On January 23rd, we brought together a group of four retail industry veterans — and one retail-focused venture capitalist — to unpack the news that the world’s biggest retailer, Walmart, had decided to shut down its primary innovation group, Store No. 8. What are the important take-aways for innovators and tech leaders in retail and other industries?
Our speakers:
• Paul Gaffney, Chief Digital Officer at Omni Logistics and a former CTO at Kohl’s and Dick’s Sporting Goods
• Michael Perman, Founder of C’est What and the former Global Dean of Innovation at Gap Inc.
• Gene Han, Founder of Halo Advisory Network and former VP of New Ventures at Target
• Pano Anthos, Founder of XRC Ventures
• Kyle Nel, Entrepreneur and Faculty Member, Singularity University and former Executive Director of Lowe’s Innovation Labs
One of our favorite insights from the 45-minute conversation was from Gaffney: “If we could get more people in all settings asking, ‘Hey, what problem is this thing solving? And how valuable is that problem when solved? And then, what’s the evidence to support that?’ we would in general have a much healthier dialogue about the nature of innovation…”
You can catch the replay of the conversation below, or read through the highlights.
• • •
Does new tech actually improve the fundamentals of the business?
Paul Gaffney: I think that there’s this existential tension between labs approaches to improving a firm, and more pervasive approaches to improving the firm. These things ebb and flow. And I think in [the Walmart] case, this is an ebb away from a labs approach…. The [other] thing is [an] increasing realization [that] the things that make a retailer better are largely not new tech innovations. They’re largely about the product that the retailer sells, they’re largely about the store experience, and in particular, the human aspects of that store experience. A lot of us have always wanted tech to make more of a difference in retail, but it’s not reality. And 90 percent of what makes a retailer valuable is the stuff that has always made a retailer valuable: do you have the right product on the shelves, and do the customers love going into the store?
Labs can create freedom to operate in different ways
Michael Perman: We’ve been looking at innovation labs for 10 or 15 years now. I think there are some universal truths about why they start. One of them is around freedom — freedom to operate in different ways than the corporate norm. Another one is agility — that you have speed…your ROI metrics are different, your performance metrics are different, your timing metrics are different. And then the third one is…around building [additional] capacity for the organization.
I don’t believe in the principle that I’ve heard occasionally that innovation is everyone’s job — any more than I believe that accounting is everyone’s job, or that supply chain is everyone’s job. I think there are unique talents to innovation, even when innovation is being applied toward operational excellence. I believe in the principle that innovation labs build talent. And that talent can be coming back into an organization in a variety of ways.
Turf issues sometimes crop up between innovation/new tech teams and other functions
Gene Han: What’s been happening over the last couple of years [is] the digital muscle in all these companies, that technology muscle, is way amped up; it has caught up, especially within the omni-channel [retailers]. So you see that skill set gap [is] narrower. I think a lot of organizations see that they can do some of these functions internally. And quite frankly, sometimes they view it as a little bit of a turf issue, when you have [innovation] teams exploring things that the core should actually look at…
Have you built an “on ramp” for working with startups?
Pano Anthos: [If you’re trying to get startups to partner with a big company, if you’re not] tied to the business unit who needs the thing that you’re building, you’ve got no chance in God’s green earth. Because the innovation people have no budget. And so they’ve got to go around with their tin cans, trying to get people to adopt this. So you had multiple layers at Walmart that you had to get through to get anything into any sort of production environment — unless it was truly pure tech, like a database offering or really core infrastructure.
It’s just a nightmare out there [for startups,] with respect to working with these big corporates. If they hadn’t really provided an onboarding ramp for startups to be integrated into Walmart, it’d be very different, but they didn’t.
As companies have to retrench, you know, CFOs are leading the discussion of, what’s really making a difference. What are the problems that if we solve them, they’re really valuable?
— Paul Gaffney, Omni Logistics
CFOs are not swayed by cool tech that doesn’t solve a problem
Gaffney: There is this larger theme about what goes first — the tech, or the customer problem.
We’ve gone through a cycle over the last 10 years of cool tech…looking for problems. …As people are talking to you about innovation, how much time do they spend talking about the economic problem that they’re solving, and then their approach? Versus, “I have this widget, and this widget could do this. And you’d look really cool if you had this widget.”
As companies have to retrench, you know, CFOs are leading the discussion of, what’s really making a difference. What are the problems that if we solve them, they’re really valuable? Often, those problems in retail are not particularly magazine-worthy. Improving inventory turnover is the most leveraged thing that any retailer can do. Is there some tech and some machine learning that can help there? Absolutely. Is it a cool consumer VR app? No.
What’s the right thing for the culture, right now?
