Where will ‘disruptive innovation’ take the retail business?
Source: MishiPay

Where will ‘disruptive innovation’ take the retail business?

Karen Herman, founder of Gustie Creative, is the author of the newly released book, “Solutions for Disrupting Disruption, COVID-19 Handbook, The Essential Guide for Brands and Businesses, is Timely and Actionable.”

Many believe that Clayton M. Christensen’s theory of “disruptive innovation” is one of, if not the most, important business ideas of the current century.

In an interview with Prof. Christensen conducted  last year by his longtime collaborator Karen Dillon for MIT Sloan Management Review, he called disruption “a process” that is “intertwined” with an organization’s resources, changes in customer needs and “the constant evolution of technology.”

Advancements in technology are being tested and adopted by retail and consumer brand businesses at a pace unlike any other in history. Those who embrace technology’s potential see tools enabling them to increasingly anticipate and meet future change from a position of relative strength. The shock that hit retail last year when the novel coronavirus pandemic spread across the U.S. and the world has borne out this hypothesis in practice.

Solutions enabling seamless shopping experiences and fulfillment, frictionless commerce and shoppable media are demonstrations to one degree or another of the disruptive innovation process in real time. Examples include:

Scan, pay and go: Transactions are conducted via mobile devices or self-directed kiosks to provide a contactless method for speeding the checkout process. Future advances in facial recognition technology (controversial, I know) and other biometric processes, including palm scanners, may eventually make payment via phone obsolete.

Smart vending: Fewer technologies have had their use cases proven more concretely than this method of contactless shopping. Today’s machines are definitely not the vending units of the past (not just candy, chips and soda) with many using artificial intelligence and cloud-based technologies to capture data in real time on the customers using these units.

Autonomous delivery: The move to autonomous cars, trucks, drones and robots moves inexorably closer to reality with each pilot program completed. Today’s technology learns right alongside the humans who create and use it. Maybe not tomorrow, perhaps not even in two years, but never is not an option. It’s just a matter of when.

Social commerce: Americans are staying home, and the demand for social media has never been greater with more retailers and brands looking to mine access to this audience and convert it into revenues and profits. Whether its Instagram, Facebook, Pinterest TikTok or YouTube, companies are developing shoppable content and moving into live-streaming events as another answer to providing convenience aligned with where, how and when customers want to shop.

BrainTrust

"Companies that want to pretend that it’s still 1997 will fail."

Cathy Hotka

Principal, Cathy Hotka & Associates


Discussion Questions

DISCUSSION QUESTIONS: Where do you think disruptive innovation will take the retailing industry? What promising technologies do you think will have the greatest effects on consumer shopping behavior and the customer experience in the coming years?

Poll

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David Naumann
Active Member
2 years ago

In the near-term, the most impactful innovations that affect retail shopping will be technology that enables contactless and more convenient experiences. Scan and go or shop and go technology will be much more pervasive in the next few years. From a longer-term perspective, autonomous delivery will have a big impact on retail and the shopping experience. Autonomous/robot technology is already replacing humans for repetitive, predictable tasks in warehouses and even on retail sales floors.

Neil Saunders
Famed Member
2 years ago

All of the points listed are relevant and will disrupt retail in the years ahead. However for my money, automation is one of the most significant areas of development. This is mostly because it helps to square the circle of reduced margins from online so it has a tangible benefit and payback. Eventually, when autonomous delivery becomes more mainstream, we will see a highly automated fulfillment chain that is efficient and cost effective.

Dr. Stephen Needel
Active Member
2 years ago

Disruptive innovation is a trivial factor in today’s retailing industry. None of these ideas have caught on at a sufficiently widespread level to say they have disrupted anything – the pandemic may have, but not these others. With all due respect to Professor Christensen, disruptive innovation is a rare event that, while giving an edge to the innovator, provides a market lead that is rarely sustainable. When you can count the number of disruptive innovations that have remained on both hands, this is not something worth pursuing – low probability of ROI.

Gene Detroyer
Noble Member
Reply to  Dr. Stephen Needel
2 years ago

Steve, I rarely disagree with you, but now I must. “disruptive technology/innovation” only becomes disruptive when it takes hold. But, when it does, it changes everything. Let’s look at today’s innovative companies. They are the ones that said let’s knock down the walls of what is and start form scratch: Google, Amazon, Apple, Microsoft, Tesla.

