Tag Archives: innovation

Is your Innovation disciplined or are you simply dreaming up new ideas?

10 Things to Think about before you try to Innovate

What is Innovation? Does a new idea qualify as an innovation?  Not in my mind. Does in it quality as innovation in your customer’s mind?  Not if it does not create economic value for your business or your customers.  An idea might be creativity but the rubber hits the road when you make real changes to the value chain that creates economic value for your customers and your business.  We shared more about how to use upfront thinking and strategic tools and proven idea-to-innovation processes to innovate and create real economic value for you and your packaged goods customers at the Flexible Packaging & Label Makers Association – Changing the Landscape – Conference on 10th & 11th November 2016.

For a link or reference to that keynote presentation go to:

Many people confuse creativity and the generation of ideas for innovation which is economic value creation.  There are many great examples of innovation in the marketplace we can all point our fingers at and they each hold one commonality – they create value in the eyes of the end customer who pays money for the innovative good or service.  These innovations remove cost in the value chain from inputs to end user or create value in the value chain generating an improved product or service that a customer is willing to pay a premium for due to a higher perceived value offering.

Many people in the consumer packaged goods and packaging industry get bogged down in the gross misunderstanding that innovation is all about new products and fancy packaging – wrong again!  The lowest return on investment for your innovation effort is Product Performance (new or existing) and yet an alarming 90% of innovation effort is focused on this one of ten types of Innovation (Keeley, et al, 2013).  Innovation is a discipline, not a creative activity. Dreaming up new products or features, in isolation, “provides the lowest return on investment and the least competitive advantage” (Keely, 2015).  Why? Simply because the easiest thing to copy is a product – new or existing!  Think about the health of the Australian Flexible Packaging & Label Industry today?  Who is your greatest threat to your own competitive advantage?  Is it lower cost flexible packaging and label manufacturers in Asia?  Are they capable of copying your new packaging innovation? Yes! To make a truly transformational and sustainable innovation that creates value not only for you and your business but your customers you need to innovate across multiple types of innovation.

10 Types of Innovation

Only through strategic upfront thinking and use of a disciplined idea-to-innovation process like Stage-Gate® or Lean® and through Agile® planning and project management processes can you begin to start directing your scarce resources – $/people/time in the right direction.  How can you innovate in the right direction if you have not taken aim at what you are trying to achieve?  You might choose to disrupt the incumbents in your industry but how to do that will rest on a deep understanding of your customers, based on deep insights into what they value today and what you perceive they will value tomorrow.  They can’t tell you what they will value tomorrow because they don’t know the future.  Neither do you!  If Henry Ford had asked people in the early 1900s what they wanted in the way of improved transport options they would have replied “a faster horse!”.

Image result for henry ford faster horses

You will still find there is a lot of aim, fire and adjust going on as you pivot and turn and kill off small bests and invest in bigger bets that are taking your business in the right direction.  Where is that direction?  What data sources big and small, quantitative and qualitative do you have to start to build a better tomorrow picture for you to take your fast, agile, lean and innovative company.  Be sure when you are out and about spending valuable time with your customers you are tuning into their problems, NOT yours!  Try to take a step back before you try and sell them your latest greatest flexible packaging or shiny new label that in all reality they probably don’t need or want. Start with a simple question next time you face your customers – old and new and prospects, and dig deep from there.  What is keeping you awake at night? What is your biggest headache or problem in your business right now? Start wide and only then narrow in on their packaging and labelling issues.  You may well uncover an insight or see or hear an opportunity to innovate far beyond a new product or packaging type to one or two or three or four or five different types of innovation that can help you transform your business and your customers.  Once you have more than 4 types of innovation in your new to market launch you are already differentiating yourself from the pack – pardon the pun!  Get up over 5 to 6 or 7 and you will truly transform and disrupt your industry and create a sustainable (profitable) competitive advantage for your business.

Do not underestimate the amount of effort, upfront thinking and discipline that is required to make this happen.  If Innovation was easy everyone would be doing it wouldn’t they? Clearly they are not.  90% of innovation effort is still focused on the easiest to copy “Product Performance” type. Step outside the pack – think outside the box and start innovating on the other 9 types of innovation.

The article above was published in FLEXO November 2016 Issue: p.6 ahead of the Flexible Packaging & Label Makers Association – Changing the Landscape – Conference on 10th & 11th November 2016.

Dermott Dowling is Managing Director @Creatovate, Innovation & International Business consultancy. Creatovate help businesses create, innovate and growth through innovation and international business development.

If you are interested to get Dermott to talk to your team, business or conference about creating value for consumers and customers in consumer packaged goods you might like to reach out to him for a chat over a cup of well brewed coffee. Contact dermott@creatovate.com.au or jump onto the Creatovate website and complete the contact form so we understand your needs and can tailor a bespoke consultancy solution to your challenge.

Bibliography & References:

Larry Keeley, Ryan Pikkel, Brian Quinn & Helen Waters (2013) Ten Types of Innovation – The Discipline of Building Breakthroughs John Wiley & Sons, Inc., Hoboken, New Jersey.

http://blog.deloitte.com.au/strategy/not-all-innovation-is-equal/#.V_cPZOB96M8 viewed on 7/10/2016

https://hbr.org/2011/08/henry-ford-never-said-the-fast viewed on 7/10/2016

 


Think Inside the Box

think-inside-the-box

Think Inside the Box – Where is your Food Coming From?

Strolling the many beautiful aisles of BiG (Ben’s Independent Grocer) in Kuala Lumpur earlier in the year with an awesome Aussie food client I was suddenly struck by one product that jumped right off the shelf and slammed me in the face!  Amongst a sea of 50,000+ products (the average number of skus in a supermarket) and BiG is one of the best supermarkets I have ever visited and that’s quite a few in quite a few countries.

What captured my attention from One Degree Organic Foods was firstly a QR code front and centre of pack with a call to action to discover the ingredient story and what’s actually inside the box!  Funny you would think you could just read the ingredients panel for that information wouldn’t you?  You might also expect to see the usual blah blah blah statements that hide the truth on that same ingredient panel. Statements like “made from local and imported ingredients”, “sourced locally where possible”,…etc etc.  Not here, the family who own and operate One Degree Organic Foods are farmers themselves or as I like to call them farmpreneurs – the new breed of farmers who are entrepreneurs taking their value added brands and food products directly to consumers and baring their all in the name of authenticity and pride and passion!

We can not say it better than the owners so I will just quote what they say on their website: “We’re not a conglomerate, nor a big-box retailer, nor a chemical company with a food division. We’re a family who cares deeply about family farmers and the integrity of your food.” Does that resonate with you? It did with me in a busy brilliant independent grocer in KL, Malaysia in a cereals aisle that had local and imported options from the 4 corners of the globe to choose from.  I ended up standing at the shelf scanning QR codes and watching engaging YouTube videos of Pecan farmers in Peru, Buckwheat growers in central Canada and connecting with the passion these farmers showed to their land and the ingredients inside the box!

This is example is not only good social business its smart business and its smart marketing.  The best of the best in my mind.  Brilliantly efficient and transparent in a modern age where BIG is bad – who trusts large Multinational Profit Shifting Corporations anymore these days?  In fact in food, many have resorted to ‘faux branding’ creating cottage brands and hiding behind PO Box or Head Office Addresses with ABC Pty Ltd passing off a mass produced food item as something akin to a cottage industry startup family food brand.  If they are not creating ‘faux brands’ they are buying the genuine article and bringing them into their fold – founders and all to run alongside their mainstream food brands.  I have spoken  and written about this recent trend at Food&DrinkLive! in Sydney, Australia 2015 and in an earlier CreatoBlog Think, Act, Adapt and Innovate like a Startup!

Shoppers and consumers are asking nowadays – where is my money going? When I shop whether locally at an independent grocery store or with a major national supermarket chain they are already making a decision as to where they invest their hard earned $$$.  After get to the supermarket shelves or jump online you faced with 100s upon 100s of brands to chose from before you make another decision as to which company will you support. That support is being consciously or unconsciously driven more towards small, independent, family owned businesses more than ever before and there are many reasons for those choices.

Think about your own shopping decisions you take.  Of course price is important and as the famous jingle goes “everyone loves a bargain! ”  However do you also think of the following factors in your decisions at the shelf or when shopping online?

  • How is this food grown? How are the animals treated? Is it sustainably farmed?
  • Is this a genuine real article?  How much has my food been processed, added to, tampered with and packaged up?
  • Where is this food from? What about the ingredients that go into making it? Is it safe to eat and feed to my family?
  • Who am I supporting here? A large multinational or a family owned or small business?

Brands BIG and small need to start to think! act…and adapt to these fast changing times.  Technology is making it practical and cost effective for small to meet BIG and beat them on the playing field. Why? Because they come from a place of realness and not marketing puffery. Consumers connect with founders and their startup stories cooking on the stovetop, growing and processing their own farm produce and packaging up and telling their story in a way that is authentic and real.  You can not copy that if you are a large Corporate and it outpositions BIG as BAD and small is GOOD!

The examples we can list of brands that are doing this well is long and numerous but the list of brands NOT doing this is 100+ times longer.  Why not, take the opportunity to use technology to connect with consumers and customers and share your story? The time is now – there has never been a better time to be a farmpreneur or a small food producer. Here is a few other great examples you might like to explore and if you are interested in taking your own business to the next level of consumer connectivity give us a call or drop us a line.

We love working with independent family owned fast growth businesses @Creatovate.  In fact, we have by accident or choice managed to specialise in it with a focus on the twin pillars of sustainable (profitable) growth – Innovation and International Business – what are you waiting for? Get out and tell your story – its real, it’s authentic and consumers and customers want to hear from you!

If you are interested to come and hear Dermott talk about creating value for consumers and customers in consumer packaged goods you might like to come to Changing the Landscape – The Flexible Packaging & Label Makers Association on 10-11 November 2016 in Melbourne, Australia.  Dermott will give a keynote talk on 11 November titled – Creating Value for your customers in the 21st Century for FMCG’s

Dermott Dowling is Managing Director @Creatovate, Innovation & International Business consultancy. Creatovate help businesses create, innovate and growth through sustainable innovation processes and spreading their wings outside their home base.

