Disruption is the innovation ‘word of the moment’. So how can big brands innovate against new players in the game? David Walker, Happen Founder and Group CEO shares some key insights from his recent presentation at the Cranfield School of Management ‘Future of Sales and Marketing Practices’ conference:
It is no myth that there is an increase in the number of disruptors (or at least new players). Plentiful money supply (‘cheap’ capital created as we’ve printed large volumes of money over the last ten years) has fuelled this growth. The annual number of start-ups in the UK has grown by 35% over the last five years and tech start-up funding in the UK is at an all-time high (in 2017 VC funding for technology start-ups stood at a record £2.99bn). Technology is driving dramatic disruption in retail and marketing channels. Barriers to entry are changing in nature.
Meanwhile big business is struggling. According to Bain the rate of organic growth of multinational CPG has declined from around 6% in 2008 to 2% in 2016. The battleground has changed. I believe there are similarities between the battles being fought by brands to those being fought by governments – not so long-ago countries fought wars with other countries, now governments must defend against multiple security threats and cyber-attacks. Not so long-ago brands fought one or two players for share, now they must fight the start-ups; they can come from anywhere and you don’t know how much damage they will do.
Whilst the world is undoubtedly changing rapidly around us, people are still here striving to live their lives. When things change rapidly (like now) the old ways that once fulfilled our needs get interrupted creating new opportunities. When Innocent entered the market in 1999 people were very focussed on getting more fresh fruit and vegetables into their diets. By 2016 when Ugly launched we were more focussed on getting sugar and additives out of our diets (driven at least in part by consuming too much fruit juice!). These kinds of changes are all around us – for example out of the changes to society and technology has arisen a huge global need to help people sleep successfully again.
The heart of all marketing and innovation has always been and should always remain focused on the people we serve and how we help them fulfil their needs in a changing world.
There are many reasons why large organisations are struggling with organic growth, but when it comes to innovation and their ability to cope with a changing consumer context we can see 3 common issues:
1. Speed to adopt new tools
Historically entrepreneurs have relied on gut instinct and a natural understanding of their target audiences, while large organisations have relied on often slower, but more thorough market research. But there are also new, more democratic research and analytics tools emerging which even smaller players can access. Tools like StarMaker innovation analytics which can deliver a rich understanding of a market category and identify new innovation spaces in a matter of days or a couple of weeks. With markets moving more quickly, these tools can deliver a more agile way of getting ahead of the competition. Many large organisations struggle to adopt these new tools in a coherent way. Either rejecting them on the basis of risk / fear / representativeness or adopting them wholesale as the answer to everything.
In our view, gut instinct, Market Research and the new analytics tools all have an important role to play in successful innovation – the trick is choosing the right tools for the job.
2. Distracted by disruption
One of the biggest challenges we see, particularly in FMCG, is an obsession with disruption. To some extent this has always been true – show me a brand manager who doesn’t want to create a gamechanger? And yet the engine for growth of large organisations equally needs to be innovation designed to ‘Protect’ or ‘Grow’ brands – it’s this kind of innovation that will play the greater role in driving organic growth.
Of course, with disruption all around, particularly in routes to market, it is natural to focus on the disrupters. If I were Gillette, I would be worried about subscription shaving brands like Cornerstone and Harry’s. But whilst these new players are building great businesses, they are still a tiny proportion of the market for razors. Net the likes of Gillette shouldn’t take their eye off the ball in creating the next generation of products that serve 90%+ of their market. Disruption in routes to market is confusing for consumers as well as manufacturers and trustworthy brands who deliver products that excite people have just as much right to win in the new ‘retail’ word.
With disruption all around us it is easier than ever to focus exclusively on disruption, but I believe this is a big mistake. We created the spectrum of Innovation to help our clients focus their efforts on the right blend of innovation and to define the tools and processes needed for each type.
Clearly defining your innovation outcome is the first step to improving success rates.
3. Playing to Strengths
When Innocent entered the market in 1999, rumour has it that a mild sense of panic started to emerge in the corridors of the Coca-Cola company. Here was a new player that was getting established in independent channels – it was a real threat. Concepts would have been created and tested extensively with consumers. But when it came to developing the commercial case the numbers wouldn’t have stacked up. The Cost of Goods would have been too high, volumes too low and shelf-life too short. Plans would have been abandoned in favour of a promotion on one of their larger brands.
It’s a common challenge for any large organisation – early stage business models don’t fit. Of course, the rest is history. Ten years later Coca-Cola bought a 30% stake and three years later again increased it to 100%. And they probably chose exactly the right moment when the business was scaled up sufficiently to be interesting and they could use their considerable capability in Top End Grocery distribution, product optimisation and brand management to take the business to an entirely new level.
To me this story contains an important learning; For the most part M&A teams in large businesses are better at disruptive innovation than ‘blue sky’ innovation teams, brand or R&D teams and the majority of innovation effort in large organisations should be focused on the ‘Protect’ and ‘Grow’ tiers of the spectrum. Right now that seems to be almost the exact opposite of where they are focussing. At the same time many companies are dismantling the processes that work well for ‘Protect’ innovation and slowly losing the talent that made them work successfully.
None of this is to say that investment in disruptive innovation is wrong – it is critical for large organisations to be able to deliver disruptive innovation. But right now I have a strong hunch that the balance of investment is wrong and this is one contributor to poor organic growth.
Much of the investment in disruptive innovation is also misplaced into early stage idea development and incubation – I believe large organisations would see better results by investing instead in stronger foresight and analytics capability to scan for new players with the potential to scale and integrating this capability within their M&A teams.