Dr. Stephen Needel
Active Member
Reply to  Gene Detroyer
2 years ago

And I rarely disagree with you, Gene – but I wouldn’t call these retailers.

Gene Detroyer
Noble Member
Reply to  Dr. Stephen Needel
2 years ago

Here is where I agree: “Disruptive innovation is a trivial factor in today’s retailing industry” – and that is a historical problem with most retailers and continues today.

Ricardo Belmar
Active Member
Reply to  Gene Detroyer
2 years ago

A historical problem with most retailers, yes — but I see this changing. And we can identify which retailers are leading that change because they are the ones who are most successful coming out of the pandemic. For retailers, whether the innovation is truly disruptive is something we only know in hindsight — looking back at the evolution of that technology or innovation to decide if it really disrupted. I think the issue is how freely the word “disruptive” is thrown around in conversations about “digital transformation” and “digital integration.”

John Hyman
Member
Reply to  Dr. Stephen Needel
2 years ago

Really? Google, I get that label but Amazon, Apple and even Tesla provide a unique and refreshing shopping experience, especially with their approach to brick-and-mortar. Who sold cars in mall showrooms before Tesla? Apple brought service back to a retail landscape sadly oblivious to it since Marvin Traub ran Bloomingdale’s. Although less successful, Microsoft tried to mimic that Apple look and feel in their stores. Amazon has blazed a path of enhanced online shopping? Yes, I would call them retailers.

Ananda Chakravarty
Active Member
Reply to  Gene Detroyer
2 years ago

Just wondering, who would’ve called Amazon a retailer in 1994? Or Apple a smartphone manufacturer in 2006? Or even knew what a search engine was in 1998? Must agree with Gene — innovative disruption changes everything. Retail will be completely changed when whatever disruption comes along and per Clayton’s thinking, it usually comes up from new entrants to mainstream over time, slowly pushing out the space leaders, almost like boiling a lobster….

Richard Hernandez
Active Member
2 years ago

All of the innovations above will be front and center in the next five to 10 years with scan and go just beginning to be more prominent. I am excited to see how the drones, driverless cars and trucks, etc. are introduced into the market and mix with the everyday bustle of traffic and pedestrians.

Lee Peterson
Member
2 years ago

Wait, didn’t Amazon write this book about 20 years ago? Like any great “rabbit” used in racing, the Seattle giant has led the whole industry forward in every category mentioned for quite some time now and continues to surprise almost weekly. Not sure how Clayton missed that 900-pound gorilla.

Raj B. Shroff
Member
Reply to  Lee Peterson
2 years ago

Lee, I think Amazon is a perfect example of what he called the innovator’s dilemma. Walmart, Target, etc. didn’t see the tiny bookseller coming, they didn’t take Amazon seriously in the early days; Target even let Amazon host their website until 2009. Amazon slowly and surely took bites out of the categories that were low hanging fruit and of less concern to the big retailers. And they worked their way up the chain to become who they are today.

Gene Detroyer
Noble Member
Reply to  Raj B. Shroff
2 years ago

Absolutely Raj, real disruption means throwing everything that has worked for you and is working today out and inserting a new vision that destroys the old. A great example is Kodak, they invented digital photography, but shelved it because they want to protect their film business. That didn’t work out so well.

Lee Peterson
Member
Reply to  Raj B. Shroff
2 years ago

Right, that’s exactly why this seems like a little bit of a “duh” to me on all counts you mentioned — if you didn’t happen to notice how AMZN led retail into this century, then I guess the book is spot on, but for some of us, it was painfully obvious!

Bob Amster
Trusted Member
2 years ago

Disruptive innovation will open the doors to enable the industry to better cope with, or respond to yes, “disruptions” in the environment around them where, for a while, things may become abnormal. Additionally, the industry will be in ever-improving conditions to enhance the customer experience, remove some costs from the supply-chain, and even improve the product lifecycle and time to market. Two technologies most likely to have the greatest impact are contactless payments, including scan-and-go, and robotics, with a third being AI.

