Building innovation capability in retail : Towards a systematic and sustained approach to innovation in large retail organizations

Abstract: Innovation has received widespread attention in research and in the business world because it plays a crucial role in organization survival and longevity. This especially rings true in the retail industry, as opportunities and challenges confront retailers due to the ongoing disruption of the industry. As retailers face increasing pressure to make innovation a strategic priority, and as major retail players become larger and more complex organizations, retail innovation management becomes a more central concern, and therefore proves to be a promising area for research. The overarching research purpose of this dissertation is to explore how large, traditional retailers can develop innovation capability. Focusing on a firm-level analysis, from the perspective of retail headquarters, using innovation capability and organizational ambidexterity as a theoretical framework, two research questions are raised: What are the challenges faced in developing innovation capability in retail firms? And how can retail firms develop a systematic and sustained approach to innovation through management practices and mechanisms? Using an exploratory approach that is primarily based on qualitative methods (albeit with a quantitative survey in one study), two main studies were conducted, from 2016-2018 (Study 1) and then 2019-2021 (Study 2) involving five major Swedish retail companies of varying characteristics.The dissertation demonstrates that established retailers, in aiming to become more innovative organizations, are challenging existing ways of innovating by adopting a more active management of the innovation process. However, developing innovation capability is a difficult task as these retail actors attempt to pursue explorative innovation in an organizational context characterized by well-established mechanisms for exploitation and incremental development. The thesis highlights various challenges faced in relation to strategic intent, the organizational culture or climate, structure and performance measurement systems. That innovation requires a holistic approach is not a new discovery, but how this could be interpreted in the retail context has not yet been well understood previously, which is where the thesis provides its contribution. Inherent tensions between exploration and exploitation in the retail organizations imply that developing the capability to be innovative requires a balancing act with mainstream retail operational capabilities. That is, the work of innovation must be differentiated from operations, provided that integration is facilitated at different levels. A structured approach towards innovation—whether it is the establishment of innovation structures such as innovation teams, an innovation role or function, projects, innovation hub and “living labs,” for instance, or codification of the process, tools and tasks—ensures that innovation work is enabled and differentiated from the well-established structures, systems, and processes for operations. There is a need to be able to measure, assess and monitor innovation performance not with existing metrics for operations but with alternative indicators that can capture the new ways in which retailers are starting to innovate and create value. Finally, retailers show a positive foundation for an organizational climate for innovation and creativity; however, an appetite for risk-taking, which is more connected to radical than incremental innovation, is a concern that retail incumbents need to work on.The dissertation demonstrates that explorative innovation must not be forced upon existing mechanisms in retail operations which are geared for efficiency and which serve their own purpose in addressing customer needs through incremental, continuous developments. What is needed—and perhaps what separates innovative retailers from the rest—is the commitment to ambidexterity, the delicate balance of safeguarding the space and resources for exploration, learning, and innovation to thrive, while facilitating integration of innovative output to the rest of the organization to truly capture the value of innovation.