A recent research programme has highlighted poor recognition of innovation as a strategic competence for business as a major barrier to success in new product development. Meanwhile, failed product launches continue to cost the drinks industry dear.
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Focus group participants involving companies representing all the major categories, including Cadbury Schweppes, Dawn Group, Geest, Jordan’s Cereals, Kerry Foods, Premier International Foods and Whitworths, were invited to share their views on the current opportunities for and constraints on commercially successful innovation. Some key findings include statistics on the percentage of new product introductions that are ultimately commercially successful and the number of qualified ideas required to generate one successfully launched product.
The research was commissioned by Ramesys, sponsor of this year’s IGD Convention, in order to report on ‘Groundbreaking Innovation’ which formed part of the event’s ‘Winning Strategies’ theme. Martin Telfer, MD at Ramesys advised: “In preparing for this year’s event, we were dismayed by how little published research exists on this topic. Through our close working relationships with both retailers and manufacturers we were aware of the importance placed on innovation but it appears that no-one had previously invested in finding out which of the strategies deployed in the UK are working and which are not.
One in 10 survive
“Research previously conducted in the United States revealed that 7,000 new grocery products are introduced annually to the American consumer. By the following year, only 300 of these products will still be listed. Our UK-based research confirmed that here, new product introductions appear to fare only slightly better. Many believe that just one in every 10 new products will survive beyond a nine month life-span,” he added.
Some product launches are opportunistic, some are seasonal, but clearly, new product failures are costing the industry dearly.
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By GlobalDataIn an intensely competitive and potentially over-supplied global industry, quality, cost and delivery are now the givens required in order for manufacturers to survive. Therefore, differentiation needs to go beyond these and requires innovative methods to deliver measurable improvements in the development process.
The majority of grocery products are not resilient. A study conducted in 1999 reported that in European grocery, 80% of ‘new product’ launches are actually ‘me too’ products and the failure rate among these is about four in every five, while for the ‘truly new’ and ‘line extension’ products there is a much improved 50/50 chance of survival
When this information is linked to the UK research evidence that only 14% of new products are commercially successful, that more than 70% of products take longer than forecast to launch, cost more than planned, and that it takes 11 qualified ideas to generate one launched product, the fact that no published estimate for what these failures are costing the industry is a significant reflection on this neglected aspect of manufacture.
Many research participants also reported that responding to retailer requirements drives cost into the innovation process. And a major constraint on innovation is pressure from the retailer for fast turnarounds on own-label products, simply because this prejudices planned work on longer term, strategic products.
Paul Woodward, creations business manager at Ramesys, is responsible for the development and implementation of Creations – Ramesys’ NPD and quality management system – at a number of leading food and drinks manufacturers including Cott Beverages. He commented: “In order to ensure that a retailer selects a particular manufacturer’s product, NPD teams are required to ‘speculate’ in the development process, sometimes being required to come up with the initial idea and then compete in terms of development timescales and ultimate price. If the product is then not selected by the retailer, the lack of return ultimately effects future investment.
A recipe for failure?
“This widely held view did not come as a surprise to us but the research also revealed two significant barriers to product development within the manufacturer. The first was the behaviour resulting from departmental thinking and attitudes, which are often not fully aligned with corporate goals. The tensions that exist – often unresolved, often cultural – between commercial, product development, operations, quality and finance manifest in a four- or five-way trade-off. This is a process that product review meetings and weekly progress meetings are ill suited to. At least partly, meetings are a symptom of ineffective communications. They form an incentive to delay, to wait for the next meeting, the next week, before acting.
“Our view, from the research, is that to overcome this source of delay and under-performance we have to add a third area to the two existing areas of customer relationship management and supply chain management. The third area is colleague relationship management, or better still, colleague collaboration. Businesses are already – and rightly – focusing on effective management of relationships with customers and suppliers. Applications and processes are being developed and implemented to optimise these. The new generation of spec management products are just one example of this emphasis.