Adam herman
Adam herman
2 years ago

Disruptive innovation is more than simply applying the latest technology to solve a problem or advance a solution. It is a joint mindset between consumer and retailer, where each pushes each other to evolve in the selling and buying of goods and services. COVID-19 has certainly accelerated these approaches enabling consumers to buy when and where it is more convenient (or adheres to social distancing practices). For instance, BOPIS has been around for years, but neither consumers nor retailers had the need to make it as widely accessible or practical until they needed to. This disruptive innovation could only succeed when both parties realized the need and value to implement.

Cathy Hotka
Trusted Member
2 years ago

A year ago I would have laughed at this concept, but retail is markedly different now. With the exception of autonomous delivery (which is still a bright shiny object not ready for prime time) retailers are actively engaged in reducing friction and transforming operations. Companies that want to pretend that it’s still 1997 will fail.

Di Di Chan
Di Di Chan
Member
2 years ago

The magic of retail is experiential. The products sold are part of a greater story that enables social bonding and individual expression. The most disruptive technological innovations are solutions that can enhance the shopping experience without dominating the shopping experience. Ironically, the most disruptive technology will not be as noticeable to shoppers or retailers. It will just work in the background enabling a more effortless shopping experience. Scan and go is the fastest-growing frictionless checkout solution because it is cheap to scale, it does not compete with retailer’s existing brands, and it places the power of checkout in the shopper’s hands. A really disruptive technology is a platform that can easily connect with other innovative solutions to offer retailers an easy way to create the best in-store experience for their shoppers. For example, Westside Market in New York City is the first retailer to integrate its scan-and-go platform with SIRL’s location search and navigation features. Their shoppers are the first ones who will be able to seamlessly check out with their mobile checkout app and search for items in the store.

Raj B. Shroff
Member
2 years ago

In my opinion, the “tech” mentioned here just moves parity forward. Keep chasing them as game-changers at it will be exactly what he’s talking about in his first book.

I think a glimpse at something such as Vans’ customization is an enabler, mass customization done well could lead to something interesting. Micro-manufacturing, micro-fulfillment, getting product manufactured closer to real-time and personal — probably things like that which are happening in small bits around the globe.

Gene Detroyer
Noble Member
2 years ago

If one really wants to understand disruptive technology/innovation, one should study the history of the members of the DJI 30s. Remember Woolworth, once the largest retailer in the U.S.? They were sent into oblivion by an innovator named Sam. Once Paramount was listed, they eventually were replace by an innovator names Walt. We could go on and on — in my classes it is a three-hour lecture.

Retail is one of the sad stories for innovation. It always seems to come from the outside. Malls, mass merchants, online. Will 3-D printing be next?

What is next? First retailers in the U.S. must catch up with Chinese retail innovation. Why are our retailers behind? Then the focus for retail innovation must be to make the entire process for the consumer convenient, convenient, convenient.

Gary Sankary
Noble Member
2 years ago

The big lesson I have learned over the last decade is consumers will tell us which innovations are worth investing in. Retailers and most other industries have not had a great track record trying to force innovation on their customers, unless that innovation has demonstrative value for the customer. Frictionless commerce (scan and go) and free home delivery are at the top of the list right now. I expect to see further innovations in fulfillment, inventory management and supply chain as well. Better reliability in product availability seems to be a lesson we have to learn over and over. There has been a lot of innovation in that space recently that I expect to see implemented in the near future.

Jeff Sward
Noble Member
2 years ago

So many great comments on shopping, fulfillment and last-mile innovations. But my head goes to the first mile. Merchandising, design and product development. How do all these process innovations help make the retailer smarter about product? Where is the supply chain innovation that will make the time/action calendar more responsive to in-season responsiveness? I look at end-of-season residue inventory in apparel and think about the profit drain that could be improved upon if the retailer could know more and guess less. Digital design can now shorten the design cycle dramatically. Can there be a breakthrough in raw material and production management that can respond to more specific demand rather than projecting trends?

Ryan Mathews
Trusted Member
2 years ago

With all due respect I think we may be talking past the point here. Christensen’s notion is the capitalist version of a much older Trotskyite concept of revolution in the revolution, generally called, “permanent revolution.” Remember, he’s talking about disruption as a continuous, integrated, process, not an event. It also assumes a company will be tracking and responsive to nuanced change in customer markets and tools (technology). I think this discussion is focusing on technology as though it had external agency rather being an enabling tool we control. Put a simpler way, with all due respect – this time to Dr. Christensen – this theory comes down to a variation on a slightly older bromide, “Keep your eye on the ball.” Good advice then. Good advice now. One more thing. Isn’t the second part of the question backwards? I’d say we would be better off thinking about which changing consumer behaviors will direct the technologies we bring to bear to address them.

