What Kraft Heinz's troubles teach us about growth and innovation

Growth is the lifeblood of business.

Kraft Heinz was recently called out by the Wall Street Journal, while its own CMO denies brand underinvestment, but many other FMCG companies are also struggling under strong financial pressures.

From 2012 to 2015, the FMCG industry grew organic revenue at only 2.5%. The largest companies, those with a net revenue of more than $8 billion, grew at only 1.5%, according to McKinsey. It is no surprise that innovation projects with our FMCG clients have all had the same goal - to urgently drive business growth.

In stark comparison, brands such as Chobani and Dollar Shave Club have captured a disproportionate share of growth. Chobani picked up 20% of the US yogurt market within 10 years; Dollar Shave Club and Harry’s led to substantial price drops and market share loss to leaders in the razor category. Bain named these types of brands Insurgents - dynamic brands with a clear vision and an entrepreneurial mission, committed to fulfilling an unmet need.

They have outpaced their category growth rates by more than 10 times over the past five years. From 2012 to 2016 they accounted for only 2% of the market share across the 45 categories that they’ve disrupted, yet they captured 25% of the growth.

If growth is the lifeblood of a healthy business, innovation is its heart.

Each new innovation propels a fresh set of activities and revenues around a business, driving it forward. Again, Insurgents have the upper hand. They are agile and unhindered by the internal protocols and divisional structures of larger companies. As a result, they are disruptive, continuously changing the competitive landscape around their slower Incumbent counterparts.

Growth is no longer reliant on economies of scale and size based competitive advantages. Growth is increasingly based on a new set of innovation advantages; agility, authenticity and consumer centricity.

We believe in our FMCG clients. They have built portfolios of iconic brands, consistent quality products and experiences that have sat at the heart of consumer’s homes for decades. They have a proven ability to scale their offerings, leveraging multiple channel partners and building global supply chains that maximize the physical availability of their products.

They are also filled with highly talented, experienced staff who have a genuine desire to innovate and who want to create brands that have a meaningful impact on consumers lives to push their business forward. Yet 70-80% of corporate innovation projects fail to result in an in-market outcome, according to McKinsey, and 85% of those fail to meet revenue expectations, according to Harvard Business School. So, the question is what is holding them back and how can they improve their innovation success rates?

1. Loving the problem.

Humans have a tendency to jump straight from problem to solution mode. Unfortunately, this means we often grab the first solution and not necessarily the most appropriate.

Loving the problem involves looking at an issue from a number of different perspectives, setting aside assumptions and pressure testing various opinions to build a compound view. The process generates a deep understanding and provokes a sense of respect for the issue itself. We believe it is the fundamental first step to success in any innovation process.

A compound view is especially difficult to achieve in large FMCG companies. As myriad of micro-structures, each business unit functions in a silo physically and objectively. External partners are uniquely positioned to hurdle the silos - to engage the different business units, to understand the issue from various perspectives and with impartiality.

2. Consumer-centric approach

25 years ago, Professor Philip Kotler, defined marketing as “meeting the needs of your customer at a profit.” Since then most marketing teams have become focused on the later part - using a variety of communication tools to sell product within the constraints of their existing business parameters. Insurgent brands tend to focus on the former, concentrating their efforts on understanding their consumer and adapting their business to meet their consumer’s needs in the best possible way.

Working within the constraints of existing guardrails automatically puts FMCG businesses in a more challenging position than their Insurgent counterparts. If FMCGs were able to refocus their efforts on identifying unmet consumer needs, exploring new interaction points and changing behavioural patterns, they would be able to identify and unlock more disruptive growth opportunities.

3. Purposeful pivot mindset

Innovation is essentially an exercise in pivoting. Adapting to new circumstances, finding new ways to answer old problems and new problems to answer. Purposeful pivoting, the ability to change direction during the solution building process while retaining a consistent point of stability, is at the core of a successful innovation. The key is to ensure that the point of stability is built on a meaningful business objective and clear criteria for success.

Clear criteria for success also allows the innovation team to prioritise their efforts, focus on concepts that have greater economic potential and more easily generate investment support from the c-suite.

4. Empowered, agile end-to-end project team

Many projects are led by Marketing or a stand-alone Innovations team. Other departments are involved only briefly, until execution when the baton is passed to a single divisional team. Objectives and objections from other teams are treated in isolation making the “make, ship, shelf” process more complicated and compromising.

A dedicated innovation ecosystem, made up of cross-functional internal and external partners can enable better success rates. The team needs to be empowered to make decisions and should include a Senior Management path beater to ensure that decisions can be implemented. The team needs to be given dedicated time to focus on the project, this way ensuring it is prioritised rather than squeezed into the already busy workday.

5. Build to defend

Much of the initial stages of an innovation project is focused on building a strong business case to secure internal investment, and to launch an impactful brand experience. But what happens next?

Assuming you are successful you need to be prepared for the attack. Other businesses will want a piece of action, especially with disruptive innovations that open a new opportunity in mature categories or markets. It is inevitable and so should be planned for as part of the Innovations process. For example, can you structure a new business model or delivery method that requires time and/or technology to protect your territory?

Ultimately, these 5 actions can improve the success of innovation, however we believe thatthe most important lesson is that you get out what you put in. Businesses need to be honest with themselves – are they truly prepared to invest in innovation or is it better for them to spend time ideating on potential new partnerships or acquisitions, and then leveraging their talents in scaling? Initial investment might be higher than CapEx, but the likelihood of success might also be.

Paul Galesloot (CEO Asia) and Nadia Romanis (Strategy Director) work for Cowan, Asia’s largest independent brand consultancy. They have worked on innovation projects across Food, Beverage, Beauty, Spirits and Technology in China, India, ASEAN, Europe and the US.

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