Developing an innovation strategy 5 Box 2.1 Some future consumer needs predicted in 1969 Increasing importance of smell in foods Foods light in substance but strong in flavour Texture a more important featured characteristic Packaged goods accepted as norms Dieting and slimming will become an increasing occupation The family mealtime will break down Strong conservatism in food taste progressively breaks down Better nutritional standards eliminate the danger of between meal hunger Meal nibbling for social/psychological reasons increases Increased public sophistication in dietary and nutritional matter Source: After Hedges. 1969 is certainly having a strong effect on all aspects of marketing technology - the distribution system, the places for selling food, the communications, the promotion, the sales methods. New food products will certainly come from the four consumer trends: using the Internet to buy food, food shopping as entertainment, food shopping for freshness and food shopping for health, all of which will affect the distribution system(Earle and Earle, 2000) In searching for the long-term market possibilities, the basic research is to study the consumers and in the case of the food ingredients company also their mmediate customers. There is a need to take a broad look at the possible consumers and their future needs, wants and behaviour(Earle and Earle, 2000) The research is about people how they think, feel and behave, and why they think, feel and behave in these ways, and then to relate this to their needs in future products as shown in Box 2. 1(Hedges, 1969). It is interesting that this paper was published over 30 years ago, and how many of the predictions have become reality. An interesting question today is: are the consumers' knowledge and attitudes pushing the food industry towards the product quality standards of the pharmaceutical industry, guaranteeing the safety and the effectiveness of the food products? What innovation possibilities does this uncover? Think break 1. Identify eight innovation possibilities for your company, two under each of the following areas (a) society changes (b) political changes. (c) technological changes (d)food system changes
is certainly having a strong effect on all aspects of marketing technology – the distribution system, the places for selling food, the communications, the promotion, the sales methods. New food products will certainly come from the four consumer trends: using the Internet to buy food, food shopping as entertainment, food shopping for freshness and food shopping for health, all of which will affect the distribution system (Earle and Earle, 2000). In searching for the long-term market possibilities, the basic research is to study the consumers and in the case of the food ingredients company also their immediate customers. There is a need to take a broad look at the possible consumers and their future needs, wants and behaviour (Earle and Earle, 2000). The research is about people – how they think, feel and behave, and why they think, feel and behave in these ways, and then to relate this to their needs in future products as shown in Box 2.1 (Hedges, 1969). It is interesting that this paper was published over 30 years ago, and how many of the predictions have become reality. An interesting question today is: are the consumers’ knowledge and attitudes pushing the food industry towards the product quality standards of the pharmaceutical industry, guaranteeing the safety and the effectiveness of the food products? What innovation possibilities does this uncover? Box 2.1 Some future consumer needs predicted in 1969 • Increasing importance of smell in foods • Foods light in substance but strong in flavour • Texture a more important featured characteristic • Packaged goods accepted as norms • Dieting and slimming will become an increasing occupation • The family mealtime will break down • Strong conservatism in food taste progressively breaks down • Better nutritional standards eliminate the danger of between meal hunger • Meal nibbling for social/psychological reasons increases • Increased public sophistication in dietary and nutritional matters Source: After Hedges, 1969. Think break 1. Identify eight innovation possibilities for your company, two under each of the following areas: (a) society changes, (b) political changes, (c) technological changes, (d) food system changes. Developing an innovation strategy 53
54 Food product development 2. Select an important product area for your company and study it for (a) international comparisons, (b) product and service developments (c) market specialisation (d) new distribution methods From this identify eight innovation possibilities 2.1.2 Evaluating the innovation possibilities for the company The innovation possibilities may be market related, e.g. a new market niche, a growing market area; technology related, e.g. a new process, increased automation; resource related, e.g. a new crop, a new ingredient; society related e.g. increased income, poorer health; consumer related, e.g. single complete meals, children-friendly meals. These innovation possibilities need to be analysed against the companys capabilities and the companys objectives. The company evaluates from might do to 'can do'toshould do The companys climate and capabilities are a major evaluation factor in studying innovation possibilities. One company may be very conservative, and not want change, so it chooses a low level of innovation as the company climate and therefore in its business strategy. Another company may want to be at the forefront