Innovation in the Swiss retail sector | Sebastian Welter | Innoscape Talk #7
As an innovation leader, especially as an innovation leader for technology, my role is to bring alive innovations around technology. So, we have a network of people that deal with innovation from different topic areas. I have colleagues that do innovation logistics or innovations in packaging material. And then of course we realized after a while we need to have a few people really concentrating on all the digital technology elements in innovation.
So, artificial intelligence, other emerging technologies, what can we do with those? And that is basically for me and my peers and my team the focus. What are interesting technologies that we can use? And then basically run projects. So, I am running innovation projects. Short projects, fail fast, try-hard, these kinds of projects. Speedboats to test a new piece of technology.
For example, a new AI or a combination of AI and hardware. Working a lot with other colleagues, like, what is a new AI we could make more automation in a warehouse, for example. Or, how can we combine computer vision with our industry operations? So, I don`t know, detect damages in the manufacturing. So, everything around these technologies is what I'm scouting and where I'm running innovation cases with my team. IKEA is a franchise franchisor concept.
So, the franchisor owns the product development, the range, the product range and the supply chain. And for the franchisees, they are basically the retail operations. So, we have 12 different franchisees operating throughout the world. With the biggest one present here in Europe and a lot of other countries.
And it's a tight collaboration, but for me, from my perspective, I'm part of the franchisor and we're here in Switzerland are focusing on the supply chain. So, I work on the supply side of the business. Our focus is everything about supplying the offer. From manufacturing furniture and procuring furniture to basically getting the stuff into the stores. And we do innovation, I work in innovation, in that context.
Then of course, embedded into a larger network of people that do innovation across IKEA. So, IKEA Switzerland and IKEA in general and for the innovation locations, I would say it is a very cross model. I mean, innovation, you could say, is part of IKEA's DNA.
One of our core 8 values is "Different with a Meaning", which is pretty much fostering innovation. And you could say our founder, Ingvar Kamprad, was also an innovator. He created a new business model with the flat packs and everything around it. And Switzerland was one of the first countries, actually the first country out of Scandinavia where IKEA went to because of the opportunities we saw here and because of also the unique position of Switzerland, how it is located in Europe and the influx of talents and the people here.
So when it comes to innovation, we are also working across. So, we have a couple of hubs here in Switzerland, in Sweden, in the Netherlands, in Poland and other European countries and also around the world. And in these hubs we have our people all in a great network working together on innovation.
So, this is, I would say, a collaboration mostly across Europe. But then of course, when it comes to the actual innovation project, we go local. So if we do, for example, damage recognition in a warehouse as an AI project, then we go into one warehouse, we pick one distribution center, somewhere here in Europe, e.g., and then we run a project locally.
So it's always a bit between the pan-european network or the global network also for exchanging ideas, working together, being part of a larger virtual team, and then running certain projects locally where we want to run them. And this then also spreads across. So we're running a lot of innovation projects here in Switzerland locally, but then of course also a lot in other countries in Europe. So, innovation for us is something that is either new to IKEA or new to the world or new to the industry, basically.
Then of course, where do we focus, is a bit the question. I mean, new to the world is something, not many innovation projects are really new to the world. There is a lot that is new to the industry, where we are adopting first time something new. And then of course there is a lot of stuff that we would do that is new to IKEA in a certain way. So, for example, when we introduced the paper pallet, that was something you could say new to the world or at least new to the industry.
A change in how you build pallets, make them smaller, be able to load more, for example. Then another example, we're using drones to do automatic inventory. The drone is not something that is new to the world. Definitely not when we started with it, but it is new to us and also new to a lot of other peers in the industry to use it for visual inspection of inventory, for example, in a warehouse.
So, everything that is, at least this level of newness that is new to us as a corporation, that is innovation and for us worth exploring. But of course, we also look at all new ideas that we get in and then see, okay, is this innovation or is this maybe continuous improvement of a product or something that goes back into the product development, into the product, into the application development side? So, of course, some ideas we steer towards continuous improvement. Make or buy, it always depends, that is the short answer. We try to do a choice based on capabilities. So, I mean, we will never compete with the big tech companies when it comes to inventing new AIs.
We are IKEA, a furniture company. That said, of course, we develop, for example, our own AI models. But we always try to stick to the best capabilities. So, if someone in the market can provide us something really good, then we adopt it. We use it. If there's something where we see our competitive advantage, then we at least try to build it ourselves. We have from a strengths perspective in IKEA, we have the one big chance that we basically cover the end-to-end supply chain.
Since we go from manufacturing furniture to selling it in our own stores. This end-to-end chain enables us to have at some point more data than others do and also to have complete control of the process. That sometimes means we can do certain things better than others, and in those cases, we build.
