How do you create the preconditions for innovation in retail? – Two research projects provide answers.

Since 2016, we, a group of researchers from Lund University and KTH Royal Institute of Technology, have studied Swedish retail companies in order to help the industry develop a more strategic and systematic approach to innovation management. Our research has been divided into two successive projects, both funded by Vinnova with support from the Centre for Retail Research, and will run until the end of 2021.

Unlike industrial and high-tech companies, innovation is not an ingrained part of retail, which has led to the retail industry rarely being the subject of academic research on how to lead and organize for innovation. However, recent developments, such as new and increased competition, especially as a result of digitalization, has raised questions regarding the industry’s long-term competitiveness. Issues regarding the prospects of combining more strategic innovation management with daily, operational activities are being raised in the retail industry. It is these issues that our projects have examined, and our research shows a marked change in retail’s attitude towards innovation.

The initial study (2016 - 2018) showed that:

• Retail companies see the concept of innovation as something vague and unfamiliar. Innovation has, until recently, not been a much talked about subject and many retail companies' work with innovation is very incremental and loosely structured.
• There are good conditions for more systematic innovation management in retail, but the innovative properties of the industry are not being supported in a fruitful way. The retail companies we studied were characterized by a creative climate, but lacked elements of risk-taking, idea-time and dynamism. Furthermore, there were insufficient structures and systems to support the creative climate.
• Retail’s organizational structures and control systems tend to primarily support operational, day-to-day operations. The entrepreneurship that the industry is strongly associated with is both a strength and a weakness: a strength when it comes to flexibility in relation to changes in the market; a weakness when that flexibility becomes an overconfidence in quick action, gut feeling and short-sightedness.
• The customer's perspective is often surprisingly absent or taken for granted. The majority of those we interviewed at the companies testified that they were less aware of the customer's – the consumers’ – needs than they felt was reasonable. Considering that customer insights often drive innovative product development, this is a shortcoming.

The current study (2019 - 2021) shows:

• That retail has begun to take the challenge of systematic innovation management seriously. Our research shows several types of initiatives within the companies we study: from organizationally separated innovation hubs, new teams, temporary projects with a focus on completely new products, services and formats, to more revolutionary business development with the aim of increasing the company's innovative ability. The changes that are in line with innovation research are, for instance, the creation of specific roles and teams that are encouraged to explore ideas beyond “business as usual” – ideas focused on transformation and towards new markets.
• The need to create new structures in order to support retail’s innovation potential. In Swedish retail, the industry is currently working to answer the question of how best to organize for innovation. Previous research has argued that the type of exploratory work that innovation constitutes needs to be both separated from day-to-day operations and integrated at management level through a strong link to the overall corporate strategy. This balancing act will be one of retail’s challenges going forward.
• The need to offset, with the help of alternative metrics, retail’s dominant focus on operational activities. All the companies we are studying confirm that governance in the form of goals, planning, financial key figures and efficiency measures are central to retail. Streamlining and constantly developing product and service variations falls well within the project templates and financial instruments that the retail industry works with today, but in order to be able to find completely new services, products and business models, different key figures are needed.
• The importance of emphasizing the positive aspects of retail’s entrepreneurial culture while undermining its negative effects. Although skills such as the ability to act quickly and rely on gut feeling are strengths on an operational level, these qualities can put a brake on innovation work in retail. Research has shown that more radical innovation requires long-term thinking and risk-taking. Overall, retail needs to become more focused on long-term innovation, rather than short-term operations.

Lastly, it is important to mention the effect that the COVID-19 pandemic has had on retail. In our study, we observed that the participating companies – despite shutdowns and financial consequences – have demonstrated their entrepreneurial ability to adapt without giving up on the more innovative initiatives that are the subject of our study. The ongoing pandemic has accelerated transformation, above all when it comes to digital development projects – an issue established retail companies were lagging behind on. It remains to be seen whether these newfound abilities will survive the pandemic. If the capabilities to balance both the operational and the innovative survive, there are great opportunities for the retail industry to develop and grow strong both within and without its existing territories.