Bibliography & Additional Sources:

http://www.consumerreports.org/cro/magazine/2014/03/too-many-product-choices-in-supermarkets/index.htm viewed on 16/9/2016

The Big Group: http://thebiggroup.co/BIG/?p=about

Transperant Supply Chain https://www.onedegreeorganics.com/transparent-supply-chain and our team https://www.onedegreeorganics.com/our-team

 

 

 


Think Past Product when You Think about Disruptive Innovation

aldi-copycat-packaging-print-print

Author: Dermott Dowling @Creatovate (2016).

Now more than ever we need to think past new products and improved product performance when we think of truly ‘#disruptive innovation’ that upsets incumbents in industries and creates sustainable competitive advantage for the disruptive innovators.

How many types of innovation can you think of?  Have a go…write them down below as many as you can…can you see 10 or more distinct types of innovation examples?

  1. ……………
  2. ……………
  3. ……………..
  4. …………..
  5. …………..
  6. …………..
  7. ………….
  8. ………….
  9. …………….
  10. ……………..

Often, when we think about innovation all we think about is new products or improving existing product performance.  This is very important, but one of the increasing challenges we face in a hyper-competitive fast-pace modern business world is the ability of low-cost fast-to-market competitors copying your innovation and reducing your margin on new products and improved product performance as quickly as you can bring these new products to market.

Take this comment from a former Australian PepsiCo® R&D manager – is it symptomatic of your industry as well?

We knew Smith’s Popped Chips was going to be a success as Popped Chips was doing very well in the US and our early prototypes tested very well with consumers and retailers.  What we didn’t expect was 3 other competitor brands and a private label retail brand launching at exactly the same time as we did!” PepsiCo® R&D & Innovation Manager, AIFST Innovation Reloaded Conference, Sydney, 2014.

The following extracts from articles and sources follow to help you think of multiple types of innovation so the next time you come up with a great idea for your business you might also think of some additional types of innovation to build on that great idea and ask your peers and customers and networks inside and outside your business for their ideas to help build a truly ‘disruptive innovation’.

Whatever your company hopes to do in terms of innovation, we suggest that the answer involves innovating within the following 10 distinct innovation areas, classified by the Doblin model:

  1. profit model,
  2. company network,
  3. company structure,
  4. company process,
  5. product,
  6. product performance,
  7. customer service,
  8. customer channel,
  9. innovative branding and
  10. customer engagement.

Let’s take a look at each of the 10 distinct types of innovation and an example of a company using that type of innovation as a key distinct advantage in their industry.  Note that you need to aim for at least 3 and ideally 5 or more different types of innovation to create a truly ‘disruptive innovation’ that can be sustained for a decent period of time in a highly competitive industry (Keeley, 2015).

Profit Model

How you make money | Innovative profit models find fresh ways to convert your offerings and other sources of value into cash. Great ones reflect a deep understanding of what customers and users actually cherish and where new revenue or pricing opportunities might lie. Innovative profit models often challenge an industry’s tired old assumptions about what to offer, what to charge or how to collect revenues. This is a big part of their power: in most industries the dominant profit model often goes unquestioned for decades. (Doblin, Deloitte Development LLC.)

Examples of companies that successfully altered profit models in established industries to include:

  • Gillette – the ‘razor and blades’ profit model has been celebrated for years and adapted to countless other industries from ‘printers & cartridges’ to ‘coffee makers & capsules’
  • Dell – reengineered the go-to-market delivery system when it first launched selling direct causing large share loss for competitors with traditional reseller business models.

Network

How you connect with others to create value | In today’s hyper-commercial world, no company can or should do everything alone. Network innovations provide a way for firms to take advantage of other companies’ processes, technologies, offerings, channels and brands — pretty much any and every component of a business. These innovations mean a firm can capitalize on its own strengths while harnessing the capabilities and assets of others. Network innovations also help executives to share risk in developing new offers and ventures. These collaborations can be brief or enduring, and they can be formed between close allies or even staunch competitors. (Doblin, Deloitte Development LLC.)

Examples of companies that have successfully created value through network include:

  • Target (US) – work with product designers and world-renowned fashion designers to create items only available at Target, other retailers to create Pop-Up stores for limited times only.
  • P&G – Connect + Develop – P&G connects with external innovators and companies who submit innovations to P&G’s Connect + Develop. Connect + Develop is P&G’s program for encouraging open innovation, also known as crowdsourcing.

Structure

How you organize and align your talent and assets | Structure innovations are focused on organizing company assets — hard, human or intangible — in unique ways that create value. They can include everything from superior talent management systems to ingenious configurations of heavy capital equipment. An enterprise’s fixed costs and corporate functions can also be improved through Structure innovations, including departments such as Human Resources, R&D and IT. (Doblin, Deloitte Development LLC.)

Some companies that have created value through network innovation include:

  • Whole Foods Market – is a ‘high trust organization’ where teams are everything from hiring which requires 2/3 team approval to P&L management, transparency is everything and decentralized innovations are amplified quickly instead of achingly slowly (if at all) (Keeley, et al, 2013, p. 28).
  • L. Gore – has used a ‘flat lattice’ organisation model where teams are deliberately kept small and every employee becomes a shareholder after 1 year of service.

Process

How you use signature or superior methods to do your work | Process innovations involve the activities and operations that produce an enterprise’s primary offerings. Innovating here requires a dramatic change from “business as usual” that enables the company to use unique capabilities, function efficiently, adapt quickly and build market-leading margins. Process innovations often form the core competency of an enterprise, and may include patented or proprietary approaches that yield advantages for years or even decades. Ideally, they are the “special sauce” you use that competitors simply can’t replicate. (Doblin, Deloitte Development LLC.)

Examples of companies that have created value through process innovation include:

  • Zara – using fast fashion trends and supply chain optimisation Zara can move from the sketchpad or fashion runways of this world to the shop floor in just 3 weeks, the clothes will hang from Barcelona to Berlin to Beirut (Helft, 2002).
  • Toyota – ‘lean’ production system reduced waste and excess, driving astonishing efficiency and continual product and process improvement across the business.
  • IKEA – ‘flat-pack’ furniture with no variation by region or country with the same hardware and instructions regardless of where bought or sold streamline internal production processes.

 

Product Performance

How you develop distinguishing features and functionality | Product Performance innovations address the value, features and quality of a company’s offering. This type of innovation involves both entirely new products as well as updates and line extensions that add substantial value. Too often, people mistake Product Performance for the sum of innovation. It’s certainly important, but it’s always worth remembering that it is only one of the Ten Types of Innovation, and it’s often the easiest for competitors to copy. Think about any product or feature war you’ve witnessed — whether torque and toughness in trucks, toothbrushes that are easier to hold and use, even with baby strollers. Too quickly, it all devolves into an expensive mad dash to parity. Product Performance innovations that deliver long-term competitive advantage are the exception rather than the rule. (Doblin, Deloitte Development LLC.)

Examples of companies that have used Product Performance innovation include:

  • Dyson – from vacuum cleaners to hand-dryers to fans Dyson continuously innovates on ways to deconstruct what is not working well in existing industries and then rebuild products on platforms that offer customers superior product performance and charge premium prices for the privilege of use of these products.
  • Mars – with My M&Ms people are able to add their own messages, logos, or images to specific colour M&M candies – personalising product and opening up new uses. Ferrero has done similarly innovative things to reinvent Nutella and put it back on the table at home or out and about in cafes and shopping malls.

Product System

How you create complementary products and services | Product System innovations are rooted in how individual products and services connect or bundle together to create a robust and scalable system. This is fostered through interoperability, modularity, integration, and other ways of creating valuable connections between otherwise distinct and disparate offerings. Product System innovations help you build ecosystems that captivate and delight customers and defend against competitors. (Doblin, Deloitte Development LLC.)

Companies that create product system innovations include:

  • Microsoft – Office – initially the products that went into MS Office like Word, PowerPoint and Excel were sold as individual products, now bundled together with Outlook and more they create an integrated system that is used as a productivity suite globally.
  • Scion by Toyota® – Scion allows consumers to build their own car choosing from a selection of models and colours, paint and tyre trim modifications, radio, and more.

Service

How you support and amplify the value of your offerings | Service innovations ensure and enhance the utility, performance and apparent value of an offering. They make a product easier to try, use and enjoy; they reveal features and functionality customers might otherwise overlook; and they fix problems and smooth rough patches in the customer journey. Done well, they elevate even bland and average products into compelling experiences that customers come back for again and again. (Doblin, Deloitte Development LLC.)

Some companies doing the obvious great are:

  • Zappos – who would of thought buying a pair of shoes could be so much fun and so rewarding for the founders – Zappos sold to Amazon for US$1.1billion in 2009. ‘Deliver ‘WOW’ through service’ is the first of Zappos 10 core values.
  • Sysco – one of the largest food distributors in North America with $43b in revenues, to elevate service in a relatively commoditized industry, Sysco created ‘Business Reviews’, a FREE consulting service helping clients to design menus or plan back-of-the-house logistics.

Channel

How you deliver your offerings to customers and users | Channel innovations encompass all the ways that you connect your company’s offerings with your customers and users. While e-commerce has emerged as a dominant force in recent years, traditional channels such as physical stores are still important — particularly when it comes to creating immersive experiences. Skilled innovators in this type often find multiple but complementary ways to bring their products and services to customers. Their goal is to ensure that users can buy what they want, when and how they want it, with minimal friction and cost and maximum delight. (Doblin, Deloitte Development LLC.)

An example of a company who connected their offer to customers in new and innovative way:

  • Xiameter® from Dow Corning is a web-based sales channel first launched in 2002 that assists customers with a new way to buy silicone. Cost conscious buyers without the need for technical support or advice were able to select from 1,000s of product options, choose pricing and terms that suit them and lock in price and volume commitments in a simple but effective no frills business model that ran alongside the mother company.
  • Nespresso® has retail stores and coffee shops worldwide, operates concessions inside department stores, online club for ordering capsules and machines, retail resellers for machines, partnerships with hotels like Ritz-Carlton & Hyatt, Airports and a Chefs and Sommelier program for harmonizing coffee with food and wine. Multiple channels are used to engage customers and consumers.

