Innovation excellence - Roland Berger

1 I 

INNOVATION EXCELLENCE 

How innovation succeeds 

or fails 

Final results of the "Innovation 

excellence survey" 

Munich/Brussels, June 24, 2006

2 I 

Contents 

A. Management summary – Innovation excellence at a glance 

B. Innovation excellence survey – What did we want to know? 

C. Innovation trends – What does the future hold? 

D. Key success factors for innovations – What makes the 

difference?

A. 

Management summary – 

Innovation excellence 

at a glance

4 I 

Management summary (1/2) 

> AIM and Roland Berger Strategy Consultants jointly conducted the "Innovation 

excellence survey" from February to May 2006 

> Through standardized written interviews, we analyzed a total of 27 successes and 

failures provided by top European FMCG companies 

> The main objectives were to identify innovation trends and strategies as well as key 

success factors for product innovations 

> We learned the following key lessons: 

1. Innovations are successful when they are launched because of clearly defined 

consumer trends – and fail when their launch is based on internal pressure 

2. Successful innovations generally use new technologies and address new 

consumer needs 

3. Successful innovations do not require more development time than the ones that 

fail 

Source: "Innovation excellence survey", AIM/Roland Berger, May 2006

5 I 

Management summary (2/2) 

4. Gathering external input and setting up cross-functional teams during the idea 

generation phase increase the likelihood of innovation success 

5. Successful innovations enter the market with a clearer functional benefit and a 

higher premium price than products that fail 

6. Successful innovations are generally launched with a multi-channel distribution 

approach 

7. Substantial marketing & sales support as well as sampling are key to an 

innovation's success 

8. A well-planned post-launch phase is also key – Successful new products are 

better prepared for competitor reactions than failures 

> Overall, successful innovations can substantially improve the market and financial 

position of a company – The analyzed success cases show a market share increase 

of 32% within the first year of the product launch 


B. 

Innovation excellence survey – 

Innovation excellence survey 

What did we want to know?

7 I 

The "Innovation excellence survey" was jointly 

conducted by AIM and Roland Berger 

Study outline 

Initiator 

>AIM 

> Roland Berger Strategy Consultants 

Target 

group 

> The European Top 60 consumer goods manufactures 

> Top managers with responsibility for innovations 

Methodology 

and timing 

> Standardized, written interviews 

> February-May 2006 

Source: Roland Berger

8 I 

The study investigated overall innovation trends and 

strategies as well as real cases of innovations 

Structure of the "Innovation excellence" questionnaire 

A 

General innovation trends and strategies 

B 

Innovation case studies 

1 Overall industry 

trends 

Success case 

INNOVATION EXCELLENCE QUESTIONNAIRE 

A. strategy 

Please select one of the following items: 

Definitely 

Probably 

Probably not 

Definitely not 

1 Innovation strategy 

A.4. Please indicate how the following statements apply to your innovation 

strategy as defined for the next 3 years. 

Failure case 

INNOVATION EXCELLENCE QUESTIONNAIRE 

A. Innovation strategy 

Please select one of the following items: 

Definitely 

Probably 

Probably not 

Definitely not 

A.4. Please indicate how the following statements apply to your innovation 

strategy as defined for the next 3 years. 

We will launch more new products 

Probably 

We will aim to develop more innovative technologies 

Probably 

We will aim to better understand consumer needs 

Probably 

We will be driven by vision and inspiration 

Definitely 

We will focus innovation on existing brands 

Definitely 

We will focus innovation on existing categories 

Definitely 

We will invest more in R&D 

Definitely 

2 Innovation We will rely more on external ideas and contributions organization 

Definitely 

We will launch fewer, but stronger new products 

Definitely 

We will launch more new brands 

Probably not 

We will launch more new products 

We will aim to develop more innovative technologies 

We will aim to better understand consumer needs 

We will be driven by vision and inspiration 

We will focus innovation on existing brands 

We will focus innovation on existing categories 

We will invest more in R&D 

We will rely more on external ideas and contributions 

We will launch fewer, but stronger new products 

We will launch more new brands 

Probably 

Probably 

Probably 

Definitely 

Definitely 

Definitely 

Definitely 

Definitely 

Definitely 

Probably not 

We will support new products more with Advertising & Promotion 

Definitely 

We will support new products more with Advertising & Promotion 

Definitely 

2 Company-specific 

innovation strategy 

A.5. Please rate the importance of the following statements in generating growth for your business 

