#CCGInnovationTop5 – #Innovation and Disruptive Trends in #Retailing

This post is the first in a series examining disruptive influences on the horizon for different industries and product categories. Each of these potential changes will create winners and losers in the market. A good business strategy with an integrated innovation strategy, can position a company to benefit from, and even lead, the evolution in its market.


The retail environment is no stranger to seismic changes, having been through many disruptive eras in the past. Examples include the disruptive impact of retail consolidation into mega-retailers (Mom & Pop stores -> Sears -> Kmart -> WalMart) and the impact of internet retailing (Amazon or eBay). Given that innovation never stops, it is interesting to look at where the next big disruptions in retailing may come from. In many of these cases, it may already be here lurking in front of us. Notably, innovative business models play as big a role as new technology in most of these cases.

1) The brand-building store – The Apple store is of course a great example of what happens when the manufacturer of a product decides that they need to be able to connect directly with the consumer. Increasingly, the powerful product brands are going to want direct connections with their consumers. There is an inherent tension between traditional retailers (who want to stock multiple product brands and emphasize both the brand of the retailer and the breadth of their product offering) and product brands (who want their brand presented to the consumer, unfiltered by the retailer). Product brands may either demand a store within a store (the Apple section at Best Buy) or create their own retail environments to get their message directly to the consumer. The stores owned by the product brands create an opportunity to offer higher levels of service because they do not have to split the margins with a third-party retailer. However, as product brands are then able to differentiate on service in their retail environments, it is reasonable to expect traditional retailers to accelerate their pace of buying or creating their own brands so that they may differentiate themselves with unique products. Retailers and product brands are going to have to evolve their relationships to deal with an environment where they may simultaneously be partners and competitors.

2) The walled ecosystem – The iTunes store is a great example of a marketplace that was created with a strict set of rules that define what may be sold and how. What is interesting is that the model relies on the retailer defining and policing the rules, but it puts a large responsibility on the company developing the product. Imagine a bricks and mortar version of this system, where a physical store is built with rules for general product assortment, merchandizing, product safety, and packaging; but where the manufacturer is then responsible for stocking the stores and managing inventory (an extension of the Frito Lay model used in grocery stores). The store would be responsible for setting rules that result in a desirable retail environment for the consumer, and for creating a unique shopping experience (driving traffic to the store). The manufacturer would be responsible for interpreting those rules and determining the best products to sell to the consumer traffic in those stores (closing the sale). This could significantly change the nature of the relationship between manufacturer and retailer.

3) The evolution of the app and the mobile device – We are already multiple generations into the evolution of mobile devices in the retail environment. As this trend continues, location barriers will cease to exist. Already, a consumer who is inside one store frequently decides to make a purchase from another one on their mobile device. This creates a question of what it means to be “inside” a retailer. That used to give the retailer a certain degree of control of the purchasing process. Now a consumer can be physically inside a store while being virtually inside another one at the same time. Retailers must consider what value they can deliver to avoid competing solely on price. Equally important will be how that value is delivered. Value delivered prior to the sale decision (i.e. product information, access to physical product samples, expertise of sales people) may not result in that consumer sticking with the same retailer to make the purchase. Value delivered after the sale  (i.e. additional warranty, training, discounts on related products, or other ongoing services) may make a bigger difference in the purchase decision because it requires the consumer to go through with the purchase and not just use the physical retailer as a catalog for the virtual one.

4) Virtual reality – This is actually a very old trend in retailing in the broadest sense of virtual reality. Physical stores have had to compete with mail order, catalog, and internet companies as the virtual world evolved from black and white print, to color, to TV infomercial, to internet product demo. Each new technology made it easier for consumers to get the feel for a product without actually coming to the store to see it. However there currently remains a significant gap between the online experience and a truly great in-person retail experience (Lego store, Cabella’s, Bass World, Apple). However, we can’t assume that this will always be the case. If virtual reality gets to a point where consumers can experience a product in their home, the same way (or in better ways) than in retail, this is a significant risk to physical retail. Imagine a physical camera store competing with a virtual reality store that not only demos the camera, but allows you to try it out while standing at the rim of the Grand Canyon on a virtual vacation.