Brand

How you represent your offerings and business | Brand innovations help to ensure that customers and users recognize, remember and prefer your offerings to those of competitors or substitutes. Great ones distil “a promise” that attracts buyers and conveys a distinct identity. They are typically the result of carefully crafted strategies that are implemented across many touch points between your company and your customers, including communications, advertising, service interactions, channel environments, and employee and business partner conduct. Brand innovations can transform commodities into prized products, and confer meaning, intent and value to your offerings and your enterprise. (Doblin, Deloitte Development LLC.)

Companies that have used ‘brand innovation’ successfully to date include:

  • Virgin – starting as a mail order record business and now involved in planes, trains, rockets, telecoms, wealth and health management and more! Virgin is the elastic band of ‘brand’!
  • Aldi – have innovated using brand ‘exclusive’ or ‘destination’ branding that cuts out the middleman and goes direct to suppliers to find unique food products, beverages, and houseware.

Customer Engagement

How you foster compelling interactions | Customer Engagement innovations are all about understanding the deep-seated aspirations of customers and users, and using those insights to develop meaningful connections between them and your company. Great Customer Engagement innovations provide broad avenues for exploration, and help people find ways to make parts of their lives more memorable, fulfilling, delightful — even magical. (Doblin, Deloitte Development LLC.)

Companies using customer engagement innovation to excite and delight customers include:

  • Blizzard Entertainment – World of Warcraft has more than 11million subscribers worldwide who are actively encouraged to engage with each other using a multitude of technology and techniques and ‘team up’ to achieve higher rewards.
  • Apple – shows off its new hardware and software first to its developers and affiliates at its World Wide Developers Conference (WWDC) where tickets are distributed in a lottery system with prices of $1,599 a ticket for WWDC2015.

Winning innovations typically use multiple types of innovation – if you can get 3 or more that’s great and if you can get 5 or more in your next big bet that’s even better!  You are much more likely to create a sustainable innovation that endures when you innovate across multiple types of innovation.

An example of a truly transformational business and industry innovation that transcend many types of innovation follows:

Nespresso

  1. Profit Model – machines were first available widely across multiple channels and retailers at low prices but pods were only available direct from the club.
  2. Network – machine manufacturers were engaged to create truly great coffee and growers were engaged to source elite top quality coffee and retailers were engaged to get the machines out there far and wide.
  3. Structure – Nespresso did not start out as an idea from the inside the mothership Nestle but rather the opposite it was ‘incubated’ across the road from head office in a distinct and different building with a dedicated team set about to disrupt their existing instant coffee business
  4. Process – Nespresso® licensed a unique technology from the Battelle Institute that made coffee in an instant using an entirely new process (Silberzahneng, 2010).
  5. Product Performance – we all can remember the first time we had a good Nespresso and could not believe how good the taste was for a homemade coffee.
  6. Product System – build into the Nespresso club was the unique pods system with multiple types of coffee to suit different palates and desires.
  7. Service – with Nespresso® club and direct engagement of end consumers through the stores, direct mail, social media, etc. Nespresso® took delivery of a staple to a whole new level.
  8. Channel – Machines – sold everywhere Pods – direct from Nespresso®.
  9. Brand – Nespresso did not choose George Clooney as their ambassador – the 2 million friends on Facebook decided he was the ultimate spokesman for their most adored brand.
  10. Customer Engagement – from online to telephone to direct mail to Nespresso shops and stalls in busy hubs like airports, hotels, etc

Systematically determining what needs to be changed inside and outside your company to create innovation that transcends multiple types of innovation typically involves the following steps according to Keeley (2015).

Understand the beliefs, practices and truths. Start by just listing the unchallenged assumptions about rules, tools, techniques and ingrained habits about the industry.  Now think about ways to challenge these orthodoxies.

Starbucks sought to challenge its industry orthodoxies, the first one it faced was the assumption coffee was a commodity for which Americans wouldn’t pay premium prices.

What are your inclinations or predispositions towards doing business in a particular way today?

Imagine life without those assumptions. Consider a customer group that would not behave the way your customers typically behave.  Imagine a business that specifically does the opposite to what you are doing right now?  What would be some of the likely and unlikely outcomes?

Now think about different ways to rebuild the platform.

Now that assumptions are stated, think of all the ways to challenge them, from a new profit model to different customer-engagement tactics. Most companies stop at trying to do product innovation that marginally alters the offering. The big returns come from multiple approaches, (Keeley, 2015).

Think about Starbucks again. The company flipped its industry’s profit model orthodoxy by creating a premium experience. People may not pay more for coffee, but they certainly do pay more for a different atmosphere in which to drink it.

Start with one of the 10 types of innovation you find most interesting, start thinking of different ways you could innovate under that configuration on your business / category / customer today.

Ask questions. ‘how might we?….’ ‘what if?….’ ‘what’s frustrating you right now? ‘what’s frustrating your customers right now?’ ‘If you had a magic wand, what would you change?….’ Answers to the right questions can lead to an idea, an overview sketch of a new strategy, something to share and build upon.

Once you pick the areas you want to tinker with, how will you explain this new way of doing things to your mother? Where will you concentrate first, and then next? What does the new idea add that is fresh and valuable? What should be prototyped to help customers, users, insiders and partners?

Dermott Dowling is Managing Director @Creatovate, Innovation & International Business consultancy. Creatovate help businesses create, innovate and growth through sustainable innovation processes and spreading their wings outside their home base.

References:

James Janega, (2014), April 2 Larry Keeley, Doblin and the 10 categories of innovation  http://bluesky.chicagotribune.com/originals/chi-larry-keeley-doblin-innovation-strategy-bsi-20140401,0,0.story retrieved 12/04/2016.

Larry Keely, Ryan Pikkel, Brian Quinn, Helen Waters (2013) Ten Types of Innovation: The Discipline of Building Breakthroughs, John Wiley & Sons, New Jersey.

Business Today, (2011), Dec 11 Cover Story: A Happy Marriage http://www.businesstoday.in/magazine/cover-story/innovation-toshiba-ups/story/20185.html Business Today online viewed on 12/04/2016.

Charles Fischman (1996) April 30, Whole Foods is all Teams http://www.fastcompany.com/26671/whole-foods-all-teams viewed on 13/04/2016

W.L. Gore http://www.gore.com/en_xx/aboutus/culture/ viewed on 13/04/2016

Helft, Miguel (2002) May, Fast Fashion Forward Business 2.0

Philippe Silberzahneng (2010) March 18, https://philippesilberzahneng.wordpress.com/2010/03/18/nespresso-complexity-innovation-process/ viewed on 15/04/2016


Think, Act, Adapt and Innovate like a Startup!

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Large companies’ size and culture make disruptive innovation extremely difficult (Blank, 2010). Despite this challenge many large food businesses today recognise the need to be disruptive innovators and test new business models in the digital world.

bat-in-face

 

Why change? Because the bat is coming…

Change is coming, it’s here now and there are many ways businesses can react to change.  They can duck and hide and hope the flying baseball bat misses them and takes out the competition.  They can look the other way and collect the full force of change to the face like the poor gentleman below at the Red Sox game or they can be brave anticipate the changes that are coming and reach out for the bat like the guy just out of shot.  Often its the startup that is just out of shot or sight of the incumbents.  Backed by passionate founders and astute investors they anticipate change, react to it positively and use innovative new business models and new technologies to literally land the baseball bat in the face of the incumbents and harvest the glory of fast growth in a new economy.

In this keynote address given at Food&Drink Business Live! Disruptive Innovation, Creatovate – Managing Director, Dermott Dowling takes the audience through some practical learning steps and lessons from local digitally focused food innovators leading the way in this exciting new land of opportunity.

Think!

Thinking is the first step in any business innovation. Alas, it’s hard in isolation. You sit and stare and scribble on the blank sheet of paper in front of you.  However, people as social beings need each other and our collective mind power to come up with breakthrough ideas to innovate. More often than not we scan the environment for what’s out there already and working? Alternatively, we look for problems – what’s bugging our current customers or potential new customers? We then map the value chain from inputs to outputs looking for – what can we take out? Where can we fit in? How we can create value for customers and ultimately our own business?

Think

 

Act!

Next step in the process of building an exciting startup or disruptive innovation is design & rapid prototyping our ideas into Minimal Viable Prototypes or MVPs. Rough and ready is fine here, what’s most important is we start testing & experimenting our hypotheses on existing and new customers ASAP.   Gone are the days we spend weeks and months in kitchens, pilot plants and focus groups with consumers.  The market demands we move at ‘tech speed’ now!  I can not wait as your customer or your boss for months while you toil and spend $$$ without any real customer or consumer feedback!  By that I mean people reaching into their pockets and paying for the food and beverage products, not just talking about how cool it is or whether they might like to buy it when it hits the shelf in 12-18 months time!  As we act, we simultaneously align as a team adapt to the changing customer feedback. We also measure & monitor early results for signs of customer acceptance and readiness to scale our new business model.

Business Model Canvas

Startups are not small versions of large companies. They need different tools for thinking and acting. Its important you create a common language in your company if you venture down the path of creating intrapreneurial startups inside your large organisation, so people are talking on the same page and not hearing Blah! Blah! Blah! when we mention new terms like Business Models. For this reason at Creatovate, we recommend a common approach to our clients hypotheses generation like the Business Model Canvas (Osterwalder, 2012).  This is an excellent thinking tool to get the team ‘on the same page’ in terms of understanding of terms, hypothesising ideas and creating a new Business Model for real market testing.

BMC Hypotheses

Adapt!