Launch more new products 

Probably not 

Aim to develop more innovative technologies 

Probably 

Aim to better understand consumer needs 

Definitely 

3 Innovation process 

Be driven by vision and inspiration 

Definitely 

Focus innovation on existing brands 

Definitely 

it Focus 

Focus innovation on existing categories 

Probably 

Invest more in R&D 

Probably 

Rely on external ideas and contributions 

Definitely 

Launch fewer, but stronger new products 

Probably 

Launch more new brands 

Probably not 

Support more new products with Advertising & Promotion 

Probably 

4 

Next 

Innovation monitoring 

p 

A.5. Please rate the importance of the following statements in generating growth for your business 

Launch more new products 

Aim to develop more innovative technologies 

Aim to better understand consumer needs 

Be driven by vision and inspiration 

innovation on existing brands 

Focus innovation on existing categories 

Invest more in R&D 

Rely on external ideas and contributions 

Launch fewer, but stronger new products 

Launch more new brands 

Support more new products with Advertising & Promotion 

Probably not 

Probably 

Definitely 

Definitely 

Definitely 

it Probably 

Probably 

Definitely 

Probably 

Probably not 

Probably 

Next 

Source: Roland Berger

9 I 

The real cases of innovations covered several FMCG 

categories 

Basis for analyzing success factors of innovation 

Basis for the survey analysis [#] 

Categories covered (selection) 

27 

• Dairy products 

• Oral care 

11 

• Healthy snacks 

Failures 

• Coffee 

• Cli Culinary aids 

• Confectionary 

16 Successes • Candy 

• Air fresheners 

• Beer 

Case studies 

• Spreads 

analyzed 

• Meal kits 


C. 

Innovation trends – 

Innovation trends 

What does the future hold?

11 I 

Companies expect few groundbreaking innovations and 

very standardized innovation processes 

Observed overall trends in product innovations (selection) 

… Few groundbreaking innovations … 

… Mostly line extensions and flavor variety on key brands… 

… Shorter cycle time for products and innovation work … 

… Today all the projects are viewed as part of a global process of innovation … 

… Standardized formulas, names, graphics across all countries … 

… More pan-regional launches at the same time in key countries … 


12 I 

In the future, companies will focus their innovations on 

their brands and categories 

Planned future innovation strategy [%] 

Support more with advertising 

and promotions 

46% 54% 

100% 

Focus on existing brands 36% 54% 89% 

Focus on existing categories 43% 36% 79% 

Invest more in R&D 39% 29% 

68% 

Rely more on external ideas 29% 36% 65% 

Probably 

Definitely 


13 I 

The most admired "role models" will succeed with 

breakthrough innovations 

Role models for innovation quoted by companies (selection) 

Innovation role models 

Reasons 

>"Breakthrough innovations" 

>"Adding significant revenue by leveraging their business capabilities" 

>"Fast in identifying consumer insights" 

>"Balance between long-term brand equity and driving innovations" 

>"Successful radical innovations" 

>"Great company culture" 

>"High speed to market for their innovations" 

> "Innovations seen as a strategic success factor for the company" 

Source: "Innovation excellence survey"; AIM/Roland Berger, May 2006

14 I BACKUP 

3M allows its employees to use 15% of their working 

time for innovations 

Case study – 

Net sales [USD m] 

Approach to innovation 

> Listening to all ideas – regardless 

+7.7% 7% p.a. 

of job title or position 

21,167 > Employees are allowed to use 15% 

20,011 

of their working time for innovation 

projects 

18,232 

> Innovations should be as simple as 

possible in order to be realized very 

easily 

> Employees receive funding and 

2003 2004 2005 

resources to pursue 

20.4% 22.9% 23.7% 

an idea 

Operating margin 

Source: 3M, press

15 I 

But some innovations never get off the ground – So what 

makes the difference? 

Source: Internet

D. 

Key success factors for 

innovations – What 

makes the difference?

17 I 

Companies think that the success of an innovation 

depends on a product's concept or quality 

Top 5 reasons for the success or failure of an innovation 1) 

Reasons for SUCCESS 

Reasons for FAILURE 

1. Concept, positioning 

of the product 

88% 

91% 

2. Quality of the product 

81% 

55% 

3. Marketing activities 31% 

18% 

4. Packaging 

13% 

27% 

5. Pricing 

6% 

27% 

1) Multiple answers possible 


18 I 

Market leaders are more likely to generate successful 

innovations – Failures start with a weak position 

Competitive position of company/ 

Competitive position of the 

division before the launch [%] product innovation [%] 

100 

100 

0 

7 

0 

Below No. 5 

0 

No. 4-5 

29 

56 

No. 2-3 

100 

0 

7 

21 

100 

44 

64 

44 

No. 1 

71 

22 

22 

11 

Successes 

Failures 

Successes 

Failures 


19 I 

What are the key factors of successful innovations? 

