Innovation Target Practice
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  • 1. This article originally appeared in the January 2009 issue of The journal of high-performance business Innovation Target practice By Daniel D. Chow and Mark Fera Consumer product innovation is often a hit-or-miss affair—but it doesn’t have to be. By letting customers and employees tell them what works and by aggressively culling what doesn’t, the industry’s high performers are scoring consistently well. Consumers know them when they see them: nating the also-rans is a capability that seems Crest Whitestrips, Lysol Disinfecting Wipes, to elude many consumer products companies. GLAD Press’n Seal Wrap—products that practically invent a need and then become Not so for the industry’s high performers, which so indispensable that they are profit power- not only introduce more new products than houses for the companies that brought them their competitors but also bring them to market to market. in a mere seven and a half months—five times faster than the industry average of three years But breakthroughs like these are rare indeed from idea to shelf, according to AMR Research. in the consumer products industry—despite And on average, the same research reveals, top- record R&D budgets. According to AMR quartile performers generate 20 percent more Research, only half of the new-product con- revenue from new-product introductions than cepts that are funded ever actually make it to those in the bottom quartile (see chart, page 4). market, and only two-thirds of those generate the forecasted revenues (see chart, page 3). How do high-performance businesses do it? What’s more, half of the so-called new products are really just brand extensions that fail to They are successful innovators, first and 1 Outlook 2009 generate much excitement among shoppers. foremost, because they have developed what Number 1 Developing popular new products and elimi- Accenture calls actionable insight—the ability
  • 2. to make informed choices about scented bleach, Aires de Bosque, for which new products are likely to the Latin American market, where be hits with consumers. strong bleach odors are widely disliked. Most consumer goods companies try It has also paid dividends for Procter to keep track of shoppers’ product & Gamble in Japan, where the preferences in some way. AMR Cincinnati-based company’s patient Research shows, for example, that analysis of the preferences and almost 70 percent of companies rely sensibilities of Japanese women on focus groups for feedback on led to the development of a version new-product ideas. But basic market of its Febreze air-care product that research like this gives only a partial has been a huge success in the picture of what consumers really Japanese market. want—not the least because consumers often don’t really know what they Japanese women find the odor of are looking for until they are actually cigarettes so offensive that they often presented with it. For companies to make their husbands—Japanese men get actionable insight, they must be tend to be heavy smokers—wash and able to identify needs that consumers change their clothes when they come might not even know they have home. But they didn’t seem to like the and translate them into powerful scent of the Febreze room freshener concepts. By definition, it requires that P&G was test-marketing any a comprehensive view. better. At first, P&G assumed that the women rejected Febreze because The industry’s high performers have of a general aversion to Western-style developed that comprehensive view products. But after closer analysis by investing in the tools and skills of the market research, the company that allow them to mine and synthe- found that Japanese women objected size multiple sources of commercial to the strong smell and viscosity of data—order fulfillment rates, sales by the standard Febreze spray. And when type of store and product shipments, P&G came up with a more subtle as well as broader market trends, scent and changed the spray pattern competitor activity, and consumer to a mist, they loved it. perspectives and feedback. Crowdsourcing These companies, in other words, As several successful innovators have systematize insight management, learned, opening up the innovation not just information management or process to the collective wisdom of data warehousing. And by systemati- the crowd can dramatically boost cally channeling the sum of all the the odds of coming up with the next information gathered to key functions big idea before someone else does. like marketing, R&D and sales, they For most leading consumer products turn new-product development into companies, “crowdsourcing” is a way a proactive and targeted process, sus- to combine consumer insight and tainable over time (see chart, page 4). the insights of frontline, customer- facing employees. Furthermore, they do all this on a global scale, working continuously For example, from the intelligence to understand shoppers’ preferences generated by its Geek Squad personal in individual target markets and computer maintenance services, ensuring that the products they make dedicated focus groups and in-store can satisfy them. This “super-local, customer feedback, electronics retailer super-global” approach led Oakland, Best Buy learned that its customers’ 2 Outlook 2009 California-based Clorox Company, “ideal” laptop is not only super thin Number 1 for example, to develop a eucalyptus- and lightweight and features extra-