And we focus to keep this knowledge in-house. But of course, that also means partnering with other suppliers, partnering where we get technology, partnering where we get equipment from those that again are focusing on this one. So we don't build our own forklifts, but we designed our own pallet. We don't build our own huge AI ecosystem, but we certainly buy some models and we certainly build some models.
So it's always a bit of a decision where is our strength and where is the strength of our partners in the market? So, collaboration in innovation is key. I mean, yes, ideas come from many people and collaboration for us in innovation means a lot of different paths. So one thing is, where an idea is coming from.
There is a lot of internal and external collaborations. We always say, we have over 200,000 innovators because everybody in the company can have an idea and bring in ideas and say, hey, I have a problem here, I see a chance here, a challenge here, let's try something. So that's, I would say, a big piece of the internal collaboration. Then, with this network based structure is also, it fosters that across the businesses and there it also then connects to the outside world. So, we are in tight collaboration with academia, here in Switzerland, but also in other academia around the world. Even to the point that we have one university basically being part of one of these networks and bringing in ideas from the outside world.
But then also outside of academia, it's of course a lot of connecting with peers, with start ups, even with competitors. So, we talk with our suppliers, especially when it comes to exactly that handover point. Can we do innovation there? We visit peer companies, so we talk to the big logistics companies, we talk to our peers in retail and have exchange about what are things that we could do, seeing interesting projects, getting ideas from others, exchanging ideas, even completely outside of the industry. We're working with automotive companies to see, are there interesting ideas that can span across? Or collaborating with tech companies. We work with Spotify, for example, to see, can we do something there? And of course, we do a lot also with startups.
So we do startup scouting and also do specific startups programs. So, for example, we're doing a marine material initiative, where we are looking for startups that can help us develop new material based on marine materials, because this is something that is very interesting for us from a sustainability point of view, a resource utilization point of view, usually those materials have a lower CO2 footprint and can be sourced in a different way, in a more ecological way. So, there we explicitly reach out to startups, work with incubation hubs and so on to get ideas, to start collaborations and to get this whole innovation engine running, basically. Wow, that's a good question.
The technology forefront or where to act and where to be a first mover or a good follower is for us very often really driven on the potential business impact. So, for every new idea, sort of from an innovation perspective, we need to be at least aware of all the new technology. We need to be on everything. That is for sure.
Then there's always the question: Do we need to act now or do we wait? And that should be driven from a business context. If we see, the potential is huge, for example, for AI technology and also for the new AI, like transformer technology, we are maybe among the first movers. Simply because we see that there is a lot of business potential for us. There are other topics where we say, we have a well-working supply chain, we don't need to act now. We let technology rest a bit before we actually go into it and find a partner that can help us.
So it really depends a bit on the drive of the business, the necessity and the potential gains we can get out of it. But I would say, in most cases, when there is a very promising new technology, we at least try to do a bit of discovery. Maybe a short project, looking into it, or at least keep track of it.
For example, we also looked into quantum computing already a year ago, just because it might be interesting for the future. We don't have an immediate case right now, but we still keep on monitoring it. With AI, it's completely different. There we see a huge potential.
We selected it as strategic technology, so there is then a lot more of things we try. And then also some things fail, some things we see, okay, interesting, but let's wait until someone develops it further and then we try again. So, it's very much, I would say, driven by business and driven a bit by the potential we see for IKEA, for a technology. I think, the big trend or the big thing, not even for us, but for everybody in retail, digital and omnichannel.
That is of course, for us as for every other retailer. And for us, of course, we react to it. You all know the big blue boxes, our stores. But the concept changes and evolves, of course, over the years. So, you have small stores in the city center with only a limited range, new appearance, new digital customer meeting points like the e-commerce space.
And also developing that further. For example, we are playing around with augmented reality, like, how can I see my own room? Where could I see IKEA furniture? How could it look like? And so on. So, a lot of things we do in that digital space and in that omnichannel space. Where we see really the customer experiencing and connecting with IKEA in more senses. Data is the new oil. I mean, that's of course, true for us.
I mean, for the supply operations, you could say we are a data-driven company. Because in the end, when it comes to supplying the offer, it is of course a goods flow, but along with that goods flow is a data flow. And I would say, exactly this data flow from production over the transport chains, over the distribution centers into the stores.
And also then backwards for 360 degree view. That is the most important piece of data for us. So, accompanying the actual goods flow. Having the digital representation of supply, basically. Because that in the end enables planning.
Demand planning, supply planning and interconnecting this data. And I think that is also that is the big piece for us. Connecting the data points between these different steps of a supply chain. Connecting it with the information about the products with range, with the retail data, being able to understand the data, being able to optimize.
