Impact of Internal/External Environment on Retail Innovation (BUS3005)

This report examines dynamic innovation within the retail industry, focusing on its integral role in strategic planning and adaptation to evolving consumer demands. The report highlights the significance of dynamic innovation in areas like technology, marketing, and supply chain management, emphasizing the need for continuous adaptation to stay competitive. It explores the impact of both internal and external environments on innovation, including the use of strategic tools like VRIO analysis to understand internal strengths and weaknesses. The report also addresses challenges such as financial constraints, the need for regular market research, and the impact of globalization. Overall, the analysis provides insights into how retailers can leverage dynamic innovation to improve their market position, enhance customer relationships, and drive long-term success. The report uses examples and research to explain how the internal and external environment has influenced innovation in the retail industry over the last 10 years.

STRATEGIC
MANAGEMENT

1
Contents
Introduction...........................................................................................................................................1
Dynamic innovation in retail industry...................................................................................................1
Challenges related to dynamic innovation in the retail industry............................................................4
Impact of internal and external environment on these innovations........................................................4
Impact of internal environment..........................................................................................................5
External environment............................................................................................................................6
Conclusion.............................................................................................................................................8
REFERENCES......................................................................................................................................8

2
Introduction
In the current business environment, innovation plays a very important role in managing the
business. There are several types of innovation that are carried out in any industry. These
innovations are based on the requirements of the people. Dynamic innovation is a type of
innovation that depends on the cross-functional collaboration and always places senior
officials responsible for innovation1. This type of innovation does not mainly depend on some
big idea rather it is a continuous approach to innovation. It is an exceptional innovation that
includes scanning of the external environment as their major tool. Adapting changes in the
market and needs of the consumers is easier with the help of dynamic innovation. It also
lowers down the firm’s level of risk. Retail industry has many kinds of consumer products
and services under it and it is done through multiple channels of distribution for earning
profits. This report will highlight different aspects of dynamic innovation in retail sector. It
also illustrates the way in which external and internal environment has an impact on the
innovation.
Dynamic innovation in retail
Dynamic innovation is an integral part of the strategic planning. Companies have selected
different measures to innovate their products and in this the major role is played by research
and development. The user demands are changing at much faster rate and in such situation
sticking to the traditional innovation approach could not give long term benefits to the firm.
The most significant dynamic innovation can be seen in the areas such as technology2. Since
the technology that are available with the consumers are also changing at much faster rate
hence companies also had to bring innovation in the technology they are using so as to catch
up the pace with the society. Since technology in the sector gets double in every year hence
companies are also investing their money on innovations in technology that can be used for
making the business process easier. From using online websites for sale to now reaching to
smart-apps for making the sales possible, the dynamic innovations have played a major role
1 E Pantano, "Innovation drivers in retail industry", in International Journal of Information Management,
vol. 34, 2014, 344-350.
2 M Lorenzen, "Industry and Innovation: Continuity and Change", in Industry & Innovation, vol. 12,
2005, 1-3.

3
in it. It is seen that retail innovations are fast and companies have to adopt dynamic strategy
for improving their position in the market. With the increase in the online sales of products
and services, the necessity to include the dynamic innovation in their business increases.
Companies these days are using advanced data technologies for improving their business
operations in the market.
It is seen that companies that have adopted the dynamic innovation are more likely to gain
edge over their competitors. Dynamic innovation in marketing has allowed them to come
closer to their targeted customers. Continuous innovations in the geo-targeting technologies
have helped them in specifically targeting people that have sometime or other searched for
similar products. On the other hand since the retail companies have reached to different parts
of the world hence making continuous innovations in the supply chain and technologies have
become very much crucial. The fastest innovations can be seen in the design and orientation
of the products. Due to the changing requirements of the people, new features are
continuously demanded in the market. In such an environment it is crucial that firms look at
the challenges in the market and need of the customers and change the design of the
products3. Continuous innovations are also made in the design of the products for making it
effective for both marketing of the products or for increasing the usability of the products.
The daily use products also see a change in terms of packaging design so as to make it more
cost effective or according to the pricing strategy that company sets for itself. Since the price
margins for profit is continuously decreasing for various products hence it has become crucial
for the management to ensure that they continuously innovate their products for making it
cost effective and also helps in improving the revenue of the company. Innovations are also
done in the type of materials that is being used by the organisation in that product. This helps
them in making the product more useful for the customers and also assists them in gaining
extra benefits from their products. Change of material allows a company to ensure that the
products are as per the requirements of the company. Dynamic innovation also allows them
to have control on the trends in the market.
The most significant and continuous innovation can be seen in the fashion industry where the
companies keep on innovating the products on regular basis. This is done for attracting more
3 C Stagnaro, "Competition and Innovation in Retail Electricity Markets: Evidence from Italy",
in Economic Affairs, vol. 37, 2017, 85-101.