“One wonders how effective any of these processes and applications can be, if organisations are bringing just one qualified idea in 10 to market. And if chasing status updates on the Product Development Project Plan can account for over 40% of the Product Development department’s working week.
“Focus groups reported that over 60% of the product development process is spent administering information. How much time does that leave for departmental trade-offs and how much time does it leave for truly innovative strategic projects,” questioned Woodward.
The research indicates that senior managers in many grocery manufacturers are actively encouraging this damaging and delaying departmental behaviour because the overall objectives and departmental reward mechanisms are not complementary. More effective frameworks are required, in which greater collaboration between colleagues is facilitated so that trade-offs occur by exception, rather than by custom and practice.
A pervasive culture
The research indicates that the second, equally damaging, barrier is the fact that innovation is perceived to be the responsibility of an individual or a department rather than being at the heart of the entire company.
A swift review of Annual Reports published by grocery manufacturers reveals that most, if not all, claim that innovation and investing in people are two core elements of business strategy. Yet these same reports indicate extremely low budgets for consumer research and training and that these are the first areas to attract cuts when times are hard.
It can take years to find the product that matches the insight won from consumer research; it is not an overnight process. For truly innovative products it may take successive and time-spaced test marketing to establish the optimum time to launch, but this rarely sits well with City expectations and venture capital funding.
Example after example of innovation being stifled by short-term expectations and funding starvation were reported. One research participant involved in category development commented: “Because the department is expected to produce two things a month, we do all the quick things we can get done and the big thing, the next big win, never happens because you don’t have the time to do it.”
Clearly, innovation can thrive when it is at the core of a long-term strategic agenda but with ever increasing external pressures to reduce costs, funding strategic investments requires prior justification, which only previous innovative successes would provide. The fact that stakeholders are more likely to invest in businesses that put a commitment to product innovation at the heart of their operations because they attract a 25% share value premium over their market sector average, should not be ignored however.
Evidence of success
“Whilst these issues have been uncovered as a result of our research, there is also evidence within UK grocery of organisations who are already successfully addressing them,” noted Telfer. “Improved behaviour, better support and systems can significantly improve the availability of resources and time available. Existing resources can then be deployed to satisfy short term demands from the customer without compromising the time available to invest in long term strategic projects.”
Safeway, Asda Wal-Mart and Sainsbury’s are all deploying applications with the objective of reducing cycle times by at least 50%, and improving supply chain efficiencies by around 30%. Woodward advised: “Among manufacturers, companies as diverse as Manor Bakeries, Lancashire Dairies, John Rannoch, Ardo Shearway and Cott Beverages are already using new techniques and applications to improve visibility, reduce lead times, and make it simpler to bring new, well designed, well produced products to the table on time.
“Indeed, one manufacturer is claiming to have reduced time to market from 146 days down to 40.”
Woodward went on to say that “Cott Beverages is a worldwide organisation operating across Canada, the US and Europe and therefore the management of innovation and product development across these locations is paramount to its success. The company’s policy, to adopt collaborative innovation throughout the supply chain and with customers, has helped it to become category leader with its retail partners.”
The research concludes that, based both on the results from the focus groups and from current examples where improved processes, behaviours and cultures can be seen, the organisations that will have winning strategies in innovation will manage innovation as a corporate process, not as a ball tossed from department to department. It stresses that those companies which align measures and objectives at all levels with the organisation’s strategic goals and commit to innovation as a core competence will drive innovation throughout the business. But this must be supported with resourcing to allow longer-term strategic projects to flourish.
In summarising the value of this research project, Telfer said: “If we are to continue to develop pre-eminent products and services which respond to the needs of the supply chain, we must keep abreast of emerging issues and we believe that commissioning this research will not only help us to achieve this but will also prove to be an informative and valuable source of business intelligence for our existing and potential customers.”
The full research findings are available from Ramesys;
Contact Carol McIntosh
Tel: +44 (0)1530 416641
For more on Soft Drinks International visit: www.softdrinksjournal.com.
