John Kao is an innovation advisor, and in that capacity has worked with individuals, corporations and governments, to help them to create an innovation culture. At NRF’s annual CIO conference at Lake Tahoe, Nevada 8/15-16, the author, former Harvard faculty member, and current CEO of the Institute for Large Scale Innovation talked about the need for innovation in society and in businesses. The timing of this talk was interesting if coincidental; as we now all know, one of the world’s great innovators, Steve Jobs, recently announced his resignation as CEO of Apple (see Paula Rosenblum’s contribution in this week’s Retail Paradox Weekly).

Retailers have rarely been known as early adopters of any new technology-driven innovation, preferring as a group to be what pundits call fast followers at best. But these are interesting times for all of retail, because the consumer has wrested control of the innovation agenda, and now many retailers are struggling to keep up. In fact, our December 2010 study Pandora’s Box? The Impact of New Technologies on Retail IT showed that new consumer-facing technologies such as smart mobile phones and social media are forcing businesses to move faster, and retail IT is not keeping up.

At the Lake Tahoe meeting, Kao bluntly told the audience of over 100 retail CIOs, “we’re at a ‘reset’ moment – it’s time to break down operational models and then rebuild them. “ The good news he delivered is that the cost structure of innovation has improved significantly, and that can increase the frequency of experimentation. But the underlying message was clear: innovate or die.

It’s a Cultural Thing

It seems a long time ago now that the book Good To Great as released (it was 1994!), but in the forward to the paperback edition (2004), author Jim Collins stated,

“Enlightened business leaders … exhibit the same relentless drive for progress that we found in those American visionary companies (discussed in the book). We’ve seen…’try a lot of stuff and see what works’ strategies…. And the best organizations everywhere pay close attention to consistency and alignment. ” 

The problem for many businesses today is that a culture has been fostered where falling short of expectations is the same as failure. The CIOs in the room are very familiar with this expectation. But one outcome of such a mindset is that people won’t experiment, and why should they? They could lose their jobs! (This is where it’s useful to remember Maslow’s Hierarchy Of Needs; if people are worried about their survival, they are not thinking about anything else, and certainly not innovation.)

According to Mr. Kao, innovation “refers to capabilities that allow for the continuous realization of a desired future. “ By inference, does that mean that companies that look unfavorably at experimentation don’t have a clear view of a desired future? In the case of retail, that’s entirely possible. After a decade of being buffeted by one external force after another, the last thing that some companies want to face is a reset moment. And yet, that’s exactly what consumers are forcing.

RSR stated in our July 2011 report Enabling Buy Anywhere/Get Anywhere: The Future of Cross-Channel, tha:

“…this (the response to new customer behaviors) is transformational change. The foundational assumptions of retailing as either a store-based activity, or even a channel-specific activity, are over – they have become obsolete. An omni-channel strategy is about rethinking retail, re-imagining customer engagement in a world where the store is but a piece of the puzzle, a stepping stone in a fundamentally different (and increasingly digital) shopping process. That’s not to say the store won’t continue to be the place where a majority of transactions occur. But if you use that as your argument for not embracing the change that is already happening in your stores, you’re increasingly placing your entire organization at risk. Yes, transformation can be expensive. But getting left behind can be even more costly. “

Questions to Test your Company’s Innovation Culture

With the caveat that innovation must be practical, Kao suggested that the audience of IT executives ask the following questions about themselves and their companies in order to determine their ability to support innovation:

1. Do you have a vision of the desired future?
2. Do you have a way for disruptive innovation to co-evolve with the day-to-day?
3. What’s your process for clarifying weak signals? (or as the speaker elaborated, does your organization have a way to learn of disruptive changes that may start small?)
4. Are your innovation processes fast and agile enough?
5. Does your organization have a sense of urgency?
6. Do you have the money, time, slack, and information to innovate?

Information Has Escaped!

The message that the NRF seemed to be trying to convey to the audience at the meeting is that letting others do the innovating is a dangerous tactic. Reinforcing that theme, Wall Street analyst Susan Anderson of Citigroup Investment Research discussed the kinds of retailer technology investments that get investors’ attention (for example, mobile payments and digital coupons – both which are just now emerging in the real world of retail – are viewed as “very hot “, according to Anderson).

In another keynote presentation, Terry Jones, founder and former CEO of Travelocity (now involved with travel site kayak.com), talked about the notion of ‘digital relationships‘.  Said Jones, “21^st century customer relationships are not just about personal service – it’s now driven by information for relevant, timely solutions “. The entrepreneur went on to describe consumers as “wired, with no time, and information rich “.

At one point is his talk, Jones exclaimed, “information has escaped! “ What he meant was that access to information was now beyond the control of the CIO. Consumers now have a tremendous amount of information at their fingertips no matter where they are. For example, the speaker pointed out that “price is transparent and location doesn’t matter “. That has tremendous implications to retailers; competitive pricing is now considered to be tablestakes, and consumers don’t feel obliged to go to a store to find products to buy. That challenges the channel-specific operational model that retailers have hewed to for a long time.

Get with the Program

Whether or not the retail CIOs in attendance were enthused or concerned about the theme of the meeting was unclear, but there was no mistaking what the message was: “get with the program “. Perhaps the biggest irony of the meeting was that CIOs probably aren’t the people that need to hear such a message, but the CIOs’ colleagues from the business side. As my partner Paula Rosenblum said about our December 2010 Pandora’s Box, “The relationships between IT and Line of Business Executives are changing glacially. The only real difference we find from a decade ago is in Business Executives’ ability to go around IT and bring customer-facing applications to market. ” That means that business decision makers and IT leaders need to overcome their suspicion of each other, and they can start by showing up to the same meeting and hearing the same messages.