4
numbers of people towards their products. It has been noticed that customers are also getting
attracted towards the brand that is having huge product range. This gives them advantage
over the rivals. People do not like to wear same type or design of apparels for long time
hence they love the companies that bring new products at regular intervals4. Innovation is
also seen in terms of use of raw materials which again plays an effective role in the
management of profits of company. Even the small organisations are making changes in the
product on the basis of the data that is available from their past business or the research they
have done in the market. The uses of fashion shows by bigger brands are one of the best ways
to showcase their innovations. Continuous innovations are also seen in the management of
internal processes. This is done for improving the internal environment of the company and
also for bringing effectiveness in the business process. From inventory to supply chain they
are continuously innovating things so as to make it more users friendly. Dynamic innovation
is based on the cross-functional collaboration and the credit is also given to the senior people
hence it improves the relationship of people working together at different levels of the
organisational structure.
In the last decade or so the pace of the innovations done by various companies has reached
too much higher levels. This is because it is seen that it is the only thing that can give them
advantage over the rivals. Many research programmes are conducted by the companies to
bring innovations that can benefit them for the long terms5. Every organisation has set up
their research labs even if they are small or medium sized. A larger part of their revenues
have been given to the research and development project. Some of the retailers like electronic
retailers bring new products with slight changes in every six months and their major reason
for staying ahead of their competitors. This is the major reason why companies are bringing
innovation culture at the workplace.
Dynamic innovation strategy is also adopted by the companies to ensure that they are
building their brand name as one of those companies that thinks about the challenges faced
4 E Pantano, C.V. Priporas, S Sorace, and G Iazzolino, 2017. Does innovation-orientation lead to
retail industry growth? Empirical evidence from patent analysis. Journal of Retailing and Consumer
Services, 34, pp.88-94.
5 D Grewal, K.L Ailawadi, D Gauri, K Hall, P Kopalle, and J.R. Robertson, 2011. Innovations in retail
pricing and promotions. Journal of Retailing, 87, pp.S43-S52.

5
by the people in the market6. It also allows the company to make strong bond with the
customers and ensure long term relationship with them.
Challenges related to dynamic innovation in the retail industry
There are different kinds of challenges confronting the dynamic innovation at any workplace.
Some of the challenges in this regards are:
Financial constraints: There are big companies having huge capital and there are some with
lower capital investment. For the companies having lesser financial strength, it is always
difficult to make the pace with big companies and make innovation as its primary approach.
Regular research: Companies also have to do regular research in the market so as to
understand the mood of the market and work according to the changes in the market. It is also
seen that till the time a company does research and bring innovation, other company from
other parts of the world already bring some other changes.
Globalisation: Due to globalisation all the companies have come into competition with each
other irrespective of their distance. Innovation done by them can be marketed in the larger
part of the market with the help of technology. This is increasing the speed of innovation
which is putting further burden on the business process.
Impact of internal and external environment on these innovations
Business environment in different parts of the world has changed and this change within
business environment has a high level impact on the innovations that is being done by the
company. It is essential that companies manage the change in this environment. This is
essential for improving on the challenges that they are facing in the market.
Impact of internal environment
For understanding the internal environment impact on innovation the use of strategic tool like
VRIO can be beneficial:
Valuable: Every company wants to create a new set of value through their products. Due to
this, companies ensure that they continuously add to their product features. This helps them
6 W Reinartz, B Dellaert, M Krafft, V Kumar, and R Varadarajan, 2011. Retailing innovations in a
globalizing retail market environment. Journal of Retailing, 87, pp.S53-S66

