Last week, besides being glued to the TV watching the Canadian hockey teams "kick-butt and take names", I read an interesting article titled Creating Bold Innovation in Mature Markets by Robert G. Cooper. Dr. Cooper has pioneered many groundbreaking discoveries in product innovation, including the Stage-Gate® Idea-to-Launch Process, now implemented by almost 80% of North American companies. In this article, he argues that when companies are faced with mature markets, bigger, bolder innovation is the only sustainable route for long-term growth and prosperity.
Growth is relatively easier in the early stages of the business. Customer needs are not well defined and there is time to experiment with solutions and better returns on the investments. As the market develops, more products are introduced and more competitors enter. At maturity, customer needs are well-served, technical solutions are well-known and as products move toward commodity, it becomes harder and harder to differentiate. But still we need to grow!
Options for growth also include acquisitions and expanding the business to new geographies. Acquisitions are not always attractive, given that companies more often than not overpay and experience shows that that full value is not realized because integration is not always accomplished. New geographies present risks and challenges — legal, cultural and political to name but a few.
Cooper asserts that the key to profitable growth is launching unique, superior products with a compelling value proposition. The challenge most companies face is that with the volatility in the economy and shareholder demand for short-term profitability companies are forced to look at smaller, less risky, less ambitious initiatives (a.k.a. low-hanging fruit on the totem pole!) He backs this up with some research statistics, which show that in this decade, compared with the prior, "new-to-world" products declined by half while improvements and modifications to existing products doubled. Cycle times decreased and R&D dollars remained constant and profits from new products declined by 15%. His conclusion is that while focusing one line extensions and modifications can serve to maintain market share, it will not grow it. Product differentiation becomes harder and harder; the inevitable solution is BOLD innovation, typically in the form of a total solutions package for the customer.
Cooper then lists the Five Innovation Vectors, which can provide a guide for companies who choose bold innovation as their path to prosperity.
1. Develop a strategic focus. They need to focus R&D efforts on the most attractive arenas – products, markets, sectors, applications – where they will attack. They need to set goals such as % of annual sales from new products and identify how they intend to win. They then need to allocate resources to the major initiatives. Cooper cautions that firms often fail in this area because they lack a well-communicated innovation strategy and more often than not focus on the wrong areas namely mature markets, old technologies and tired old product categories.
2. Foster a fertile climate and culture. It is imperative that the organizational climate supports innovation and that leadership drives and supports innovation with every word and deed. Grundfos, Emerson, Hilti and 3M are identified as examples of companies who have set the right tone by not only their physical environments, but also, by the way that executives support and invest in riskier projects, work hard to create a positive atmosphere, welcome new ideas and recognize and reward successful innovators and teams. Having senior leaders who support innovation is the No 1 differentiator for companies that are better at innovation.
3. Discover better ways to generate, capture and handle ideas. Cooper asserts that continuing to look to our traditional sources for inspiration will continue to yield the same old tired concepts. He uses the Swarovski "idea factory" as an example. Here ideas are sought from customers, the trade, fashion trends and new technologies. While this is only one method among many, research does confirm that the voice-of-the-customer centered, are the best of all ideation approaches. Realizing that the best ideas often have humble roots, the decision to go or kill needs to be deferred until the idea has had the chance to get legs. In the idea factory, new concepts are often circulated amongst multiple evaluators who try to build on the original notion.
4. Design the next-generation, idea-to-launch process. Recognizing that generating new ideas is only half the battle, companies may need to rethink their processes. The need to maintain discipline remains paramount, traditional stage & gate systems might need to be modified to make them more agile, adaptive and entrepreneurial. Recognizing that not all projects are the same, computer giant HP is cited as an example of a company that modified the stage-gate process to accommodate emerging and growth sectors of its business. A more iterative model such as spiral development (build-test-gather feedback-revise) might be more appropriate for customers who don't really know what they want until they see it. Perhaps most important is that the process needs to recognize the distinction between New Product Innovation (NPI) and New Technology Innovation (NTI) projects. Inherent in NTI projects is not only the possibility of huge costs, but also of huge pay-offs. NTI projects generate new capabilities and platforms and that cannot always be measured by NPI criteria. Go or kill decisions are more strategic and less financial as there are often long periods of innovation and the deliverables are quite different. Finally, all processes must remove bureaucracy. Borrowing from LEAN manufacturing, any steps, reports, documents, reviews that do not add value must be eliminated.
5. Decide on the right investments. A solid strategy, effective portfolio management, ranking projects within NPI (based on relative "innovativeness") and distinguishing between NPI and NTI projects will ensure that vital resources can be consciously directed at more innovative projects. Businesses often fail here because there is too much emphasis on financials, which are an imperfect basis for making decisions about more innovative projects with so many unknowns. Senior managers, as gate-keepers, must develop more objective scorecards that evaluate risk/reward across a broader range of criteria (strategy, leverage of core competencies, competitive advantage, etc…)
Who dares, wins goes the motto. This takes courage, which is equal parts fearlessness, calculation and confidence. While we must continue to make incremental improvements to maintain our share, real growth will require that we be a little more ambitious. Let's dare to be bold. In the words of DH Burnham:
"Make no little plans; they have no magic to stir men's blood and probably themselves will not be realized. Make big plans; aim high in hope and work."
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