5) In-home rapid prototyping – This innovation is in its infancy when it comes to consumer use, but we are decades into its evolution in the R&D environment. The ability to quickly manufacture real parts for testing in product development, was a huge revolution when it happened. Early in my career, it was typical for this equipment to cost $500K or more. Now higher performance systems can be found for $25K or less. If this trend continues for 5, 10, or 20 more years, we may have affordable home-manufacturing systems that can be refilled with raw materials (or recycled materials) such that new items can be made at home with no need for factories, distribution systems, or physical retailers. The owners of the IP for the product design, and the manufacturers of the equipment will control the value chain in that environment. This revolution may not be far in the future. MakerBot already sells a system for under $2,000 that has some of this functionality:



Chanute Consulting Group specializes in working with our clients on developing strategies for growing their businesses and increasing their innovation pipelines. Contact us to discuss how to identify potential disruptive trends that could impact your business, and use that knowledge to refine your business and innovation strategies.

The Medici Effect – where to find the greatest potential for Innovation

In the book The Innovator’s DNA; by Dyer, Gregersen, and Christensen; one of the five skills of disruptive innovators was Associating, the ability to bring together previously unrelated pieces of information to create something new. This is closely related to the topic of another very good book: The Medici Effect, by Frans Johansson.

Johansson explores the concept of “Intersections” between different fields, industries, disciplines, and cultures and the impact these intersections have on disruptive innovation. For several centuries the House of Medici created an environment where innovation and new ideas flourished, by bringing together the best minds in different fields. Their acts had a significant impact on the birth of the Italian Renaissance.

However, this concept isn’t just a historic one, it is evident in current business trends and in innovative new products. The biggest ideas are rarely contained within one industry or product category. Examples include the combination of computer hardware, software, and music; that led to the iPod at Apple. Many of the most interesting advances in biotechnology are the result of the intersections between medicine, engineering, and the sciences.

Whether you are an individual innovator, or a company working to create an innovative environment, you will be more successful by reaching beyond your own industry and looking for intersections with other businesses, technologies, and markets.

This is not just about adjacent markets, businesses, or technologies; it also includes the combinations of radically different elements to find a productive intersection between them. The more diverse intersections you explore, the higher the chances are that radical innovation will emerge.

Questioning & Associating Skills and Innovation

This is the last in a series of posts on the book: “The Innovator’s DNA” by Dyer, Gregersen, and Christensen. They identified five skills for disruptive innovators: Observing, Networking, Experimenting, Questioning, and Associating.

Questioning – In innovation, asking the right questions in the right way, is as critical as finding the answers. If the right questions aren’t being asked, then the answers aren’t going to be terribly useful. The book covers tactics to use to create an environment where the right questions get asked. One interesting point is that it can be very productive to engage in thought experiments where questions are used to either remove or impose constraints. What if an additional constrain were added to your situation? How would you deal with it? What if an existing constraint were removed? What would then be possible? Innovators are always asking why products/services/business models are the way they are, and why they can’t be made better.

Associating – The best innovations often happen at the crossroads between two disciplines. Great innovators are able to connect different technologies or ideas together inner ways, to offer products that have never before existed. Also, some of the best innovators are people or companies that have expertise in multiple areas. For example: engineering and medicine, software and hardware, biotechnology and computing. Great innovators and innovative companies are able to pull together seemingly unrelated concepts to deliver radical results. There is also a great book by Frans Johansson called: “The Medici Effect” which goes into more detail on the power of working at the intersections between different fields.

As an individual product developer, it is critical to build the two skills of Questioning and Associating. As an innovation leader, you must ensure that these two skills are part of the culture you build in an organization to create an environment where radical, disruptive ideas can emerge.

Anyone either leading innovation or working in an organization where innovation is important, should read “The Innovator’s DNA.” The concepts are simple and there is a lot of common sense behind them, but they are also concepts that are frequently forgotten or underdeveloped. Mastering these five skills will add value for either individuals or organizations.

The Value of Experimenting – The Innovator’s DNA

This is the third of five key skills of highly successful innovators from the book: “The Innovator’s DNA” by Dyer, Gregersen, and Christensen. The first two, Observing and Networking, provide links between an R&D organization and the outside world. This is absolutely critical to increasing the frequency and quality of new insights. However, these two attributes aren’t sufficient to create a successful culture on their own.

