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The trouble with Innovation
 

The trouble with Innovation

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Innovation often fails to deliver against increasing expectations. Steve Landis challenges traditional innovation models.

Innovation often fails to deliver against increasing expectations. Steve Landis challenges traditional innovation models.

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    The trouble with Innovation The trouble with Innovation Presentation Transcript

    • Finding LeaderOpinionfaster growthThe trouble with innovation ! Share this Opinion Leader
    • The trouble with innovationIf businesses are to deliver thereturns that shareholders demand,they need a bigger contributionfrom their innovation efforts Share this Opinion Leader 2
    • The trouble with innovationThe targets set for any business usually involve some may be even worse, as even many nominally successful Finding winning ideasform of growth – and growth beyond that which the product launches don’t actually result in topline growth.day-to-day running of the business will deliver on its With such a low overall success rate, innovation cannotown. The responsibility for filling this “growth gap” hope to meet the demands of a growing growth gap. Itand satisfying the demands of senior executives and needs to become a lot more effective at finding winningshareholders falls to innovation. ideas and a lot more efficient at developing them – and that means questioning some long-held assumptionsIn tough economic times, the gap between growth about the best way to approach innovation.targets and the revenues actually generated bybusinesses tends to increase. And this puts increased 75%pressure on innovation to make up the difference.Kantar Worldpanel predicts that 75% of growth forconsumer products companies in the next decade willcome through new product development. That’s a loton innovation’s shoulders. Kantar Worldpanel predicts that 75% of growth for consumer products companies in the next decadeMore than half of senior executives declare themselves will come through new product development.unsatisfied with the financial returns of their investmentin innovation, 80 percent of new products fail and onlyone percent of ideas receiving some form of investmentactually result in a successful launch. The true picture Share this Opinion Leader 3
    • The trouble with innovationWe need to talk about innovation and how this pattern may change over time. TraditionalThe real trouble with innovation is that the techniques innovation models also focus investment on the backthat businesses adopt for identifying consumer needs end of the process, developing ideas but payingand developing solutions to fit them have not evolved insufficient attention to generating the right ideas forto deal with today’s world of crowded markets and development; and in outsourcing innovation to differentbroad consumer choice. It was once the case that companies at each innovation stage they divorceany idea big enough would be likely to grow overall innovation from strategy, sacrificing existing knowledge Incrementality and sales volumerevenues for a business; that an idea, once generated, and condemning businesses to an inefficient and The standard research industry assumption ofwould therefore face an uncomplicated path through cumbersome innovation process. ‘biggest is best’ ignores the value-destroyingdevelopment to launch; and that rough estimates about menace of cannibalisation, which can severely The biggest volume is not always bestthe number of people likely to buy or use it would be limit the growth potential for many launches.enough to inform investment decisions. These things By accurately understanding this cannibalisationare no longer true, and yet much in the standard risk we switch the focus to the incrementalapproach to innovation still assumes that they are. growth a new product brings to the business.The current approach fails to address the true meaning Understanding incremental potential early inof growth in today’s markets, focusing on volume the innovation process, provides a better wayrather than incrementality. It relies on rough averages to separate winners from losers, ensuring thatwhen it comes to predicting human behaviour and growth comes from competitors, or from new Product 1 Product 2 Product 3as a result fails to project accurately the incremental customers - not at the expense of a business’spotential of an idea, which can only be gauged by Cannibalisation existing products or services.knowing who will buy it, what purchases it will replace, Incremental volume Share this Opinion Leader 4
