From lab to leader: How consumer companies can drive growth at scale
with disruptive innovation PART II
3. Think (and act) like a venture investor.
Traditional stage gate
processes are very efficient for managing a large pipeline of similar ideas
through a relatively standard development pathway. However, when they are used
for more disruptive initiatives, they tend to systematically smother or starve
them. A different system is required for disruptive innovation.
Consider how venture-capital
firms manage their portfolio of investments. They analyze each investment on
its own merits, adapting as businesses evolve. They couple funding closely to
the progress of the new business and meet at the speed of its progress versus
on a predefined calendar. The hurdle rates and KPIs are also different, with
emphasis on whether they are gaining consumer traction in addition to improving
financials. And more than anything, they are relentless in pushing the pace and
urgency of growth.
To deliver on this
capability, we often recommend that companies establish their own venture board
comprising their strongest leaders. Even though the scale may be small, this is
some of the hardest work in the company and the most important to its future.
Along with a few outsiders to inject a more objective perspective, this board
is responsible for maximizing the return of the more aggressive portfolio—and
has complete autonomy to quickly make decisions about it.
4. First to scale beats first to market.
Launching disruptive
innovation doesn’t mean a company always has to be the original inventor.
Rather than focusing on first to market, we recommend focusing on first to
scale. We found that leading CPG innovators who actively scan the market for
high-potential ideas, watch for emerging consumer acceptance and new behaviors,
and then jump in before the market landscape has fully evolved have reaped
significant rewards. We evaluated 25 high-growth categories in four countries
across North and South America, Asia, and Europe. In each, the players who took
this approach are winning ~60 to 80 percent of the time; in the US, they win
the highest market share 80 percent of the time.
Incumbent CPGs can turn
to their ingrained advantages to identify and scale these ideas. Their wealth
of consumer data can be used to spot trends earlier than others. Their
significant financial and human resources can be disproportionately allocated
to hot opportunities. The distribution and account relationships incumbents
have across multiple retailers can be used to expand the market for new
products more easily and quickly than new players with a smaller network of
relationships. Large CPGs are also attractive partners for innovators with
insightful ideas but insufficient resources to develop and scale them.
All of the above are
incumbents’ advantages that many smaller players would love to acquire. Using
these advantages to their fullest requires CPGs to adopt a much stronger
orientation toward speed, nurture more disruptive bets until they can be
scaled, and reallocate resources to the strongest opportunities.
How to get started
Embracing the above
shifts will require meaningful changes. In our experience, the changes are not
only eminently achievable, but also reenergize the organization as they make
innovation and delighting consumers more central and less cumbersome to
accomplish. We recommend CPG leaders do five things now:
1. Address the culture.
Business leaders
understand how important culture is but tend to think of it as a vague
byproduct of other activities. Building an innovation culture begins with
making innovation essential to the day-to-day business, and it’s critical that
it start at the top, with the CEO and senior executive team. As one consumer
executive—who grew her company to a billion-dollar valuation in less than 15
years—put it, “Innovation is simply everyone’s job. . . . Everyone is expected
to look for insights, to bring ideas, to be ready to help drive an initiative.”
Other ingredients include: a near-maniacal focus on the consumer—by which we
mean putting the consumer at the center of every decision; incentives to reward
innovation; metrics that track innovation—consumer excitement, word of mouth,
adoption rates; and a clear understanding of how each person’s role adds value
to the process. Reward learning and make learnings easily available and easy to
share.
2. Create high aspirations and hard metrics.
“Let’s increase growth
by 2 to 3 percent!” That kind of aspiration won’t motivate people and drive new
thinking. Contrast that rather vague hope with this one from a mining (!)
company: “Generate $150 million of incremental EBITDA over the next five years
by discovering new applications for our products, moving closer to our end
customers, and leading our industry in production processes.” This is bold,
actionable, measurable, and gives teams some sense of where and how they should
innovate. To track progress against aspirations, metrics need to be specific,
of course, but they also need to evolve. For example, metrics on market share
or growth rate will be better in the earlier phase of a product’s lifecycle.
Shift the focus to value and margin as the project scales and matures. Metrics
also must be in the business-unit (BU) leader’s performance objectives.
3. Define the hunting grounds.
Make clear choices
about where you will innovate. Be careful to define them by working backward
from the consumers and markets you serve rather than the way you currently
define your brand and category structures, particularly in multibrand organizations.
Too often we see outdated guardrails unnecessarily limit brands from exploring
new spaces. As one CEO, whose company was acquired by a leading global CPG
incumbent, put it, “If your consumers want your brand to move into a space and
you don’t, then rest assured someone else will.”
4. Reallocate resources.
In our experience, most
incumbent CPGs have too many resources committed to initiatives that are
unlikely to drive meaningful growth. The first step in liberating resources is
to take a hard look at the portfolio and reallocate people to more aggressive
growth opportunities. Crucially, this cannot be an annual or even quarterly
exercise. Leading innovators continually and ruthlessly reallocate resources
and make sure scarce people and dollars are put to the best use. As one
innovative CPG leader in Asia Pacific said, “I established three simple
mandates: bigger (more top-line potential), better (more differentiated), and
faster (time to market).” These mandates drove top-line growth at four to five
times the underlying category growth.
5. Put a new disruptive innovation “system”
in place based on agile models.
Driving success at
scale requires a new model. Innovative ideas can initially generate a lot of
excitement and promise. But that drive often wilts when it needs to work with
the full business to scale the idea. While there is a broad range of elements
in a new innovation system, we find that the following are a few of the most
important:
·
Establish
cross-functional teams with a complementary set of problem-solving skills, such as people from insights,
marketing, personnel, sales, UX, and tech. The team should “live” together,
using an agile development model, and ideally drive one to two initiatives at
any given time.
·
Focus
on constant learning and de-risking throughout development. Rather than a standard
checklist of activities and stages, teams should constantly identify and
prioritize the greatest uncertainties in a concept and conduct quick tests to
resolve them.
·
Set
up and prequalify your “speedboat” network. These can be factories, partners,
agencies, and vendors who can support small-scale procurement and
manufacturing, run first-purchase tests, and even support a riskier new
product’s first few years of manufacturing before committing the capital
expenditure for scaled/global manufacturing.
·
Hardwire
points of contact between the innovation labs and the “mother ship.” Embed people from the sponsor
BU as a core part of the innovation team, and rotate people from the main
business through the innovation labs. Assign respected leaders from the legacy
business to manage innovation projects. Create a central innovation roadmap
that business units agree on, and track it on the CEO/COO agenda.
The growth game has
changed, but that doesn’t mean that CPG companies can’t change with it. With a
commitment to new mind-sets and approaches, CPG companies can harness speed and
agility to move again to the forefront of innovation.
By Mark
Dziersk, Stacey
Haas, Jon McClain, and Brian Quinn
https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/from-lab-to-leader?cid=other-eml-alt-mip-mck-oth-1809&hlkid=37d5d531da094828bbe2003146f53b7c&hctky=1627601&hdpid=4ce92199-4216-4d6b-b2a4-242edd707c1a
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