Retail Innovation: Tapping into the Tech Ecosystem
Many retailers could be forgiven for thinking that their biggest challenge – satisfying the changing expectations of a digital-savvy and fickle customer base – just keeps on getting harder.
Consider how consumer behavior has transformed since the rise of media-streaming services such as Netflix and Spotify. People appreciate the immediacy of being able to stream movies and songs instantly – having already paid for them through a monthly subscription. As they do so, however, they start to wonder why they can’t get a similar level of convenience when they restock their groceries and household goods.
Many look at Amazon's Dash and Echo services and believe that these are going some way toward providing that level of convenience. All customers have to do is press a button, or say the right word, and the products they need are delivered to their homes.
And yet, for most retailers, following the lead of innovators like Amazon and Alibaba is no mean feat. Just look at some of the skills that such companies are hiring: machine learning science, natural language processing, quantum computing. Building a capability in areas like these represents a long-term investment that is beyond the reach of many mid-size chains.
As a result, a growing number of sector leaders are taking a new approach: rather than building the technological expertise they need from the ground up, they are instead looking to source it from the ecosystem of technology start-ups through acquisitions or partnerships.
The innovation pilgrimage
All innovation begins with curiosity about what’s going on outside the organization, and more and more senior executives from retail chains are visiting start-up communities to hear their ideas first hand. In doing so, they are discovering the new business models that could reinvigorate their own offerings.
Whether it’s Silicon Valley or Silicon Alley, Silicon Docks or Silicon Roundabout, the world is dotted with creative centers where new technologies are being developed and put into practice. To discover the concepts that will drive the next transformation in their sector, retail executives need to first engage with the inhabitants of these hubs – even if their ways of working and ideas are very different from those they are used to.
To buy or to partner?
To harness some of the most disruptive new business models under development in the start-up ecosystem and bring onboard the expertise of start-ups, larger retailers are embarking on full-scale acquisition strategies.
But an acquisition strategy, because of the scale of capital required, inevitably reduces your options and flexibility – and not every firm can afford to spend that level of investment on a speculative start-up in a new business model. The sheer amount of emerging technology means that businesses must be careful not to put all of their capital into one idea – which could fail when a better technology is developed elsewhere.
It is this risk of failure that is driving some retailers toward partnering: for mid-size chains, it may make more sense to "borrow" expertise rather than buy it. Over time, we’d expect more and more retailers to take this route. Partly why the partnership works is because there is clear value for both parties: retailers get access to the most radical new ideas around, whereas start-ups benefit from the business experience and established networks of their new partners.
Rethinking measurement
In the past, retailers launched a new technology in one store and, if it was successful, rolled it out to the others. Today, it is tough to understand what works and what doesn’t. The trick is to measure the impact and be very focused on the net results. If it doesn’t drive foot traffic, or sales, or profit, then the experiment should remain just that, an experiment. Shutting experiments down is tough for today’s retailers who are used to piloting and rolling out technology. Rapid experimentation and recognizing and shutting down failure will be something to embrace in the future.
Retail innovation through acquiring or partnering with start-ups is still an evolving trend. Retail chains want to experiment, but many are not clear what approach will work best for them. Should they commit their capital to acquiring a start-up lock, stock, and barrel, or partner with several disruptive firms? For most, the first priority needs to be learning to look beyond their traditional boundaries, discovering what the wider ecosystem has to offer, and measuring the impact.