Once you have thought and aligned on your initial business model hypotheses “get out of the building” and ask potential users, purchasers, and partners for feedback on all elements of the new business model, including product features, pricing, distribution channels, and affordable customer acquisition strategies. If we accept that startups are engaged in the search for a new business model, we recognize that radical shifts in a startup’s business model are the norm, rather than the exception. For this reason rather than fire the executive team when the normal approaches to go-to-market are not working, we pivot and change tack (Blank, 2013).  Pivots are a completely normal part of the startup process as you first discover customers who will pay an acceptable price for your product and validate your minimal viable prototypes fit their needs and are worthy of scaling.  Venture Capital and astute investors understand pivots as an essential part of building a startup.  The question is does established incumbent business leaders understand they need to treat startups in their own company very differently to the normal go to market new product development that may go through an existing business process like Stage-Gate to existing customers using existing norms.  If you are going to create a breakthrough innovation and business model in the digital economy its highly likely you will be doing things very differently.  As such leaders need to be aware of a different set of behaviours and skills to encourage the startup founders and intrapreneurs to boldly push on and not be afraid to pivot as they learn and lean left and right to find the right business model and validate their multiple hypotheses.

Business Model Iteration

Innovate $

Private equity and venture capital are investing in disruptive startups in the food industry right around the world.  The top 25 U.S. food and beverage companies have lost an equivalent of $18 billion in market share since 2009. Some analysts are describing ‘big businesses in food’ nowadays as being like melting icebergs, every year they become a little less relevant to customers and consumers (Kowitt, 2015).

VC Funding for Food & Beverage Startups

Major packaged-food companies lost $4 billion in market share last year alone, much of it to smaller, more health-conscious companies.  Venture capital firms are taking notice. Over the past five years, they have invested nearly $570 million in food companies. Famous Australian VC/PE funded food businesses include Rafferty’s Garden (Anacacia Capital’s sale of baby food maker Rafferty’s Garden to PZ Cussons for over A$80m).  Notable trade sales recently of established food businesses that have been reinvented include Pacific Equity Partners’ sale of Peters Ice Cream to UK-based ice cream maker R&R (AVCAL Handbook, 2014).

Large multinational food companies are not taking the changes in their markets lying down.  Nestle founded Inventages in 2002 and has invested EUR$150m in 38 companies across a breadth of categories from consumer health sciences to CRM to supply chain to innovative packaging solutions.  Tate & Lyle established Tate & Lyle Ventures in 2006 initially with a £25M VC fund & currently has another active £30 million fund investing £1-2 million per tranche in each investment.  Coca-Cola Founders program was established in 2011 and already has 19 co-founders, across 10 countries, with 9 startups partnering with Coca Cola to provide much needed scalability to the startups and their co-founders.

Design to Grow

Large businesses need startups and vice versa. Is there some magic in the middle and what can incumbents do to learn to be lean and act and adapt and innovate like a startup! Established businesses are in danger of not being able to adapt quickly enough, while nimble start-ups fail due to their inability to scale. Tomorrow’s business winners will be the ones who know how to combine the two (David Butler, VP Innovation & Entrepreneurship, Coca-Cola).

Learn & Lean

Australia is seeing signs of life now in the land of digital disruption with several new startups from both existing food companies and new entrants.  Some digital disruption innovation leaders interviewed for this key note include Dish’d    Kogan Pantry and Marley Spoon  MDs & Founders.  Each business plays to its own unique space in this exciting new field of play, but there are several key common learning shared by their leaders for any business thinking about entering the exciting and highly disruptive digital innovation landscape in food.

dishdkogan pantryMarley Spoon AU

Challenges

Challenges of starting a new food business in the online world today in Australia include:

Sub-culture of a startup within a large business can be hard to swallow for staff and senior leaders alike in established traditional food businesses.  Patience is essential alongside persistence with payback horizons very long and initial sales may fall well short of what can be expected from taking NPD to market through traditional go to market retail channels.  Consumers want whole of shop/meal solutions rather than parts of the pantry stocked from several different eTailers, and they are looking for suppliers to make their lives easier, not harder when it comes to shopping online and/or cooking meals at home.  Inventory / demand / supply chain management is even more challenging in the online with demand for hot specials either going viral and off the charts or product being unappealing and not moving at all.  Never underestimate the response from incumbents who will fight back extremely hard with loss leading specials and pressure exerted on their existing suppliers to restrict supply of goods and inputs to the new entrants.  Go in eyes wide open – the online world requires the same effort if not more than a business in the bricks and mortar world of food and beverage manufacture, supply, distribution and marketing.

Why do it?

We get asked this question a lot from our clients!   Our first response, is to remember that whatever innovation or change you make it must create economic value to you and your business.  Change for changes sake is not innovation, it might be creative but its not innovation until it delivers economic return to your business.  This may not happen for significant time when testing new business models or startup strategy but we also ask our clients what are the possible consequences of doing nothing?  Going backwards? Getting hit in the face by a baseball bat?  You may be chasing additional demand and/or contributing back to your online community if you are already an established online entity.  You might be looking to engage and interact with existing and new consumers if you currently exist in the traditional bricks and mortal retail led food industry.  You may be seeking to grow into adjacent verticals. Whatever your strategic reasons, for action they need to be strong enough to survive the bumps in the road ahead as there will be many!

Advantages!

Some of the key advantages from entering the online world of food and beverage eTailing are the longer term potential scale advantage that can come quickly if you are successful.  Likewise the plethora of instantaneous data analytics like Google Analytics that can help you pivot and test and adapt much more quickly than through traditional customer/retailer feedback networks.   Recognise that Australian eCommerce market maturity could be as much as 5 to 10 years behind the US and our Australian eCommerce supply chain maturity has some considerable road to run especially in the area of chilled B2C food or meals solutions delivery to consumers doorsteps.  These are significant challenges and can not be underestimated but the early entrants will learn faster and be further down the field as new enabling technologies like drone deliveries or driverless vehicles become very real solutions to today’s very high cost of service to the Australian consumers doorstep.

Omni-Channel

Omni-channel could be a red herring – beware!  The economics are vastly different between off-line and online retail in Australia, however for incumbent off-line retailers who have online eTail offers the commercial incentives are quite simply not there to lower their online prices for their eTail offers such that it would cannibalise their healthy real world margins in bricks n mortar retail.  Let us not forget the significant sunk costs the incumbents have in ‘land banked’ property investments, the enormous number of staff on their books in their shops who would cost $$$ to layoff if their online services took off!

Food Supply to Disruptors

Food manufacturers, wholesalers and suppliers are aware of the current industry trends and have a strong willingness to supply new food focused digital startups.  That being said beware the earlier caution about incumbent retailers pressure to stop supply to new entrants.

Price Leadership

Price leadership is of paramount importance online and that could be in part due to the fact that Australian consumers have been trained to expect deals online.  Brands matter online and deep cut discounts bring traffic!

eCommerce US 2013.jpeg

 

Groceries look like the last to take-off in the land of digital commerce.  Online suits small, expensive, commodity driven categories hence why it has disrupted so intensely in travel, music and electrical goods.  Wastage is an important driver in eCommerce in food. Consumers care about their household (average 20%) and supermarket waste (average 35%). This can be a compelling emotive and commercial value proposition for digital disruptors.  Consumers also expect their food in the same condition they find it in store when they get home and see it at their doorstep.

Clearly, we have a long way to go in terms of digital disruption and disruptive innovation in the food industry in Australia and what is around the corner is the million dollar question for startups and incumbents alike.  When an intelligent member of the audience from Nestle Australia asked “what’s the next big thing in terms of disruptive innovation in the food industry in Australia?” to the panel of experts on the stage she got 6 very different answers ranging from predictions of drone and driverless vehicle meals and drinks delivery to consumers demanding a direct interaction with their favourite food producers not only in the social media landscape but in terms of direct purchase and order-to-delivery-to-doorstep.

One thing is certain, the businesses that can have the foresight to anticipate change and react positively to it will be the ones who avoid the baseball bat to the face and will seize the opportunity our new tomorrow brings to us all.  The multi-million dollar business question is which of the incumbents or venture backed startups has both a) the foresight and b) the resilience and bravery to not only see the bat coming but to calmly stand up, reach out and catch it!  When everyone breathes the collective sigh of relief and the startup sits back down in the stands, they will have banked the profits on the table and will be the new incumbent. Go Gators!

MITCH-DAVIE-BAT-Catch

References & Bibliography:

http://businessmodelalchemist.com/tools

AVCAL (2014) Australian Private Equity & Venture Capital Association Ltd

Blank, Steve (2010) Crisis Management by Firing Executives – There’s A Better Way Nov, 18. http://steveblank.com/category/customer-development-manifesto/page/2/

Blank, Steve (2013) Why the Lean Start-Up Changes Everything, May, Harvard Business Review

Danielle Gould (2014) Food & Ag Investment Sources Explode in 2013  http://www.foodtechconnect.com/2014/01/02/food-ag-investment-sources-explode-2013/ viewed on 11/8/2015

Kowitt, B (2015) Special Report: The War on Big Food Fortune May 21.

Montgomery, M. (2015) How The Tools Of Venture Capital Are Revolutionizing Food July 14 Forbes

Osterwalder, A. Pigneur, Y. Bernarda, G. Smith, A. (2014) Value Proposition Design Wiley.

Osterwalder, A (2013) A Better Way to Think about Your Business Model

Phillips, E. (2015) Food ‘Accelerators’ and the $10 Bag of Pasta The Wall Street Journal Jan 6.

Kolodny, L (2014) Will Investors Still Back Food Startups As Competition Heats Up?

Wall Street Journal July 25.

http://coca-colafounders.com/

http://www.coca-colacompany.com/innovation/

http://www.iamdigital.com.au/2015/02/coles-woolies-vs-kogan-pantry.html


Putting “I” first in Insight to Innovation

lightbulbs

Welcome to the first in a series of posts as we travel the journey from insight to innovation.  Our plan here is to share some ‘insights’ ironically behind what differentiates the businesses that succeed in finding an insight, generating compelling new product or business ideas and concepts from their insights and taking them through a systematic process to innovation in the market place.

Before we begin we need to start with a simple definition of what an Insight is and Why? it is so important to uncovering unmet consumer or customer needs to create new ideas for products and/or services for your business.  Edwards (2013) points out Insight is a term commonly bandied around in marketing circles and often misused and misunderstood.  Edwards’ definition is:

“Consumer insight: is a revelatory breakthrough in your understanding of people’s lives that directs you to new ways in which to serve your customers better.”

