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Improving Marketing's Role in Innovation Improving Marketing’s Role in Innovation Philip Kotler GE-Crotonville May 12, 2011 Agenda • Innovation is a Necessary Strategy for Growth • How Some Companies Are Pursuing Innovation • Winning at Innovation: The A to F Model • Marketing’s Role in Innovation Innovation as a Growth Strategy “A business has two—and only two—basic functions: marketing and innovation. Marketing and innovation produce results: all the rest are costs.” Peter Drucker “While great devices are invented in the laboratory, great products are invented in the Marketing Department.” William H. Davidow "Most innovations fail. And, companies that don't innovate die.“ Henry Chesbrough Most Companies Are Not Organized for Innovation • Innovation is not a natural inclination of companies. • “Executives say innovation is very important, but their companies’ approach to it is often informal, and leaders lack confidence in their innovation decisions.“ McKinsey report. • Most companies expect ideas and initiatives to come either naturally, or through creativity training, or through setting up skunk works. How companies approach innovation: A McKinsey Global Survey. McKinsey Quarterly., October 2007 But Some Companies are Well-Organized for Innovation • Apple, 3M, P&G, Sony, Samsung, General Electric, LG, Toyota, Nike, Google, Amazon, Harley Davidson, Lego, IBM, Google, Micorsoft and many others. • Consider that 3M with its 38 core technologies manages to place 50,000 products and 2,000 brands on the market. • "We think of innovation as a creative and nonlinear concept. But that does not mean that it is not manageable. At Procter & Gamble we can manage innovation because we have a clear definition of innovation”. A. G. Lafley, former CEO of P&G Why Innovate? • Deindustrialization in the U.S. • Emerging countries are showing higher growth and will become increasingly competitive • New areas begging for innovation – Protecting the environment – The need for new sources of energy – Robotics – Artificial intelligence – Genetic engineering and biotech – Body engineering – 3d printing – Nanotechnology – New social media Disruptive Technologies • OLD • NEW • Photographic film • Digital photography • Wired telephones • Mobile telephones • Store retailing • On-line retailing • Classroom education • Distance education • Offset printing • Digital printing • General hospitals • Outpatient clinics • Open surgery • Endoscopic surgery • Cardiac bypass surgery • Angioplasty • Manned fighters • Unmanned aircraft • Full service stock brokerage • On-line stock brokerage Source: Clayton M. Christensen, The Innovator’s Dilemma, p. xxix. Tomorrow Will Be Different Yesterday Today Tomorrow Ford Toyota Cherry Department stores Wal-Mart Internet retail Digital Equipment Dell RIM Blackberry Delta Southwest, Ryan Air SkyWest, Air taxis IBM Microsoft Linux At&T Cingular Skype Sony DiskMan Apple iPod Cell Phones Source: Clayton Christensen The Pressing Need for Creativity • Left brain workers will have less to do because most of their work can be done by software programs. • This means that persons will need to develop their right brain creative capacity for getting new ideas. • However creativity does not equal invention nor does invention equal innovation. Source: See Daniel Pink, Drive. Are You Really Innovating? • Most companies call it innovation when they make product extensions, modifications, upgrades and tweaks. • We need some breakthrough, game-changing, bolder product-innovation initiatives in the development pipeline. Adapted from Robert Cooper, “The Innovation Dilemma: How to Innovate When the Market is Mature.” (To be published in Journal of Product Innovation Management, 2011) A Balanced New Product Portfolio A Few big strategic bets Portfolio of new ventures, prototypes, projects. Many incremental quick wins and continuous Improvements. Source: Rosabeth Moss Kanter Types of Innovation • Product and service incremental innovation • Business model innovation • Marketing innovation • Solution innovation Business Model Innovation • FedEx • Mayo Clinic • IKEA • Southwest Airlines • Barnes and Noble • CNN • Aldi’s • Cirque du Soleil • Whole Foods • iTunes • Starbucks • Grameen Bank • Facebook • Starbucks • Zara • Skype • Car 2 Go • Dell Computer • Club Mediterranee Marketing Innovations • Incentive innovations – Credit cards – Rebates – Zero-interest financing – Gift certificates – Coupons – Guarantees and warranties – Subscription selling (Book of the Month Club) – Installment buying – Informercials • Retailing innovations – Self-service stores – Self-checkout – Coupon feeds – Hypermarkets – Category killer stores – Differentiated stores with same chain (Best Buy) – Exclusive lines of merchandise (Target: Michael Graves, Martha Stewart) – Selling on