In our last post, we began to address the critical role that retail CFOs must play in driving innovation, looking at the lessons finance executives can learn from Sephora’s world-class innovation lab.
Today, we’ll outline the critical balancing act that CFOs must walk in order to foster a responsible, results-oriented process within a retailer’s innovation lab. Although a CFO will rarely bring an engineering or marketing skillset to the table, their broad set of responsibilities enables to them to provide an important attribute to any discussion around innovation: organization-wide perspective
Keeping Innovation Balanced
Any senior engineer will tell you: keeping perspective is hard. Some technologists fall in love with pet projects, while some programmers over-invest in new technologies because of their love of all things shiny. One role the CFO can play is to offer innovation labs a balanced perspective.
For example, many retailers are heavily investing in their mobile strategy, and rightfully so. Mobile app usage continues to rise, and retailers are battling for their share of the estimated 2.5 hours a day the average consumer spends on their smartphone. But it’s important to remember that 91% of all sales are still generated in-store. An innovation strategy that over-focuses on the customer’s mobile experience fails to dedicate the appropriate level of effort toward optimizing the most important and profitable part of the customer journey.
Here are some important things to remember when ensuring balance in your innovation efforts:
- What does the data say? Opportunities for innovation should be identified not only by creative ideas and thinking, but also by data. Thorough analysis of a retailer’s customer relationship management database (CRM) should be conducted to determine where chokepoints occur in the buying process. Equally as important, however, is what data can tell you by its very absence. If there isn’t enough detailed data across each stage of a customer’s shopping, evaluation, and decision-making process, that’s a good indication that the technologies deployed have serious gaps, giving the innovation lab an opportunity to showcase its value by designing solutions to capture that missing data. For example, the data may indicate that an increase in foot traffic should be a top priority for a retailer, but more often, accurate foot traffic data will be missing, meaning the organization needs to create effective ways to measure data accurately.
- The customer experience is more than digital. Many retailers make the mistake of exclusively investing in digital innovation, but we all know that creating a seamlessly integrated omni-channel experience is key to maximizing the return on digital and physical real estate. Borders, the struggling book seller, provides a tragic example of this kind of tunnel vision and the detrimental impact it can have on a retailer. In an effort to compete with tech giant Amazon, the brand invested hundreds of millions of dollars in the failed Nook tablet. Plagued with a lack of internal technology go-to-market expertise and performance issues, the Nook returned a loss for Borders in the order of $450 million. Borders would have been much better off investing in innovation to enhance its omnichannel experience and equip its physical stores with technology to help personalize each shopper’s visit.
- The back office needs innovation, too. Supply chain, inventory management, and fulfillment are three areas of business operations that, as Silicon Valley would say, are ripe for disruption. Predictive modeling and big data analytics are fundamentally changing the ways in which retailers anticipate consumer demand and execute against their online and in-store orders. While backend technologies often lack the flash and appeal of customer-facing applications, they are also some of the easiest places to drive innovation and improve margins across the board. Innovation labs that produce these kinds of profit-growing advancements can self-fund their more ambitious projects.
- How will my organization implement new innovation? Major retailers like Nordstrom have seen their innovation labs fail, not because of a lack of creativity or deliverables, but because the organization, itself, simply did not effectively implement the new tools and features being designed. CFOs are naturally process oriented and have insight into the inner workings of every operations team in the company. Finance officers can leverage this knowledge to help the business plan for deploying innovative new programs, stepping outside their traditional role and expanding their influence by acting as conscientious shepherds for the entire organization.
Innovation Can’t Be Bought
It is a major mistake CFOs commonly make - thinking that the simple acquisition of a tech company will immediately inject innovation into a retailer. The important thing for CFOs to remember is: innovation can’t be bought. No single tech company can understand the entire retail ecosystem, and building an innovation lab around a single specialty will leave brands ill equipped to solve the broader challenges the retail market presents.
Acquiring a tech company is a great place to start, but as a C-level executive, finance officers will play a huge role in creating an internal corporate culture in which technical leadership can grow. To help lead the innovation effort, retail CFOs must perform the balancing act of encouraging risk-taking and experimentation, while helping to remind talented technologists of the strategic objectives that CEOs and boards of directors will ultimately hold the entire organization accountable for.
The Bottom Line
Innovation is the key to success for any major retailer, but in order to build a culture where real change can thrive, the right attitude must be set by every executive across the entire C-suite. For finance, this means reframing their thinking about innovation labs, reducing skepticism toward risk-taking and experimentation, and, instead, playing a more active role in providing business guidance and encouragement to technical trailblazers within their organization.
The retail CFO brings a unique skill set to the innovation discussion, and is well equipped to help organizations identify key opportunities to capitalize on - challenging technical leaders to design solutions that accelerate a company’s position and growth. When creative technologists partner with mature, savvy finance executives, innovation labs produce their best work and avoid the unnecessary friction that too often leaves labs feeling stifled and CFOs frustrated.