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!
Tuesday, September 28, 2010
Tuesday, September 7, 2010
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.
(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.
Wednesday, September 1, 2010
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?
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?
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