Why execution DNA is the advantage, not the obstacle.
Innovation is hard in any industry, but it has an extra degree of difficulty in retail because of the short-term thinking and executional mentality that are embedded in our DNA. Here are a couple of examples of the way retailers think that makes us different to other industries, and some ideas on what we can do to acquire the skills to develop programs of transformative innovation in our businesses.
In retail it is said that you never get today back. If you have bad sales on Monday and good sales on Tuesday, that does not mean you have caught up. It means you had a bad sales day on Monday. Retailer logic says the dollars spent today are not available again tomorrow. Most other industries do not take this view. If you have a bad sales day elsewhere, there is always the rest of the month or the quarter to make up the difference.
On the face of it, retailer logic may seem short-sighted, but economics broadly support the way retailers think. At a macro level, retail spend is very predictable. When the US is said to be booming, year-on-year growth is around five per cent. When Australia is said to be sluggish, it is around three. That is a two per cent delta between terrific and terrible. When overall spend is so predictable, it is very easy to calculate the size of the available market on any given day, which means Monday's spend can never be replaced by Tuesday's. Each day's available market is effectively predetermined.
Retailer logic is further backed up by the nature of retail spending. Most of it comes from discretionary dollars, the amount left after the bills are paid and basic needs are covered. Discretionary spend is notoriously fickle. It can switch between retailers or categories based on deals, proximity, mood, who is hot and who is not, or any other reason the consumer might come up with. It can also stay in the wallet if none of what is on offer appeals. If you applied these behaviours to a purchase for a business, you would probably lose your job. For consumers there are generally few negative consequences apart from the occasional bout of buyer's remorse. With fickle consumers and a finite spend available, retailers know they have to catch the fish today because it might not be back in the river tomorrow.
If you believe that you never get today back, it makes sense that retail management focuses on same-day-last-year comparisons. When you manage that way, success means making incremental improvement on last year, day by day. While this is great for maximising the daily opportunity, the flipside is a management culture based on short-term thinking and an incremental rather than transformative approach to improving the business.
One of my former bosses used to remind me regularly that there are no rewards in retail for a bright idea, only for execution. He was right. Retail is traditionally not a place for dreamy blue-sky ideas. It is a place for plans that are implementable now and can change the daily scorecard tomorrow. In other industries it is normal to develop concepts that may or may not get to market, sometimes for years. Some of those ideas seem bizarre and unmarketable at first and turn out to be genius-level breakthroughs when they eventually launch. The people who generate and develop those ideas are valued resources elsewhere.
In retail, the most valued people are the ones who can execute. The people we promote are the ones who get the stock out and ticketed, order enough for the promotion, get the till to balance, and keep shrink and waste down. To borrow another retail catchphrase, they "do it once and do it right." The dreamers, the ones who think about the world as it could be, generally stay where they are or leave the industry. The ranks of retail management have historically been stacked with execution-led executives.
There is absolutely nothing wrong with having a laser-like focus on today and valuing the ability to execute. Those qualities allow good retailers to react to the market quickly and make it an exciting industry to work in. They also help the retailers who get behind programs of innovation, Nike, Walmart, Target and Starbucks among them, to be really good at it. But the core competencies of retail are not necessarily the qualities you need to develop a program of transformative innovation. Most of the studies on innovation say that to succeed you need to think big, think long term, think differently, be prepared to fail, and embrace change as part of your culture. So what can retailers do about our cultural disadvantage?
The first thing is to find the dreamers in your business. They are the team members who write the emails with detailed plans about what the future could look like while you are busy finalising this month's promotion, or who bend your ear on store visits about all the things the business could do better. Their time has come. Great execution is no longer enough.
The second is to look for the skills we need outside the industry. In retail we prefer to recruit from within, because experience has taught us that not many outsiders have the appetite for the relentless daily grind. But when the world changes, we need to change. A few years ago we did not need data scientists, social media experts or digital marketers, and now they are mandatory competencies for a serious retail business. The ability to develop programs of transformative innovation is just as mandatory. Given it is not our first language, it may need to come from outside.
Reading this back seven years on, I would not change the diagnosis. I would change what I do with it. The executional DNA we describe here is not the obstacle to innovation in retail. It is the advantage, once the organisation is ready to point it at something. What we did not have language for in 2019 was readiness: whether the purpose is clear enough to aim at, whether the people are ready to trust the change, and whether there is a repeatable path from a promising pilot to something the business runs without being told to. AI has made those questions unforgiving in a way they were not when this was written. The dreamers still matter. So does the process that lets the executors carry their ideas.
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