Labs Strategy: Why Embracing “Failure” Is A Great Idea But A Horrible Word

Written by Evan Schuman
June 20th, 2013

Oracle posted a very interesting short thought-piece Wednesday (June 19) about the different ways retail chains do—and should—handle lab strategy. The choice of strategies reveals an awful lot about the attitudes of senior management. One key point is that management must be willing to accept—and learn from—failures. But if the CEO even thinks of the ultra-valuable data that comes from learning what shoppers will not accept as “a failure,” the chain has even bigger problems than it thinks.

By looking at the different choices made by Walmart, Target, Home Depot, Nordstrom, Staples, Tesco, Wet Seal and Lowe’s, Oracle categorizes three IT lab approaches. But how a lab is corporately structured will make little difference if senior management isn’t willing to first learn (and to pay a lot for those lessons) and to be open to a future that they may not like. The job of a chain is to adapt to the reality in its market. The job of a dying chain is to cling to its current tactics if the future doesn’t look like what it wants it to look like.

Labs are often pure internal mechanisms, but they are more often the result of a tech acquisition (Walmart [NYSE:WMT] buying Kosmix, Home Depot [NYSE:HD] buying BlackLocus and later Red Beacon).

As Oracle’s David Dorf (senior director of technology strategy) penned: “In most cases, these labs stem from acquiring a start-up, and not wanting to crush the start-up spirit, the retailer keeps the company separate.” Integrating the techs into existing groups is indeed a bad way to crush their start-up spirit, especially when chains like Walmart and Target (NYSE:TGT) have so many more effective ways to crush their spirits.

Although Dorf has earlier also talked up the labs at Nordstrom (NYSE:JWN) and Staples (NASDAQ:SPLS), Wednesday’s piece focused more on the different ways to strategically use these labs. The piece has an interesting graphic that looks at just the acquired components of Walmart Labs and how it’s integrated no fewer than seven companies (Kosmix, OneRiot, Grabble, SmallSociety, TastyLabs, OneOps and Inkiru) into its lab.

Dorf argues that the acquisition approach is fine, provided “there’s no existing culture of innovation, so buying the start-up mentality can form a basis for building a lab.” That’s an interesting point, but one can easily argue the opposite, that when building through acquisition, it is critical that the chain have a very strong and well-defined existing culture of innovation. Otherwise, chaos and duplicate (wasted) effort is almost guaranteed.

A single acquisition can work, if the company is prepared to embrace that culture. But when the acquired growth includes several companies, there needs to be a strong top-down direction and it needs to be well articulated. One of the challenges is that retail IT, in general, struggles with effective communication. And nowhere is that effective and consistent (and detailed) communication more essential than when trying to integrate multiple teams with entirely different cultures and approaches.

Add to that the psychological factor of the typical acquisition. Rank-and-file workers (which is where so much of the tech magic happens and truly needs to happen) fear (or, in some cases, pray) that their old management will be overruled and made irrelevant. Without clear direction that is well-communicated, workers will be hesitant to follow their old leaders and will be unclear about their new ones. In an idea lab, passion and enthusiasm are essential. That’s something that demoralized acquired workers rarely have. Oh, they’ll do their jobs, but with one eye on e-mails from headhunters.

A different approach, Dorf wrote, is an organic approach, along the lines of what Tesco and Wet Seal have done.


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