Towards innovation capability in retail services: managing the tensions of exploration and exploitation

Retailing is said to be at a critical period where much higher demands are being placed on retail actors to develop their capability for explorative innovation for lasting competitive advantage. Developing innovation capabilities is a challenging pursuit, however, and is a topic that is under-researched in the retail context. This paper thus investigates tensions that emerge when retail firms pursue explorative innovation in an organisational context characterised by exploitation-oriented activity, and how these are managed through various organisational mechanisms. The findings from our multiple case study reveal how developing innovation capability in incumbent retail firms gives rise to complex tensions related to strategic intent, organisational culture and structure. These are perceived as organisational paradoxes and managed as such due to the need to balance these opposing poles, emphasising the need for balance instead of making an explicit choice. Retail incumbents establish differentiating mechanisms for innovation, complemented by various integrative mechanisms. The study shows that in order to enable explorative, radical innovation in retail firms, innovation work needs to be differentiated from that of ongoing operations, provided that integration is facilitated at operational and strategic levels. By focusing on incumbent retail firms using exploration-exploitation paradox as a theoretical lens, the study contributes with new perspectives on building innovation capability in this context. The paper gives evidence to how developing innovation capabilities lies in the management of these complex tensions as paradoxes using the combination of differentiation and integration mechanisms.