The “revelatory breakthrough” bit really bites. Do not expect “revelations” on a daily basis.  How do you know when you’ve got one? You will feel both surprised and find it obvious at the same time. Insights make you exclaim “Of course!” The revelation makes sense because it fits with what you already understand about human nature; yet there is something about it that is utterly fresh, to which you had been blinded by your, category-based, “curse of knowledge” (Edwards, 2013).

Insights are often discovered through your own painful experience(s) as a consumer or through deep discovery research like ethnography, Pampers nappies is a good example of an insight discovery from research.  Previously everyone in the nappies category was talking about ‘leak-free’ performance during activity and all the innovation and category and brand communications centred on this attribute.  However, following ethnographic research following consumers closely Pampers discovered that what counted for most in a home with a baby was sleep! Everyone craved it – and wetness was often the reason they didn’t get it.  Hence the “Aha!” revelatory breakthrough discovery and a shift in focus from ‘leak-free’ to ‘golden sleep’ and Pampers innovated with extra ‘dry layers’ for bedtime.

pampers baby dry

Entrepreneurs and small businesses often lack the funds companies like P&G has to do extensive and expensive ethnographic consumer studies.  However, there are countless examples of entrepreneurs own “Aha!” discoveries often bought on by their own ‘pain points’ and real life experience(s) that what they are buying or using in the home is simply not satisfactory and spurns a strong desire to create and innovate – what I call the Insight of “I”!  For example, Rafferty’s Garden baby foods were born out of a firsthand consumer insight and discovery of the founder Adrian Pike, an unexpected full time Dad – looking after two young children and a terminally ill wife.  While trying to feed his 6 month old niece on an extended family holiday with supermarket bought baby food she hated it and when he tasted it he understood why?  Pike was using organic and fresh ingredients in his own kitchen in a bid to improve his family’s health. Years earlier he had made all of his son’s food from scratch, so he knew a thing or two about what babies liked.

“Within that four-year period of looking after my late wife, I learned a lot about nutrition,” Pike says. “I thought, we are doing this upside down. We should be giving children good nutritional food from birth, not start when they are older and get ill.” (Lindhe, 2011).

Adrian Pike

In what today has become common parlance and the mantra of ‘lean Startup’ methodology Pike did what every resource scarce and persistent driven entrepreneur or small business owner does and rapidly prototyped his own very first batches of Rafferty’s Garden organic baby food with his own children and niece.  Before checking in with consumers on his products he already knew pack formats were woefully inadequate for busy modern parents ‘on the go’ to kinder, activities and parks.  Glass jars were inconvenient on the go so Pike assembled a prototype for how he thought the food should be packaged using a foil soup packet from his pantry and a tube of toothpaste. “It was very rough … I cut it to size myself but I thought it could work,” says Pike (Lindhe, 2011).

raffertys garden

An unexpected benefit of the packaging is that babies can suck the food directly from the pouches, saving parents time and mess when they are travelling.  Almost unknowingly or with deep first hand ‘insight’ and experience Pike had stumbled across a deep consumer insight and unmet need.  Trends toward healthy eating and whole foods were globally evident, products in the baby category clearly lacked credibility with modern parents in this space.  Coupled to this fundamental product insight was the need for more flexible convenient pouch formats to heat and eat on the go, in the car, in the pram, remember both parents are often working now so a traditional cook and eat at home experience with baby is a luxury in many households.

From an insight or “Of course!’ or “Aha!” discovery of what consumers really need in a category or market space comes a great opportunity platform to create ideas for new products and services to meet those unmet needs or to recreate your existing product or service offer.  You are digging in rich gold laid territory and the likelihood of finding some gems that people will pay more $ to buy are exponentially increased compared to coming up with product ideas on a hunch or a gut instinct.  Large companies invest spend a lot of $ and time digging for insights.  Personally, I wonder if the incumbents in the baby food category –already had the insights that modern parents were looking for healthier organic baby food options in convenient to carry packages.  Were they asking the wrong questions? Not listening to their consumer and customer feedback lines or heavily invested in existing glass jar manufacturing plant?  In any event a Startup caught them off guard taking a whopping 40% market share of the ‘wet’ baby food and eventually getting snapped up for A$70m by PZ Cussons in 2013 (Bailey, 2013).

Insights are valuable both to existing businesses in their existing categories and markets and to new entrants.  I’s are important in Innovation and starting with the first one – an Insight is a great place to start a value creation journey to innovation pay dirt.

Interested to find out how to find insights in your industry or new markets, please feel free to reach out to us, share your own story or case study and have a no obligation conversation.

Dermott Dowling is Managing Director @Creatovate, Innovation & International Business consultancy. Creatovate help businesses innovate with certainty from insight to innovation in the marketplace using proven methods and partners. Contact Dermott if your business needs help digging for insights and starting the insight to innovation journey.

References:

Helen Edwards (2013) The true meaning of ‘customer insight’ – and why marketers should treat it with care July, 29, Marketing Magazine, http://www.marketingmagazine.co.uk/article/1193164/helen-edwards-true-meaning-customer-insight—why-marketers-treat-care viewed on 18/2/2015.

Jane Lindhe (2011) Baby Basics, April 28, BRW, http://www.brw.com.au/p/sections/features/baby_basics_tAA85mjCPUDxw8MSe8hEaM retrieved on 15/1/2015.

Michael Bailey (2013) Rafferty’s Garden founder cleans up thanks to Cussons, BRW, 8 July updated 11 July, http://www.brw.com.au/p/entrepreneurs/rafferty_garden_founder_cleans_up_F5j2hJX3P7IbTYzD40nnlK viewed on 26/2/15.


When to enter new markets?

First and foremost we stood back and used our head as well as our heart to determine Where to go? 1st, 2nd, 3rd, etc.  Secondly, we looked at each market on our Market Opportunity Index© and worked through the appropriate market entry model: Export, Contractual or Investment?  Last, but not least we need to time phase our market entry over the coming horizons of growth so that we can competently and capably execute on our international business strategy.

One of the most enduring and misunderstood growth strategies used in business today is the McKinsey ‘Three Horizons of Growth’.  Having worked in large corporations for well over a decade and consulted to both large and small businesses for several years now I often hear comments from busy executives in corporates and business owners alike “we will do core (Horizon 1) activities this year, then get to international markets (Horizon 2) next year and then start creating new products for those markets (Horizon 3) in 3 years’ time”.  The reality is you need to be working on all 3 horizons of your business growth simultaneously to build a sustainable business growth platform for your business.  Of course you cannot spend equal $/people/time on all 3 horizons but you need to be clear in your choices, communicate them widely across the business and allocate some of your precious scarce resources to all 3 horizons to realise the growth that comes from effort exerted in the ‘now’ that will payback ‘years’ into the future.

McKinsey Model: Three Horizons of Growth (Coley, 2009)

McKinsey 3 horizons of growth

Creatovate has been privileged to work with clients who clearly get the need to plan the “When to enter?” in their international business strategy and work simultaneously on all 3 Horizons of Growth – defending and extending their current home base(s), building momentum by entering new international markets and allocating some of their scarce resources (the most scarce being their time) to creating options for future new market entry which may also entail new market entry models.

Let me share an example.  One of our clients knew they needed to grow fast in their existing ‘hub’ or core home market(s).  They did not want to distract unnecessarily their executive team in their home market(s) with international business opportunity in the immediate term.  They engaged Creatovate as consulting partners and together we set a clear choice based strategy for international growth that had a clear structure with hub or home markets to focus 100% on their patch whilst simultaneously supporting the international business development unit (a dedicated small team).  The leader(s) in the International Business Development unit worked with Creatovate to identify, rank and prioritise new markets for entry and systematically we phased those markets for entry over 3 time horizons, knowing some would be easier to enter than others for example using perfect partners and easier modes of entry like export.  However, our client did not stop there allocating some precious resource: $/people/time and strategic foresight to simultaneously explore and create future options for business growth in difficult but very large new markets that would require more complex entry models like contractual and/or investment.

Speed bumps and unexpected surprises hit them hard in one core home or hub market.  However, the work for international business growth has been done and they are in the very fortunate position of having a queue of difficult to enter highly attractive growth markets sitting in their new business development pipeline ready to activate.  Contrast that story with the vast majority of businesses who are spending almost 100% of their $/people and time defending and extending in their saturated core home market(s) and quite simply can never get out of the daily grind to contemplate growth outside their home base.  I know which business I want to be working with and a part of especially at their budgeting and strategic planning cycles when the topic of ‘new horizons of growth’ comes up for discussion.

The need to focus and split your scarce resource allocation wisely over your core Horizon 1 business – say 60%, and emerging new business – say 25% and finally creating options for future new businesses – say 15% is not simply the domain of big business.  Creatovate has also been privileged to partner with a family owned client business who has very successfully extended and defended their core home market, entered a new market adjacent to their home country and built significant momentum from a standing start in less than 18 months and created a viable new business venture into another new and highly competitive and complex country all in the space of 2 years and all with a team of less than 10 full time employees.  The When to enter? question is vital to your business planning and differentiates the true growth businesses from those that are simply ‘doing the business’.

The lifespan of a company today is getting shorter and we do not have to look far for evidence of this fact.  The average life expectancy of a multinational corporation-Fortune 500 or its equivalent-is between 40 and 50 years. A full one-third of the companies listed in the 1970 Fortune 500, for instance, had vanished by 1983-acquired, merged, or broken to pieces (Business Week).  To increase your business chance of survival we believe you need to work on more than 1 Horizon of Growth and we believe you need to work on all 3 Horizons of Growth simultaneously.  Reach out, give us a call, send us and email, share your thoughts and comments and experience with us.

Without a clear strategy of Where to Go? How to Enter? Export? Contractual? Or Investment? And lastly but not leastly When to enter? You risk making mistakes and damaging your growth plans.

Dermott Dowling is Managing Director @Creatovate, International Business consultancy. Creatovate help businesses grow outside their home base from market entry strategy to route to market to go to market launch. Contact Dermott if your business needs help expanding your business internationally.

