I read an article in the Financial Times this morning. It said…
"Large, fast-moving consumer goods companies are highly skilled at executing known business models," says Richard Taylor, analyst at Morgan Stanley, "but their record on true radical innovation over the past 20 years is downright dire.” Such groups have been remarkably slow at spotting the changes in tastes.
According to Boston Consulting Group, $22bn in industry sales transferred from large to smaller companies in North America between 2011 and 2016 and there has been a similar trend in Europe. The share of the consumer goods market held by smaller companies, grew from 23 per cent to 26 per cent over the same period, say BCG and IRI research group.
As a result, and despite rising global demand, 34 of the world's 50 biggest consumer companies are suffering either from slower sales and profits growth, or both, according to Bain. Their revenues grew at an annual average of 7.7 per cent between 2006 and 2011 but that fell to just 0.7 per cent between 2012 and 2016. Average growth in annual operating profits was barely a quarter of what it had been in the earlier period, according to the consultancy.
Cheaper, private-label products have added to the problems faced by the consumer groups and fueled the growth of retail discounters such as Costco, Aldi and Lidl, and spurred a cut-throat price war between supermarkets and online sites, including Amazon.
So can these large organizations, structured for mass production, really cater for the greater customization demanded by modern consumers? Can their problems be solved by adapting to new technology and a rebound in emerging markets?
I’ve spent the last week in a mixture of conversations with technology experts at our multi-national whiskey partner in Scotland - AND - with craft distillers, brewers and food product companies.
What I observed is that within most large companies the ART of marketing and design drives innovation. The result is lots of highly REACTIVE “close in” ideas. These ideas create marketplace noise but rarely have any significant impact on top line sales or bottom line profits.
With successful Craft companies SCIENCE & Breakthrough technology ignites PROACTIVE innovation. Then, when the culture supports it - cycles of learning with customers cause the technology to pivot and adapt till it’s awesome. The result is a change of trajectory for the company in sales and profits.
THIS PAST WEEK I LEARNED THAT - BIG COMPANIES HAVE THE SCIENCE TO BE AS PROACTIVE AS CRAFT COMPANIES. I was blown away by the brains, commitment, vision and energy of the technical people I worked with. They have the ideas and ability to do great things. Sadly, however it’s rare that they have a forum to leverage their wisdom. Instead of being able to tap into their proactive ideas - they spend their lives being reactive to the demands of marketing groups.
Three things prevent most large companies from leveraging the amazing people they have across the organization.
1. The culture doesn’t RESPECT Technical WOW Innovation: 99.9% of innovation systems are designed to transform left brain engineers, finance, procurement and operations people into “right brain” creatives. What’s needed is a system for left brain creativity.
2. The culture doesn’t SUPPORT Technical WOW Innovation: The invention of the new and wonderful requires cycles of Fail FAST Fail CHEAP cycles of prototyping, rapid research and thus learning. This takes training, systems and support from the organization. Sadly, most organizations see training and work systems as “waste.” They want the answer before they start a project. The result is a portfolio of small ideas without any wow.
3. The culture is a "ME not a WE” Organization: You could misunderstand points one and two as rant for t for technology to run all companies. That’s actually NOT what I’m saying. What’s needed is a coming together into a “WE” organization where Marketing and Technology are one team built on trust, respect and support for one another. That is the message of Innovation Engineering - it’s about making technology, finance, procurement and operations equal partners on the innovation adventure.
OK so I’ve ranted enough this morning :)
If you want to learn how to ignite your career - team or culture visit www.EurekaRanch.com to learn a new way of working and living.