An interesting question for your company is “How many new products and services did you launch in the last five years?” Companies will give different answers to this. The 3M Company would cite many new products. In fact, the company makes a point of wanting to derive 30% of its current revenue from products introduced in the last five years.
On the other hand, major companies such as Coca-Cola and Procter & Gamble (P&G) give a less rosy answer. In the case of Coca-Cola, the most successful new beverages—fruit juices, energy beverages, bottled water—were introduced by competitors first. At best, Coca-Cola followed them and in some cases grew by acquiring them.
The great P&G cannot boast of introducing many successful new products in the last five years through their own R&D. To compensate, P&G has gone on an acquisition binge, growing by buying companies in cosmetics, toiletries, and food.
The lack of company innovation points either to a company that fails to find and research new opportunities or to one that invests in many new opportunities but with disappointing results. Good opportunities can be ruined by poor new product management processes. Somehow the company either lets poor opportunities go through or botches up good opportunities at some stage such as concept development, concept testing, prototype development, prototype testing, business and marketing planning, test marketing, or product launch.
Some companies believe there are no new opportunities. They say their industry is mature. Or they say that they are selling a commodity. But there is no such thing as a mature market or a commodity. It’s only that your beliefs are getting in the way of your imagination. Starbucks didn’t see the coffee market as mature.
No company has to go without new ideas. First of all, the company’s employees probably have many ideas for improvement. All they lack is knowing where to send these ideas and the motivation to send them. Second, the company’s suppliers, distributors, advertising agency, and other partners probably could suggest many new ideas. Third, there are systematic ways to help employees generate new ideas.
In an excellent article called “Bringing Silicon Valley Inside Your Company”, Gary Hamel presented one recipe for generating successful new ideas. Silicon Valley, he said, scored its successes because it was the site of three markets: an idea market, a capital market, and a talent market. Creative and entrepreneurial people poured into the Valley with new ideas, especially for starting dot.coms. VC firms abounded to lend money to people with superior ideas. And the Valley attracted many talented people who could write software and implement ideas.
The implication is that companies need to duplicate Silicon Valley internally. The company should place a high value on new ideas and facilitate their collection and evaluation. The better ideas would draw on an internal pool of money to facilitate R&D. The best ideas would then be assigned to the right talent to develop and launch them.
To manage the idea flow, the company should appoint a high-level executive to be the Idea Captain. He or she should have an Idea Committee with representation from each major department. Everyone in the company as well as in the partner companies should know the name, address, and e-mail of this committee and should be encouraged to send ideas to this committee. The Idea Committee should meet every few weeks to review and evaluate the ideas, putting them into three piles, from poor, to good, to great-sounding ideas. The great-sounding ideas are assigned to different committee members to report back. If the report is positive, then some money would be granted for further research and development. Those ideas that continue to look strong will be pushed through until they are either dropped or launched.
Everyone submitting an idea will be told of its fate. This would counter the belief that the committee isn’t interested in ideas. The strongest ideas that are eventually implemented successfully should carry recognition to the proposers with either money, vacations, or other rewards. Kodak, for example, pays $10,000 each year to its employees who have contributed top money-making or money-saving ideas. Another company gives back 10% of the savings or incremental profit to the proposing party or group.
Many of the best ideas will come from observing major shifts in the market environment, which consists of PESTE elements—
Political, Economic, Social, Technological, and Environmental. Here are ideas that have emerged from observing trends in each component:
* Political: A company observes the difficulty of conducting accurate elections with paper ballots and invents a foolproof electronic voting machine.
* Economic: A company notes the high price of hotel rooms in Tokyo and invents a hotel that rents berths, not rooms, at a low price.
* Social: A company notices the difficulty of singles meeting new people and invents a dating service on the Internet.
* Technological: A company invents an electronic tablet for managers to write in long-hand instead of using a keyboard, and their notes are digitalised.
* Environmental: A company fights the high cost of energy by building windmills to generate electricity.
Companies can also use group or individual creativity techniques to stimulate new ideas. Group techniques include brainstorming, synectics, and several other techniques.
Most companies search for new ideas by starting with their current product and varying it in some way. For example, a cereal company will think of adding raisins or nuts or more sugar or less sugar, or moving to wheat, or oats, or barley, or changing the package size or the brand name, and so on. This results in line extensions or brand extensions added to the cereal aisle in the supermarket. Their competitors do the same. The cereal aisle gets longer but not more profitable. Each product variant draws a smaller number of customers who defect from the larger-selling brands, with the result that the new products earn little and the old ones earn less.
We call this vertical marketing and the techniques are numerous:
* Modulation: The juice manufacturer varies the sugar content, fruit concentrate, with or without vitamins...
* Sizing: Potato chips are offered in sizes 35 gms, 50 gms, 75 gms, 125 gms, 200 gms, multipacks...
* Packaging: Nestle’s Red Box chocolates come in different containers: cheap paper box for the grocery trade, premium metal box for the gift trade...
* Design: BMW designs cars with different styling and features...
* Complements: Biscuits with sugar spread on them, with cinna-mon, with chocolate, with white chocolate, with dark chocolate, filled biscuits...
* Efforts reduction: Charles Schwab offers different channels for transactions such as retails stores, telephone, Internet...
The main problem with vertical marketing is that this leads to a hyperfragmented market where few products have the volume to earn a lot of money.
Companies need to make use of an alternative idea-generating process that we call lateral marketing. Lateral marketing is to think of your product in relation to another product, service, or idea. You are thinking across two products rather than down one product. For example, the cereal company could think of cereals plus a snack. Instead of putting loose cereal in a box, they use the cereal in the form of a snack bar that can be carried and eaten any time. They may call this a health bar. Suddenly people are able to consume cereal any time of the day in a convenient form.