When implementing an innovation strategy, we are often asked about the split of resources against big projects and the everyday projects. Often we have clients who are swamped by the everyday projects – renovation of existing brands; new flavours; new pack sizes – and therefore can’t focus on the longer term, business changing innovation, but are surprised to find that they are typical.
We’ve based our understanding on not only our experience but also directly on data from companies we’ve worked in, specifically an FTSE250 company, using their historical innovation pipeline data that stretched back 10 years.
Existing product development (EPD) is where new elements are added to an existing product. It is the classic ‘new recipe’ or ‘new formula’. Some businesses call this ‘renovation’. EPD makes up the majority of all innovation launched. EPD typically is a function of marketing to defend market share, looking to add product features that other competitors have and negate their advantage. EPD takes up the majority of manufacturers’ resources, yet delivers the least incremental profit margin of all innovation. EPD is perceived as being low risk, as the capability to update the product already exists in the organisation, or is easy to bring into the organisation, to update the product.
EPD would include things like minor artwork changes around new claims, line extensions, new flavours, limited editions, or value engineering / value enhancement.
In our historical study, we saw 82% of innovation pipeline projects fitting into a description of EPD.
New product development (NPD) for us is the development of a new product in its entirety but within existing manufacturing capabilities (although those existing manufacturing capabilities may not be within the control of the company developing the NPD). A classic example of NPD would be Fairy Liquid moving into dishwasher tablets. Other examples would include Mars ice creams and Mars milkshakes, expansions from the traditional Mars confectionery bar. NPD is designed to gain market share by expanding into new categories and/or attracting new shoppers. NPD is generally highly accretive, as it is driving incremental purchases, but requires high investment, especially in insight to discover opportunities for brands.
From our study, we saw only 16% of pipeline projects fitting into a definition of NPD.
Breakthrough innovation relates to wholly novel products, starting a category that previously never existed. The printing press, semi-conductors, vaccination, automobiles, telephones, airplanes, trains, flushing toilets, mobile phones, compasses, fax machines, to name a few, were all were all breakthrough innovations when they were launched. Breakthrough innovations are distinctively highly incremental profit generators yet highly expensive as they require significant development
From our work with a FTSE250 company, we saw that only 4% of their innovation pipeline was focussed on any form of Breakthrough innovation.
The table below is drawn from our experience, and in particular a review of a FTSE250 organisation’s histocial innovation pipeline.
|% of innovation pipeline projects||70-80%||15-20%||0-20%|
|What it’s supposed to do||Maintain share by fighting against competitors’ products or seize shopper mission opportunities such as pack size or pack type; or retailers requests or increase margin by reducing costs||Grow share and grow long term margin by adding long term value to consumers, by stealing share from incumbent brands.|
Typically this would establish existing brands in different categories or a completely different product / brand into an existing category
|Creating new diversified revenue streams for the business, probably in completely new categories with completely new brands.|
|Risks to consider||Can be a resource trap of projects that suck up resources but don’t deliver very much||Can be a money pit for the difference between expectations and reality.||Requires large organisational commitment to change how the company operates and the commensurate risks of that organisational change – focus, cash, relationships etc.|
|When should it be done||At all points in the Product Life Cyle, from Introduction to Decline. Different elements within EPD will happen during the Product Life Cycle, e.g. Value Enhancement more likely in Maturity and Decline stage; pack format more likely in Growth and Maturity phases.||Mature stage of the Product Life Cycle as the brand / organisaiton looks for more growth.||Prior to the category entering into the Decline stage of Product Life Cycle, and probably not before Mature stage as resources should be focused on maximising the opportunity for growth in the early stages.|
|Who should do it||In-house brand and in-house R&D teams working together; opportunity to build capability and experience with junior team, but look for strong mentoring / leadership support, |
Limited external support probably around design. External validation of concept should be done to minimise wasted effort.
|Led by senior and experience internal innovation resource. |
More likely to require external support to help identify opportunities and internal blind spots.
|Led by leadership team as resource commitments can be high.|
Look externally for resources to help best understand the opportunities and the ask in an unfamiliar category.