    • The trouble with innovationTNS has developed an end-to-end approach to for new than for existing products) and driving down proved hugely popular amongst existing customers.innovation that is designed to meet the challenges profitability. Why are such ideas consistently favoured The problem was that, as a low-cost alternative toof modern markets and deliver the rate of success by the traditional innovation model? Because traditional existing Kodak products, Funtime was doing a greatnecessary to fill the growth gap efficiently. It’s an models stubbornly judge ideas based on the projected job of eroding revenue per unit: the worst kind ofapproach rooted from the start in the importance of total potential they will deliver, even if those sales come cannibalisation. Similar damage can be done by newdelivering genuine, incremental growth and backed by at the expense of profitable existing products. products that steal share from a company’s existinga uniquely precise approach to identifying opportunities portfolio of brands whilst failing to grow the categoryand modelling consumer behaviour. Kodak is one company that has demonstrated how in question: when a company launches a new men’s expensive this approach can be. Its Kodak Funtime deodorant brand that steals share from its previousHere’s how businesses can update their approach and film was taken off the market within months after it market leader, for example.ensure that they are generating winning ideas fortoday’s markets: Brand extensions carry a high risk of cannibalising existing products1. Demand true growthA company doesn’t simply need a new product todeliver a lot of sales – what it needs is for that newproduct to deliver profitable growth. Incremental S UR N INvolume is the only true measure of growth potential PE M O -O TA AV– but this is rarely reflected in the way that companies O VI FLjudge which strategies to follow, ideas to develop and -T H SY Wnew products to launch. The vast majority of new IT NE EA Wlaunches today are brand extensions (“with addedvitamins”, “new orange flavour”, “easy-to-open pack”and the like) that carry a high risk of cannibalisingexisting products, eroding margins (typically lower Share this Opinion Leader 5
    • The trouble with innovationTNS analysis shows that judging concepts on indication of the potential for cannibalisation but not it tends not to be included in the vital early stages,incremental potential – rather than an estimate of with the degree of accuracy (and therefore credibility) when key decisions are taken as to which ideas shouldtotal sales – results in companies taking a different required to direct innovation decisions. Partly as a result be progressed. The TNS approach changes all that.decision about which ideas to progress 40 percentof the time. Imagine how many iPads, Red Bulls and In 40% of cases, companies would have taken different screening decisions,Innocent Smoothies could be amongst the incremental taking incrementality into accountopportunities rejected in favour of less innovative ideasthat promised big sales at the expense of existingproducts.From an analysis of recent product launches, we haveseen that adding a precise view of incrementality totraditional measures of just total potential gives usmore predictive power in terms of a new product’seventual success. This is particularly the case forlaunches that don’t generate blockbuster volumes,where incrementality is key to success. So why don’tmore businesses demand an incremental view early inthe innovation process? Part of the answer is that thetechniques traditionally used in concept screening andother areas of the innovation process are simply notvery good at predicting incremental volume effectively.Traditional “share of requirements” analysis gives some Share this Opinion Leader 6
    • The trouble with innovation2. Analyse individuals, not averages Understanding individuals improves forecast accuracy and informs effective target marketingThe traditional approach to innovation is guided by anaggregate view of the world that is effective enoughat estimating total sales volume, but far less capableof projecting how individuals will behave. Effectiveindividual-based modelling, which can predict howthe spending patterns of consumers will change asa result of a new product launch, is essential for aprecise understanding of the incremental growth thatan idea could deliver – and its likely success beyondthe initial launch phase. And this requires an approachto research that can deliver respondent-level validityrather than depending on mutually compensating errorto deliver roughly correct average incremental salesnumbers.TNS has pioneered an approach to research that appliesthe principles of behavioural economics to surveydesign. By asking only questions that are relevantto the way that consumers make decisions, we areable to significantly increase the correlation of surveyresponses with individuals’ actual future behaviour.And this individual-based model doubles the accuracyof incremental sales predictions when compared toaggregate calculations. Share this Opinion Leader 7
