Innovation as a driver for generating value
The biggest challenge facing businesses, whether it is a startup or an established company, is working out how to add value – that is to say how to make money. Even well-established brands constantly have to re-evaluate their business model to better understand how they can add value.
In our experience, that hypothesis of the business’ value is set by the senior leadership team, perhaps solely the founder or owner of the business. When value hypotheses are expressed by senior leadership, they are rarely communicated as a ‘hypothesis’ or even a ‘belief’, but rather phrased as an absolute certainty with high degrees of confidence and authority. The confidence is summed up in a declaration such as ‘Consumers want healthy milkshakes’ or ‘Consumers want healthy rice’.
But these absolutes often rely on the direct experience of the individual proposing the approach, otherwise known as ‘a sample of one’. And as we can see from the failure rates of innovation, a sample of one isn’t big enough.
We recently – in the height of Covid-19 – had a senior leader in a client’s business brilliantly demonstrate the ‘sample of one’ by expressing to his team that everyone was buying into a new category that was adjacent to the products this company sold. He confidently predicted that the growth in this aligned category during Covid-19 presented an opportunity for their business to pivot into this adjacent category, moving away from their traditional heartland upon which their entire business model rested. The senior leader spoke with confidence and gave examples of how they and their friends and family had bought into this particular aligned category during Covid-19, and that therefore it was a great opportunity. Everyone in the organisation took this at face value with energy and resources now focused on deploying activity towards this new category opportunity, all of it based entirely on the hearsay of the senior leader’s friends’ claimed behaviour. However, even a cursory glance at Google Trends (which acts as a proxy for consumer penetration, as it measures the relative change in what people are searching for on Google) indicated that the number of searches for this new category hadn’t changed in any significant manner in the last five years.
It was a well-intentioned observation of a contrarian view of the current market in a time of turmoil to give direction to a business, but a colossal misstep from senior leadership in failing to understand the wider world – and more importantly a misunderstanding of the impact their observations and statements have in an organisation. It was cheap talk, underwritten by a blind authority in the organisation, that cost the company large chunks of cash and wasted time.
Theory of Value
So how should a company work out how to add value? Research from a study by the Universities of Oxford, Bocconi and Utah shows that having a detailed theory that can be proven one way or another is the most efficient and effective way of discovering and exploiting value for an organisation or entrepreneur. Provocative or contrarian views of behaviour are not enough; having a way to prove those views is absolutely necessary, which requires a dose of humility. A leader should be able to prove that there is a specific problem, and then to prove that a specific solution provides the best way of solving this issue, in order to ensure the business provides value. This is borne out in our experience of many businesses – both our own and our clients’.
Presenting an opinion as a theory that needs to be proven overcomes any bias in an organisation for blind obedience to the senior leadership team. It may dent the ego of the senior leadership, who want things done at their own behest, but it avoids lengthy and expensive forays into useless notions while at the same time building a more robust culture of diverse opinions and critical thinking.
Framing an opinion as a hypothesis that needs to be proven helps firstly to signal to your colleagues that this is not an order or an edict, but rather a thought. When it is a hypothesis, it shows that it needs to be proven, and the power comes not from posing the hypothesis but in proving the hypothesis. Once the hypothesis is proven, it then unlocks the potential of the opportunity. The opportunity does not exist until the hypothesis is proven, but posing the opportunity as a hypothesis offers an incentive to test it.
Are Trend Reports Worth Anything?
In 2019, we had a beverage client passionately tell us they had engaged an insight agency to inform them of the latest trends in non-alcoholic drinks, and were proud to share this agency’s work to us to help develop new products. The trends seemed to highlight things that had been in style magazines or presented by influencers on Instagram, and did so in a compelling and stylish way – everything from activated charcoal and turmeric through to insect protein such as cockroaches(!). Upon closer inspection, however, we noticed that there didn’t seem to be any hard data to back up the agency’s insight or trends; we challenged the clients as to whether these ‘trends’ were relevant in their category, and suggested a hypothesis that these were less motivating to consumers than existing products in the category. We asked 500 consumers whether they would buy the product ‘with added turmeric’ over the original, and more than double said they would rather buy the existing product than the product with added turmeric. The insect superfood trend performed even worse, with less than a fifth of people who would normally buy the existing product saying they would buy the product with added insect protein. Activated charcoal was no more appealing than turmeric, although it did have a better result when we described the charcoal as a filter for the product; nonetheless it was still significantly less appealing than the current product.
The point of this example is to show that there was no guiding theory behind these trend insights. We instead came up with a theory that trend reports like these are fanciful at best and deliberately misguided at worst, and we could test our hypothesis by asking consumers whether or not they would buy a product that contained the specific ‘trendy’ ingredient or the product claim. We have yet to find an example from the deluge of annual insight reports in over a dozen categories that stand up to a benchmark that would make them sustainable. We even looked at trend reports from five and ten years ago in case the trends took time to enter the mainstream, but again despite asking in dozens of categories, no trends came back as being sustainable in the mainstream mass market, and therefore would in all likelihood fail if launched.
Not only has our theory of ‘snake oil’ trend reports been proven through research; it is also borne out in real life, as only one (seaweed) of the products from the Independent’s trend report of five years ago is still on shelves in your local supermarket. There were plenty of launches of products that sought to capitalise on trends, such as Birch Water, Baobab fruit, and Freekeh (all of which were touted as the big trend of 2015!), but none of these are available in Tesco today.
Need for Proven Trends
Understanding what is trending is necessary, however, we would argue there is a need to be sceptical of these trends, and to test the trend transferring into the mainstream on a regular and ongoing basis, rather than blindly assuming a view from a biased opinion maker. What our research highlights is that it is imperative for organisations to develop their own theories about their consumers, shoppers and customers, and to then set out a robust way to test the theory. It is not about blindly accepting the prevailing wisdom from ‘trend experts’ or even from buyers or NPD experts. The risk of following any and all trends are that finite innovation resources are focused on starting points that are significantly flawed. However, by quickly proving or disproving a “trend” theory, businesses can grow adeptly at reduced risk of failure and with reduced cost, and focus on what will work. That growth is called Agile Innovation, and we set out in this book how to bring Agile Innovation into your organisation.