At Target, innovation begins from within

Part two of a two-part series

Elwin Loomis had spent 12 years at Target Corp. when he realized he wanted to work for smaller technology companies that really focused on game-changing innovation. Over the next decade, Loomis' quest took him everywhere from Hong Kong to North Mankato.

About a year and half ago, Loomis finally found a large corporation that energized him: Target.

"At Target, we're at the right time, the right place and the right culture to really effect transformative change," said Loomis, a senior group manager with emerging technologies. "There's some really good stuff happening now."

Two years after revamping its website, the Minneapolis-based retailer has gone on a digital tear, dramatically transforming a store-based culture ruled by marketers and merchandisers into an integrated innovation machine. The company that normally needs a year to plan collections of clothes and accessories now wants to roll out mobile apps and social media tools in just weeks.

"It's not about just one physical manifestation on how you innovate like a research and development center," said Beth Jacob, Target's executive vice president and chief information officer. "Innovation is everyone's day job."

At times, Target seems to be operating at 4G speed. Over the past several months, the company has retooled Target Mobile, launched a digital coupon program via Facebook and live-streamed the doings of YouTube millennials residing in dorm rooms outfitted with Target merchandise that consumers could purchase by just scrolling over the products.

Such ambitious efforts come at a pivotal time for Target. The retailer has struggled to grow sales at its 1,784 stores in the United States as impatient and digital-savvy consumers flock to the Internet in search of deals, entertainment and convenience. As a result, retailers are searching for new sources of growth through online, mobile and social media.

Behind the scenes at Target, the cultural changes have been dramatic. Teams of executives regularly evaluate new technologies, whether they have originated from Target's newly minted innovation center near Silicon Valley or from corporate employees. A dedicated group of technology and business strategists now try to quickly test inventions in individual stores. Every day, about 50 employees flock to Hi Tech, a Genius Bar-like support center where specialists offer personal IT help.

"Technology and business strategy are completely intertwined," Jacob said. "In the world we live in, neither one can live independently. We need each side to have a full seat at the table to bring the best together."

'Turbocharging' digital sales

With digital technology rapidly remolding the retail business, Target officials decided they needed two things: talent and speed. The former to create and evaluate technology and the latter to put that innovation to use in a quick manner.

All retailers are facing these challenges but "Target has been operating at a much more heightened level," said Carol Spieckerman, president of Newmarketbuilders retail consulting firm. "They really want to turbocharge that other side of the business."

Last year, the company opened a Technology Innovation Center in San Francisco, where they hope to recruit talented engineers and data scientists who can create next-generation mobile apps or smart ways to predict customer behavior.

But just opening an innovation office that looks like a start-up hardly guarantees innovation, experts say. What good are ideas if they never see the light of day?

Target is a retail giant whose hundreds of thousands of employees carry their own agendas and incentives. Merchants based in corporate headquarters, not technologists working in a remote office, tend to wield the most clout in such large retailers, Spieckerman said.

That's why "the innovation should come from the outside in, not the inside out," she said. "The San Francisco office should not just vet ideas through headquarters but challenge headquarters to rise to the occasion."

At the same time, Target needs to be patient, said Nathan Stoll, a former Google executive who recently launched Luvocracy, a social media/e-commerce start-up in San Francisco backed by Yahoo CEO Marissa Mayer and the renowned Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers.

Building an office is easy. Building a risk-taking culture that encourages failure is much more difficult, especially for a large publicly traded company that answers to shareholders.

"Target absolutely has a chance to make it work for them," Stoll said. "But they need a steady flow of people who come through that [San Francisco] office. You need the knowledge exchange. Target's strength has always been knowing what they are about. Now they need to integrate that with their technology efforts."

Rewards for "big ideas"

Target executives seem keenly aware of this. Every month, David Newman, a former Apple executive who runs the San Francisco office, travels to Minneapolis to brief officials on their technology "hunts." Projects are divided into three categories: core research, learnings (what's ready? what's not) and handoffs (ideas better suited for other departments at Target).

At the same time, Target holds Big Idea contests for employees, in which winners receive time and money to develop prototypes for their projects. Of the 700 submissions the company received during the last contest, four projects are in some stage of production. The retailer also hosts twice-a-year TGT Make Days when techies work on whatever they want.

"We are willing to take bets on ideas that won't go forward," Jacob said. "As an organization, we are well prepared to do that."

Committees representing executives from IT, marketing, merchandise and digital sort through the ideas. The more promising ones go the new Rapid Application Deployment (RAD) office at headquarters, where teams develop prototypes and run small store pilots. RAD is about to launch its first test later this summer, a project targeted at a key group inside the back-to-school market.

Target also recently established a Stores Digital Integration team where store managers work with technologists on improving the in-store experience for customers.

Beyond specific projects and programs, Jacob said Target wants employees to naturally think about innovation on an everyday basis. So the company has made considerable investments in training, education and work tools.

For example, Target recently launched Hi Tech, where downtown employees can attend workshops and receive personal IT help instead of relying on the telephone hot lines most companies use. The program has proved so popular that the company plans to expand Hi Tech to its north campus in Brooklyn Park and perhaps offer "roving" Hi Tech teams to other Target offices.

The company has also rolled out an internal Wiki system so employees can quickly share and access information and digital links to help workers connect their mobile devices to the Internet more easily.

"I'm thrilled and amazed to see the creativity of our employees' ideas," Jacob said.

The Missoni misstep

But remaking a clunky collection of stores into a true integrated "omnichannel" retailer requires more than a quick paint job, analysts say.

Take Target. In 2010, after a decade of using Amazon to run Target.com, the retailer decided to take control of its website and revamp it. At the same time, Target was planning to launch its biggest design partnership, a 50-piece collection created by Missoni, the Italian fashion house.

When Target launched the collection that September, the website quickly crashed and customers complained about delayed deliveries and out-of-stock messages even though the website had processed their credit card information. Outside observers blamed Target's problems on the lack of integration among its merchandising, marketing and online teams.

"Although most retailers are in the midst of one or many initiatives to improve their omnichannel experience, many have yet to crack the code on how their organizations will have to change to support them," Clementine Illanes, a senior manager at Kurt Salmon retail consulting firm, wrote in a recent report.

"Without changing their organizational structures, retailers will be unable to better align customer experience and marketing across [stores, websites, and mobile devices] and access the customer data that underlies key decisions," she said. "Clearly, this level of change will require transformation across the organization."

Jacob, the CIO, said there wasn't any one event that pushed the company to remake itself but the website episode definitely played a key role.

"Deciding to own the Target.com platform, that was probably one of the big steps," she said. "Early on, there were things that our teams had to learn on how to bring things to market. And now it's about pulling them together across stores, online and mobile."

Thomas Lee • 612-673-4113