YourEncore Insights - Consumer Goods

Win the Innovation Game through Strategic Base Hits

Posted by Frederick Joffe, Ph.D. on 8/23/17 9:00 AM

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Innovation is the name of the game for company growth. As my YourEncore colleagues Shekar Mitra and George Deckner have recently written, it’s also a game that is increasing complex and challenging to win. They’ve discussed new approaches, bringing the outside in, and how to get the best out of innovation teams. These are all great strategies for changing the playing field. In addition, during my 37 years leading new product development for Procter & Gamble, I’ve found that there is one page in the innovation playbook that is often overlooked: delivering a steady series of strategic base hits versus a singular focus on periodic, high-risk grand slams. With this approach, companies can put runs on the board that cumulatively lead to more profitable growth, ultimately allowing them to win big in the innovation game.

Large companies often focus a significant amount of their marketing and R&D innovation efforts on initiatives they believe will deliver large gains in topline revenue but may have a relatively low probability of success and/or take many years to pay out. They develop new ventures in new consumer segments from the ground up, requiring both new operational skill sets, as well as greenfield plants and equipment. All potentially high-reward, but also high-risk. And the long lead time means topline revenue is years away from reality and opens a window for competitive response or even leap-frogging into the market. Acquisitions can accelerate market entry and revenue growth, but bargains for large companies are rare, and acquiring smaller companies has lower impact on overall topline sales.

An alternative, and complementary, model is to grow through a series of smaller investments and wins, leading to a growth portfolio that generates profit more quickly and sustainably.  Here are 5 ways to score runs in the innovation game through a series of base hits.

1. Train in the minors. 
Explore smaller volume opportunities that can be tested quickly and at low cost. This might mean addressing an unmet or only partially met need for a relatively small consumer segment. Look for segments with high barriers to entry that are highly fragmented, and/or have a low likelihood of fast followers. Try to understand consumer barriers to purchase, why the industry has so many players, why costs are so high, etc. For example, compression stockings meet a very important need for a relatively small, but growing, segment of the population because they reduce leg fatigue for overweight people and can improve performance during exercise. However, there is very low category awareness, and current products are very difficult to get on and off. Product performance improvements in this space might represent a significant business opportunity that, while small at first, could grow steadily and profitably over time. The initial impact on the bottom line may be minimal, but the go-to-market model can be tweaked quickly and expanded as refinements improve results. Not only is this cost-effective, it can be done quietly, without coming to the attention of competitors.

2. Build the bench in the majors.
Leverage large and profitable existing products or services to generate smaller increments in revenue growth, but consistently higher cash flow. Existing “mega” brands need on-going improvements and line extensions as additional consumer needs are identified and/or understanding of existing needs is refined. These initiatives typically require lower R&D and manufacturing investment because they build on existing technologies and brand equities. With less emphasis on “breakthrough” home runs, teams can accelerate speed-to-market and ROI with a series of smaller growth initiatives. For example, consumer tests have shown that the taste of flavored espresso coffee drinks does not change when instant coffee is substituted for a portion of the ground coffee. Also, the time to make and serve espresso drinks can be drastically reduced with an instant/ground blend. The result is an improved customer experience (faster service) and greater volume per hour (increased profitability for the coffee shop).

Exploration of smaller revenue products also has the potential to uncover a base technology by-product that, while not big enough to stand alone within the large company, could represent significant royalty revenue through a licensing agreement. For example, Glad Press ‘n Seal resulted from a P&G project/technology that formed a plastic wrap that sealed containers more completely. However, the projected revenue was below the goal for new P&G brands. Nevertheless, the Clorox Company saw this as a significant brand extension and was willing to license the rights to manufacture and market Press 'n Seal as a companion to its regular Glad plastic wrap. Both companies win in this scenario: Clorox through product sales revenue and P&G through royalty revenue.

3. Draft players to put a team on the field quickly.
While in the test and learn phase, consider forming joint ventures with companies that have expertise in adjacent categories, or with small players in the targeted category. For example, the compression stocking category is highly fragmented. Is there an existing company that could provide technology or manufacturing expertise to deploy an improved design? Are there companies with sales expertise and/or distribution access that you lack? If you are trying to improve the drive-through car wash experience, is there an auto body shop that could develop equipment based on their knowledge of car design? As the business expands, both partners in the joint venture enjoy growth and/or the relationship could evolve to a merger, acquisition, or buy-out.

4. Let designated hitters take the lead.
Identify internal employees with a penchant for innovation and demonstrated entrepreneurial spirit. Establish the innovation goal and the budget, but minimize the oversite and approval processes. Give these teams decision-making authority and ready access to any necessary legal and/or safety reviews. Because these projects are relatively smaller in size, scope, and funding, the financial risk is minimized. Tie rewards directly to results. Not only will this get products to market quicker, it will have a positive impact on corporate culture and employee retention, particularly among younger employees.

5. Tap accomplished pinch hitters to hit in the gap.
Exploring new categories and segments often requires expertise and wisdom not found in-house. Leverage the growing pool of experienced “free agents” to fill in knowledge gaps and secure resources that can hit the ground running without committing to overhead that may not be needed on an on-going basis. Accessing proven talent as-needed, through companies like YourEncore, accelerates the learning curve while allowing the company to remain agile and flexible across the innovation life cycle.

 

The explosion of digital and social media platforms makes this innovation approach easier, faster, and more cost-effective than ever before. Identifying exciting, under-met consumer needs that are under-estimated by conventional research, and building on-line communities to rapidly test prototypes, gather feedback, and create awareness, brings a depth, breadth, richness, and speed to the innovation process not found through traditional insight and advertising strategies and tactics, at a fraction of the investment and risk.

The base-hit game plan is just one component of a comprehensive innovation portfolio. But it has the potential to ignite a large number of projects that, in my experience, can generate an average of +10% profit growth per year. While there will certainly be a percentage of plays that don’t succeed, the financial impact of failure is significantly less than a swing-and-a-miss when a walk-off grand slam is needed for the win. In addition, the company culture will evolve as players begin to experience greater autonomy and more rapid success. Need help putting together your innovation play book? Contact me, and let’s discuss new approaches to help you win big in the innovation game.

About Frederick Joffe, Ph.D.: Fred is a member of the Innovation Committee at YourEncore. He brings extensive experience in products research, product innovation, and strategic business development. Fred retired from Procter & Gamble after a distinguished 37-year career leading new product development utilizing non-woven and film applications for Pampers, Charmin Wipes, Bounty Napkins, and Glad Press ‘n Seal; silicones for shampoos; and new coffee forms including Folgers Instant Crystals and Folgers Flakes. In addition to helping YourEncore clients accelerate their innovation initiatives, Fred is a volunteer consultant with Executive Service Corps of Cincinnati (ESCC), where he has helped over 40 non-profit companies strengthen their capacity and sustainability through improved strategic planning, financial management, and organization development. He serves on the Board of Directors for Talbert House and Northern Hills Synagogue. Fred holds a Bachelor of Science in Food Technology and Master of Science in Agricultural Engineering from Michigan State University and earned his Ph.D. in Food Science at Rutgers University.

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Topics: Innovation, Gig Economy