Venky Ramesh
2 years ago

I was at the Amazon Go store yesterday with my teenage son. He almost turned me in for shoplifting. But for that, I felt the overall experience so natural and intuitive – like I was picking up something from my pantry at home. Whether it happens online or offline, I think getting to a state where everything feels natural, intuitive, and pure magic sounds like a good future to have.

Ian Percy
Member
2 years ago

I’ll put a slight twist on the discussion. All true innovation is disruptive or it wouldn’t be innovation. It’s a matter of degree. Until there is a disruption in mindset, adapting to (or creating) the future will be a constant and stressful struggle. In most situations including retail, the human mind is the hardest thing to change. An eagerness to think differently comes first for both the innovator and the innovatee.

Natalie Walkley
2 years ago

“An object in motion will remain in motion unless acted upon,” and the same is true for consumer behaviors and how disruptive innovation changes the course for retail. Consumer needs don’t always drive innovation as much as innovation changes and expands consumer needs/wants. For example, very few of us knew we “needed” a Garmin for directions, because we had paper maps. Now, we don’t even need a separate device because the technology is built into devices we already have. Another step higher, and soon we’ll use self-driving cars.

Likewise in fulfillment centers, consumers aren’t are looking for ways for pickers to decrease their steps — they just want their stuff faster. That led companies to leverage robots and pick-to-light systems to improve efficiency and speed up fulfillment. But even that customer “need” can change, as we saw with COVID-19 as people were OK waiting longer shipping times for goods.

Patricia Vekich Waldron
Active Member
2 years ago

Retailers face greater challenges from outside the industry – it take dramatic circumstances for retailers to move beyond incremental change.

Ian Percy
Member
Reply to  Patricia Vekich Waldron
2 years ago

Well and briefly said, Patricia. That’s exactly the point I tried to make in my submission today. Anytime someone has to tell me they have an “open mind” I know they don’t. It takes a “shuddering” to move us to a new place, “dramatic circumstances” as you put it.

Patricia Vekich Waldron
Active Member
Reply to  Ian Percy
2 years ago

TY Ian! Blindsiding most often happens from non-traditional competitors!

Harley Feldman
Harley Feldman
2 years ago

Retail is reacting to the three megatrends of globalization, personalization and digitization. Retailers’ customers are increasingly coming from anywhere in the world via the Internet, consumers demand more customization possibilities in the products they buy, and the systems in support of their businesses increasingly rely on digital systems simulating the real world for online catalogs, BOPIS, supply chains and shipping to consumer homes. More and more retailers will use AI and cloud-based systems to enhance these capabilities.

Doug Garnett
Active Member
2 years ago

We need to return to Christensen’s fundamentals. When he postulated disruption in the Innovator’s Dilemma, he looked at a specific reality — where a marketer burdens their product with expensive features which do not deliver value to customers. This leaves them vulnerable to a low cost alternative.

Looked at this way, there has been little serious disruption. And most of the “disruption” has come because investors have funded selling at low price — not because the product can be made that way. Dollar Shave Club, WeWork, Amazon, Uber — ALL examples where the underwriting of investors created the appearance of “disruption.” But what we learned from Dollar Shave Club (for example) was that the razor market was already highly efficient — not a Christensen potential disruption.

What about retail? Amazon (with Bezos’ “your margin is my opportunity”) proves there isn’t a place to undercut without someone other than the customer paying to make it happen. I do NOT think retail risks disruption from technologies. They are incremental innovation — the primary engine of growth.

RandyDandy
RandyDandy
2 years ago

Necessity breeds invention, disruption breeds innovation. Agreed. Done.

Meanwhile, how an individual feels about shopping contrasted with what they are buying always dictates how stores can best sell their goods. And once habits of entire segments of the population can be determined, whole swaths of retailers can and will change entirely how they conduct business.

Example: if you never liked shopping but still have normal consumer needs, like food, it’s a given you would embrace technology that helps you avoid stores. The pandemic didn’t highlight these people, but threw in a much larger group. Who realized their usual in-store shopping routine was not required. As restrictions lift, some may never return to previous patterns. Consequently, those grocers (or mainstream stores) whose product selection was the broadest (easiest) to shop, can shift wares to being sold in greater ways needing fewer “middle” elements.