    • The trouble with innovation Individual-based models double the accuracy of incremental sales predictions Respondent-level validity: the power of individual-based modelling Less accurate It’s an often-ignored fact that survey data can Less accurate be valid at aggregate level but wrong about individual people. This comes about through mutually compensating error, whereby roughly similar numbers of people give the opposite wrong answers: one group of people saying they will purchase a product when they won’t; the other saying they will not purchase a product when they actually will. The difference between these responses in helping to understand an individual’s future More More accurate behaviour is particularly significant for projections accurate of incremental value. To predict incrementality effectively, it is important to know which individuals will purchase a new product and what the impact Salad dressing Toothpaste Dishwasher Snacks Carbonated Shower gel on these people’s existing spending patterns will be. tablets soft drinks Salad dressing Toothpaste Dishwasher Snacks Carbonated Shower gel Understanding who will and won’t buy your new tablets soft drinks product is not just about forecasting accuracy: it can support more targeted marketing, better cross-brand Traditional aggregate model TNS individual model endorsements and other launch optimisation tactics. Traditional aggregate model TNS individual model Share this Opinion Leader 8
    • The trouble with innovation3. Invest in finding the right ideas, not just innovation, a slightly mystical process of inspiration Companies are sifting through around 1,000developing them and idea generation that produces a range of potential ideas to come up with one successful productAsking the right questions when assessing ideas’ new concepts for development. The key phrase here ispotential will significantly improve the return on “range”: we’re accustomed to thinking of innovation asinvestment delivered by new product launches. lateral, ranging widely in search of solutions and lookingHowever, it cannot in itself improve the quality of ideas “outside the box”. In fact, what a business requiresthat a business generates in the first place. Businesses in order to succeed in competitive and fragmentedinvest considerable sums in developing winning ideas; markets is a precise idea of where a winning concept isthey pay far less attention to finding the right ideas likely to be found. And this involves integrating existingto develop. We estimate that companies are sifting understanding of customer needs and the competitivethrough around 1,000 ideas to come up with one landscape.successful product launch. Imagine how much resource,time and money is wasted in this process – especially TNS achieves this through seamless integration of awhen so much of that time is spent expensively re- problem-solving creative approach to ideas generation,engineering concepts that were never really up to with the insight provided by a focused quantitativescratch in the first place. framework. We scope consumer needs in four key strategic areas, drawing on the full range of insightsOne of the fundamental weaknesses in the traditional available to distinguish genuine opportunities fromapproach to innovation is that it often starts at simple “gaps in the market” and prioritise areas thatthe wrong point: with an ideas workshop, often hold the most potential for incremental growth. Thedeliberately separated from the rest of the business, insights that emerge from this process are then used torather than with a proper analysis of business strategy guide all subsequent qualitative development, ensuringand objectives. This results in a “fuzzy front end” for a focused approach that keeps projects on track. Share this Opinion Leader 9
    • The trouble with innovationThe four areas where opportunities can hide the 1980s. Activia yogurt, carbonated soft drinks with breaking new ground by combining shampooOur approach precisely interrogates all of the areas in reduced sugar, chips made with healthy grains and and conditioner into one product, and chocolate-which consumer needs have the potential to intersect fried in healthier oils: all demonstrate the appeal of covered pretzels that marry sweet and savoury tastewith strategic objectives for a business. This informs products that promise to improve health or address experiences, are examples of breakthroughs that havea precise plan to guide innovation strategy. health concerns. delivered significant incremental growth.I. Core or “cost of entry” needs are those important III. Convergence opportunities are possible in everyto nearly all consumers on nearly all occasions. In many market and category, representing ideal deliveriescases, the needs are obvious; the vital insight comes in against consumer needs that transcend the deliveryidentifying how a client’s portfolio and the rest of the capabilities of a single existing product. Televisionsmarket perform on these expectations. The introduction with internet access, smartphones, cosmetics thatof dollar menus, which played a key role in powering incorporate moisturisers, snacks that serve as mealthe resurgence of McDonalds, is one example, substitutes, and Swiffer’s combination of the benefitsdelivering on the core