of change, so it has a company climate of innovation, and includes innovation as a major part of its business strategy. This incorporation of innovation into the company philosophy sets the basis for the product development. If the company has low-level innovation, product development consists of cost cutting and minor product improvements, at high-level innovation, product development is searching for a unique product that will cause a major change to industry, market and consumers. Many companies have a mixture of in ion and conservatism Radical change 100% Moderates Innovators The company may think of change as technical, but it is the commercial change particularly as related to the consumer, that is the important change. This spectrum is also related to risk-taking: companies can vary from aversion to risk to seeking risk. It is important to recognise the present level of innovation in the business strategy and also the philosophy for risk-taking in the company Companies cannot quickly change from one level of innovation to another Before ation possibilities for the company, it is often interesting for the company to take a look at itself
2.1.2 Evaluating the innovation possibilities for the company The innovation possibilities may be market related, e.g. a new market niche, a growing market area; technology related, e.g. a new process, increased automation; resource related, e.g. a new crop, a new ingredient; society related, e.g. increased income, poorer health; consumer related, e.g. single complete meals, children-friendly meals. These innovation possibilities need to be analysed against the company’s capabilities and the company’s objectives. The company evaluates from ‘might do’ to ‘can do’ to ‘should do’. The company’s climate and capabilities are a major evaluation factor in studying innovation possibilities. One company may be very conservative, and not want change, so it chooses a low level of innovation as the company climate and therefore in its business strategy. Another company may want to be at the forefront of change, so it has a company climate of innovation, and includes innovation as a major part of its business strategy. This incorporation of innovation into the company philosophy sets the basis for the product development. If the company has low-level innovation, product development consists of cost cutting and minor product improvements; at high-level innovation, product development is searching for a unique product that will cause a major change to industry, market and consumers. Many companies have a mixture of innovation and conservatism. No change Radical change 0% _______________________________________________________ 100% Conservatives Moderates Innovators The company may think of change as technical, but it is the commercial change, particularly as related to the consumer, that is the important change. This spectrum is also related to risk-taking: companies can vary from aversion to risk to seeking risk. It is important to recognise the present level of innovation in the business strategy and also the philosophy for risk-taking in the company. Companies cannot quickly change from one level of innovation to another. Before viewing the innovation possibilities for the company, it is often interesting for the company to take a look at itself: 2. Select an important product area for your company and study it for: (a) international comparisons, (b) product and service developments, (c) market specialisation, (d) new distribution methods. From this identify eight innovation possibilities. 54 Food product development
Developing an innovation strategy 55 Is it blinded by the glare of the oncoming future, trying to muddle along in its present markets and technol Is it searching fearlessly and widely for new opportunities? Is it moving in a focused direction with a strong sense of purpose? There are basic company qualities that affect evaluation of possibilities such as ize of the company, financial status, type of product mix, place in the market, standard of production and marketing. But when judging the innovation possibilities, it is more important to study the companys experience, expertise and knowledge in innovation. It is important to make a quantitative analysis of the companys rating in innovation, and it is helpful to use a set of innovation indices and compare these, if possible, with the ratings of other companies or the industry in general. Various suggestions have been made for innovation indices including the success of new products, new product development effectiveness and the innovation level of the company as shown by Kuczmarski(1996). He suggested that the following indices should be determined over a three-year 1. Success rate of new products (a)survival rate: new products still on market/total number of products (b) success rate: new products exceeding revenue forecasts/total number of products commercialised (e)innovation sales ratio: cumulative annual revenues from new products/ total annual revenues 2. New product development effectiveness (a)R&D innovation effectiveness ratio: gross profits from commercialised new products/R&D expenditures to new products, (b)return on innovation: cumulative net profits from new products/ cumulative new product total expenditures for all commercialised, killed and failed new products, (c)process pipeline flow: number of new product concepts in each stage of he development process at year-end (d) innovation revenues per employee: total revenue from new products/ number of employees devoted to innovation initiative 3. Innovation level (a)R&D innovation emphasis ratio: R&D expenditure to new product total R&D expenditure (b) newness investment ratio: expenditure to new-to-world products/new products total expenditures (c)innovation portfolio mix: percentage of products new-to-the-world, line extension, repositioning, new-to-company, product line improve-