This automation is only going to grow. Because even though the Targets of the world may have experienced an increased need of staff during the past year, workers were still scarce enough that if a machine were handy, it could tell me where something was much more efficiently. So, be on the lookout for those to replace workers readily and quickly.

Then there will be those who need to shop publicly for some inner/outer reasons, and often patronize stores where some exhibition is a great part of their raison d’être. These were the people and places who experienced the most loss this past year. In the subconscious ways some feel better by interacting with others, and in sales. This is why clothing — of the kind meant to be seen in by the wearer — and its purveyors suffered the most. Such were also transactions that could not be supported online. Since, on some level, the entire premise relies on transacting in public. So, don’t expect high-end clothiers to have all robot associates on the floor any time soon.

Ricardo Belmar
Active Member
2 years ago

An object at rest tends to stay at rest, and an object in motion tends to stay in motion — a very Newtonian description of the retail industry. Retailers historically do not go looking for disruptive innovation, they seek out incremental innovation. They are used to evaluating today’s business, the customers served, and their articulated needs and from there, determine what need isn’t met so they can innovate there. Usually, this is claimed by examining customer feedback and determining what customers ask for, but don’t receive.

The more radical, truly disruptive innovation in retail tends to come from forces outside of the retail industry. For example, Amazon and e-commerce, or Apple opening stores and introducing consumers to a new form of experiential retail. These are disruptive because they not only solve consumers’ unmet needs, but they solve needs consumers didn’t even realize they had!

Most recently, we can look at “Just Walk Out” technology as an example. Were consumers asking for a checkout-free shopping experience? No. But Amazon saw a friction point and provided a solution. Now multiple vendors in the market are chasing this solution — but generally, not retailers.

If we’re going to look at disruptive technology, the problem is that most retailers aren’t looking at themselves as tech companies … yet. Until they do, the disruption will come from outside the industry. I see this behavior changing, albeit slowly, but there are leading retailers now who realize they need to be more disruptive to their own markets in order to succeed in the future.

Ananda Chakravarty
Active Member
2 years ago

Not sure where, but it will be the factor that changes the business. I still recall Clayton’s examples from steel mill producers to chip makers and software. Almost every industry is plagued by the disruption and S curves where new tech displaces the old, outdated tech. More importantly, the new tech is almost always a real step function increase in value to customers and the business. In almost all of Clayton’s cases, the incumbent industry leaders had no clue they were being disrupted until it was too late. That’s one reason I don’t believe it will be something we are ready to predict — especially if we’re experts in the field.

Last point, there is also an aggregation of technology (or other types) of disruptions in many of these industries that catalyze the change, also very unpredictable because no single tech might be responsible for moving the market.

Retail New York
Retail New York
2 years ago

The one that is in the earliest of early innings is social media commerce. Largest social platforms are just experimenting and building out the infrastructure. They have already pointed out that they have enough stats and demand to know it will be a successful strategy (seamless checkout, interactive shopping experiences, overlaying AR tools on products, sharing with friends, live streaming and much much more). They already have a captive audience and every retailer uses these platforms to reach billions of people each day so it’s just a matter of them “turning on the switch.”

Richard J. George, Ph.D.
Active Member
2 years ago

Disruptive innovation is today’s term for a paradigm shift. When a paradigm shifts, everyone, including the leaders of the status quo, goes back to zero. The key difference is the expectation that innovation is the cause of the disruption. Think back when Borders and Barns & Noble disrupted the bookstore business. Their model of wide aisles, reading areas, book club meeting space, in-store coffee shops, etc. forever changed the bookstore business. None of their new concepts would be considered a true innovation; simply, a new way to do old things. Ironically, a true disruptive innovator, Amazon, pushed both firms to the brink.

Casey Craig
2 years ago

AI driving personalization is the key future of digital disruption. With omnichannel capabilities being table stakes, it will be the companies who develop unique, personal experiences in a digital world that differentiate themselves from the competition.

Deanna Lawrence
2 years ago

As social commerce continues to advance, brands must also become consumer-obsessed. Connected brands will endure through loyalty, built on trust. These brands experience a competitive advantage by co-creating personal occasions, infused with a level of insight they need to avoid continuous disruption.