  • 3. Ideas-to-launch ratio Only half of the ideas that are moved to development ever make it to launch. Not enough research is done up front to determine which products will be most successful. New products, from concept to launch Ratio of ideas generated to actual launch By category Number of new ideas 553 generated each year Home and personal care 21:1 Food/beverage/alcohol 13:1 Number of those new 89 ideas that become concepts Apparel 9:1 Number of those new concepts that are moved 74 By revenue generated to development Less than $5 billion 8:1 Number of products from development that are then 38 Greater than $5 billion 20:1 launched Source: AMR Research 2008 Study long battery life, optimal screen size Some companies define crowdsourcing and an illuminated keyboard, but also as design networks—an idea borrowed comes with superior warranty support. from the high-tech and auto sectors— So the company developed not one that compare the views of suppliers, but two new laptops to these specifi- partners and other external players cations—one with HP and the other with those of their own, internal with Toshiba—that are the first in a experts. Other companies have new line of electronic products devel- expanded the concept, availing them- oped directly from customer feedback selves of global and often online and sold only at Best Buy stores. communities of creative thinkers, inventors and problem solvers, both Similarly, the Wm. Wrigley Jr. Com- academic and commercial. A few pany sent top scientists, engineers have gone further still, turning the and marketers to hang out with innovation challenge into contests image-conscious teens and young by using online innovation forums adults, leading consumers of the to buy or bid for products developed company’s famous gum. They then by freelance inventors and entrepre- refined the insights they gained by neurs. UK-based Reckitt Benckiser, bringing young people to Wrigley’s for example, solicits ideas via the Global Innovation Center in Chicago, RB-Idealink on its website. where their reactions to new-product ideas could be keenly observed by Others use contests to tap into the the company’s chemists and R&D expertise of their own employees. team. The upshot: 5, a sleekly Best Buy, for instance, encourages designed pack of gum whose appeal its sales staff to apply their customer to young consumers lies as much in insights to participation in an online 3 Outlook 2009 its bold, brightly colored packaging Number 1 as in its chewing pleasure. (Continued on page 5)
  • 4. Performance and the innovation gap There is a large gap between the most innovative companies and those that lag. The top performers launch more than 25 times as many new products, generate higher revenues and get their products to market five times faster. Performance distinctions of innovative companies Key indicators Top quartile New products introduced (average number) Top-quartile performers 77 Launch more than 25 times the number of products Bottom-quartile performers 3 Gap Percent revenue from new products (%) Top-quartile performers 23 Generate 20 percent more revenue from new-product Bottom-quartile performers 3 Gap introductions Time to market (average number of months) Top-quartile performers 2.8 Gap Speed to market is almost Bottom-quartile performers 12.8 five times faster Source: AMR Research 2008 Study Companies need a host of capabilities if they are to be successful innovators, ranging from quick and effective decision making to sophisticated data integration. Analytic capabilities necessary for successful innovation 1. Integrated framework for quick 2. Advanced data 3. Commercial 4. Key processes and technology sustain decision making and action integration capabilities insight journey performance decision making over time • Aligned with corporate objectives • Normalize data coming • Achieving insight • Capitalize on alliances from previous and strategy from different sources capabilities and enabling commercial intelligence projects tools and solutions • Integrated across key commercial • Harmonize master data typically happens through functions (hierarchies) progressive steps • Balanced from strategy through • Manage data inconsistency execution • Guarantee data flexibility • Executed through process, people and technology • Segmented delivery by market, channel and customer Source: AMR Research 2008 Study 4 Outlook 2009 Number 1
  • 5. Keeping score Companies use a range of metrics to evaluate new-product success, including basic sales data as well as time to market and number of patents. Most common consumer metrics used to evaluate new-product success Sales from new products and 64% services launched Number of new products and 47 services delivered to market on time Margin contribution of new products 47 and services launched Percentage of revenue from 45 new products Number of new products and 34 services delivered to market Time to market of new products 34 and services Development costs within budget 29 Number of patents filed 17 Source: AMR Research 2008 Study (Continued from page 3) important. So is making sure that the right number and type of projects “prediction market” called TAGTRADE. are being worked on—a decision that The employees make forecasts about will vary widely, of course, from com- what they think will happen with a pany to company and depend largely particular company initiative—holiday on growth targets and other specific sales of a specific new product, for strategic concerns. Leading companies example—and the players with the also recognize that each new-product most accurate predictions receive development project is different, espe- a small cash prize or an iPod. TAG- cially in terms of the time required TRADE has often proved more accu- to complete the separate stages of rate than the manufacturer’s forecasts. development, and they make certain that processes are flexible enough Successful conversion to handle this variability while still P&G, nearly half of whose product ensuring that they can deliver the inventions now originate outside the products swiftly and efficiently into company, credits these kinds of open the marketplace. innovation initiatives with driving much of the company’s average New-product development, in fact, 6 percent organic sales growth since greatly complicates the manufac- the beginning of the decade. How- turing process and can involve ever, the swift, successful conversion lengthy launch times, so the overall of good product ideas into consumer efficiency of all processes is critically hits requires much more. important. Without it, decision making can fragment, and governance, Developing the sense of perspective processes and programs become 5 Outlook 2009 that can balance short- and long- misaligned, extending lead times Number 1 term innovation bets is obviously even further.