need for value in the Quick of broom and mop: all testify to the power of I. Core needs II. Occasion needsService Restaurant category. convergence needs.II. Occasion needs provide a window into consumers’ IV. Breakthroughs offer consumers an alternativeideal, forward-looking demands. They define the to trade-offs resulting from the limitations of existingmarket of the future, rather than today, and there offers, potentially reshaping markets with resultantis likely to be strong consumer demand for any strong potential for incremental growth. Breakthroughsproduct that can deliver against these needs. Health offer big rewards in return for greater risks that makeis a powerful example of an occasion need that has a precision view of their potential vitally important. III. Convergence IV. Breakthroughbeen creating opportunities for new products since Products like Pert Plus, also known as Wash & Go, Share this Opinion Leader 10
    • The trouble with innovation4. Stick to the game plan growth gap for businesses. In the process, it has sadly 50%The value of this initial strategy phase depends upon undermined the perceived value of research within themaintaining focus throughout the idea generation innovation process. We have become accustomed toand development process. Straying off-course can the accusation that research blunts innovation, excludeslead to ideas being expensively re-engineered in ways genuinely breakthrough ideas and stifles creativity.that actually decrease their likelihood of delivering Where out-dated research techniques ask the wrong Our incremental, individual-based approach isincremental growth. TNS uses the strategy phase to questions of concepts and ideas, this accusation proven to improve innovation success rate by 50%create a tailored structure that includes critical direction rings true.on “must have’s”, “stay away from’s” and unmetneeds, and is used to maintain focus throughout There is another way, however. The techniques thatdevelopment. Known as the Innovation Launch Point TNS has pioneered for scoping opportunities, assessing(ILP), this plan ensures integrity from concept through to potential and guiding development put research backlaunch, maintaining focus on the areas that can deliver at the heart of the innovation process. Our incremental,greatest incremental value, and ensuring a faster, better individual-based approach is proven to improvedirected and more efficient innovation process that is innovation’s success rate by 50 percent, significantlydesigned to maximise return on investment. enhancing its impact on the bottom line and demonstrating that the precise application of researchPutting research back into innovation can have a transformative effect on innovation’sAn out-dated approach to innovation has too often potential to deliver growth. With the growth gapcome up short when it comes to generating the looking bigger than ever, such transformational powerideas and launching the products that can fill the has rarely been more valuable than it is today. Share this Opinion Leader 11
    • The trouble with innovationAbout Opinion LeadersOpinion Leaders is part of a regular series of articles from TNS consultants, based on their expertise gatheredthrough working on client assignments in over 80 markets globally, with additional insights gained throughTNS proprietary studies such as Digital Life, Mobile Life and the Commitment Economy.About TNS About the authorTNS advises clients on specific growth strategies around new market entry, innovation, brand switching and Steve Landis is Global Head of Innovation & Productstakeholder management, based on long-established expertise and market-leading solutions. With a presence Development at TNS. He is responsible for drivingin over 80 countries, TNS has more conversations with the world’s consumers than anyone else and understands and developing Innovation & Product Developmentindividual human behaviours and attitudes across every cultural, economic and political region of the world. expertise, new thinking and best practiceTNS is part of Kantar, one of the world’s largest insight, information and consultancy groups. throughout the TNS network and advising clients how to best achieve innovation-led growth.Please visit www.tnsglobal.com for more information. Steve previously spent over thirty years leading and growing his company Landis Strategy andGet in touch Innovation into one of the world’s leadingIf you would like to talk to us about anything you have read in this report, please get in touch via innovation companies. Landis is now part of TNS’enquiries@tnsglobal.com or via Twitter @tns_global Innovation & Product Development practice area. Throughout his career Steve has worked with global companies helping them define their innovation strategies, generating and developing powerful winning ideas to drive top-line growth. Steve has advised companies on innovation in many sectors including food & beverage, OTC, pharmaceutical technology, leisure and food service. Share this Opinion Leader 12