Making innovation happen: the CEO's perspective – Philip Clarke speech

6 Nov 2012

Philip Clarke's speech at the FT Innovate 2012 conference.

Philip Clarke, Group Chief Executive, Tesco
Speech at the FT Innovate 2012 conference, 6 November 2012

Making Innovation Happen: the CEO’s perspective
(To read Philip Clarke's blog post on this topic click here)

Ladies and gentlemen, thank you for inviting me today.  I’ve spent my entire career in retailing, starting on the shop floor at Tesco.  I’ve seen our company grow from British supermarket to a global retailer. My experience has taught me a simple lesson – one that everyone here today knows well: success depends on innovation.

Be it nations or companies, if you don’t innovate; if you cling to the old way of doing things in the forlorn hope that the pace of change will slow; if you dare not take risks for fear of failure – if you do these things, then decline is inevitable.

As Albert Einstein famously said: “The definition of insanity is doing the same thing over and over and expecting different results”

And that’s never more true than today. No one – no organisation, no retailer – can hide under the duvet and hope that change will not affect them.  Far from it: we need to embrace change and create new ways to harness its power.

Tesco and innovation

Change and innovation are part of every successful business’ DNA.  Jack Cohen, who set up the first Tesco as a market stall, was an innovator to his finger-tips.  After all, it was Cohen who helped bring the concept of a self-service supermarket to Britain after World War Two – an innovation that changed the entire retail industry.  I never had the privilege of meeting Jack but I have heard from his contemporaries that his innovative streak was borne out of an attitude of mind – he’d travel, he’d constantly ask questions, spark ideas, try things. 

Lesson one from Jack then: to innovate we must create the right mindset. 

And since then Tesco has been leading innovation in retail – everything from new formats like Express to centralised distribution which have revolutionised the supply chain here in the UK.

Today, the digital revolution is heralding a new era of retailing.  In every one of the 14 markets in which we trade, digital technology is affecting the way people live, the way they learn and the way they shop. And how they interface with companies.

The customer always was king.  But thanks to digital technology, today’s customers are more powerful than ever, with not just more information and choice of goods and services to buy, but a choice of ways to shop at whatever time they like. In this multichannel world, people can now bargain hunt online, then browse in store, buy online and pick up from store.  Social media creates fashions in seconds, making or destroying brands within a day.  The explosion of information has given customers more power, forcing companies to become more transparent and accountable to those they serve.

In the wake of this change has come data.  The vast, almost infinite quantities of data now available means no retailer has any excuse not to abide by the first law of business: know your customer.

Tesco was one of the first retailers to create an innovation that captured the power of data: the insights we gleaned from Clubcard, launched in the 1990s, turbo-charged Tesco’s growth. 

Back to Jack: his style of questioning – with his people, with his customers drove innovation at Tesco. Now data can help do that. Which is why we own Dunnhumby, our marketing services business, and at the very heart of this innovation, analysing the data not just so we could reward customer loyalty with tailored offers and a personal “thank you”; but so that we could understand our customers better still.  I was in Turkey two weeks ago and the data has helped us understand what customers truly value. By trialling different combinations of price and promotions on differing customer groups the team have delivered significant improvement in customer satisfaction.

Lesson two: data is important, experimentation vital.  Try, try and try again. And in the face of failure look for what is good about the experiment.  Encourage your people to try again, to build on the success, not blame them for the failure.

And one of those experiments was Tesco.com.

When we launched the first online grocery business twelve years ago, people said it would not work.  The challenges were immense: entire processes had to be designed so that customers got what they want, when they wanted it.  Today, it is the world’s largest and most profitable online grocery retailer, and we are rolling out the service across all our markets. Already more than five years old in Korea and Ireland; we have launched in Slovakia, Czech, Poland. Thailand follows very soon.

That roll out is only possible thanks to our innovative IT platform which is developed by our Hindustan Service Centre, our global services arm based in Bangalore. Employing over 3,000 technologists, this is where we develop new web services and systems so they are on a common operating platform, allowing us to set them up easily in markets around the world.

Lesson three: innovations need mechanisms so that they spread rapidly across the enterprise. That is why we describe ourselves as a blueprint led organisation. Put simply, once innovations are proved successful a blueprint is developed and managers trained to speed adoption around the world.

Recent Innovations

Back to Tesco.com: in each of those markets, our offer has to be tailored to meet the local culture and tastes. But wherever we operate, customers tell us how busy their lives are. They want help to ease their stress – and that means giving them quick and easy access to products at great value, making the most of digital technology. We’re doing that in a number of ways.

