When does operational excellence inhibit innovation?

The dangerous mindset



By: Brian Kalms
Blog

Retailers are some of the most efficient and effective organisations in existence today.

This isn’t an accountants’ statement of return on capital employed or labour productivity. And it’s certainly not a management consultant’s fact-based breakdown of process maps and organisation charts… Rather, it’s an observation based on over 30 years working with many of the country’s most impressive retailers.

Retailers love a traditional ‘roll up your sleeves’ approach to getting stuff done quickly and cheaply. When compared to some of my non-retailer clients, it’s clear there’s an industry-wide pride about this operational earthiness.

So where does this come from?

Perhaps it’s the reality of tight margins, the in-the-moment delivery of in-store customer requests or the uncertainty that comes from waking up to a new day with no ‘order book’. Whatever drives it, it’s a defining feature and one that retailers retreat to when faced with a business challenge.

Historically, in what I’ll call the Retail 1.0 era, success came from the blend of range, price, location, service and innovation (eg the latest fashions, new product introductions). At different times and in different markets, retailers flexed each of these and maybe emphasised one or more. But underlying it was the same thread, that having chosen which of these levers to slide one way or another, brilliant execution was the route to success.

“Talking a good innovation game does not make you innovative by default.”

We are now living in Retail 2.0, and it’s all about digital – online, mobile, omnichannel, platform… And of course, this required a seismic strategic shift not merely an effectiveness play. Those retailers who maintained the old-school range, price or location approach in an era where all products are readily available from anywhere in the world and at the lowest possible price, have had to re-invent themselves or disappear. The worst place to be was selling someone else’s stale products more expensively, in less convenient locations and with poorer service than the online competition. RIP Comet, Toys R Us, Maplin…

We are now living in Retail 2.0, and it’s all about digital – online, mobile, omnichannel, platform…

Of course, most retailers jolted into action and have become impressive omnichannel retailers themselves. From early transactional websites through to today’s fully integrated digital offers and organisational structures, the best retailers have held onto pole position. How? By acquiring new skills, and again showing the adaptability and practicality to face this new world with the same focus on cost-effective operations.

But is this even enough? Or worse, is it a dangerous mindset?

A glance at some of the industry’s fastest growers (say ASOS, Farfetch, Ocado) shows a different mentality. For sure, these are not cost-careless, navel-gazing organisations. They exhibit a determined execution streak, but they also have an equally relentless focus on innovation within their DNA. They have an open-mindedness to where new ideas originate, a willingness to embrace them quickly, and have made changing what they do every bit as important as doing the day-to-day well.

Of course, they still understand the traditional range, price and service levers but this is not about the effectiveness of operations, it’s about an openness to outside-in thinking and fast learning experiences. And it’s way more than an executive immersion trip to Silicon Valley and setting up an in-house innovation lab. While these are necessary – alone, they’re not enough. Talking a good innovation game does not make you innovative by default. Some of the recent retail strugglers had done the essentials. But, by continuing to emphasise back-to-basics operational effectiveness above all else, it turned out to be little more than corporate innovation theatre.

Who knows what real disruptions Retail 3.0 might bring beyond a bunch of buzzwords – augmented reality, 3D printing and machine learning – but I’d bet that squeezing the pips out of the current operation won’t be the winning answer.

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