01 December 2015

Thanks to the lightning-fast tech industry, where start-ups can be valued at millions within months of launching, the current business environment is characterized by speed and change. It has spawned a charge for companies to "innovate or die," and "develop new revenue streams," notes innovation strategist Carsten Kolbek in a CNBC interview. "And for that, you need innovation," he says.

It’s not just the tech industry that is noted for constant and quick change—it’s prevalent in consumer packaged goods, too. Mintel’s Global New Products Database adds 20,000 items monthly—more than 650 products a day. With that much coming at consumers, it’s important for businesses to keep innovating so they can compete capably.

For many companies, that’s easier said than done. Innovation is more than launching products, tweaking lines and making minor changes—it’s a value that permeates an operation. For example, in recent years, Kraft Foods boosted innovation by making organizational, operational and funding changes. These included diverting its most creative people into “innovation garages” that act like startups and diverting more funding to the most promising projects—moves that Kraft credits with yielding five $100 million product launches and doubling the company’s rate of innovation in three years.

Once a company recognizes the need to boost innovation, what’s the next step? Food and beverage companies may want to consider the following to foster innovation and achieve change.

Invest In Innovation. U.S. companies were expected to spend approximately $465 billion—2.7 percent of the U.S. GDP—on R&D in 2014, noted CNBC. Although it’s hard to gauge the impact of R&D spending in dollars and cents, it can lead to new products, new revenue streams and a jump on the competition.
This has been the case for 3M, which has a $1.7 billion R&D operation—one of the largest among America’s corporations—and helps explain its more than 100,000 patents and annual sales topping $30 billion. This year, the company is opening a new $150 million R&D center at its Minnesota headquarters for customer collaboration, product launches and problem-solving and has expressed a commitment to raising R&D spending from its current 5 percent of overall revenues to 6 percent by 2017.

Create A Culture Of Change. When Procter & Gamble’s sales dipped in the early 2000s, corporate leaders turned to operational innovation specialists at Innosight to help them turn innovation from a “serendipitous activity into a systematic discipline.”

To make innovation systematic, repeatable and reliable, P&G set up four “innovation assembly lines.” The four categories were: sustaining innovations to improve existing product lines; disruptive innovations to bring high-end services to mass markets; transformative innovations based on performance breakthroughs; and commercial innovations to enhance consumer experience. By 2010, the company dramatically improved its innovation success rate from 15 percent to more than 50 percent; doubled its revenue and quintupled its profits.

Innovate In Small Teams, Too. Cultures of change aren’t just for big corporations. Kraft’s “innovation garages” encourage smaller teams to engage in the creative, high-energy collaboration and idea sharing more commonly associated with startups than multinational businesses. And innovative thinking in general encourages acceptance of stumbles along with the successes and flexibility to react quickly if an effort isn’t paying off and change course.

Smaller food and beverage operations can learn from the Kraft playbook and tackle innovation on a sized-down scale by adapting startup tactics to their own business models. One way to start is by making changes that will integrate new processes or products into current business models, or developing innovative new business models altogether, as described in the seminal book “Business Model Generation” and its sequel “Value Proposition Design.”
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