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Innovation Target Practice
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
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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’
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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
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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
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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
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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
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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.
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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.