And then especially, and this is, I think, the next step, the more you understand from this end-to-end data flow, the better you understand, where can I optimize? Where could I change a process? Where can I do a bit of innovation and maybe bring in an AI at a certain piece that helps us do more automation or helps us understand the data better? External vs. internal data is something that, I think, is again, driven by the business process. So, if I look at IKEA, we have a lot of data since we look at the supply chain. But of course, there are gaps. Like, e.g., transport.
I mean, we don't own our own ocean fleet. We, for example, collaborate with the big carriers. And there, I think, this is one of the areas, where for us it's a lot about integrating data. In order to understand and plan end-to-end and plan availability in the store, for example, you need to know everything about this transport leg, for example. So that is a classical example, where for us, it's about integrating external data and then trying to understand the data quality here, trying to understand, how can we work with that data? I think, that is a piece where, this is also for me about digitalization, bringing these things together, integrating this data and then seeing, where can we maybe take it to the next level by comparing data, by understanding the connect between different transport legs and so on and optimizing elements there.
So, regarding intellectual property and how we deal with it, I mean, of course we want to keep or build in competitive advantage and for that, sometimes it's necessary to protect it. So, of course we do patents. I think, it also depends very strongly on the technology area and the process in which we are in. Since in a lot of cases, we try to partner with a very strong partner. Then of course, this changes the IP view on it. And then, of course, also there is a difference in that we see, for example, in Europe vs. the United States.
In the United States, you can do software patents. In Europe, you don't. And of course, that has an effect. That also has an effect on a lot of digital space things, we need to do. We need to be more aggressive in patenting in the US. Sometimes it's a lever to play with others.
But the general strategy, I would say, is as usual, with most of the companies where we see a big competitive advantage, we try to protect it. Where we see that partnering is good, there we partner and we are open about partnering there. I think, we have a quite good setting in Switzerland when it comes to innovation. I mean, especially if you look at IKEA in Sweden and Switzerland as sort of the first mover countries, you could say. These are the two countries that are regularly ranked as the top innovation countries. So, I could say, I'm super lucky because these are two of the countries I work most with.
I think, in Switzerland, we have very good skills and a very broad talent pool. And that helps a lot with innovation. It's a very international setting.
A lot of things, a lot of partners are here in Switzerland and we get a lot of talent with very different diverse backgrounds here in Switzerland. And we combine that with the different other hubs we have in Europe or around the world. And I think that makes the power. So, what we lack here in Switzerland maybe, we find in the other hubs. And the combination of that together works very well. So, for us, we're very happy here in Switzerland, I'm personally very happy here in Switzerland with the innovation power that we have.
And also, if I look at the academia, we have a very strong academic setting here in Switzerland. We're partnering with universities here in Switzerland and getting huge idea influx and topic influx from there. And then by collaborating from Switzerland with Sweden and with the other hubs, I think this is where the power then comes from. Ideas can come from one side, the partner can come from the other side, the execution can come from the third side. And I think we are in a good position here in Switzerland. Regarding skills, of course, there is a war on talent, that we have everywhere.
And if I look at my technology area, then of course, topics like artificial intelligence, they are hot, they are important. And of course, I mean, if you look at graduates in data science, if you ask them where is the place, where they want to work? I mean, IKEA is probably not the first thing that comes to their mind because we are a furniture company. That's good, that we are a furniture company. So, there is a lot of effort that we need to take to attract talent.
And of course, you see with the big companies that we have here in Switzerland, we are fighting on the same market. I think, we still can compete, because we have very interesting topics and that is a convincing piece. And then of course on the other hand, it helps us to be this European company.
So we have a strong connect in Europe. And also, if you look at the academia here, we have good connect in Switzerland, but also a good connect, e.g., in Germany, in the Netherlands or in Sweden. And this connect, of course, helps. It's rooting in Europe, and with that you might get some skills in Switzerland, you might get some skills in France or in Germany or in Sweden and bringing it together. And then this collaboration that helps even out a bit the talent shortage, you could say, on these technology roles. If I look at my team, even in technology innovation, we have people from all different backgrounds.
We have a very broad mix of IT, some coming from the architecture, some coming from the economic side, some coming from the logistic side, some coming from a classical IT background. And then of course, if I take it into the larger innovation network, then the roles are getting even bigger. I think one key aspect for innovation is: Is diversity there? Be diverse, not just in a job role, but be diverse in a team. And this brings a new perspective.
This brings in new ideas. So, I think, also from a job role perspective, when we are looking for people, it is the experience. It is this diversity, these new ideas that we're looking for.