January 17, 2007
Visionary CEOs Talk Innovation and Internationalization
By Rick Moss
There
was a marked contrast in styles between the two charismatic corporate leaders
who did back-to-back presentations Monday morning at the 96th Annual NRF Convention
in Manhattan. Dr. Hans-Joachim Körber, CEO of Metro AG, with his measured,
German-accented delivery, appeared assured, pragmatic and professorial. Steve
Ballmer, CEO of Microsoft, the consummate salesman, strutted the stage and
punctuated his message with humorous asides and evangelistic flights into that
great retail tech future. Each, in his own way, promoted innovation with a
capital “I” as the primary force driving retailing forward.
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Dr. Hans-Joachim Körber
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Dr. Körber’s address outlined Metro’s internationalization philosophy and, from that perspective, he made the point that “innovation represents more than just technology… but includes processes, structure, products and business in every respect.”
About one-quarter million people are currently employed under the Metro Group umbrella, which operates 2,200+ stores in 31 countries. Dr. Körber has obviously thought long and hard about the structure that’s needed to operate a truly global business. Citing the statistic that the spending power of the world’s emerging economies is predicted to reach $9 trillion annually by 2050, up from $4 trillion today, he proudly illustrated that Metro was present in eight of the top 10 fastest growing of those markets. In the past decade, that segment has blossomed from the single digits to become 54 percent of Metro’s overall business.
Although Dr. Körber highlighted operational imperatives, such as the global standardization of business processes, much of his talk centered on meeting the diverse needs of consumers and what it will take to do that in all the far flung regions in which they operate. To transform an organization towards that end, Dr Körber sees a corporate culture of diversity as being a prerequisite. He also covered the need for “ethical sourcing” and a universally applied set of social standards. “We can’t afford to use different standards in different areas in which we do business. The misbehavior of one operator can jeopardize an entire sector.”
Perhaps most importantly, Dr. Körber explained the importance of a “disciplined approach to innovation,” spearheaded by “innovation managers” trained to recognize the right ideas, test them methodically and then roll out the successful ones throughout the organization.
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Steve Ballmer
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Mr. Ballmer painted his picture of retail innovation in more detailed strokes: less of a world-vision and more about the need to empower the customer, individually, via technology. “Consumers expect to be at the center of everything the businesses that serve them do,” he said.
Mr. Ballmer kicked off his presentation with a slickly produced video apparently intended to throw a bit of high-tech stardust into the eyes of the audience. It showed a shopper entering a supermarket, using a hand held device to review her shopping list. The retailer’s system kicked in, recognized her list and presented her with a floor plan route to her desired items. Projections materialized in mid air along the shopper’s path, presenting offers and assistance. After experiencing a few more magic tricks, the happy customer with full cart exits the store without a checkout in sight.
Also recognizing the explosive growth of emerging markets, Mr. Ballmer positioned technology as the competitive differentiator that will allow companies to win in the international arena. In this environment, he sees the ability to provide employees with real-time information as a critical capability. “Companies will need to move information seamlessly to really focus on making sure the enterprise comes together.”
However, despite facilitating more intelligent and fluid decision making for retail management, Mr. Ballmer was insistent on keeping the consumer at the center of attention. “Technology will change the way the consumer wants to work with retailers,” he said. He challenged retailers to be ready for that shift in power.
Discussion Questions: Will huge, sophisticated retail organizations such as Metro AG be successful in catering to the needs of the diverse populations they serve? What role will innovation of business processes and technology play in their success?
Dr. Körber frankly stated during in his talk that, “traditional retail models are simply not affording the level of growth necessary.” With the way international retailers such as Metro AG are institutionalizing the practice of innovation, it seems as though the world’s their oyster.
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I’m sure Mr. Ballmer’s video was sexy. But the most important innovations happen inside of corporations, and don’t directly affect the consumer experience at all.
This kind of innovation includes document management, collaboration, distance learning, automation, at-your-fingertips data and metrics, real-time feedback, and so on. As a technology consultant to business, my experience is that this is the true innovation. But when the hand-held device can interact with the grocery store, let me know, and I’ll update my Q.
When I think of innovation + internationalization + retail, I think of IKEA. They truly have a knack for developing original shopping experiences and well-designed products that seem to have global appeal.
Well, fellow travelers, we don’t seem to be very impressed with the deep thoughts shared by Messrs. Körber and Ballmer. Taken together, they smell like a top-down business strategy. Store-level employees are being rescued from their ineptitude by sparkling thoughts from on high accompanied by technology guaranteed to be embraced by shoppers. Right?
Just as marketing “pull” strategies almost always outperform “push” strategies, innovations from store level trump corporate solutions because store-level ideas are always implemented best. Always. If Metro AG’s and Microsoft’s solutions are in response to real store-level feedback, more power to them. But somehow, I don’t think so.
Sitting in the session Monday morning, it was clear to me that both CEOs understood the importance of customizing the offer to the market and using technology to accomplish this goal. In an ancillary way, both also stressed the importance of retailers making the most of each individual shopping trip, something I think was a theme throughout much of the show. This “shopping visit as an asset” idea, while in no way new to the industry, does require a new look on the business and a shift in corporate culture. It will be interesting to see how technology will be deployed to take advantage of the time the shopper is in the four walls (physical or the monitor) of the store.
I don’t know the full remarks made by Dr. Körber. That said, it seems to me that “disciplined innovation” is hardly the oxymoron some might view it as.