References:

Steve Coley (2009) Enduring Ideas: The three horizons of growth  http://www.mckinsey.com/insights/strategy/enduring_ideas_the_three_horizons_of_growth     retrieved on 12/02/2015

http://www.businessweek.com/chapter/degeus.htm  viewed on 12/02/2015


Why are 74% of all new products flopping in Asia Pacific?

ProductFlop

One of the best ways to overcome price pressure is through new products and still almost three quarters of all new products miss their profit targets according to a recent study of 1,600 managers across 40 countries in Asia Pacific (Tacke, et al, 2014).  We all know we need to focus more of our $, people and time on innovation but how much are we spending solely on new products and product performance vs. the other types of innovation?

Our challenge in the Australian Food Industry right now is to think and act more broadly in your innovation effort to truly disrupt your industry and create a sustainable competitive advantage.  Several years ago Doblin Inc. took three thousand things generally agreed to be innovative and compared them mostly to each other and did that with enough cluster analytics to discover 10 distinct types of innovation (Keeley, 2013).

doblin_ten_types_155111

Product Performance innovation address the value, features, and quality of a company’s offering.  This type of innovation involves entirely new products as well as updates and line extensions that add substantial value. It is only one of the Ten Types of Innovation, and it’s often the easiest for competitors to copy.

Often people mistake Product Performance for the sum of innovation. It is certainly important, but it is always worth remembering that it is only one of the Ten Types of Innovation, and it is often the easiest for competitors to copy. Think about any product or feature war you have witnessed—whether torque and toughness in trucks, toothbrushes that are easier to hold and use, even with baby strollers. Too quickly, it all devolves into an expensive mad dash to parity. Product Performance innovations that deliver long-term competitive advantage are the exception rather than the rule.

The far right delivery types of innovation around Channel, Brand and Customer Experience are more important amplifiers of innovation as are Business Model Innovation and Networking (Partnering).  If you can combine 4, 5 or 6 or more specifically chosen ten types of innovation choosing the ones that others ignore in your industry you will get ‘disruptive’ innovation (Keeley, 2013).

How about we spend more time on the other types of innovation and focus some of our attention to the might higher returns from business model innovation?  What is business model innovation?  Most simply “A business model is nothing else than a representation of how an organization makes (or intends to make) money” Peter Drucker.

More specifically in constructing a new business model you will need to answer three distinct questions:

  1. Why would someone want to buy something from you?
  2. How will you make money selling it?
  3. What, exactly, are the important things you need to do to pull off the plan? (Johnson, 2010).

Most importantly in your own organisation you will need to create a common language and definition for business model innovation.  Use of visualisation and pictorial storytelling can help with that business model definition and design.  The Business Model Canvas is one diagrammatic framework tool that has gained a lot of attraction and usage to design, refine and build new business models (Osterwalder & Pigneur, 2010).  There are 9 key elements to constructing a business model canvas and the following short YouTube clip details these very succinctly.

business-model-canvas

There are clearly demonstrated examples in the food industry in Australia, China and globally of companies thinking and acting differently in how they take innovation to market and using business model innovation.  An example close to home here in Australia is www.dishd.com.au

ADRF3083-Dish-d-Chef-s-Specials8-10-14-3

Here a well-established food business saw an opportunity to use technology to disrupt traditional business models and their go to market strategy for new products.  Setting up a small team with key principles of agility & access to leaders the team @dish’ d set about building platforms from which multiple products could be ‘lifted and launched’ sourced from around the world direct to diners doors in Melbourne and Sydney.  Utilising existing partners in logistics the company was able to launch 220 new lines ‘lifted & launched’ in less than 12 months, none of which they had to manufacture themselves, creating a brand new Brand, business, Channel, and customer relationship management model connecting themselves directly with their consumers.  Dish’d saw a gap in the market, trusted their consumer insight and understanding that shoppers were prepared to pay more for good food delivered to their door and went for it with conviction.

SF Best

Further away in China a boom in e-Tailing and e-Commerce has been occurring for some time and a recent example caught my attention.  SF Best launched in June 2014 is another good example of business model innovation.  Selling everything from Chinese organic fresh milk to ice cream and fresh meat and vegetables SF Best from SF Express even delivered cold beer during Soccer World Cup 2014 to thirsty fans doors in 11 cities across China from an App on consumer’s phones.

SF was born in Shunde, Guangdong in 1993.  They are like China’s FedEx and now operate in China, Hong Kong, Macao, Taiwan, US, Japan, Korea, Singapore, Malaysia, Thailand, Vietnam, Australia with 290,000 staff globally. SF Best Fresh Home delivery services launched in June 2014 to 11 cities in China – now number 27!  SF has leveraged their core process competency in logistics into an adjacent industry – eTailing and appears to have hit the ground running!

Last, but not least is a global example of business model innovation from Nestle with their hugely successful Nespresso

nespresso-business-model

Founded in 1986, Nespresso is an autonomous globally managed business of the Nestlé Group, now present in almost 60 countries with more than 9,500 employees worldwide, compared to 331 in 2000 with over 70% of employees in the markets in direct contact with consumers.  50% of new Club Members experience Nespresso for the first time through friends and family.  Nespresso has over 3 million Facebook fans and 180,000 unique customers visit our online boutique every day.  George Clooney, Nespresso brand ambassador since 2005, was chosen by Nespresso Club Members.

George Clooney

Nespresso exemplifies business model innovation from partnering through to customer relationship management and channel innovation with their mail order, call centre, Nespresso.com and Nespresso stores.  All elements of the business model canvas are worked hard and in concert and the business has benefited from 10+ years of 30% Year on Year growth to become a CHF3b business on its own today for Nestle.

Business model innovation is not easy and your thoughts probably turn to ‘how do we start doing this?’  You can start by following some simple tips to design, refine and test your new business models using ‘lean’ teams and start up like activity within your own businesses.

Two Pizzas

Remember the 2 Pizzas Rule: Small Focused Teams who can be fed on no more than 2 pizzas.  Every team should number not more than 7 people as every person in addition to the 7th member of the team is a 10% decline in team productivity to the point where if you have 17 people on the team you have 0% productivity and a team talking to themselves (Jeff Bezos, Amazon.com; Scott Anthony ,2013).

Push to learn in market “Get out of the building!”  Here is a litmus test to gauge the degree to which you are following the approach described. Ask the team the ratio of their time spent preparing materials for management (or conducting desk research to feed into materials for management) versus time spent with customers, developing products, or talking to potential partners. If the ratio is higher than 1:3, you have a problem (Scott Anthony, 2013).

Measure learning, not results.  We are in new territory here exploring new ways of working and doing business, looking for customers, asking them about what problems they have, etc.  You need to be asking your teams “What did you learn? What do you still not know?”  Venture fund the team with sufficient funding to address critical uncertainties.  If they answer those uncertainties fund them to the next gate of decision making but do not automatically fund projects into infinity.  Be prepared to decide and act fast, pivot, lean and learn is your modus operandi.

Lastly make sure the decision makers with the right experience guide the team.  The role of the business leaders is more coach and mentor or venture capitalist as opposed to Go / Kill gatekeepers.  Early team mentoring sessions could be answering and solving problems / opportunity like ‘who is our customer?’ ‘what are their problems that remain unsolved?’ ‘what are their unmet needs’ and ‘who can we partner with to move faster?’

ten-types-of-innovation1

No one said innovation would be easy least of all when you are working on multiple types of innovation all in the same project at the same time.  You need to be doing that to make a real impact in your industry and disrupt your competitors and create sustainable competitive advantage.  We all share the same information on global NPD and research and can ‘copycat’ faster than ever the latest new product. To pull away from the pack you are going to have to work smarter not harder on how you take innovation to market and working with innovation partners to guide you into unchartered waters is one way to help you stay honest to your objectives to think and act differently.  After all if all we continue to do is keep launching new products through the same channels expecting a different result, are we simple insane?  We know 74% of all new products flop so why not invest some of your valuable $, people and time in other types of innovation as well as product performance.

Dermott Dowling is Managing Director @Creatovate, Innovation & International Business consultancy. Creatovate help businesses create innovate and grow through improved idea-to-innovation process. Contact Dermott if your business needs help improving your innovation processes or expanding your business internationally.

References:

Scott Anthony (2013) Five Ways to Innovate Faster http://blogs.hbr.org/2013/07/how-to-innovate-faster/ July 30 retrieved on 14/10/2014

Mark W. Johnson (2010). A New Framework for Business Models January 21, HBR Blogs

Larry Keeley, Bansi Nagji, Helen Walters (2013). Ten Types of Innovation: The Discipline of Building Breakthroughs, John Wiley & Sons.

Larry Keeley (2013) Ten Types of Innovation, YouTube, published 12 July http://youtu.be/vJ5Jq3MyXAk viewed on 14th Oct 2014

Alexander Osterwalder & Yves Pigneur (2010) Business Model Generation John Wiley & Sons, Inc. New Jersey

Alexander Osterwalder (2013) A Better Way to Think About Your Business Model May 6, http://blogs.hbr.org/2013/05/a-better-way-to-think-about-yo/ retrieved on 13.10.14

ALEXANDER OSTERWALDER (2010) COMBINING BUSINESS MODEL PROTOTYPING, CUSTOMER DEVELOPMENT, AND SOCIAL ENTREPRENEURSHIP AUGUST 05, http://businessmodelalchemist.com/blog/2010/08/combining-business-model-prototyping-customer-development-and-social-entrepreneurship.html viewed on 15/10/2014

http://www.nestle.com/csv/case-studies/AllCaseStudies/Ecolaboration-Nespresso-platform-sustainable-innovation viewed on 13th Oct 2014

http://www.nestle-nespresso.com/about-us/facts-and-figures viewed on 13th Oct 2014

George Tacke, Jochen Krauss, Fan Chen & Jan Haemer (2014) http://www.simon-kucher.com/sites/default/files/simon-kucher_global_pricing_study_2014_apac.pdf retrieved on 6th Nov 2014

http://www.sf-express.com/cn/en/news/SF-Best-Creates-the-Ultimate-Cold-Chain-Service-Door-to-Door-Distribution-of-Imported-Cold-Beers-During-FIFA-World-Cup-Brazil/ retrieved on 6th Nov 2014.


