IDC MaturityScape: Retail Business Model Innovation
With this IDC MaturityScape, we want to demonstrate the significance of conceiving retail innovation beyond mere new technology implementation, positioning it in the broader perspective of retail business model innovation. Why retail innovation? How are the characteristics of different maturity stages of the approach to retail innovation?We start from the observation that retail traffic and conversion are no longer business as usual — a dramatic paradigm shift has begun. Guided selling has been substituted by contextualized experiences — customers no longer look for products, but products find customers according to their real-time contexts. Thanks to large amounts of data, customer service becomes proactive while channels and touchpoints fade, substituted by enabling interfaces such as voice, text, images, and other engagement interfaces. Customer engagement no longer depends on physical space, but from identifying the exact moment when they demonstrate specific needs and interest. Finally, from a segment and persona-based customer experience approach, the retail industry is moving to hyper-microsegmentation that converts engaged passive customers in active customers.In this context, retail C-suites' top priorities for the upcoming five years revolve around innovation, digital supply chain, ecosystem enablement, and customer experience. The combination of efforts in these four macro-areas is leading retailers toward what IDC defines as new commerce everywhere business models, architected to generate value in the ecosystem beyond selling products and services to consumers. Commerce everywhere business models are relational and operational retail processes that rely on the streamed collection and the enablement of internal and ecosystem data. Such models identify real-time contextual and interface-agnostic customer experience as the pivotal gear of the company's value proposition, which branches back in the extended value chain of the enterprise, suppliers, and partners. These new models are designed to operate "commerce" beyond the "transaction" and "everywhere" beyond "customer-facing," and the ecosystem collaboration mindset that is required for their execution renders them intrinsically innovation-driven. The effort for the generation of new customer-experience-oriented value is performed within each branch of the extended value chain, from upstream to downstream. Globally, 90% of retailers feel the pressure of evolving toward customer-experience-based business models (IDC Retail Innovation Survey 2018).Despite the clear importance of innovation in long-term agendas, when it comes to execution, retailers are facing substantial challenges in prioritizing specific innovation missions in adopting an innovation model and building the business case for innovation. In IDC's opinion, these three key pain points are representative of the overall complexity in defining a single innovation strategy, or in some cases, of a misconception of fundamental steps that lead to efficient and effective innovation. Indeed, innovation-inclined executives frequently face resistance from innovation-skeptic stakeholders that attribute the locking of innovation-eligible resources to daily operations constraints, the need for short-term monetization, and the absence of dedicated budgets. We think the main source of distrust toward retail innovation is caused by the existence of a diffused innovation-as-a-show mindset. This mindset relies on tactic-driven, tech-focused, and self-centered innovation execution that often leads to the failure of highly publicized innovation labs. On the other side, there is an innovation-as-culture mindset that is tied to a single strategy, is business-model focused, and is ecosystem- and stakeholder-centered.IDC thinks it is fundamental for retailers to go in the direction of innovation-as-culture mindset and to assess their level of business model innovation maturity according to the four key dimensions of vision, people, process, and technology, with their respective sub-dimensions detailed in the Dimensions of the Retail Business Model Innovation Maturity Framework section. According to the IDC Retail Innovation Survey 2018, there is a very small portion of retailers that are adopting companywide innovation strategies. Indeed, the majority of retailers are approaching innovation as an opportunistic process to solve specific issues, or as co-existing digital transformation (DX) programs mostly run in an isolated manner. In IDC's opinion, retailers should start from the definition of a clear innovation mission — deciding how to distribute resources among incremental, disruptive, and ecosystem innovation — and then proceed accordingly through the stages of innovation discovery, selection, piloting, implementing, and scaling. Within this execution model, the retail commerce platform is an essential enabler of business model innovation as it allows retailers to pilot, implement, and scale innovation at speed (for an in-depth assessment of this topic, see IDC MarketScape: Worldwide Retail Commerce Platform Providers 2018 Vendor Assessment [IDC #US43380018, January 2019] and IDC MarketScape: Worldwide Retail Commerce Platform Consulting and System Integration Providers 2018 Vendor Assessment [IDC #US41452916, December 2018]). According to our data, almost half of retailers globally in 2019 are implementing a retail commerce platform, and the remaining part will invest in it over the next two years. However, it is crucial to consider retail innovation goes well beyond the implementation of new technology. It is worth noting that retailers acknowledge that to run innovation successfully, they have to address first of the organizational aspect, tied to the implementation of retail commerce platforms and the definition of new key performance indicators (KPIs).This IDC MaturityScape describes the key characteristics of the five maturity stages of retail business model innovation, range from the lowest Ad Hoc stage (defined as "stuck in legacy") to the most mature Optimized stage (defined as "innovation-culture-driven"). This IDC study shows how retailers should fundamentally point at business model innovation through the development of an innovation culture, the definition of an innovation strategy, the execution based on a retail commerce platform, and the attainment of long-term profitable growth — building up what we call retail innovation excellence. Thus, retail innovation excellence is a continuous process that — based on the efficient and effective execution of retail business model innovation — allows retailers to constantly develop trust in innovation within the company and the broader ecosystem, reinvest profits in the iteration and execution of their innovation strategies, and reuse learnings from failed innovation initiatives. "Retail innovation directed at commerce everywhere business models is the key for long-term profitable growth. Retailers have the opportunity to generate new value across the extended retail value chain through retail commerce platforms and data-driven internal and external collaboration," said Ivano Ortis, vice president, IDC Retail, Manufacturing, and Financial Insights. "Retailers should carefully assess their business model innovation maturity according to the four core dimensions of vision, people, process, and technology. This will enable them to identify the next best steps to advance toward the Optimized maturity stage, which is characterized by a single innovation strategy."
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