This article was published in the October 2016 issue of STORES Magazine.
Applying rigorous processes to the discipline of dreaming
At August's NRFtech 2016 conference in San Diego, “Innovation Afternoon” was a four-hour interactive workshop moderated by Tom Schoenwaelder, principal and chief commercial officer of Doblin, the design-center subsidiary Deloitte Consulting LLP. Joining him as panelists and workshop co-moderators were Pano Anthos, founder and managing director of XRC Labs, and Jeff Pollard, director of integrated experience design and development for Lowe’s Companies Inc.
See more stories from NRFtech and check out “18 startups poised to disrupt and drive the future of retail” on Medium.
Schoenwaelder began the session by noting that while businesses of all kinds are devoting vast resources to innovation — $640 billion per year for research and development in North America alone — only 5 percent of innovation projects actually succeed, at least partly due to a lack of understanding that innovation isn’t daydreaming; it’s a discipline with rigorous processes.
It’s also a discipline with a purpose: An innovation actually has to create value.
One reason for the high failure rate, he said, is that many organizations don’t challenge the common beliefs and conventions of their industry. He gave as an example the grocery industry, which, by creating express checkout lanes for shoppers with 10 items or fewer, actually gives the best customer service to its worst customers.
“The mom or dad with three kids in tow and $500 worth of stuff in the cart is basically standing at the back of the line,” he said. “I realize there are good logistical reasons for getting people with few purchases out of the store quickly, but it’s still true that the grocers are rewarding people for buying less.”
Yet another is the failure to begin the process by thinking about the end user. “At the end of the day,” said Schoenwaelder, “you’re trying to solve the problems of your end customers. You’re trying to create value for them.”
And finally, he said, companies fail to innovate because they tend to focus obsessively on developing new products. “Innovation is all about looking beyond product. The vast majority of companies invest the vast majority of their time and effort on the topic of new product development. It’s especially true in the (consumer goods) industry, but it’s true in most industries. That’s where virtually none of the value is created.”
Types of innovation
Where is the value created? To help answer that question, Schoenwaelder provided a framework to help organizations think systematically and broadly about how to innovate. There are, he noted, only so many aspects of a company in which making a change can create value; the big three are business model, product offering and customer experience.
The Doblin framework breaks these down into "The 10 Types of Innovation." Four have to do with business model: profit model — the way money is made; network — connections with others to create value; structure — alignment of talent and assets; and process — signature or superior methods for doing work.
Two relate to product or service offering: product performance — distinguishing features and functionality; and product system — complementary products and services.
The remaining elements are related to experience: service — support and enhancements that surround a brand’s offerings; channel — how a brand’s offerings are delivered to customers and users; brand — the representation of a company’s offerings and business; and customer engagement — distinctive interactions a brand fosters.
Some business model-centric exemplars of innovation cited by Doblin are Netflix (profit model — the subscription approach to video rental), Target (network — differentiation through working with external designers), Whole Foods (structure — feedback system for internal teams) and Zara (process — its “fast fashion” strategy moves clothing from sketch to shelf in record time).
There are also innovators like OXO (OXO Good Grip products carry a price premium, but their “universal design” has a loyal following) and Nike (product system — Nike+ parlayed shoes, sensors, apps and devices into a sport lifestyle suite). Companies cited for innovation in experience included Zappos (customer service), Nespresso (ensuring loyalty through its members-only club), Virgin (brand extension) and Wii (customer engagement).
Obviously, a company can innovate in more than one of these areas at a time — and the most successful ones do. A few years ago, Doblin undertook a comparison of companies that were systematically leveraging multiple types of innovation to the overall market. Basically, any company leveraging two or more types of innovation outperformed the S&P 500. Companies that leveraged five or more created the most value.
“It’s important to do this,” Schoenwaelder said, “and it’s important to do it right.”