• Is it blinded by the glare of the oncoming future, trying to muddle along in its present markets and technology? • Is it searching fearlessly and widely for new opportunities? • Is it moving in a focused direction with a strong sense of purpose? There are basic company qualities that affect evaluation of possibilities such as size of the company, financial status, type of product mix, place in the market, standard of production and marketing. But when judging the innovation possibilities, it is more important to study the company’s experience, expertise and knowledge in innovation. It is important to make a quantitative analysis of the company’s rating in innovation, and it is helpful to use a set of innovation indices and compare these, if possible, with the ratings of other companies or the industry in general. Various suggestions have been made for innovation indices, including the success of new products, new product development effectiveness and the innovation level of the company as shown by Kuczmarski (1996). He suggested that the following indices should be determined over a three-year period. 1. Success rate of new products: (a) survival rate: new products still on market/total number of products commercialised, (b) success rate: new products exceeding revenue forecasts/total number of products commercialised, (c) innovation sales ratio: cumulative annual revenues from new products/ total annual revenues. 2. New product development effectiveness: (a) R&D innovation effectiveness ratio: gross profits from commercialised new products/R&D expenditures to new products, (b) return on innovation: cumulative net profits from new products/ cumulative new product total expenditures for all commercialised, killed and failed new products, (c) process pipeline flow: number of new product concepts in each stage of the development process at year-end, (d) innovation revenues per employee: total revenue from new products/ number of employees devoted to innovation initiatives. 3. Innovation level: (a) R&D innovation emphasis ratio: R&D expenditure to new products/ total R&D expenditure, (b) newness investment ratio: expenditure to new-to-world products/new products total expenditures, (c) innovation portfolio mix: percentage of products new-to-the-world, line extension, repositioning, new-to-company, product line improvements. Developing an innovation strategy 55
56 Food product development Table 2.2 Company innovation indices in New Zealand manufacturing over five years Innovation indices Moderately Least Innovative Innovative Innovative Number of new products Number of improved products Improved products, of total sales 15 Success of new products' Change management, marketing, support systems 2.4 Comparative status of plant equipment 2.9 2.1 4 Scores, I(most failed) to 5(highly successful) Scores, I(not at all) to 4(completely f Scores, I(more than 10 years behind) to 4( fully up to date) Source: From Campbell, 1999 These are quantitative measures(metrics)of new product development success and effectiveness, and of the innovation level of the company, and these can be used to compare the company's performance with that of other companies Campbell (1999) studied innovation in manufacturing companies in New Zealand over a five-year period using a simple comparison of product success number of new products; number of improved products new and improved products as percentage of total sales and asked the companies to state their level of success in new products and their level of change in technology as shown in Table 2. 2. These are mean scores for New Zealand manufacturing companies in a variety of industries so are not typical scores for the food industry. But they show the differences that can be found between the most innovative and the least innovative companies. The innovative companies tended to be innovative in all parts of their business, as can be seen from their much higher scores, than least innovative companies, for change in production, plant equipment, marketing and support systems. It is interesting to note that the highly innovative companies launched more products but had a slightly lower success score than the moderately innovative companies. It was found that these highly innovative companies tended to have a truncated product development process and missed some of the evaluation steps, while the moderately innovative tended to have more stages and more
