circles, that is the definition of insanity! 

Open up your processes.  You might be surprised at the results!

Do retailers have the resources to innovate? Yes they do. If they look.

One of my colleagues at Spigit, our VP of Product Development, Hutch Carpenter, circulated an excerpt from Don Norman's column titled, "Why Great Ideas Can Fail"

(http://www.core77.com/blog/columns/why_great_ideas_can_fail_17235.aspn )

in which Don stated:

"...most of the value of innovation comes from small, incremental change, not massive, paradigm-shifting change, in part because these enhance the market size and efficiency of the operations, but also because they are readily accepted by the organization,"

The rest of Don's article is excellent and I recommend you check it out, however, this little tidbit got me thinking, so I am asking the question: 

Why don't retailers formalize Innovation as a key practice?

Obviously some do.  I pointed that out last week.  One major retailer I am working with is using our platform not for the "big idea", but instead they are looking for little ideas that will boost sales, and they continue to run "Innovation Events" as a regular practice.  The question is, do they really benefit from these events?

According to the Food Marketing Institute, in 2008 (okay dated, but relevant to this discussion), the average supermarket transaction was $27.61, and the average store handled about 1,725 transactions/day.  That is roughly $47,000/day in sales.  If a retailer can come up with a way to increase that transaction by just $1, that will result in a monthy increase in sales of $51,750/month, without needing to add more labor in the store, be open longer or anything else for that matter.  So let's break that down further.  Let's assume that the average retail margin is 1.46% (also from FMI, circa 2007), that means that the extra $1 we discussed, actually results in $755/month in real profit/store. YAAWWN, right?  WRONG!!!!!!

If I am a retailer with 100 stores, that equals $75,000/month in PROFIT or $906,660/year!

That's right, even a SMALL REGIONAL RETAILER can benefit from one good idea.  The reality is (and you naysayers are shaking your head right now) is that sustaining that additional buck/transaction is pretty tough.  I mean no one person can come up with a killer idea that will increase the average sale by $1 for a whole week, every week of the year, right?  That's not a one person job, is it.  You need a team to do that, don't you.

And then it hits you.  Most retailers don't practice formalized Innovation as a practice, because they look at it as a daunting task that requires resources to do it.  Guess what.  They are right!  Sustaining Innovation on any level requires an investment in good people, and a plan.  Yet most retailers are so used to digging, clawing & scraping for that extra % of a point of margin, that they just cannot see the forest through the trees, and don't know where to look or who to ask.

Incremental Innovation is not exciting, and neither is shopping at the grocery store (for me anyway).  But what makes Walmart, Starbucks and BestBuy, successful is their ability to scale their businesses.  In fact, if look at most annual reports from retail companies, almost all of them cite their ability to scale as a competitive advantage.  Yet when it comes to investing in innovation programs, most retailers say that it isn't a priority because they don't have the resources. 

You know what, I can build an Innovation team to serve that small retailer we talked about earlier for about $300,000/year that would generate $900,000+ in sales (using the example above).  That would include salaries for 3-4 + software that could tap all employees for ideas.  That results in an annual ROI of 300%. 

That's a pretty good investment....if you know where to look.

Does the Pace of Retail Preclude Innovation

We’ve all heard it before. “”Retail is different,” “Our pace brings vendors to their knees,” “We have a culture of innovation that keeps us competitive” SCREEECH! Whoa! The last statement (which in some shape or form is in every retailers annual report), is a little stretching of the truth.


I am not saying that retailers don’t innovate. They do. There are scores of examples of retail innovation. TigerDirect gave a ridiculous presentation at eTail East in Baltimore, and BestBuy, Starbucks, Dell, Walmart and Overstock all have innovation programs that are ahead of the curve.

Unfortunately, it has been my experience so far that most innovation in retail is a reaction to changes in the marketplace. Social Media is a perfect example. A few firms (AutoNation, Kohl’s) recognize that engagement with the customer is integral to establishing credibility and managing successful facebook and twitter campaigns (full disclosure, one is a customer, one is not). The reality is that most retailers are just trying to figure out social media and the only reason they are is that their competitors are eating their lunch!

To further my point, let’s look at mobile apps. A good buddy of mine in the space, @shaunpope made an interesting comment about the internet tonight. He said, “It’s dead,” In context, he was referring to the proliferation of mobile applications and that widgets are now driving how individuals surf the web. His opinion was that as a result, traditional search engines like google, will be losing their relevancy pretty quickly. Is he right? I couldn’t tell you. He’s the expert there, I’m not. I can say, however, that the influence mobile shoppers have on retailers is potentially huge! Imran Jooma, Sears eCommerce guru pointed that out in a speech earlier this year! So is Sears innovative, or reacting to changes in the marketplace

So here’s the rub. Retailers are smart, and they get it. Technology and the way consumers buy is changing faster than I can type. To keep pace, they have to react. When they react, the best innovate. But, think about it. Is that kind of innovation healthy? Will it move the needle beyond this quarter’s sales target? I think not.

The best companies in the world budget for, and practice the art of innovation as a core competency. Cisco, Southwest, AT&T, Starbucks, & Dell have recognized that Innovation is something to be invested in. They budget for it, they allocate resources, and they enable their employees. And guess what. If you look at the stability of their stocks, for the most part, their shareholders are reaping the rewards.

Unfortunately, most retailers succumb to their quarterly projections. I am working with several right now that are running idea campaigns that are focused on getting their Q3 numbers on track. I just looked at my watch. I am looking at September 2. Does that kind of innovation really move the needle?