Kyle Nel: Having started innovation labs, Lowe’s probably being the most famous, [you’re] trying to find the right match or the culture at the time, and the right thing that fits inside that culture. Very often, a lot of these labs get killed [for political reasons. A new executive comes in, and they’re] just gonna gut it or kill it. Sometimes it gets that short-sighted and petty. I’m not saying that that’s the case here. But that’s a lot of times why these innovation labs fail because if you don’t have support at the very, very top, the whole thing falls apart, because your job as a lab is to upset the apple cart always. So if you don’t have that protection, it’s over.
All organizations, especially retailers go through these periods of being very short-term focused, and then being more longer-term or medium-focused. And in a short-term focused environment. the lab is never going to be a cool thing ever — ever. I mean, I put a 3D printer in space with NASA when I was at Lowe’s. That was very cool for a moment, and later was not the cool thing.
What I would do first is try to figure out what it is that we’re trying to be, where we’ve been, where we are, and where we’re going, and then match what we’re going to build towards that. Rather than finding a bunch of cool stuff and trying to cram it down the throat of the organization.
Build products and services atop platforms
Perman: Unless you have somebody else who has a vested interest in your imagination, then you are kind of doomed. But I will say… I think that platforms are really important — having clear innovation platforms. And I think that they had those [at Walmart], and I think they were imaginative. And I don’t know exactly how they were worded, and to what degree they were solving a specific problem. But I think that’s another part of successful innovation labs — having clear insight, foresight-based platforms from which a variety of products and services can emerge over a period of time.
Chase basic improvements, rather than going down the ‘rabbit hole’ of tech trends
Anthos: The Apple VisionPro has nothing to do with buying anything in the store, or online, for the next 10 years. I was in the metaverse in 2006 and 2007. We’re still way off. So let’s not waste our time on these rabbit holes, because frankly, it’s agencies who are trying to pitch CMOs to do cool stuff so they can look impressive to their bosses that they’re doing something really interesting.
But honestly, people in stores, store managers, still are blind. They have no idea what’s going on in the store. How can that be? How are you deciding what to put on a planogram, or in a store, based on a bunch of humans making decisions. It’s unbelievable in today’s market. So I do argue that there’s a lot of tech that’s needed in retail, in order to get that right product on the right shelf at the right time, and to have it in the right stock.
Gaffney: Walmart happens to be particularly good at [that], and Home Depot happens to be particularly good at [that.] And now that Lowe’s is largely run by some former Home Depot folks, Lowe’s is also pretty good at [it.] And Dick’s [Sporting Goods] is pretty good at [it.] So there’s not an awful lot of innovation required in improving inventory turnover, matching new product introductions to customer demand. There’s a lot of work. And there’s a lot of collaboration between tech and their business partners. But I don’t think it’s the stuff that would ever show up in a traditional innovation lab. And look at the list of what store eight was working on. It wasn’t any of those things.
A lot of the operators are so busy, they’re not looking out for what’s new. They’re waiting for that information to come to them.
— Gene Han, Halo Advisory Group
Don’t let your portfolio get too ‘H3 heavy’
Han: If you’re running an innovation lab, it’s really hard to carry a Horizon 3-heavy portfolio, because the bake time on that is super long. And at some point, they’re going to ask you, “Hey, what have you done for the business? Where is the impact?” So I think one of the key learnings here is to make sure that you have enough initiatives across horizons that yield material results, or at the very least, material learnings. And [that are] aligned to a business, like, how does this help them? How does it give me insight? A lot of the operators are so busy, they’re not looking out for what’s new. They’re waiting for that information to come to them. And the benefit of putting a parade of startups in front of them is that sometimes they get visibility to what’s changing before it’s actually on the newswire…
Look to external partners more
Anthos: When we started [XRC Labs, an accelerator program], or when anyone else was trying to do this, in 2014 or 2015, retailers couldn’t even spell innovation. …I would submit that the visibility of startups in the ecosystem is so vast right now.
…I don’t think you need internal labs anymore. Whether it’s us, or there’s 50 other [external innovation] labs out there. I think you should let people make money at what they do well, and you do well what you do well, which is create an onboarding process, create a really streamlined process for you to test and pilot technologies that are going to make a business difference. And get rid of all the other crap.
Product and store experience matter a lot — supported by tech
Gaffney: If you buy the thesis that retail is about great product and great store experience, [I want to give a] huge shout out to the team at Dick’s. If you have not seen or if you have the chance to go to one of their new store formats, The House of Sport, where they have a multipurpose playing field, tighter integration with the local community, an immersive experience in in cleats for American football and soccer, a climbing wall. They actually did the work to figure out if there were a competitor out there that customers would see and choose to go there instead of the core Dick’s store, what would that competitor look like? And they built it.
