Categories of Innovation
Innovation can be interpreted in various ways. It goes much beyond product innovation and also involves channel development, communication mechanisms, commercialization and business models, etc.
A major trend in the consumer goods industry refers to channel and communication strategies. Both large and small companies innovate on how to get their product to market and thus, are re-inventing their sales channel strategy. Increasingly companies shift to inside sales, driven by continuous digitalization, which challenges companies to run an inside and field sales team efficiently. On the other hand, new skills and capabilities are required to serve new direct-to-consumer channels (B2C) that are developing an omnichannel approach.
The concept of innovation has also changed in terms of product innovation. In the past, we have seen innovation as technical, referring to advanced features or benefits. Today, the technical innovation of a product on its own is not sufficient. Consumers are looking for stories and experiences as well as the ecosystem that surrounds the product. It is not only about the benefits of the product but everything that is offered to the consumer to create an experience (e.g., shopping experience, user experience, ecological impact, etc.).
Ultimately, it comes down to how you wrap innovation into the marketing and communication strategy. Often, innovation strategies are not as successful as anticipated due to several factors, including go-to-market strategy, wrong pricing, wrong communication, or wrong channel strategy.
Success Factors – Incremental & Radical Innovation
A crucial success factor for innovation, touching upon various types of innovation, is the assessment and management of the innovation portfolio. Such portfolio grasps innovation referring to a company’s existing products and services (incremental innovation) as well as supplants a company’s existing business model (radical innovation). Success at this point is defined by tackling both areas of innovation in a structured way.
The first step refers to the evaluation of the current product and service portfolio. Even a successful product/service needs a successor in order to sustain it. Thus, an investment in a successor needs to be made for incremental benefits.
Secondly, innovation also needs to involve adjacent products, such as new categories or new functionalities. And third, the so-called “game changers” that can disrupt the market come into play, for instance, a new or adapted business model.
The combination and balance of all three aspects make up the “secret sauce” of an effective innovation strategy. One needs to be active in all three areas to succeed. Hence, relying not only on incremental activities and innovation thereof but also striving towards radical innovation on top of that is what can make the difference.
Key in this assessment of the innovation portfolio is a measurement of how risky innovation projects are. More risky innovation projects need to offer a higher reward. However, measuring the risks and rewards of innovations is complex.
Further, efficient management of the innovation pipeline is necessary to counteract a growing complexity due to a boost in innovation activities. Innovation ideas need to be clustered, filtered, screened, and vetted before executing to enable fewer but more structured innovations while not increasing complexity. This may be done through a structured stage-gate innovation process.
Challenges & Barriers to Innovation Strategy Execution
A major barrier to successful innovation strategies is the cultural organization within a company. A lot of innovative companies come from a background of “doing it themselves” – favoring in-house innovation (being an inventor as a company). The concept of having all capabilities in-house and relying on their own teams is no longer sufficient to compete in the global marketplace. It becomes essential to collaborate with partners and open up one’s internal network to leverage external partnerships. Many companies are impeded by their organizational cultures. They were only used to the approach of innovating in-house and now need to adapt to a new, iterative concept with a trial-and-error approach. The transformation from in-house innovation to a networking and collaborative approach presents a crucial hurdle that needs to be understood and overcome.
In parallel, a capability transformation is necessary – shifting from old and “obsolete” capabilities to new ones. Many companies developed their innovation capabilities based on what was needed in the past and kept on adding such skills to their capability set without thinking outside the box. The success factor at this point is determined by assessing a company’s current capabilities and further develop them according to the new realities of the world and leading practices.
Successful companies are the ones that are able to leap from one core competence to another, by continuously developing their capabilities and competencies. Erasing boundaries between internal entities and business units (breaking up silos) allows for effective cross-functional collaboration and proper human capital management.
Many companies are acquiring innovation by collaborating with or buying emerging firms, particularly to obtain their culture, processes, and brands. However, one should not rely solely on M&A activities to create innovation. More important is to create a culture and mentality towards innovation within the organization. A significant barrier to innovation can be identified as know-how. Thus, an organization needs to build up knowledge on innovation and a common understanding of the fundamentals. Additionally, leadership should align on a holistic framework that prioritizes innovation activities while still enabling a bottom-up innovation development. At this point, it is crucial to mention that success factors for innovation activities compared to existing operations ongoing in the business derive significantly, which needs to be understood on the management level when making prioritization decisions.
Hence, consumer goods companies need to possess the right metrics, processes, and change management capabilities to enable impactful innovation. The balance between in-house innovation and external collaboration represents a key factor for successful innovation.
Eventually, this balance needs to be embedded in a combined approach of managing incremental products and services of the innovation portfolio, while also adding market disrupters such as an adjusted business model to meet the consumer’s zeitgeist (new paradigm) and thus, create a competitive advantage.
10EQS provides an example of a re-invented business model in the consulting space. Projects are being scoped out according to a client’s need with a customized approach and a project team with the necessary expertise to the project at hand. All processes are digital and agile, allowing for a flexible and above all fast execution. While having low assets and an approach of in-sourcing required capabilities per assignment through global networking, we are providing added value to the customer.
Influence of Covid
Innovation activities have suffered due to Covid. The crisis created a lot of challenges for organizations internally. In particular, a decline in terms of engagement can be determined. People felt they were ripped of the possibility to work in different groups with various initiatives and thus, mainly focused on operational tasks. The source of innovation used to come from a bottom-up approach which has been hampered due to Covid. Innovators are more isolated leading to less engagement and fewer serendipitous innovations coming out of unplanned discussions between innovators (e.g., water cooler conversations). It becomes a leadership task to tackle this hurdle and create a virtual environment that allows for innovation across functions and departments.
Regardless of the challenge, the impact of Covid has emphasized the urge for consumer goods companies to think and act beyond operational requirements and meeting existing business goals during a crisis. In fact, companies solely focusing on operational “firefighting” during tough times may be left behind by their competitors. Companies that continue to innovate and re-assess their priorities towards the consumer as the main driver of innovation and make decisions about how to develop these innovations, organize necessary capabilities and eventually bring them to market, can yield much better long-term results. Thus, prioritizing innovation to enable growth is critical and even more true during a crisis.
10EQS can help you develop a successful innovation strategy that will identify the right path to growth and assist your organization in getting ready to capitalize on new opportunities.
10EQS Contributors for this blog post include: