Saturday, August 16, 2014

An Innovation Wake Up Call for CPG Executives

With increased competition from private label brands, as well as other national competitors, consumer packaged goods (CPG) companies are more focused than ever on innovation. In fact, more than half of CPG executives say that growth and innovation is their number one priority, according to a recent survey by Information Resources Inc.

Despite increased executive focus, most companies still struggle to achieve consistent innovation success. Affinnova recently surveyed 400 innovators on the front lines – directors, managers and analysts intimately familiar with everyday new product development practices. The study showed that 60% of new products launched to market fail. For some companies, that failure rate can be as high as 80%.  What’s more surprising is how many new product ideas (about two-thirds) “die” within companies’ innovation pipeline, after months and even years of being nurtured by innovation teams.



The data reveals massive dysfunction and waste within the innovation process at consumer packaged goods companies. While it’s typical to measure innovation success and failure in terms of dollars and cents, the impact on people and morale can also be measured. Affinnova’s study found that 4 out of every 10 CPG professionals are considering leaving their companies because of poor innovation results and frustration with their companies’ innovation process.  Fifty-six percent have no confidence in their companies’ ability to compete in the marketplace. 

So how can companies turn the tide? The study revealed four organizational characteristics that differentiate top performers and consistently allow them to achieve better new product results:

1. Collaboration: Companies with the highest rates of new product success are 20% more likely to have effective cross
 functional collaboration on new ideas than companies with the lowest success rates. Cross functional collaboration, however,
 means more than just involving marketing and market research. In pinpointing specific collaboration practices, top-performing
 companies are more likely to involve sales and trade in the innovation process than low-performing companies. They involve them
 from the beginning strategy and ideation stages through package design and determining price, unlike lower performing
 companies which generally involve sales and trade teams at the end stages of the innovation process (final launch decision
 making).

2. Creative Risk Taking: Companies with the highest rates of new product success are 37% more likely to have cultures that
 encourage and reward creative risk taking than companies with the lowest success rates. As a result, they are highly effective at
 generating the level of breakthrough thinking required for consistent innovation.

3. Insight: Top-performing companies are doing a better job of understanding consumer needs through research and data.
 Companies with the highest rates of new product success are 35% more likely than the lowest performing companies to
 empower their employees with insights for understanding consumer needs. But even more critical, they use data and insights to
 assess their product ideas against competitor strengths and weaknesses which enable them to establish differentiated
 propositions for their products. Top performing companies are 28% more likely to assess innovation ideas against competitors
 than bottom performing companies. 

4. Culture: Top-performing companies don’t just give their innovators more “intellectual” resources (budget, data and technology)
 for innovation; they also empower them with more “emotional” resources (guidance, support and running room). They are less
 likely to encumber their innovators with frustrating internal politics and more likely to put the full skills and talents of their people
 to use. The payoff in terms of employee morale and engagement is huge. Compared to the lowest performing companies,
 innovators at top performers are 1.3 times more likely to feel that their talents are being fully leveraged, 2.9 times more likely to
 feel that senior leadership is supportive and 3 times less likely to consider leaving their company to work for more innovative
 companies.
  
Interestingly, in comparing top performing and bottom performing companies, one factor did not make a significant difference: innovation structure. Sixty percent of respondents from top performing companies stated that their companies had completely structured innovation processes, as opposed to semi-structured or no structure at all, which almost exactly matched the average for all companies in the study. The data suggests that innovation structure (while important) is not necessarily the be-all and end-all for achieving innovation success – a finding that’s contrary to other research previously published on the topic.

CPG companies (top and bottom performers) have much to improve when it comes to enabling and managing innovation. Among the biggest areas of frustration identified by CPG professionals:

  • Inadequate Tools: 75% believe their companies are using outdated technology for innovation.
  • Slow Processes: 49% feel that their companies can’t move fast enough to keep up with competitors and the pace of the marketplace.
  • Creative Constraints: 62% say creativity and creative risk taking is not fostered or supported by their companies, limiting breakthrough ideas.
  • Subjective Decision Making: 55% believe that internal politics— not data—is guiding most new product decision making.
  • Limited Customer Insight: 66% believe their company isn’t doing enough to understand consumers in order to develop products relevant to their needs.

On the whole, innovators (even at top performing companies) don’t feel like they are getting enough consumer and competitive data to guide them in the innovation process. Specifically, they feel like more consumer and competitive insights are needed in the early strategic planning, ideation, concept screening and price determination stages of the innovation process.

In establishing better innovation practices and processes, leaders often seek advice and answers from outside their companies and often fail to ask what their own innovators most need to be successful. The people on the front lines often have better insight into what really drives success and where the biggest opportunities for improvement lie. As part of their innovation and growth strategies, CPG leaders should consider ways they can better measure innovation practices and behaviors from within. Instead of trying to swirl the ocean to define the ultimate innovation process or structure, they should attack the biggest frustration points and barriers holding their people back from success. Doing so will not only lead to better business results, it will create stronger organizations that retain good people.

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