Executives in the retail industry are well aware of the need to innovate as they are outpaced by the rapid adoption of new technology by their customers. Until now, only a few high praised celeb-retailers have been able to successfully ride these massive waves of change and gain strategic market share and advantage. Outputs from these innovation labs have helped these retailers remain competitive in a market that is becoming increasingly difficult to differentiate in. Though there are proven principles and practices learned from the innovation labs created by trailblazer retailers like Nordstrom, The Home Depot, Staples, American Eagle, Walmart and others, the adoption of these models across the retail industry has been rather slow and spotty. One of the primary reasons for this low adoption is how the core information is synthesised and presented. We have collected five simple lessons learned by retailers, who have established innovation labs in the last few years, and codified them to make it easy to adopt and put into practice for upcoming retail ventures.
Lesson #1: Keep innovation teams intimate and diverse
Innovation is a social sport. Innovation labs are successful when they have a core group of people thinking and acting in collaboration at the heart of the operation. Of the innovation labs we researched, the average size of the group was only around 30 people with the smallest team consisting of only three members.
Keeping teams small and establishing a relatively flat structure allows for a fast-paced environment with little bureaucracy and minimal red tape. To promote team bonding and inspiration, innovation labs, like Home Depot’s ‘Black Locus’, frequently hold meet-ups, lunch ‘n’ learn sessions, parties, ping-pong tournaments, etc.
Though teams are intentionally kept small, diversity within the teams is highly encouraged. Team members with different skills generate ideas of greater breadth and enable execution in multiple directions when the need arises. The labs we investigated were comprised of some combination of the following roles: digital strategists, developers, product specialists, experience designers, graphic designers, data scientists, business analysts, etc.
In addition to a team with a diverse background, it is advisable for retailers to have about a third of the team comprised of company veterans. Staples’ Velocity Lab adopted this practice to incorporate part of the company’s culture into the innovation team without inhibiting the fast-paced collaboration.
Lesson #2: Isolate the lab from the corporate headquarters
The biggest roadblocks to creativity and sustainable collaboration stem from established bureaucratic processes that are all so common in medium to large retail companies. A location and space separate from the corporate offices, oftentimes in completely different cities, allows labs to achieve the desired leanness while fostering creativity.
American Eagle, with headquarters in Pittsburgh, established its lab in San Francisco. Walmart, headquartered in Bentonville, Arkansas set up its labs in San Francisco. These spaces are strictly for use by the lab members only with little or no footprint from the mother-ships. Co-locating all the team members supports the high bandwidth communication needed to react quickly to any feedback and generate new ideas frequently.
Characteristics of the space itself are predictably similar between the labs: open offices reflecting a flat organisational structure; several group meeting spaces and walls that can be written on make collaboration common; availability of advanced technologies and equipment to allow the team to remain ahead of emerging technologies.
Lastly, labs we have researched often have names that are different from the parent company. Staples named its lab the ‘Velocity Lab’, allowing the lab to maintain a start-up and lean mentality. Nevertheless, the innovations produced are mostly released under the brand name of the parent company.
Note: In our opinion, such distinction of names and locations may result in tension and potential damaging power play between the separate units unless there is good management in place to set expectations right. We think rotation of talent across the different units may help grow fresh ideas by incorporating the deep knowledge of the headquarters with the lateral thinkers in the lab and reduce some of that tension.
Lesson #3: Follow lean and agile methodologies
This will in a way lead one to strive for continuous delivery and design. The goal of innovation labs are typically to generate ideas frequently, assess market viability, and bring up concepts that pass a variety of tests. The success of these concepts often depends on how fast a team can bring a concept to the production stage to be used by early adopters and customers. All innovation labs practice a variety of lean and agile methodologies to reduce their time to market while ensuring quality.
In our research, we found the following list of best practices adhered to at innovation labs:
Low fidelity (lo-fi) prototyping to gather customer feedback quickly and inexpensively Time-boxed validation of new ideas, usually one to two weeks, for checking on the potential of an idea. At the end of that time, the idea is assessed for viability and further plans are developed Daily stand-up meetings and weekly (at least) retrospective (retro) meetings. These retro meetings focus on the team’s performance throughout the week and not necessarily on the work that happened
User story maps to document how target audiences navigate through a particular process and how they interact with technology. These maps help frame the work of the team members
Teams used lean-Kanban boards to track and visualize work. Labs we researched followed the Japanese approach of ‘Genchi Genbutsu’ (‘go and see’), where teams are encouraged to move their operations from the lab into the field (in-store pop-up labs) for better idea generation and quicker feedback.
The Nordstrom team embarked on a ‘flash build’ whereby the entire operation moved into a store surprising both store employees and customers. Throughout the week, the teams worked on an idea – testing throughout and pivoting where necessary. Sport Chek, a Canadian sporting goods retailer, has a store dedicated to implementing new ideas to test in the marketplace before the same are rolled out to their full network of stores. The common theme here is to take ideas out of the lab and into the store for the best and quickest feedback.
Lesson #4: Leverage partnerships and acquisitions to launch or enhance innovation labs
Creating an innovation lab from scratch can be a daunting task for many retailers. Fortunately, there is a perfect solution to this problem. If a retailer is willing to invest, they can realise great value by acquiring or partnering with lean start-ups that are already equipped to operate an innovation lab for a large retailer. These labs typically have the talent in place and a space to operate separate from the parent company. With due diligence, it is also possible to partner with innovators that are well-versed in agile engineering and product management practices.
Walmart has inorganically developed its lab by acquiring 13 lean start-ups since February 2010. This has allowed the retailer to incorporate new technology, enhance the existing ones, rapidly incorporate new talent into the lab, and remain ahead of emerging technologies.
Partnerships also act as a great motivator for teams that may be stagnant or lack inspiration. Target partnered with Fast Co.’s ‘Retail Accelerator’ to hold an innovation competition. Contestants retained partial ownership of their idea, while the sponsors provided additional funding and resources as they progressed through the competition. This format allows retailers to stay ahead of emerging technologies by supporting them from the very inception. Partnerships can take on many forms and doing so can lead to generation of new ideas for the lab.
Lesson #5: Pursue innovation in key focus areas
The biggest risk is to set up innovation labs with a broad agenda and almost little to no structure and guidance. Focusing on key growth areas (may be aligned to core business or different) can give labs just enough direction to innovate.
In our research, we found that the following initiatives guide retail innovation labs to achieve results with the highest business impact:
Bring benefits and convenience of emerging technologies to complement the in-store shopping experience. These could be touch screen, wearables, mobile devices, lo-fi bluetooth and more. Staples’ Velocity Lab introduced omni-channel shopping kiosks into its stores.
Use ‘big data’ to provide a personalised experience and gather insights from historic patterns of supply and demand. Nordstrom’s Data Lab tagged shoes in-store with a Pinterest ‘P’ if the shoe was often pinned on the social site.
Enhance online search, delivery tracking, customer care services and social capabilities. Walmart Labs launched a social gift finder app that integrates with their customers’ Facebook profiles.
Innovation labs have certainly garnered plenty of attention and all for good reasons. They are poised to grow and become an integral part of businesses, especially retail businesses, looking to generate and diversify revenue streams.
About the author: Anupam Kundu is Enterprise Innovation Strategist at ThoughtWorks, New York. He is also the member of the leadership team for ThoughtWorks North East US. Kundu is adept at helping clients conceive, design and implement technology fueled business strategies that promote growth and provide definitive competitive edge.