First, customers tell us that while they appreciate the convenience of online shopping, they obviously get frustrated if their delivery is late. So we have created Mapster, an application which tracks Tesco.com vans in real time, and so if a van gets caught in traffic we can identify that centrally and alert customers. We’re currently piloting this in some stores around London and we’re planning to roll this out to the UK business early next year. But already the blueprint is being developed because traffic congestion is acute in Seoul and they need it fast.

Next, specifically with people who are commuting or travelling in mind, we’ve created a virtual store. This began in Korea, on the platforms of the Seoul underground. As you can see, people use their smartphones to scan the barcodes of the products they want – and then their shopping gets delivered to the address of their choice later on the same day.

9% of shopping in Korea is on a mobile phone today. How amazing is that?  Our Korean colleagues lead on digital innovation for the Group – not because we asked them but because we fostered a culture of innovation; we encouraged experimentation and recognised colleagues for trying.

Homeplus recently won the second prize in our Group Innovations Awards for the virtual store. Lesson four: Reward innovation.

And as to the products themselves, we asked ourselves “why don’t we ask customers to help us create new products and lines?”  So we asked our customers on Facebook for their ideas for a new Tesco Finest ice cream flavour. We had over a thousand of entries and the winning new flavour was Amaretto, Cherry and Almond.  This is currently being developed and will be available in our stores and online next year.  The ability to engage customers in such a direct way obviously has massive potential which we are now looking into with our suppliers.

Back to Jack: I like to think he would be proud of what we did with Facebook – it’s the 21st Century equivalent of his 1930’s store tours in Hackney. Asking customers what they want isn’t new but doing it the digital way is.

Not all radical innovations, though, are digital. The simplest change can save time and money.  Take packaging, for example. Rather than unpacking products from a box one by one, and then putting them individually onto a shelf, working with our suppliers and manufacturers we have led the way in developing shelf ready packaging, that can be moved straight from the store room or lorry onto the shelf.

Innovate to get ahead

So much for the here and now. What of the future?

For retailers, it’s no longer going to be sufficient to innovate simply to meet an existing customer trend.  We need to innovate to anticipate what customers want. Successful retailers will not be those who meekly follow the customer like some obedient puppy. They will be one step ahead, offering people new ways to make their lives that bit better.

And those innovations have to fit one important criterion – a powerful trend created by the power of digital technology: people want and increasingly expect personal service, a personalised choice, a sense that a brand – be it a retailer or media organisation – has tailored what they offer to fit their own unique needs and wishes.

Here again, we are helped by Dunnhumby, which now analyses data from over 400 million customers across 28 countries – including the biggest customer panel in China. This is helping us personalise our Clubcard offer so customers feel they are truly part of a club.  Some want vouchers they can spend in store.

The drive to personalisation will be propelled even further by the internet of things.  Everything from the light bulb in your house to the car you drive will be connected to the internet – and information about you. Stores will still exist and thrive, but a lot more of their trade will be Click and Collect.  So imagine you are leaving work, you climb into your car and order your meal for that evening and collect it at the Tesco drive through on your way home.  You won’t need to tell us that you are lactose intolerant, that you want enough for your family of four, and that you don’t want to exceed 800 calories per serving.  We’ll already know all that, and your budget.  And as well as that, the light bulb that blew in your house that morning will have added itself automatically to your Tesco order.  Mass personalisation, plus the internet, will determine everything, from pricing and promotions to the products you purchase.

This trend is speeding up.  Internet penetration in China leapt above the 40% mark in the middle of this year – the number of people who are connected to the internet growing at a much faster rate than the number of people moving to the cities. This is changing the retail landscape. 

Already the internet has a greater share of China’s overall retail sales than do sales from hypermarkets. 

Data, the internet of things, the digital revolution - all this means we now need to innovate to get personal, to fashion a bespoke retail experience for each and every customer. 

Conclusion: the culture of innovation

Innovations depend on much more than just clever people who are experts at technology; and they rely on much more than just using customer insight in an intelligent way.

From the perspective of any CEO, a company that truly excels at innovation is a company whose culture rewards innovation. It is a culture where people understand that, to change, to create something new, means taking risks. A culture where people know that innovations can certainly fail, that mistakes happen, but you learn from them; where aiming high, having a big, bold idea is not frowned upon, but encouraged. A culture in which the leaders think the biggest mistake is not trying, not experimenting, not taking a risk.

That is the culture Jack built at Tesco, and it is one I am determined to foster and encourage, for the reason I began with: success depends on innovation.

Thank you for listening and I am looking forward to answering your questions.