Innovate, or Lose Your Seat at the Top Table

Retailers leading the way in innovation are investing an average of 13% of annual revenue in innovation initiatives and seeing a 21% ROI for their efforts.

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  • [Image source: Krishna Prasad/MITSMR Middle East]

    Over the past three decades, the composition of the top global retailers has seen significant churn, with few managing to maintain a lead position. Established players have been usurped by creative newcomers who have prioritized innovation, staying ahead of the curve in terms of technological advancements and changing consumer preferences. 

    A new study by BCG and World Retail Congress, launched at World Retail Congress 2024 this week, detailed how retailers can successfully ignite their innovation engines.

    Retailers leading the way in innovation are investing an average of 13% of annual revenue in innovation initiatives and seeing a 21% ROI for their efforts, according to the report, Investing in the Future: How Retailers Use Innovation to Gain an Edge. By contrast, retail laggards invest an average of only 3% of revenue in innovation and get a 9% ROI. As a result, laggards often fall into a vicious cycle where lower investment in innovation pilots is insufficient to drive a step change in performance, resulting in lower ROI and further reductions in funding for innovation.

    The report, which surveyed more than 400 senior leaders across 11 retail sectors, also revealed that innovation leaders are prioritizing investments in three areas: operational improvements (71%), e-commerce (60%), and big data, AI, and analytics (58%). 

    Moreover, the report found that leaders are fearless in their approach to innovation: they invest in multiple innovation projects at once, partner with third parties on innovation initiatives, and seek to shape consumer preferences rather than simply react to trends.

    Nate Shenck, BCG’s global head of retail, said, “Even in a year of uncertainty with many focused on delivering on the basics, continual innovation remains crucial for retailers to maintain competitive advantage. You have to fight weekly, daily, and hourly to maintain it.”

    Key Success Factors to Drive Innovation Engine

    The report says that the most successful innovators in retail, classified as “leaders,” share six key success factors:

    Technology and Data. Leaders understand how to address the technology challenges that often hinder innovation. They invest in modern modular technology infrastructure and use big data and analytics to help determine which initiatives to pursue.

    Strategic Goal Alignment. Leaders’ innovation initiatives are tightly aligned with their broader corporate strategies and have senior executives who champion innovation initiatives.

    Organization and Operating Model. Leaders dedicate specific teams to innovation and enhance their operational models to agilely deploy resources across innovation initiatives. They also allow employees time to pursue passion projects and bring in external partners to augment their existing innovation capabilities.

    Culture. Leaders instill a culture that promotes fast failure, incentivizes grassroots innovation, and invests in multiple innovation projects rather than a few large ones.

    Governance and Budget. Leaders establish governance structures and flexible/agile budgeting processes to promote, sustain, and boost the experimentation scope while establishing clear innovation-related KPIs.

    Risk Management. Leaders adopt a comprehensive approach to risk management that balances risk with potential rewards, allowing for experimentation with higher-risk innovation ventures.



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