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5 Lessons to Remember When Retailers Set up Innovation Labs

With all the current brouhaha about the real definition of innovation between two of the most famous academicians from Harvard University, it seems suddenly innovation has become a dirty word, misunderstood and misrepresented in executive circles. In this post, we are innovatively avoiding that conflict and focusing only on lessons learned from successful innovation labs initiated by more than few retailers in the last few years. One thing for sure is that innovation is not a fad and it is here to stay and thrive. It's time for retailers to introspect and determine if they are doing enough investing in innovation practices within their organizations.

Executives in retail industry are well aware of the need to innovate as they are outpaced by the rapid adoption of new technology by their customers. Up till 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 are keeping these retailers competitive in a market that’s becoming increasingly difficult to differentiate in. Though there are proven principles and practices learned from the innovation labs created by trailblazer retailers like NordstromThe Home DepotStaplesAmerican EagleWalmartand others, the adoption of these models across the retail industry has been rather slow and spotty to say the least. We think one of the main reasons (there are many!) for this low adoption is how the core information is synthesized and presented. We have collected five simple lessons learned by retailers who have established innovation labs in last few years and codified it to make it easy to adopt and put into practice tomorrow for your retail business.

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 at the heart of the operation who think and act collaboratively. Of the innovation labs we researched, the average size of the group was only around 30 people with the smallest team being only 3 people.

Keeping teams small and establishing a relatively flat structure allow 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 meetups, lunch n’ learns, parties, ping-pong tournaments, etc.

Though teams are intentionally kept small, diversity within teams is highly encouraged. Team members with different skills generate ideas of greater breadth and enable execution in multiple directions when needed. 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, retailers may see value (and be more comfortable) in having about a third of the team comprised of company veterans. Staples’ Velocity Lab adopted this practice to incorporate part of the the company’s culture into the innovation team without inhibiting the fast paced collaboration.

Lesson #2: Separate the lab from the corporate headquarters and cater to creativity.

Creativity and sustainable collaboration easily gets thwarted by established bureaucratic processes and roadblocks that are all so common in medium to large retail companies. A location and space separate from the corporate offices, often times in completely different cities, allow labs to achieve the desired leanness while fostering creativity.

American Eagle, headquartered in Pittsburgh, established its lab in San Francisco. Walmart, headquartered in Bentonville, Arkansas established their 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 feedback and generate new ideas frequently.

Characteristics of the space itself are predictably similar between the labs. Open offices that reflect a flat organizational structure. Several group meeting spaces and walls that can be written on make collaboration common. Advanced technologies and equipment allow the team to remain ahead of emerging technologies. Telepresence capabilities and hoteling options give the lab a connection to the parent company.

Lastly, labs we've researched often have names that are different from the parent company. Staples named their lab the ‘Velocity Lab’, allowing the lab to maintain a start-up and lean mentality. Still though, the innovations produced are mostly released under the brand name of the parent company.

Note: In our opinion, such separation of names and locations could result in tension and potential damaging power play between the separate units unless there is proper management structure put into place to set expectations. 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; strive for continuous delivery and design.

The goal of innovation labs are typically to generate ideas frequently, assess market viability, and bring to market concepts that pass a variety of tests. The success of these concepts often times depend on how fast a team can bring a concept to production to be used by early adopters and customers. All innovation labs practice some 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 are commonly adhered to at innovation labs.

  • Low fidelity (lo-fi) prototyping to gather customer feedback cheaply and quickly.
  • 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 if the idea is considered viable.
  • Daily stand-up meetings and weekly (at least) retrospective (retro) meetings. These retro meetings focus on how the team performed throughout the week and not necessarily about the work that took place.
  • User story maps 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 adopted the Japanese principle of “Genchi Genbutsu” (“go and see”); teams are encouraged to move their operations from the lab into the field (in-store pop-up labs) for more 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 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 rolling 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 & acquisitions to launch or enhance an innovation lab.

Creating an innovation lab from scratch is a daunting task for many retailers.

Fortunately, there is another route. With a willingness to invest, retailers can realize 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. If the proper due diligence is performed, it’s also possible to partner with innovators that are well-versed in agile engineering and product management practices.

Walmart has inorganically developed their lab by acquiring 13 lean start-ups since February 2010. This allowed the retailer to incorporate new technology, enhance existing technology, 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, and the sponsors provided additional funding & resources as they progressed through the competition. This format allows retailers to stay ahead of emerging technologies by supporting them from the beginning. Partnerships can take on many forms and doing so can result in an injection 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 - touch screen, wearables, mobile devices, lo-fi blue-tooth and more.Staples’ Velocity Lab introduced omni-channel shopping kiosks into its stores.
  • Use ‘big data’ to provide the customer with a personalized 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. WalmartLabs launched a social gift finder app that integrates with customer’s facebook profiles.

Innovation labs have certainly garnered plenty of attention and all for good reasons. Innovation labs will become more and more important to businesses, specially retail businesses, looking to generate and diversify revenue streams.

Originally posted on LinkedIn here.

Disclaimer: The statements and opinions expressed in this article are those of the author(s) and do not necessarily reflect the positions of Thoughtworks.

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