How to Avoid 3 Pitfalls of Corporate Innovation

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Here's a phrase we've all heard: Innovation is hard. But is it harder than it needs to be? Pick your favorite corporate innovation director, buy them a drink, and they'll tell you the truth: there are plenty of good ideas. The cutting room floor is full of them. In fact, many of those ideas wind up getting launched by smaller competitors or, in some cases, by retailers like Trader Joe's. So what's really going on?

After a dozen years of observation, I've noticed three stumbling blocks, not just where I've worked, but across the industry as a whole. Here are the pitfalls and potential solutions.

Pitfall #1: Doing the Wrong Math

Nearly every corporate innovation group has stage gates that regulate the allocation of resources and capital. Most use a combination of financial measures, including Net Present Value and Gross Margin, with clear minimum hurdles. Since innovation is expensive, many ideas miss the hurdle or get compromised into failure.

Potential Solution: This math usually excludes a critical financial consideration: the direct and indirect cost of being disrupted or beat to market by another company. Direct costs include lost sales and money spent defending the business. Indirect costs might add up to a bigger number: continued market share erosion which, 1) becomes an anchor to stock price appreciation and 2) helps inflate M&A premiums. If your new product idea has significant upside potential, but sits on the financial bubble, see if the story changes when you give it credit for avoiding or offsetting disruption.

Pitfall #2: Structural Fear of Failure

These stringent capital controls belie a larger issue: corporate culture is often allergic to failure. The entire system is designed to minimize it. Hiring criteria; formal promotion; informal recognition; decision-making processes; demand forecast procedures; and on and on.

Potential Solution: Start shifting the culture by celebrating smart failures and risk taking. This can be proposed by anyone at any level, but it's especially powerful if you're a leader of people.

Pitfall #3: Cannot Experiment

Most new products fail within a few years of launch. Therefore, successful innovation is a numbers game. To win once, you probably need to fail five or ten times in the marketplace. Please note an important nuance: I didn't say, "Fail in a simulated consumer test." I said fail in the marketplace, where real people must spend real money in a real shopping environment.

There's another word for failing repeatedly: experimentation. Launch, learn, pivot, (re)launch, learn, pivot, and so on. Few Big CPGs (or national retailers) have that capability. 

Potential Solution: Design Thinking offers a solution to this. It's called rapid prototyping. The tech world calls it Minimum Viable Product. In a nutshell: find ways to sell earlier versions of the product in progressively bigger marketplaces. Some ideas that I've seen work: selling at farmer's markets or street festivals; going direct-to-consumer via e-tailing or home shopping TV networks; running local store tests or formal tests with retailers like Kroger.

The Takeaway

Is innovation hard? Corporate innovation teams have plenty of ideas. What they need is a new set of tools to sell those ideas internally and take them to market.

And, yes, that is hard.