Despite launching tens of thousands of products every year, the consumer packaged goods (CPG) industry has struggled at length to develop true breakthrough innovations. In the view of Alexander Kandybin, a partner at Booz & Company who regularly advises consumer goods companies on the innovation process, it’s because they are caught in a vicious innovation cycle: The industry is mature and investments in innovation typically generate low returns. As a result, companies cut research and development investments, thus giving themselves even less chance of discovering breakthrough innovations. And the fewer big innovation successes they have, the more they cut R&D budgets. Instead, companies focus on incremental innovation, generating necessary but minor line and brand extensions — dozens of different detergent formulations, for instance, or cookie flavors — that keep new products flowing into the market. Yet the competitive advantage they gain with these innovations is soon lost as rivals quickly introduce their own copycat products into the market.
That approach to innovation, Kandybin believes, has led CPG companies to think of innovation as essentially a marketing function rather than as a strategic, competitive advantage. Their risk-averse cultures rely too heavily on customer input, limiting the number of major innovations they are willing to put out into the market. Instead, says Kandybin in this recent interview with strategy+business, CPG companies should take an evolutionary approach to product innovation by introducing more products, allowing more time for them to succeed or fail in the market, and developing products and packaging that are much more difficult to imitate.
S+B: Why does the corporate culture at so many CPG companies seem to be ill-suited to breakthrough innovation?
KANDYBIN: At most CPG companies, research and development is not a strategic function. Rather, it is more of an execution function. CPG companies typically believe that new-product ideation resides in marketing and that R&D is only loosely associated with real innovation. I have heard CPG executives say, “The R&D team just develops what we want them to develop, because we know the market.” In fact, research and development should be considered a strategic function and an equal innovation partner with marketing. R&D should be based on the possibilities from a product and technology perspective rather than on marketing’s consumer-centric view.
S+B: What’s wrong with listening to the customer?
KANDYBIN: Understanding consumer needs is important in developing many products, but it’s a difficult way to come up with truly breakthrough ideas. Dependence on understanding consumers’ own perceptions of their needs for innovation ideas will only lead to incremental innovation, and incremental innovations can’t, by definition, reap large rewards.
Should we involve the consumer in innovation? Of course. But the question should be, What can you ask consumers? If you ask consumers about something new, they won’t know what to tell you, because they don’t know what they want. For example, if you had asked consumers in the early 1900s what improvements they wanted in transportation, they would likely have told you a faster, more reliable car and better roads. No one would have thought to ask you for an airplane. If you give consumers a prototype of a new product, they can react to it. But it requires quite a bit of development to get to that point.
S+B: How can CPG companies increase their chances of coming up with breakthrough ideas?
KANDYBIN: This refers back to companies’ overdependence on customer input. Breakthrough ideas come from a better understanding of technology development and trend development, and from trying to figure out potential solutions. You can never know if an idea will be successful or not, so companies should develop multiple options as prototypes, and only then involve consumers in the process. The customers will have something to react to. Even at that point, however, if your idea is truly new, consumers may not appreciate all of its benefits.