For retailers to survive in this age of Amazon they must solve customer pain points with the use of technology and overcome the obstacle of heritage.
I have written three pieces about innovation in the past month or so, based my own perspectives, largely attained from conversations with retailers across the globe. However, things often happen that can make you challenge your own views.
In September at the Chicago stop of the 2017 Software AG Innovation Tour, I ran a session titled “Survival in the Age of Amazon” where the subject of innovation was very much at the heart of the session. The session was broken into three parts:
I gave my perspective on disruption within retail and consumer-facing industries whereby I started by saying “disruptors disrupt by solving a pain point in the customer experience.” I gave three examples:
- Bonobos, which removes the pain of your size not being in stock by shipping the item direct to your home after you tried it on
- Netflix, which solves the problem that there is nothing on television you want to watch
- AmazonGo, which eliminates the single biggest pain in any retail experience – the queue to pay
As well as solving a pain point, the other thing these things have in common is that they all solve a pain point in the customer experience, enabled by innovative use of technology. I then went on to explain what I see as the single most frequently appearing obstacle to innovation in retail – “heritage.” In other words, retailers have had 100 years of a simple business model - buying product, shipping it to store and selling it.
Processes and systems architecture have evolved towards the new world order for omni-channel but the vast complexity creates an environment that means innovation is even more difficult.
Lack of Innovation
I then introduced Nikki Baird from RSR Research to give her perspective. She made the supposition that retailers are not innovative and that one of the big parts of this is that retailers see their key goal as selling stuff rather than solving problems for customers. Beyond this it is a “race to the bottom” on price – of which Amazon and Walmart are likely to be the only winners.
I very much appreciated this concept of solving consumer problems as it aligns to many of the things I see proactive retailers doing – attempting to provide value added services alongside a product that quite literally “do something Amazon cannot do.”
Nikki went on to explain that retailers need to invest in innovation laboratories, define a clear process for innovation but also made a very clear statement that “if you averaged spending 2% or less of revenue on IT during any of the last 20 years, you have been under-investing in IT and it is probably the largest threat to your business today.” You can view slides Nikki and I presented here.
Following Nikki’s presentation I hosted a panel session where Nikki was joined by former Amazon executive and author John Rossman, head of Retail and CPG at Tata Consulting - Ashish Khurana and highly experienced practitioner Don Adams who is a Senior Software Engineer at Software AG customer W.W.Grainger.
This part was truly fantastic; we had a great discussion on key projects that all panelists had observed and the most common barrier to these – "heritage" – very often from a systems architecture perspective. Some of the key takeaways from that part were:
- Aside from the existing systems, major obstacles to innovation revolve around structure, process and culture.
- While there is reportedly friction between Walmart and Jet.com since its aquisition, perspectives are that there should be friction because this is how you improve, create competition and change things by challenging the norm. From a cultural perspective, things may well need to change inside Walmart to encourage and drive innovation.
- An absolute “laser focus” on a specific customer problem is essential for innovation.
- The internal process around innovation should be simple and easy to understand.
- Grainger solved a key problem in terms of inventory management of consumables for their customers using its Keepstock
- Grainger launched Gamut earlier this year in order to disrupt itself – very much living up to the mantra that if you don’t disrupt yourself someone else will.
- Buying innovation inside the organization – via corporate acquisition or skilled individuals is not always the best way. Don Adams shared an example of where, rather than hiring new people with specific development skills, Grainger ran a competition internally around a new form of technology and within a few weeks existing teams had learned new skills and put together innovative ideas on how to use the technology to aid the overall customer experience.
- Competition can be an interesting way to innovate with hackathons and “Science Fairs” being superb examples to create new ideas.
Overall this was a massively successful session and I would like to thank the Nikki and the rest of the panel members for their involvement in making this a success.
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