What is 'innovation' to you, and does it really matter?
June 26, 2014 00:00
By PRAPAIRAT PAVASANT
WHEN we mention the word "innovation", we might think of the invention of new ideas. Some might think about "creativity", others might think about the various creations or inventions around the world - all this depending on each individual's perception of
Regardless of the various interpretations of “innovation”, it will always link to something that is “new”. This new thing could be an entirely new thought. Maybe it’s something new that is developed from something already existing. Or it could even be something new that is created from a mixture of many components.
When innovation is put into a business context, imagine what the impact will be when this new thing or new idea contributes towards growth, revenue, the rapidly expanding market and/or business cost reduction. Will the business be able to survive emerging trends, a changing environment, or a younger workforce as well as younger consumers – all this without “innovating”?
Let’s begin by looking at the ever-changing market conditions. The market is highly competitive and it never stands still, which means that only the most innovative products that can adapt to the rapid pace of market transformation can survive and succeed.
Consider the mobile phone and the personal digital assistant. Nokia was once the world leader for mobile phones, and Palm was the world leader for PDAs.
That was before Apple. Apple put those two well-established technologies together into a single, consumer-oriented device that was fun and easy to use. Apple created a new market that changed the game and left both Nokia and Hewlett-Packard, which had acquired Palm, at a significant disadvantage.
Today, Palm is non-existent and Nokia has been acquired by Microsoft. Apple innovated, and Apple ruled.
Then Samsung innovated. Samsung drove market differentiation by focusing on a different segment of consumers, one that Apple chose to neglect. Samsung identified a window of opportunity, then carefully defined the segment’s needs and buying patterns, and then concentrated on innovation.
The result was a new entrant in a segment of the mobile-phone and tablet category that has repeatedly outpaced Apple. From these examples, does innovation matter? You bet!
Another type of innovation is called business transformation. PepsiCo is a good example. PepsiCo faced a challenge when consumers shifted towards healthier consumption.
Chief executive officer Indra Nooyi introduced “performance with a purpose” and refocused the company around the interdependence between corporate performance and social responsibility. A core part of performance with a purpose is focusing innovation on products that are more nutritious and healthy while not damaging existing brands and market share.
Another focus has been on innovation in packaging and delivery to reduce the environmental impact.
Once at risk of splitting off its food and beverage units into separate companies, the integrated PepsiCo is meeting or even exceeding its financial targets for organic revenue, cash flow, net profit and total cash return to its shareholders. The key has been recognising and understanding a shift in consumer sentiment and translating that into sets of products customers wish to have.
Let us now consider product innovation. A study by the Product Development Institute and the American Productivity and Quality Center (APQC) found that half of products brought to market missed their profit, sales and/or market-share objectives. Thus correct choices on where to invest in new product innovation are undeniably critical.
However, even when a product is successful, its overall impact on the company might not be. Consider the case of Wrigley.
Wrigley has been a leader in chewing gum since the 1890s and successfully progressed into the sugarless market. But when sales in the gum industry were declining, Wrigley introduced new brands, such as 5, as well as new flavours into its existing product lines such as Orbit, Eclipse and Extra to combat that slide.
Wrigley’s 5 was big a hit then, reaching US$500 million (Bt16 billion) in sales in just five years. Unfortunately 5 did not increase the overall brand category. Instead, new brands and new flavours in existing brands in turn cannibalised existing Wrigley products and brands.
The reality is, for innovation to happen, we need to rely on numerous important factors in our organisation. Every business that puts an emphasis on innovation must constantly search for new products or services that will meet current as well as future market demand.
Today’s fast-moving consumer generation, fierce competition and rapidly changing market environment make it necessary for us to innovate. But we cannot afford to invest blindly in something that in the end will not improve the success rate of our organisation, since that will risk wasting not only time and money, but also our precious human resources.
Can we afford not to do this properly? With so much at stake, we need to plan the process of innovation management carefully, otherwise failure will be very expensive.
This article says it all – that innovation does really matter – so ask yourself now: “Do you have innovation in your organisation today?”
Prapairat Pavasant and Paul Heller wrote this article. Prapairat is a strategic business development director at APMGroup, an organisation and people development consultancy. She can be contacted at firstname.lastname@example.org.