Renovate before you innovate

Philippe Marmara

This headline, borrowed from Sergio Zyman, still reflects one of the biggest contemporary challenges for most companies.

The reality today is that there is a frantic race towards innovation, because the business environment and the customers are evolving very fast. The irony is that more than 80% of these innovations are a failure. Why is that so?

Having witnessed this phenomenon in more than 100 companies worldwide over the past 30 years as a senior operator and consultant, I can say that it is not because of the quality of innovations, but the lack of readiness of the system that is supposed to handle them.

Here are some of the key reasons:

“It’s the economy, stupid“: There is a real issue today in understanding the depth and complexity of the value chains. Numbers don’t lie! There is one universal rule: One miscalculated element and the business proposition makes no sense anymore. Some operators and distribution channels are highly complex and require a very precise and in depth understanding. I’ll always remember this ice cream giant offering a win-lose agreement to its own franchisees, and not understanding why they were selling competitive products… The real P&L and cost structure of the distributor network are generally very alien to head offices and they generate many mistakes.
Another example would be the complete mismanagement of the traditional wholesale system from one of the world’s leading beer companies in China.
Too many layers, too many unnecessary players adding cost and complexity. We corrected it and prepared the ground for a healthy business but also for a great innovation funnel.

“Are the distributors capable of handling the new product or the new service”?  It is all fine and well in a power point presentation but… how often does the lack of understanding of the market reality, in detail, can jeopardize a good idea? I remember the failure of a 2 liter soft drink launch from a giant in Italy… the bottle did not fit in the fridges of most households. In addition, when the problem was not the fridge, there were problems with the logistics system and warehousing… concrete critical issues that, most of the time, are ignored by marketing departments.
Not to mention the working stock of old products in the market place. Ignoring this reality means total misalignment between advertising, communication and PR campaigns, and product availability.

Can the sales force handle the new product? There is nothing more exciting than an army of sales people going after an objective. It is the pride of all CEOs. We all get excited running big sales POW WOW and getting everyone motivated. However, most of the time, sales organizations show very little flexibility. They obey strict constraints regarding hours, travel, timing, geography, sectors, bonuses, and objectives. Most of the time, it is very difficult to get a new product efficiently and effectively in their pipeline. The timeline between launch and operational reality is highly counterproductive and destructive.
Danone invented the concept of “intrapreneurship” to get innovation out of their own complex and slow moving organization and managed by smaller, agile, and entrepreneurial internal structures.

Do you have time? We have already discussed expectations on ROI and their effect on organic growth. Innovation is an important element of growth and we cannot expect investments to have a short-term return. It would be asking the impossible from a system and highly demotivating for an organization. Organizations managed by quarterly results have very little chance to be heading the innovation race.

Managing the sacred cows: Companies are full of sacred cows. Difficult to move, highly resilient. Cannot say this… cannot do that… we have always done it this way... Innovative companies think and act “outside of the box”. When you are thinking about reaching a business destination, you have to identify the obstacles between you and your success. These are usually internal, part of the culture and behavior. They are sacred cows. Swatch’s success would have never happened if the founders had not reconsidered all the cultural elements of the Swiss watch industry and questioned its sacred nature: Craftsmanship, pricing, paucity, quality, prestige…

It's not digital… it's not all traditional: Many consultants or advisors will tell you that it is all about the new economy. However, many sectors, products, or services are still in the traditional economy. New consumer behavior in pre-post purchase activities is affecting most companies, but the fundamentals of producing, delivering, and selling are still the same. What is not working in the traditional model has very little chance of working in the new economy. In the era of big data, predictive analysis, we see major failures from big retailers, for example. They have the data, they run zillions of analysis, they predict, and influence… but their business models are failing. Eventually they start talking about shopper experience in store again…

Think about this, have a good, unbiased look at your business. Check the value chains, understand the numbers (the real ones), look at your distribution systems, from the most agile to the most complex, understand your sales force and its capacity to implement, kill some sacred cows, and don’t segregate the old economy from the new. Get the fundamentals right. Renovate, then you will be great innovators.