Billions of dollars are spent on developing and launching new consumer packaged goods (CPG) products each year, and some companies see tremendous success while others – don’t. Why? One secret appears to lie in the degree of senior management involvement in the creative process, according to a study by The Nielsen Company.
Nielsen’s research of the innovation processes at 30 large CPG companies operating in the U.S. reveals that companies with less senior management involvement in the new product development process generate 80 percent more new product revenue than those with heavy senior management involvement. Companies that employ this and other best innovation practices derive on average 650 percent more revenue from new products compared to companies that do not.
Nielsen’s research shows that simply being physically near corporate headquarters can stifle new idea generation. In fact, it turns out that having no Blue Sky innovation team at all is better than having a team on-site at corporate headquarters. The best place for your breakthrough innovators? Far, far away. According to Nielsen, companies with an off-site Blue Sky innovation team report 5.7 percent of revenues coming from new products, compared to 4.8 percent from companies with no Blue Sky team at all. Companies with Blue Sky teams on site report just 2.7 percent of revenues coming from new products.
“One of the keys to successful new product innovation is to manage new ideas lightly,” said Tom Agan, Nielsen MD. “While we don’t dispute senior management’s strengths and good intentions, they are often too quick to get involved in the creative process, especially when things are not going well, and their mere presence can stifle free-thinking and boundaryless ideas – which can doom the new product development process to failure.”
Senior management needs to play a different, more important role in new product development. Nielsen’s research shows that another important key to success is for senior management to precisely manage the new product development process, not the ideas themselves. According to Nielsen, CPG companies with rigid stage gates – – decision points in the process where a new product idea must pass certain criteria to proceed forward – – average 130 percent more new product revenue than companies with loose processes.
Nielsen’s evaluation shows that CPG companies with the most successful new product innovation records tend to have:
• Two to three stage gates that are strictly followed across the organization. The first stage gate is typically designed to identify ideas that will then be developed into a concept and prototype, while the last stage gate is usually designed to determine whether a product should be committed to production and market.
• A focus on growing brands, not ones acquired or designated by senior management
• A development focus two to three years out
• A formal scorecard to provide structure to organizational learning
• A standardized and required post-mortem on all new product development efforts
• A knowledge management system to retain learnings from previous product launches
“New product development success comes down to two important principles – managing ideas lightly while managing the process precisely,” said Agan.
Paul Sloane writes and speaks on innovation. He is the author of The Innovative Leader.