Take your business off the Road to Nowhere into Lands of Opportunity

Road to Nowhere
How to use Upfront Strategic Thinking to Drive Profitable International Business Growth

Authors: Dermott Dowling @Creatovate & Kevin O’Reilly @Radar Insight

Five Factors to consider with your head, before following your heart into international markets.

International Business market choice is often based on ‘gut instinct’ decision making, retrofitted later with logic that backs up your initial assumptions. This can lead to costly mistakes and valuable scarce resource waste when wrong choices are made.
How do most businesses find themselves offshore? In one word: Dragged, and usually the result of a direct approach from either existing customers or a potential overseas trade partner. We believe one of the 3 keys to successful international business is use of deliberate, upfront rigorous strategic thinking, planning and risk analysis before deciding “Where to Go” first, second or third as you take your business offshore.
We know that any business growth journey starts with defining the challenge and mapping a journey before you set sail. That is why we are championing a new approach to driving profitable expansion into international markets. Following the 5 key factors outlined in this report have helped and will continue to help our clients use ‘more head and a little less heart’ initially in their market choice decision making.
This report outlines the data and decisions required to understand the five factors at play. We were able to build the Creatovate Market Opportunity Index© decision tool through our work with our clients, and wanted to share our learning with the business community.

Partnering with a consumer goods client, we undertook the challenge to help facilitate their Asian export strategy in terms of decision making “Where to go? First, Second, Third, etc” using a pure data approach, before we facilitated and encouraged the overlay of their own subjective lens and ‘gut instinct’. This mix of slow and fast thinking is vital to getting a balanced and aligned strategic choice on ‘Where to go?’ Our goal was to rank countries analysed based on their performance across 5 key factors (each broken into client specific indicators or markers. Using independent research data, extrapolated across attractiveness rating scales we were able to compare and contrast the opportunity presented by targeting China (huge population, low average wage, less international brands on shelf) to that of Singapore (geographically closer, smaller population, higher disposable income, free trade, etc).
This report will walk you through that thinking process, step by step. We hope you will see similarities to your own international business challenge and see opportunity to utilise or adapt the learning to your own context and International Business growth challenge.

Factor 1: Market Attractiveness

country attractiveness

The most common starting ground for any business looking at which overseas country to sell their products and services is going to be the usual market research sourced through global data services providers like Euromonitor, Marketline, Nielsen, Canadean, etc. You could populate the indicators under Market Attractiveness with literally dozens of sub indicators but in the interests of clarity and not confusion we picked 5 key sub indicators to give us a sense of absolute size of market opportunity and attractiveness in terms of market growth. It has been noted before you are often better to enter a small but fast growing market as opposed to a large and static one.
I. Volume – what is the absolute volume of your business products/services sold in the country?
II. Value – what is the absolute value of the market in terms of retail sales for category?
III. $/Kg or $/L – this is an important measure for a consumer goods product especially for Australian consumer goods manufacturers. In our case our lenses were focus on Asia and it was important we identified markets that had high enough retail prices per Kg or L of product sold to justify a high cost of goods Australian made food so there is sufficient margin in the value chain for all participants.
IV. Consumption per capita – are we looking at a market with a ready and available appetite for your food or beverage or a market that is currently no/low consumption and will require education as to the products benefits from consumption?
V. CAGR or cumulative aggregate growth rates – in our case we took a CAGR average of the past 4 years market value growth rate to determine if there was a rising tide that would float all boats including new market entrants or a static or even worse in decline market opportunity.

Factor 2: Sociodemographics

sociodemographics

Population and demographic information is vitally important in your decision making on which markets to focus on when considering international business. China might be a great market opportunity from a first glance at the absolute population and yet further probing and understanding of sub-indicator factors like the one child policy and an aging population vs. say India by comparison might suggest it is more attractive to the cruise line business than say children’s food products. In our case we were conscious to also look at ability to pay and buy premium imported foods in our markets under study. For this reason we included other sub indicators to give a more rounded view on the absolute numbers of mouths and pockets that can afford our clients products.
I. Population – absolute numbers are hard to ignore but feel free to use filters over the core consumer target age group for your business products or services.
II. PPP per capita – widely regarded as a better and fairer indicator or relative wealth by a nation than the more tradition GDP per capita this is again a fast indicator for overall wealth.
III. Disposable income per capita – we were fortunate to be working with a data set that included this level of detail which helps in the sense of what available funds do consumers in the country have to spend outside their daily necessities to live?
IV. Food expenditure per capita – a key indicator in our client project as they are selling food is the amount spent per household or able to be spent on weekly food purchases. This sub-indicator could be adapted to your own business category of products or services.

Factor 3: Open to trade

international_trade

Our client first consideration was immediate opportunity to export/import their products into the region of study. As such a key factor for us was the local markets or countries openness and willingness to trade with the country of origin – in our case Australia. Our focus needed to search and discover data from international and domestic data sources on volumes of international trade and imports in the food category (open to trade), volumes of the category currently exported into the region and to what countries (follow the leader) and last but not least any visible or unforeseen barriers to entry. This factor became complex rather quickly requiring a mix of sub indicators that contributed to an overall factor score in terms of attractiveness.
I. Volume of Imports – MT, $/Kg and $m – this was the sub-indicator of the country openness and scale of trade both in absolute volume, value and $ per weight/volume measure.
II. Volume of Exports – sourcing data from the local industry association we were able to determine the absolute volume of the client’s category of products exported to each country in the region. This is a ready sub-indicator to open to Austrade in the sense open acceptance of imported goods from Australia in those countries.
III. Barriers to Entry – a mix of quantitative and qualitative judgements or indicators we utilise the apparent barriers like Tariffs, Quota restrictions, and some ‘behind the border’ barriers like Product registration requirements and estimated time to register or local labelling laws.

Factor 4: Dispersion

dispersion

Working in the Fast Moving Consumer Packaged Goods industry where the majority of products sold are through retailers and increasing modern retailers like supermarkets, hypermarkets and convenience stores it was important we believed to include some country analysis and understanding on concentration of power of buyers (retailers), suppliers (local manufacturers) and penetration of private label products in that country. For this reason we used 3 key sub-indicators to get a sense of dispersion in the country which would suggest competition is less intense and more room for a new entrant vs. highly concentrated and difficult to penetrate the new market.
I. Concentration of Retailers – what is the combined market share of the top 5 retailers? In markets like Australia where we have a highly concentrated retail landscape with two retailers dominating 70% of available market share the trading terms and margin requirements with those retailers is understandably high relative to a highly dispersed retail market.
II. Private Label Penetration – if Private Label has penetrated the category and to a high % of total category share the correlating thinking is that there will be less willingness by customers to range new lines/brands/products in the category as they concentrate on incumbent market leaders and building their own exclusive or private label brands.
III. Concentration of Manufacturers – what is the combined market share of the top 5 local food manufacturers in the category you have entered? If that market share is high there will be higher profitability with those manufacturers and a willingness to go above and beyond to stop new entrants getting a food hold in their category.

Factor 5: Innovation Intensity

innovation intensity

Factor number 5 we wanted to check was the relative level of innovation intensity in the country and category under examination. Whilst a higher level of innovation intensity would indicate consumer and customer willingness to trial new products and brands it might also suggest a higher level of competitive intensity and greater need for our client to continuously refresh their product offer both at home and off-shore. We selected three sub-indicators here to give us an overall sense and impression of which markets are open to new ideas, products, allow functional or nutritional health claims for foods and what % of total turnover in their country and category is from New Products launched in the past 3 years.
I. New Products launched in the past 3 years as a % of total value of sales in the category
II. Claims permissible – in your category space. Are the claims you can make on your products at home where they are successful allowed in the new country you are about to enter?
III. Health claims premium – if you are selling products that make beneficial health or functional claims how much of a price premium are similarly claiming products getting in the market under study?
Working through the above 5 factors and their 3-5 sub indicators across a mix of independent data sources enabled us and our clients to take a step back unbiased independent look at the region and rank the markets. We also developed a subjective scorecard that could be used to align key leaders in the client business around discussing which markets will be a focus for entry in the short, medium and longer term horizons so that preparation, planning and time critical steps could be taken across the board to manage a phased approach to international business growth. Heart is good and if the Head matches up with the heart or the slow thinking matches the fast thinking gut reaction you know you are onto a winner and ready to take that next step forward to answer our next question: “How to enter?” the new market and what market entry model to use? More on that front in our next post. We trust this critical thinking approach to the Where? Question will give you some data and knowledge to think about in your context and the ability to turn that learning into wisdom. Please do not hesitate to get in touch with us if you would like to do something similar or different relevant to your context and challenge as you create, innovate and grow your business internationally.

About the Authors:

Dermott Dowling is founding Director @Creatovate, Innovation & International Business consultancy. Creatovate help businesses create innovate and grow through innovation and spreading their wings outside their home base. Contact Dermott if you and your business needs help improving your innovation processes or expanding your business internationally.

Kevin O’Reilly launched Radar Insight after seeing too many products launch without the insight or clarity required to be successful. Contact Kevin to hear how consumer research & product evaluation can help tailor your product to your target market.

 


Persistence & Determination are Omnipotent

In the confrontation between the stream and the rock, the stream always wins; not through strength, but through persistence.”  — Buddha

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The leaves are browning, the mercury is dropping and the rains are more frequent.  Rather like the changing of the seasons a lot of businesses in traditional industries with traditional ways of working are finding sales, margins and profits are fast browning off like the autumn leaves.  Today many businesses caught in a sales, margin or profit eroding death spiral the typical management reaction is “restructuring or rightsizing” or “cost reduction” which inevitably forgets the most important R – “Rethinking” how we can remodel businesses to be more innovative and ultimately more profitable.