Experimenting is the next critical step in increasing the odds of creating disruptive innovations. The word experimenting is used broadly to cover testing ideas and learning from them. This can be in a traditional R&D lab or it could be market testing an idea with consumers to determine if it is appealing. The key is that it must be easy and quick to perform experimentation to foster a culture of learning. The faster your team can learn about their ideas, the faster they will identify the issues with them, and there will be issues with them. Innovation often requires iteration to take a good idea and make it great, through learning and modifying.

Failure is acceptable provided it is done quickly, efficiently, and cheaply; and that there is valuable learning from it.

As an innovate leader, ask the following questions of your organization to challenge whether you are succeeding at fostering an innovative environment:

1) Is it easy for your teams to test their ideas? (in the lab, in the field, in their office, etc…)

2) Are people learning from their failures?

3) Do you have methods for failing cheaply and quickly to reduce the risk and encourage testing?

4) Is an emphasis placed on learning in the early stages of projects (vs putting the emphasis on achieving success)? The learning will ultimately result in bigger business successes if it is allowed to happen.


Networking – The Innovator’s DNA

From the perspective of a leader of a team tasked with driving innovation, the second most critical skill from The Innovator’s DNA is Networking. The previous post covered Observing, which is primarily focused on learning from the market (consumers & customers). Networking is critical to learn from other industries, markets, regions, vendors, etc… Most people think of networking on an individual level, but the concept is just as appropriate for organizations. How well networked is your team? Are they in constant communication with a diverse group of people and external influences?

The ability for an R&D group to come up with innovative ideas is directly correlated to the amount of connection they have with the world around them.

1) How well networked are the key individuals on your team? Is your business benefitting from it?

2) Does your Innovation Strategy tap into this network, and do you encourage it?

3) How often do your people benchmark with of other industries, suppliers, or universities?

4) Are your Product Developers networking with people outside the field of product development?

The network effect created when a product development team is: a) well connected with the needs of consumers and customers (Observing) and b) connected with a diverse group of people who can provide insights on technical or design solutions (Networking) can be extremely powerful to accelerate innovation in your organization.

Observing – The Innovator’s DNA

In a previous post, I recommended The Innovator’s DNA by Dyer, Gregersen, and Christensen. Their five skills of innovators are critical for both individuals and organizations to be successful at innovating. While the book lists “Observing” as the third skill, in my view this is the number one trait to worry about when it comes to setting up an R&D team for success.

Simply put, Observing is the ability to watch the world and learn from it. In the context of R&D, it is the ability to learn from consumers, customers, and the retail environment; to learn about the opportunities for innovation. When setting an innovation strategy, it is vitally important to reinforce the need for product developers to be out in the market, learning from it. Too many firms delegate this activity to marketing, when it is important for both groups to be better connected with the end user of the product, and the environment where it is sold. As an Innovation Leader, some key questions to ask are:

1) How often are product developers interacting with consumers and customers?

2) Are your employees skilled at learning from these interactions? (It is important to have the right approach and to ask the right kinds of questions. People must have curiosity and a desire to learn, but the approach can be taught.)

3) Does your strategy reinforce the need to be out in the field?

4) Is there regular time allocated to ensure that Product Developers are able to interact with consumers at a minimum on a monthly basis?

5) Do you have a way for employees to bring their insights back into the rest of the organization so that other employees can benefit from it?

As a Product Developer, it is important to challenge yourself to make these interactions with the marketplace happen. It will make you a better developer and a more successful innovator.

The Innovator’s DNA

For most companies, long term strategy and innovation are inseparable topics when it comes to driving long term growth and value creation. This blog is dedicated to insights on how to develop and execute winning strategies for growth. Searching on Amazon today, there are more than 47,000 books related to Innovation and more than 126,000 on strategy. At 4 hours a book, that’s about 80 years of reading material. One of the goals of this blog is to sift through the mountains of information on these topics and find the most actionable and relevant information for our readers.

One of the best books about innovation that can be applied to both individuals and organizations is: “The Innovator’s DNA” by Dyer, Gregersen, and Christensen. This book is recommended reading, whether you are leading an innovative organization or acting as a member of one. The five skills of: Questioning, Observing, Networking, Experimenting, and Associating are absolutely vital to creating an innovative mindset and an innovative culture.