These are quantitative measures (metrics) of new product development success and effectiveness, and of the innovation level of the company, and these can be used to compare the company’s performance with that of other companies. Campbell (1999) studied innovation in manufacturing companies in New Zealand over a five-year period using a simple comparison of product success: • number of new products; • number of improved products; • new and improved products as percentage of total sales; and asked the companies to state their level of success in new products and their level of change in technology as shown in Table 2.2. These are mean scores for New Zealand manufacturing companies in a variety of industries so are not typical scores for the food industry. But they show the differences that can be found between the most innovative and the least innovative companies. The innovative companies tended to be innovative in all parts of their business, as can be seen from their much higher scores, than least innovative companies, for change in production, plant equipment, marketing and support systems. It is interesting to note that the highly innovative companies launched more products but had a slightly lower success score than the moderately innovative companies. It was found that these highly innovative companies tended to have a truncated product development process and missed some of the evaluation steps, while the moderately innovative tended to have more stages and more analysis. Table 2.2 Company innovation indices in New Zealand manufacturing over five years Innovation indices Highly Moderately Least innovative innovative innovative Number of new products 26 9 8 Number of improved products 48 22 5 New products, % of total sales 42 19 18 Improved products, % of total sales 32 25 15 Success of new products* 4.0 4.6 3.5 Change production processes 2.6 2.5 1.9 Change management, marketing, support systems 3.5 2.7 2.4 Comparative status of plant equipment 2.9 2.9 2.1 * Scores, 1 (most failed) to 5 (highly successful). Scores, 1 (not at all) to 4 (completely). Scores, 1 (more than 10 years behind) to 4 (fully up to date). Source: From Campbell, 1999. 56 Food product development
Developing an innovation strategy 57 Think break 1. Compare the innovation scores either between your company and other companies in the industry, or if this is not possible between different product areas in your company For the last five years, collect the following information Sales growth over last 5 years Number of new products Number of improved products New products - proportion of sales Improved products- proportion of sales Success of new products All failed Changed production processes Not at all Changed marketing methods Not at all Completely Changed company organisation Not at all Completely Age of technology More than 10 years behind up-to-date From these results, how do you rate your company-highly innovative, moderately innovative, not innovative? 2. In what areas do you think your company has the knowledge and skills for innovation in the future - raw materials, processing, products, distribution, marketing, communications, consumer experience 3. In what areas do you think your company has the financial resources for innovation in the future raw materials, processing, products, distribution, marketing, communications, consumer experience? 4. What do you see as your companys barriers to innovation? o The company objectives and goals are also important in studying innovation ssibilities. What is the company wishing to achieve, where and when? The innovation possibilities need to be ranked against these objectives- in particular innovation possibilities need to fit into the general direction of the company and not involve technologies. markets and finances which are well outside the objectives of the company The innovation possibilities are screened to choose the most suitable for further study. In selecting the innovation paths, it is important to retain contact with the twin areas of business and society, as shown in Fig. 2.6. The factors used for screening vary with the company and the types of innovations, but
The company objectives and goals are also important in studying innovation possibilities. What is the company wishing to achieve, where and when? The innovation possibilities need to be ranked against these objectives – in particular innovation possibilities need to fit into the general direction of the company and not involve technologies, markets and finances, which are well outside the objectives of the company. The innovation possibilities are screened to choose the most suitable for further study. In selecting the innovation paths, it is important to retain contact with the twin areas of business and society, as shown in Fig. 2.6. The factors used for screening vary with the company and the types of innovations, but Think break 1. Compare the innovation scores either between your company and other companies in the industry, or if this is not possible between different product areas in your company. For the last five years, collect the following information: Sales growth over last 5 years ________ Number of new products ________ Number of improved products ________ New products – proportion of sales ________ Improved products – proportion of sales ________ Success of new products All failed _______________________________________________ 100% success Changed production processes Not at all _______________________________________________ Completely Changed marketing methods Not at all _______________________________________________ Completely Changed company organisation Not at all _______________________________________________ Completely Age of technology More than_______________________________________________ Fully 10 years behind up-to-date From these results, how do you rate your company – highly innovative, moderately innovative, not innovative? 2. In what areas do you think your company has the knowledge and skills for innovation in the future – raw materials, processing, products, distribution, marketing, communications, consumer experience? 3. In what areas do you think your company has the financial resources for innovation in the future – raw materials, processing, products, distribution, marketing, communications, consumer experience? 4. What do you see as your company’s barriers to innovation? Developing an innovation strategy 57