The quest for innovation at scale

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In a well-attended session at NRF 2018: Retail’s Big Show on Monday morning, Scott Friend, managing director of Bain Capital Ventures, and Lori Flees, senior vice president for next gen retail and principal of Walmart’s Store No 8, discussed “Building the More Innovative Innovation Lab.”

Flees, herself an 18-year Bain & Co. veteran, has been with Walmart since 2014 and in her position since last fall. As head of Store No 8, she leads what is essentially a wholly owned new business incubator, in which companies acquired by Walmart are supported and developed with an eye to making them a part of the larger Walmart operation. The division is now working with four companies: Jet.com, which was acquired by Walmart in 2016; a new business headed by Rent the Runway co-founder Jenny Fleiss; and two others. Flees indicated that one more might be added in the near future.

There are, of course, significant operational and strategic differences between a startup company and the largest corporation in the world. To manage these differences, Store No 8 operates as a separate business entity from Walmart Inc. (There is no “official” Store No 8, at least not any more. Back when founder Sam Walton was active in the business, there was a Store No 8 — all Walmart stores are numbered — near the company’s Arkansas headquarters. Walton would use it as a sort of laboratory to test innovations in supply chain management, customer relationships and store management.)

“To do what we’re doing,” Flees said, “we need to be able to hire employees on the basis of their future potential, rather than their current utility.” Startups, she added, need to be able to move faster than a large company can move, and they need to be able to make strategic investments, which means the Store No 8 budget is isolated from the day-to-day demands of the overall retail profit-and-loss structure.

“What about the Store No 8 companies you’ve been launching,” Friend said. “Any surprises or challenges so far?”

The primary area of learning, Flees said, has had to do with the issue of setting up a company separately from the parent so it can operate at startup speed. “Contracting with a vendor is a good example,” she said. “That’s something that Walmart does very well, and we have very clear processes and protocols. But the vendors we’re working with in Store No 8 tend to be cash-strapped — they’re startups as well. So how do you change something as simple as accounts payable and contracts so that it gets cash to them in a way that enables them to serve you? That has been challenging, but you have to have a vision. And if your core focus is speed, then you’ve got to revisit all those procedures.”

Hiring, she said, raises similar issues. “You have a machine within Walmart that is incredibly efficient and effective, but if you’re hiring within a week or two weeks, you really have to re-examine your processes.”

Speaking of hiring, Friend noted that however much freedom they have, and no matter how creative they are encouraged to be, the fact remains that the entrepreneurs recruited by Store No 8 are, or become, Walmart employees. “Given that,” he said, “how do you attract real entrepreneurs?”

“We thought it would be hard,” Flees said, “but it hasn’t been. In fact, we’ve been surprised at the interest we’ve gotten. A lot of entrepreneurs like the ability to develop an idea and then scale it with a company like Walmart.”

While Store No 8 is an innovation lab, Flees was quick to note that her department is by no means in charge of all innovation at Walmart. “That’s a question we get asked a lot, and I think it’s safe to say there is no one organization within Walmart that’s responsible for all innovation. There’s so much innovation we’re doing in our current supply chain and our store operations and ecommerce, and their focus is really the next one to two years,” she said.

“At Store 8, we’re looking at more of a three- to five-year window. If you don’t find that kind of innovation early, you’re behind. You wind up having to get it from other places, and you don’t have the opportunity to shape it to your own organization. We’re trying to incubate new businesses that can also help fund that innovation.”

As he brought the session to a close, Friend said, “To another retailer out here in the audience, Walmart might seem somewhat anomalous, given its size and prominence. Are there lessons here for the $100 million specialty retailer, or the billion-dollar regional department store?”

“I don’t think it’s Walmart’s size that’s enabled us to do this,” Flees said, “so much as the senior retail leadership taking a position on where retail is going over the next 20 years, and figuring out where we needed to be leading in capability development, to be able to disrupt ourselves rather than having someone else disrupt us. There are opportunities of all sizes, and I think any retailer needs to have that point of view.”

Lori Flees discusses how Walmart incubates next-generation retail technology
to help people save money and live better on NRF’s podcast, Retail Gets Real.

Photo by Jason Dixson Photography.

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