I’m reading into the brief snippet quoted “disciplined innovation” means “it’s not innovative unless there is real value (as opposed to pr puffery) for the customer and it doesn’t matter how innovative it is if you can’t field or utilize it, preferably as soon as possible.”
Toyota’s product development system and their production system are highly structured, yet Toyota is highly innovative, fast-moving, profitable and highly appealing to customers.
Sounds to this reader as if Dr. Körber is really saying, “We take innovation seriously and treat it as an important business process to better meet the needs of customers.”
Innovation can mean many things to many people. That is why there is no right or wrong answer to what it is and why there are many different approaches. The challenge comes in encouraging an environment for innovation that is appropriate and relevant and that, ultimately, for companies has a commercial benefit.
Innovation with a big I might not be the answer – in fact innovation with a little i will do the job just as well.
I wasn’t present at NRF, but the Microsoft video described here sounds very much like one I’ve seen MS executives use at least twice over the past two years. It portrays a retail shopping trip empowered by ubiquitous wireless computing – in the hands of both the happy starring shopper and a remarkably efficient stock clerk. It’s an appealing future techno-fantasy, and markedly different from any of my recent retail experiences.
Metro’s depiction of a multi-national retail empire that spans the planets’ largest growth markets is exciting on its face, but it is also rooted in the mass market conception that favors efficiency and scale above all and caters to the “big middle” of consumer markets. This may remain a viable strategy for the near term, delivering required numbers to the investor community, but it will eventually be vulnerable to more targeted and nimble retail operators.
These two visions may be linked in an intriguing way, I think. Technology may provide a means to bridge scale, efficiency and market power to one-to-one responsiveness and turn-on-a-dime nimbleness that lets large retailers begin to widen (and flatten) the “big middle.” But tech alone will not make it happen. There must be an underlying cultural change in retail – a shift from the mass market mentality to a market of a million niches.
There is no doubt that giant retailers have a distinct edge over regional and independent retailers in technology and many other areas where they can use their enormous muscle. But, walking around the NRF show for a couple of days, it was refreshing to see a number of new technology companies that have emerged to capitalize on niches or opportunities left behind by the big guys.
I’m not sure that all customers prefer to deal with humans versus machines in a time-crunched world, but everybody wants the best level of service, however they personally define it. And, smaller retailers will always be more nimble and adaptive so there should be opportunities for them to exploit.
Both visions of the future (Körber’s and Ballmer’s) were similar: they emphasized bricks and mortar shopping. The most profitable, fastest growing retail innovation is eBay, which (1) isn’t a physical store (2) isn’t really a single organization–it’s a facilitator for millions of independents and (3) works globally today. Process and organization are the most powerful innovations at eBay, not the technology. And eBay’s basis is one of the most old-fashioned retailing methods, the auction. Furthermore, eBay wasn’t built by people with retail backgrounds. It’s not that Metro and Microsoft won’t have big roles in retailing’s future. But it seems that huge innovation will also come from outside the traditional retail structure.
The huge international retailers will be successful in catering to the diverse customer base to the extent that the retailers learn to know customer habits, preferences, expectations, etc. on a continuous basis and use such learning to localize stock assortment as well as service. These retailers must “think global but act local” if they wish to be successful in a variety of countries.
While innovation will play a significant role in making international retailers successful, the use of technology has limited scope in a sense that, while technology in back room operations is fine, when it comes to customer service, there are many consumers who prefer to deal with humans rather than technology. Therefore, in my opinion, those retailers who really understand the power of effective human interactions will be more successful than those who simply rely on technology and automation.
Above all, those retailers who really “respect” their customers and do not take them for granted will be successful regardless of technology.
“Innovation” is a slippery thing and for the most part it scares control freak managers because you just don’t know what you’re going to get. So when Dr. Körber pairs the word “disciplined” with “innovation” and then installs “innovation managers” I think how very German of him. Next thing is to publish a “Rules for Innovation” policy.
I have trouble imagining an Innovation Manager hovering over a salesperson ensuring they have disciplined innovation in serving a customer. Kinda takes the fun out of innovation, don’t you think?
Innovation requires one to think differently–it’s ‘how’ you think, not so much ‘what’ you think. You can’t use old thinking to control new thinking–you’ll destroy both.
When retail or any other kind of organization feels the need for innovation, by definition that means what they’re looking for is outside of their current mind-set. If “thinking outside the box” is so helpful, wouldn’t you think we’d find out how the box got there in the first place and do something about it? Unfortunately, once most of us get through thinking outside the box we’ve got to get back into it.
Apart from the fact that you don’t have a life when you work for Microsoft, I would rather innovate under Ballmer’s model.
I’m a little behind this week, having also attended NRF as well as acted as the MC for the debut of THE STUDIO sessions. More about that later, as it deals with the topic of the size of the organization.
Technology and innovation usually go hand in hand. Look at the NRF trade show floor and you see all kinds of gadgets and tools, supposedly to make the shoppers’ experience better. But are these just sales pitches? How do they really help the customer? Supposedly, they free up the salesperson’s or management’s time to better service the customer. Do they?
While I missed the video, the descriptions sounds pretty much like a sales pitch for a tech company, not a vision of a customer-centric problem solver. But, I could be wrong….
The program I wanted to draw our readers attention to which occurred in The Studio, was presented by Michelle Gloeckler of Hershey’s. While they are a huge, international company, they have only two stores; Chicago and New York. She described how they incorporate technology and deal with the challenges of not having a national chain. If you’ve been to either of the two locations, you see that they have accomplished this task by using technology to enhance the customer’s experience, not by just adding whiz-bang to the stores.