TV (Home Shopping Network) – Selling on the Internet – GROUPON Solution Innovation: GE Power Division Looks for Box 3 Type Innovations • a carbon tax, • the forced closure of coal plants, • the rise of biomass waste, • the soaring demand for new generating capacity in China, • a standard of at least 40 miles per gallon for cars, • distributed power made by small generators like fuel cells. Why Do Innovations Fail? • Poor forecasting • Missing features • Overpricing • Competitors are underestimated • Product is too complex • Poor communication campaign • Weak distribution support • Costs are higher than expected • A high level executives pushes without hard data. • Poor teamwork between R&D, Marketing and Sales. Why Product Development is Getting More Difficult • Shortage of important new product ideas. • Rising cost of new product development. • Increasing social and regulatory constraints. • Shorter life span of successful products because of rapid competition. The Role of Marketing in the Innovation Process • Contrast Searle vs. Abbott’s view of marketing. • There are those who believe that marketing should be a specialized department whose resources are drawn upon as needed by the sales and other departments. • Others believe that marketing should be a leading player in developing the future growth plan of the company. • If Steve Jobs was in your marketing department, which position would you take on the role of marketing? Innovation and Your Company • Where do you focus your search for innovation (inside or outside of the firm)? • How do innovative ideas flow in your firm (top down or bottom up)? • How are innovative ideas developed (build internally or buy)? • Where is the innovation organization located? • How is the innovation process managed (formal processes or informal processes)? Fernando Trias de Bes and Philip Kotler, Winning at Innovation. The A-to-F Model (Palgrave, 2012) Exhibit 2 Fernando Trias de Bes and Philip Kotler, Winning at Innovation. The A-to-F Model (Palgrave, 2012) Roles vs. Stages • A-B-C-D-E(F) could change to: • A-B-C-A-F-D-B-D-F-E-C-E • Or to something as simple and brief as: • A-D-E Fernando Trias de Bes and Philip Kotler, Winning at Innovation. The A-to-F Model (Palgrave, 2012) Fernando Trias de Bes and Philip Kotler, Winning at Innovation. The A-to-F Model (Palgrave, 2012) EACH PLAYER’S NORMAL CONTACTS Fernando Trias de Bes and Philip Kotler, Winning at Innovation. The A-to-F Model (Palgrave, 2012) EACH PLAYER’S TOOLS Fernando Trias de Bes and Philip Kotler, Winning at Innovation. The A-to-F Model (Palgrave, 2012) EXAMPLE OF ONE NEW PRODUCT DEVELOPMENT PLAN Fernando Trias de Bes and Philip Kotler, Winning at Innovation. The A-to-F Model (Palgrave, 2012) EXAMPLE OF BUDGETING THE NEW PRODUCT DEVELOPMENT PLAN Fernando Trias de Bes and Philip Kotler, Winning at Innovation. The A-to-F Model (Palgrave, 2012) Relation of Development and Marketing • How do the mindsets of Development and Marketing differ? – R&D people are the Masters of the Possible. – Marketing professionals are the Masters of the Valuable. • What are the levels of engagement between Development and Marketing in your company? • What are the potential contributions of marketing to the various stages in the innovation process? • What steps can your company take to improve the working relationship between Development and Marketing ? Involve Marketing in Discovery, Development, and Launch • Participate in investigating the therapeutic fields to invest in. • Study the most feasible clinical pathways to FDA approval and patenting. • Develop segmentation, targeting, and positioning. • Develop brand elements: product name, logo, slogan, dosage size, delivery system, packaging. • Use communications to pre-condition the market before the launch (ex: Lipitor). • Develop the best launch process with sales force, distribution, and communications. The CEO’s View of Marketing Will Affect the Rate of Innovation • 1P CEO • 4P CEO • STP CEO • ME CEO P&G and Open Innovation • Connect and develop: Instead of only internal vs outsource for innovations, P&G works both. • P&G looks for adjacencies and for new technologies to acquire. • P&G looks at their categories (cleaning, personal hygiene) and studies hot needs and resolving contradictions. – A shortening product that doesn’t include animal fat but cooks and tastes like it does. Crisco – A potato chip that doesn’t get stale when the bag is open. Pringles. – A good tasting cookie with virtually no calories. Which Innovations Succeed? • Cooper and Kleinschmidt found that the number-one success factor in B2B is a unique, superior product. Such products succeed 98% of the time, compared to products with a moderate advantage (58% success) or minimal advantage (18% success). • Another key factor is a well-defined
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