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Starting Creatovate two years ago I decided to focus our consultancy services and efforts to help client’s growth through what I personally believe is the most sustainable growth pathway – Innovation and International Business expansion.  At its most basic definition innovation can be described as “change that creates economic value”.  You must be either reshaping value chains to remove cost and / or create value i.e. reduced cost and/or increase prices to customers and consumers.  You can also typically expand your business into one of 3 new quadrants using the Ansoff matrix – new products or services development to existing markets (bottom right quadrant), enter new markets with existing products or services (top left quadrant) or take the bravest bet which is new products and/or services to new markets (top right quadrant).

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Ansoff Matrix:  http://www.quickmba.com/strategy/matrix/ansoff/

Standing still is not an option in business today.  You will get run over by new entrants, or incumbents who are running faster than your business or sideswiped by other businesses you did not even see out of your peripheral vision who enter from completely different market spaces with new products and/or services that better meet your customers’ needs (top right quadrant innovators).  Starting any new business is not easy and having worked for large multinationals for over 15 years and with well-established clients over the past two years I can honestly say that no one business is safe in the ‘new economy’.  Complacency will be the seeds of your business demise.  From the Board level to the mail room roles will continue to be constantly restructured and re-scoped and I am afraid to say often without enough upfront ‘Rethinking’.

“Industrial Relations” was a widely used word in the 1990s which later became “Human Relations” and is now more commonly titled “People & Culture” in large progressive modern organisations. During my post-graduate Bachelor of Commerce in Management Honours thesis study I examined Industrial Relations in the Airlines Industry and quickly discovered here was an industry that would always be placing immense pressure on the ‘People’ component in the Value Chain of the Airline industry for the simple reason the typical airline cost structure is divided into 3 almost equal components: 1/3 on planes, 1/3 on petrol and 1/3 on people.  As much as an Airline would like to negotiate a good deal on planes that is going to be difficult when your choices are limited to either a Boeing or Airbus Jet plane and as much as Airlines would like a better deal on their fuel bill that negotiation will also be difficult as Shell, Exxon Mobil and BP will have a view on fuel prices and continued upwards direction.  So People become front and centre in the ‘cost reduction’ eyes of management and to this day Airlines management are still in a constant struggle with how to get the best out of their people for the least possible pay!

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Scattered throughout the many loss making Airlines globally there are a few stars making money and my bet is they will have a better strategy and culture to differentiate themselves and possibly a better business model e.g. Southwest Airlines or Air Asia.  Walking into the Ansett NZ head office in 1996 to talk to the Airline Pilots Association union representative I noticed immediately a quote on the wall from Sir Reg Ansett the founder of the Airline that has gone the way of many today post his time in the cockpit “Nothing in this world can take the place of Persistence.”    That quote was on a plaque with Sir Reg Ansett name attached to it but its origins came from the late U.S. President Calvin Coolidge and its full quote is “Nothing in this world can take the place of persistence.  Talent will not: nothing is more common than unsuccessful people with talent.  Genius will not: unrewarded genius is almost a proverb.  Education will not: the world is full of educated derelicts.  Persistence and determination alone are omnipotent.  The slogan ‘press on’ has solved and will always solve the problems of the human race.”

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President Coolidge quote and Buddha’s quote brings me to one more thing I have come to realise over the past 20+ years studying, working and consulting.  In the ‘East’ businesses persist and are patient.  Suntory management in Japan became famous for its willingness to wait a long time for results. The company took 46 years to make a profit on beer and 14 years for one of its biotechnology units to genetically engineer a blue rose, thought to be a symbol of the impossible (Kachi & Dvorak, 2014).  Compare this approach to the one most common in the ‘West’ where the constant demands for 10%++ top line and bottom line growth year on year is simply put “unsustainable”, especially if all we are doing is running on the spot and demanding ‘more for less’ from our ‘People’.  Where is the ‘Culture’ that says, ‘persist’, ‘explore’, ‘adapt’, and ‘go again and again and again’ until you turn a dollar, convert a customer, open a new market or create a product or service that solves a new or existing customer’s problem?

Today, with technology front and centre in our lives and as ‘software eats up the world’ around us and computers, apps, robots and systems replace the ‘people’ in many business processes it is doubly and triply important business leaders and their people, Stop! Think! And take a leaf from the wise men and women of the East.  Pause, take the time to reflect, think and then Act! Be brave in your restructures, remodel your business models and take controlled bets with new businesses, new products, and new services into new markets and new and existing customers.  You can no longer win in the bottom left quadrant of the Ansoff matrix and if you are not already moving to the top left or the adjacent right and planning and implementing a manageable bet into the top right quadrant you risk facing the same fate as the late Ansett Airlines.  Every industry is rapidly becoming another Airline industry.  Strategic choices rest with everyone in your business from the boardroom to the factory floor and whether you are a winner or loser in the long race to the finish line depends on how you get the most out of your ‘People’ and create a winning ‘Culture’.

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Dermott Dowling is founding Director @Creatovate, Innovation & International Business consultancy.  Creatovate help businesses create, innovate and growth through sustainable innovation processes and spreading their wings outside their home base.

References:

Hiroyuki Kachi & Phred Dvorak (2014) Wall Street Journal, January http://online.wsj.com/news/articles/SB10001424052702303819704579320470878396540, viewed on 8th May 2014


Can you hear me?

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Listening to the lessons of a thriving and successful $3b start-up – Cochlear

Cochlear is a $3.3b market capital ASX top 100 listed enterprise, with sales of $750m per annum, employing 2,700 employees globally, publically lauded for its highly innovative ‘bionic inner ear’ that has been implanted in over 300,000 ears globally.  When the opportunity arose to hear Dr Jim Patrick, Chief Scientific Officer who has been with the business since start-up and Lyndal York, Chief Financial Controller speak at a business breakfast I was not going to miss the opportunity to ‘listen and learn’!

Nowadays with a head of steam behind them, an R&D spend that is 13% of total revenue, 300 R&D staff, 120 collaborative projects and 140 collaborative partners on board it is easy for Government politicians, business press and the community to see Cochlear continued growth and success as inevitable.  Not to mention the amazing world first ‘bionic ear’ they invented.  However, what is less visible today is the critical points at Start-up that Dr Jim shared which were vital to Cochlear birth and early development of this Australian global start-up success story.

1978 The first cochlear recipient Rod Saunders

Jim cites early on two key founders at instrumental in the birth of Cochlear, Dr Graeme Clark, the early inventor who was profoundly impacted by his own father’s deafness and Paul Trainer a medical devices entrepreneur who established the Nucleus Group in the 1960s.  The story is well chronicled on the Cochlear website: http://www.cochlear.com/wps/wcm/connect/au/about/company-information/history/history Dr Graeme Clark was instrumental in getting the initial idea to a vital “proof of concept” with a multidisciplinary team @University of Melbourne which included key staff from varied faculties including Engineering, Physiology, Psychology, Speech Pathology, and Computer Science, to name a few.  We see this time and time again in ‘breakthrough innovation’ that a multi-disciplinary team from a wide variety of backgrounds and experience bring out the best in terms of ‘breakthrough’ new thinking and technologies.

1981 Paul Trainor to start commercial development of multi - channel cochlear implant

Paul Trainor, the medical entrepreneur and founder of the Nucleus Group was instrumental in setting up Cochlear in the early 1980s post the first initial proof of concept Cochlear implant in 1978 and following phase 1: 1979 when the next two subjects received prototypes, a global market survey was undertaken and a development cost plan was completed.  Paul sounds to me like a modern entrepreneur who used attractive financial staff incentives, created competition for resources within the Nucleus group and between start-up teams and used attractive financial rewards for risk taking and bravery in the early stages of Cochlear implant development.

Government Commercialisation: 3 phases of funding totalling $10m over 6 years 1979-85

Government assistance and funding in the early phases of development from funding the University of Melbourne team to come up with the original prototype in 1978 through to $400K of funding in 1979 for 2 more subjects to be implanted, a global market survey and a development cost plan, through to phase 2 $1.6m for development of prototypes and implanting a further 6 subjects and finally phase 3 $3m to send a small team to the US to undertake a FDA trial and further commercialisation work was critical to the business becoming what it is today.  Overall Dr Jim estimated the Australian Government initial seed capital funding to total $10m which if you look at the market capital of Cochlear today ($3.3b) their staff numbers (2,700) and annual R&D spend ($100m) this $10m was very well invested in the early 1980s!

1992 First paediatric cochlear implant recipient Pia Jeffrey Sydney

Children began receiving implants in the 1990s and today if a child under 1 year old is implanted with a Cochlear device they will develop speech and hearing at the same rate as normal hearing children.  Cochlear $750m in sales are split 40% in the Americas, 40% in Europe and 20% in Asia Pacific and the company is headquartered in Sydney inside MacQuarie University, in a state of the art research and development, clean room manufacture, warehouse and distribution centre opened in 2010.  With 60% market share, $500m in R&D investment over the past 5 years and over 120 collaborative studies and projects underway the company certainly has a pipeline of innovation to come and is active in the global acquisitions space.  It is easy to see why Cochlear has received over 50+ industry awards and accolades. What are not so easy to see today are those vital early key success factors in the late 1970s and early 1980s to get Cochlear up and running as a fledgling Aussie start-up.

Distilling all the learning from Jim some of the key success factors vital to Cochlear beginning and continued growth are detailed below.

Key Success Factors:

  • Driven co-founders – Dr Graeme Clark (personal desire) and Paul Trainer (medical entrepreneur)
  • Multi-disciplinary start-up  team from a wide variety of faculties and backgrounds
  • 3 critical phases of commercialisation funding over 6 years from the Australian Government
  • Tiger team of talented and well rewarded scientists and business entrepreneurs to prototype, test, develop and FDA trial their early devices
  • R&D Investment , now 13% of Total Revenue | R&D Tax concession helps | $500m in R&D over past 5 years
  • Collaborative studies and projects – over 120 today and over 140 collaborative partners
  • Portfolio of hearing solutions and technologies
  • Location in Sydney: inside MacQuarie University, close to Hospitals, and other partners
  • Leadership – Smart, Stable and driven to succeed.

Dermott Dowling is founding Director @Creatovate, Innovation & International Business consultancy.  Creatovate help businesses create, innovate and growth through sustainable innovation processes and spreading their wings outside their home base.


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