But almost all of that innovation is about product and store experience. It’s supported by some tech, but no one’s going to choose a retailer because they have drone delivery. They’re gonna choose the retailer primarily because they have the product that they want, with an experience that they want. That’s the zone for innovation. And you can do it, and you can do it largely in-house [as Dick’s did.]
Bad culture will spit out good people
Nel: When you go out and acquire [companies like Jet.com,] and you tell [their employees] the story that the company is going to innovate, they believe you. Then they come, and then they get stymied in the process of everything. They get super-frustrated when the thing that they built could have legs, but because of political issues, or just corporate machinations, it doesn’t happen, they get frustrated, and they bail. They go to your competition, or they start their own thing. And I think that’s the core problem. The core problem is not whether you have a lab or not. The core issue is people believe the stuff that you’re telling them in the marketing materials when you sign them up. But then when they get to the real world, they realize how hard it is, because it’s really not set up for it. It’s not set up for change.
Han: The culture really matters. If you end up heading up a lab or playing any kind of innovation role, the one thing you’ve got to really beef up on is change management chops, because it helps you navigate the culture and set context.
The right metrics and incentives can get a bigger slice of the workforce involved in innovation
Gaffney: I’ll give some praise to the Home Depot organization. I left there in 2017. I think over the past decade, that really has become an organization where pretty much anywhere you go, even into a store, [when] you ask them what’s important, you’ll get a very clear, crisp, and numbers-based answer about what is that part of the company doing to make an economic difference? And how are they taking care of their frontline associates and their customers. When you can have that kind of culture – when everybody knows what their contribution is supposed to be — you then can federate [the] responsibility for improving [and innovating] over and above…
Take this out of the classic tech world, and just think about the average Home Depot store. There are somewhere a little north of 2000 of them. Each of those stores, everybody in there earns a semi-annual bonus. And they are motivated to do things on a local basis that will improve that bonus. They know how it’s economically denominated. It has nothing to do with, you know, did you build some feature? It’s Did you drive more sales? Did you drive more profit on the things that you can control?
And so my answer is, companies can and should have “make the company better” as everyone’s job. But the predecessor to that is, everybody needs to know, what’s the scorecard that matters? And how does your team address that scorecard. And that can take decades to implant. In some ways, I think a labs approach is, “Well, we don’t have decades to change the culture. So we have to take some separate group.” But the moment of inertia in large companies is very, very high and difficult to move from a satellite [group like an innovation lab.]
Han: The other thing I would say is that teams need capacity. There are some operating teams that are always stretched thin, and they just kind of run the core business. So you don’t have that extra bandwidth, or metrics or incentives, that instill that [need to experiment and improve], it gets a little bit tough.
A lot of times companies get used to the fruits of having a successful innovation practice. And they think it’s the organization that did that.
— Kyle Nel, Singularity University
Innovation teams with a budget can achieve big things
Nel: innovation is not an event. Innovation is a never-ending process. You’re never done. It’s never, “Oh, we’re all fixed, all solved. Corporate culture is fixed — we have innovation throughout the whole corporation.” I have never, ever, ever, ever seen that work. You will never get anything that’s truly innovative. You will get incremental improvement, which should just be being a person that works in a job — you should be incrementally improving. But you’re never gonna get big T, transformation innovation. You have to have huge budgets to be able to launch these things. …You have to go out, and you have to have people embedded in places that aren’t at your home office, so that you can interact with people you wouldn’t normally interact with. Because not everyone just shows up to Bentonville, Arkansas all the time or Atlanta. Those are the kinds of things you have to do if you’re really, really serious about it.
What happens though, I think, is that companies get used to the fruits of having a successful innovation practice. And they think it’s the organization that did that. And it can be sometimes. But largely, it’s because of all those things [from the innovation practice and] the efforts that were put behind it.
Final thoughts
Perman: My final thought is make sure you’re embedding foresights all the time. If not, then you’re kind of reacting so much to the present and the past. You always want to develop future scenarios a few years out, that are human-based in order to really guide your work. Foresights.
Gaffney: If we could get more people in all settings asking, “Hey, what problem is this thing solving? And how valuable is that problem when solved? And then what’s the evidence to support that?” We would in general have a much healthier dialogue about the nature of innovation…
Han: If you’re on a lab team working innovation, you’re usually on the edge learning quite a bit. Figure out a way to socialize your learnings and get some credit for that. Part of the activity of being on the edge and looking at new stuff is helping the core understand what’s coming.
Nel: Corporate innovation people and innovation lab people are a different breed than the rest of the corporation. And they’re probably not going for the CFO job, or the CTO job. They’re going to make a big change and then bounce to something else to make another big change. That’s all part of it as well. So they’re on a different track, they have a different goal, and they have a different mindset. If organizations understood that I think they could take…a much better view, and get a lot more of the fruits of that labor, if they understood that and nurtured that.
Featured image by Steve Johnson on Unsplash.