6
in adding to the value the products they have. In today’s environment what every customers
wants is value they get for the price they pay hence companies also try to continuously add
into the value of their products7. Continuous value that a company adds to their products
plays an essential role in the creating a ground for themselves where they compete with their
competitors. Companies that are in fashion retail also has to ensure that they do enough of
marketing so as to value can be added to their products.
Rare: All the companies try to make their products rare. This cannot be done without doing
innovation at the regular basis. Since all the companies are doing innovation hence the
chances that their product is rare reduce. In order to maintain the rarity of products it is
essential that company has to develop their products on a continuous process8. Rarity help the
company to improve their position in the market and it gives the chance to create a new
market space for them. A rare product is always helpful in creating a space for them in the
intense rivalry that is going on in different parts of the world. For example Apple innovates
itself continuously so as to make their product rare. This helps them in creating a different
space for them.
Imitable: It is crucial that companies create a product or range of products that are not
imitable by its competitors. This helps them in placing them in a very different manner. Since
the amount of competition that exists in the market and the investment that various
companies are doing in different retail segments, it is seen that they usually imitate each
other. For a company that is capable of creating innovation that is not imitable gains a long
term advantage over the rivals. Till the time their product is not imitated by other companies
they can ensure higher benefits from their product9. Quality has been one of the major factors
that play a major role in the inimitable nature of the product. Most of the retailers these days
focus on enhancing the quality in their dynamic innovation approach.
7 S Salunke, J Weerawardena, and J.R. McColl-Kennedy, 2011. Towards a model of dynamic
capabilities in innovation-based competitive strategy: Insights from project-oriented service
firms. Industrial Marketing Management, 40(8), pp.1251-1263.
8 L Hristov, and J Reynolds, 2015. Perceptions and practices of innovation in retailing: Challenges of
definition and measurement. International Journal of Retail & Distribution Management, 43(2), pp.126-
147.
9 F.G. Ünay, and C Zehir, 2012. Innovation intelligence and entrepreneurship in the fashion
industry. Procedia-Social and Behavioral Sciences, 41, pp.315-321.

7
Organisation: Dynamic innovation is being used by the organisation to improve the resource
quality. Companies are always under pressure to improve their capabilities that can help them
in utilising their resources in an appropriate manner10. The product that gives strength to the
company also gives them capability to utilise their products in a better manner.
External environment
External environment also plays a bigger role in dynamic innovation. Some of the factors that
affect their dynamic innovation approach are:
Political: The political environment in any country has a direct impact on the retail industry.
The way in which government policies supports the innovation within the country allows
them to do innovation as well as promote others also. Government provides incentives to the
companies so that they can develop innovative approach that can help in resolving the
problems that is faced by the society.
Economic: The economic environment plays an essential role in the innovation. From the
last decade the economic health of the countries have come down which has affected the
innovation capacity of the companies. When economic health is well then more numbers of
investors are available in any industry for investing in innovation11. It is now totally
dependent on the economic health of the company that how much they invest in the
innovation. For continuous innovation, good economic health is highly essential so that
continuous funding is done on different economic projects.
Social: Society has changed and this change has a direct influence on the demands. In
dynamic innovation demand plays a crucial role. In the retail sector demands of the people
keep on changing every day and due to this companies also have to change. In the last few
years people are demanding for the innovative products that are of lower cost hence
companies have also moved towards the innovation that brings products that are more
suitable for people and reduces the overall cost of the production so that they can also bring
10 A Sánchez, A. Lago, X Ferràs, and J Ribera, 2011. Innovation management practices, strategic
adaptation, and business results: evidence from the electronics industry. Journal of technology
management & innovation, 6(2), pp.14-39.
11 S.A. Aminu, 2013. Challenges militating against adoption of online shopping in retail industry in
Nigeria. Journal of Marketing Management, 1(1), pp.23-33.