  • 6. The Accenture Innovation and Product Strategy Framework Companies need an overarching approach to product lifecycle management that addresses performance management, partner integration, workforce performance, application architecture and IT infrastructure. Innovation and product strategy Customer, Product innovation Product complexity consumer and management management technology insight Product lifecycle management Performance management Partner integration Workforce performance Application architecture and IT infrastructure Innovation and R&D objectives and global operation strategy Source: Accenture analysis Most companies still rely on home- a children’s arts and crafts manufac- grown, piecemeal processes and turer, regularly exchanges ideas with programs for product lifecycle the rest of the company—as well as management. Leading companies, with the hordes of kids (and their by contrast, recognize the value of parents) who throng the Crayola an overarching approach—one that Factory, the company’s hands-on addresses performance management, tourist attraction in its hometown of partner integration, workforce perfor- Easton, Pennsylvania. The kids and mance and IT infrastructure in the parents try out the paint and crayon interests of broader product innova- products and provide feedback and tion strategy (see chart, above). ideas for new products. Leading innovators also support Clorox, meanwhile, formed a cross- these initiatives appropriately, by functional team with a leading US running a leaner pipeline while retail grocer to boost sales of its building some slack into development recently rejuvenated Kingsford plans and production schedules to charcoal brand. Though the retailer’s avoid delays, for example, or by customers preferred the Kingsford cross-training employees so they product, they couldn’t always find can be redeployed to break any it in-store. When they did, its most bottlenecks that may occur. attractive new feature—“Sure Fire Grooves,” which help the charcoal A cross-functional approach is essen- light faster, burn longer and make tial. Reckitt Benckiser, for example, food taste better—was far from involves its brand and marketing obvious. So Clorox and the retailer 6 Outlook 2009 managers in innovation programs. collaborated to beef up the product’s Number 1 And the R&D department at Crayola, on-shelf positioning by promoting
  • 7. the special pleasures of the Kings- whether or not an item or product ford grilling experience. The upshot: line should continue to be produced a 13 percent increase in the (see chart, page 5). But leading retailer’s sales of Kingsford grilling companies recognize that profitability products within a year of imple- is critical as well. In fact, it is menting the promotional plan. incremental sales and incremental profits that best measure a new Portfolio optimization product’s success—especially when Developing products with character- compared to other products in the istics and attributes that consumers category or segment. find especially attractive increases each new item’s unique potential Neither sales nor margin measures value. And that, of course, strength- work very well in isolation, to be ens the business case for each new sure. Product decisions based purely product, and makes it easier to spot on profitability data, for example, (and shed) products that add little dif- distort the view of winners and losers ferentiation to the portfolio. Which is because they don’t take operational why, instead of putting more and costs into account. Balancing and more products into the marketplace, optimizing the range of products as most companies still do, leading against the total supply chain cost companies make portfolio optimiza- from origin to destination, or cost- tion—managing product complexity to-serve, is the way to go. Reckitt and intelligently paring SKUs—a top Benckiser, for example, boosted the priority. market share of its well-established Air Wick brand with incremental Witness, for example, the experience add-ons like Air Wick electrical oils of one global beauty and cosmetics and Air Wick Xpress products. company that successfully eliminated almost 30 percent of its more than There are plenty of reasons for the 40,000-SKU global product portfolio unchecked product proliferation that after carefully analyzing just what blights much of the industry. Every consumers valued about each one. product has its brand and sales team With its sales and marketing teams champion. And maintaining hard-won now free to focus on the right mix retail shelf space with fewer products of the most profitable products, this can be tough. Most companies con- company is set to boost margins duct annual portfolio reviews. But beyond its initial forecasts. because of internal turf wars, too few make deep enough cuts in the number Leading companies also measure the of SKUs they offer to retailers. And success of their product decisions dif- ironically, when they do attempt to ferently. AMR Research reveals that make cuts, they often end up elimi- most consumer products companies nating the very products that occupy use sales, not profits, to determine a unique position with consumers. Leading companies tackle the innovation challenge differently from their competitors. They recognize that an overstuffed product portfolio confuses consumers, dilutes the brand equity behind the product—especially if a high proportion of its contents look much the same—and drives up back-end costs. Process discipline and a cross-functional approach to product lifecycle management plainly help the industry’s high performers achieve superior returns on their innovation investments. 7 Outlook 2009 But what really distinguishes them as innovators is a powerful drive to Number 1 understand—and please—the people who buy their products.
  • 8. About the authors Daniel D. Chow, a Chicago-based senior executive, leads the Fast Innovation and Growth area of the Accenture Process and Innovation Performance group. Mr. Chow has spent more than 20 years working with clients—across industries including retail, consumer goods, pharmaceuticals, insurance, technology, chemicals and defense—in areas such as innovation and growth, digital and traditional strategy development, business and operational analysis, organizational design and change, and productivity improvement. Previously, Mr. Chow worked for George Group Consulting, which is now part of Accenture. daniel.d.chow@accenture.com Mark Fera, a senior manager in Accenture's Merchandising & Trade Marketing group, leads the company's portfolio optimization area for Accenture’s consumer goods clients. He brings nearly 20 years of experience in innovation and product strategy, business and corporate development, operations and client program management to his projects and engagements. Mr. Fera is based in Chicago. mark.fera@accenture.com Outlook is published by Accenture. © 2009 Accenture. All rights reserved. The views and opinions in this article should not be viewed as professional advice with respect to your business. Accenture, its logo, and High Performance Delivered are trademarks of Accenture. The use herein of trademarks that may be owned by others is not an assertion of ownership of such trademarks by Accenture nor intended to imply an association between Accenture and the lawful owners of such trademarks. For more information about Accenture, please visit www.accenture.com