8
their products at lower rates12. For a company that is capable of dealing with this pace of the
demand of the people than the chances of its success increases.
Technology: The amount of technology that is used by the companies plays a major role in
the doing innovation. With the pace at which technology is getting implemented in the retail
industry such as app based technologies, it makes technology a major player in the innovation
and especially in the case of dynamic innovation13.
Legal: Innovation must always be done on the basis of the legalities that are surrounding the
retail business. Company must think of the ethics that always surrounds any innovation. For
example sometimes company uses the material that is not permitted in the country then the
firm might face legal compliances14. The changing legal constraints in different countries
have affected the way in which companies are bringing innovation and the type of innovation
they are doing.
Environment: Environment has big role to play in the dynamic innovation. This is because
in the last decade countries have raised concerns about the products that are being developed
in the retail industry. This has forced them to focus on the products that are environmentally
sustainable and avoid any kind of environment related concerns. Since sustainability has
become one of the prime concerns of the companies hence retail industry is also bringing
products that reusable, recyclable and easily decomposable.
Conclusion
From the above based report, it can be concluded that in the retail industry there are many
innovations are going on continuous basis. Dynamic innovation approach has helped the
companies to make their mark in their industry. This is also because of the fact that people’s
demand are changing at much faster rate and they are demanding for products that gives
12 G Ivanov, and E Mayorova, 2015. Intangible assets and competitive advantage in retail: case study
from Russia. Asian Social Science, 11(12), p.38.
13 E Pantano, and L Di Pietro, 2012. Understanding consumer’s acceptance of technology-based
innovations in retailing. Journal of technology management & innovation, 7(4), pp.1-19.
14 L.L. Berry, R.N. Bolton, C.H. Bridges, J Meyer, A Parasuraman, and K Seiders, 2010. Opportunities
for innovation in the delivery of interactive retail services. Journal of Interactive Marketing, 24(2),
pp.155-167.

9
value to them and resolves their challenges in life. The internal factors such as being
valuable, having rare products, not easily imitable and organisational capacity are some of
things that have affected the innovation in last 10 years. On the other hand political,
economic health, social, technological, legal and environmental factors have also impacted
upon the dynamic innovation.

10
REFERENCES
Aminu, S.A., 2013. Challenges militating against adoption of online shopping in retail
industry in Nigeria. Journal of Marketing Management, 1(1), pp.23-33.
Berry, L.L., Bolton, R.N., Bridges, C.H., Meyer, J., Parasuraman, A. and Seiders, K., 2010.
Opportunities for innovation in the delivery of interactive retail services. Journal of
Interactive Marketing, 24(2), pp.155-167.
D Hellström, and F Nilsson, 2011. Logistics-driven packaging innovation: a case study at
IKEA. International Journal of Retail & Distribution Management, 39(9), pp.638-657.
Grewal, D. Ailawadi, K.L. Gauri, D. Hall, K. Kopalle, P. and Robertson, J.R. 2011.
Innovations in retail pricing and promotions. Journal of Retailing, 87, pp.S43-S52.
Hristov, L. and Reynolds, J., 2015. Perceptions and practices of innovation in retailing:
Challenges of definition and measurement. International Journal of Retail & Distribution
Management, 43(2), pp.126-147.
Ivanov, G. and Mayorova, E., 2015. Intangible assets and competitive advantage in retail:
case study from Russia. Asian Social Science, 11(12), p.38.
Lorenzen, M, "Industry and Innovation: Continuity and Change.". in Industry & Innovation,
12, 2005, 1-3.
Pantano, E, "Innovation drivers in retail industry.". in International Journal of Information
Management, 34, 2014, 344-350.
Pantano, E. and Di Pietro, L., 2012. Understanding consumer’s acceptance of technology-
based innovations in retailing. Journal of technology management & innovation, 7(4), pp.1-
19.
Pantano, E. Priporas, C.V. Sorace, S. and Iazzolino, G. 2017. Does innovation-orientation
lead to retail industry growth? Empirical evidence from patent analysis. Journal of Retailing
and Consumer Services, 34, pp.88-94.
Reinartz, W., Dellaert, B., Krafft, M., Kumar, V. and Varadarajan, R., 2011. Retailing
innovations in a globalizing retail market environment. Journal of Retailing, 87, pp.S53-S66.

11
Salunke, S., Weerawardena, J. and McColl-Kennedy, J.R., 2011. Towards a model of
dynamic capabilities in innovation-based competitive strategy: Insights from project-oriented
service firms. Industrial Marketing Management, 40(8), pp.1251-1263.
Sánchez, A., Lago, A., Ferràs, X. and Ribera, J., 2011. Innovation management practices,
strategic adaptation, and business results: evidence from the electronics industry. Journal of
technology management & innovation, 6(2), pp.14-39.
Stagnaro, C, "Competition and Innovation in Retail Electricity Markets: Evidence from
Italy.". in Economic Affairs, 37, 2017, 85-101.
Ünay, F.G. and Zehir, C., 2012. Innovation intelligence and entrepreneurship in the fashion
industry. Procedia-Social and Behavioral Sciences, 41, pp.315-321.