"Innovation excellence survey" – Key findings 

1 

Follow the consumer and not just your company targets – Innovations are 

successful when their launch is based on clearly identified consumer trends

20 I 

The launches of successful innovations are based on 

clearly identified consumer trends 

Main reasons for product launch 1) [%] 

Clearly identified 

consumer trend 

63% 

36% 

Internal pressure for 

sales/profit growth 

31% 

73% 

Stagnation/decline 

in sales 

19% 

55% 

Success 

Failure 

Success Failure Success Failure 



21 I 

Financial results achieved in the expected month [%] 

Break even 

Investment payback 

> 48 

100 

20 

100 

0 

> 48 

100 

10 

100 

0 

20 

57 

25-48 

25-48 

50 

57 

7-24 

60 

43 

7-24 

40 

43 

Successes 

Failures 

Successes 

Failures 


22 I 

What are the key success factors of innovations? 


1 

2 

Follow the consumer and not just your company targets 

Think the unthinkable – Successful new products are more likely to be 

breakthrough innovations

23 I 

Breakthrough innovations are likely to be successful 

Successes and failures by consumer need/technology novelty 

Consumer need/technology matrix 

Successes and failures by quadrant t[%] 

New 

CON- 

SUMER 

NEED 

Current 

Consumer-driven 

innovation 

Breakthrough 

Breakthrough 

100 100 

Me too & variety Technology-driven 

27 

innovation Consumer-driven 

0 

innovation 

Technology- driven 31 

36 

innovation 

Me too & variety 0 

6 

Current New 

Successes Failures 

TECHNOLOGY 

63 

36 


24 I 

Groundbreaking innovations are launched as a new 

brand or in a new category 

Successes and failures by brand/category 

Brand/category matrix 

Successes and failures by quadrant [%] 

Segmentation 

Diversification 

100 100 

New 

Diversification 

50 

36 

BRAND 

Depth 

Extension 

Segmentation 

25 

9 

27 

Old 

Extension 

Depth 

13 

13 

27 

Old New Successes Failures 

CATEGORY 


25 I 



1 

2 

3 


Think the unthinkable 

Don't waste your time – Intensive testing and long development do not 

necessarily prevent a new product from failing

26 I 

Successful innovations do not need more time for 

development 

Average development time – From idea to launch [months] 

By innovation type 

For successes and failures 

New 

CON- 

SUMER 

NEED 

Consumer-driven 

innovation 

Breakthrough 

16 31 

Months 

Me too and variety 

Months 

Technology-driven 

innovation 

19 

20 

Current 

17 7 

Months 

Months 

Current 

New 

TECHNOLOGY 

Successes 

Failures 


27 I 

Consumer testing does not help prevent failure of 

innovations 

Consumer research conducted before product launch 

Avg. # of tests done per innovation 

Top 5 tests used 

51 5.1 1. Concept test 

4.9 

2. Preliminary research on 

usage, g, attitude, etc. 

3. Blind product test 

4. Pack test 

Successes 

Failures 

5. Price sensitivity analysis 


28 I 

Successes require a broader mix criteria for target group 

definition than failures 

Criteria used to define the target group 

Socio-demographic 

criteria 

Behavioral criteria 

Psychographic 

criteria 

Mixture of all criteria 

88% 

64% 

27% 

0% 

6% 

9% 

6% 

0% 

Success 

Failure 

Success Failure Success Failure 

Success 

Failure 



29 I 



1 

2 

3 



Don't waste your time 

4 

Overcome boundaries – Successful innovations are based on cross-functional 

teamwork and a sound mix of global development and local adaptation

30 I 

In successful cases, main responsibility for the 

innovation project is not only with marketing 

Main responsibility for innovation project [%] 

100 

R&D 

6 

Other (Cross- 

functional teams) 

17 

CEO 11 

100 

0 

9 

18 

Marketing 67 73 

Successes 

Failures 


31 I 

Cross-functional teams and external ideas can be key for 

generating ideas 

Idea generation for new products by function [%] 

External 

function 

Internal 

function 

External (M&A) 

Other, central function 

R&D 

Cross-functional teams 

together 

Marketing 

100 

100 

0 

13 

6 27 

13 

13 

18 

0 

56 

55 

Successes 

Failures 


32 I 

International innovations are more likely to be 

successful than pure local developments 

Product development and advertising campaign [%] 

Products 

Advertising 

100 100 

100 

100 

25 

Int. development, 

27 

no adaptation 

14 

18 

18 

31 

18 

Int. development, elopment 

43 

local adaptation 

55 

44 Local development 43 

64 

Successes 

Failures 

Successes 

Failures 


33 I 



1 

2 

3 

Identify the needs and fulfill them 



4 

Overcome boundaries 

5 

Offer functional benefits and charge for them – Consumers are willing to pay a 

premium price for clear functional benefits

34 I 

Innovations that have clear functional benefits are likely 

to succeed 

Target proposition and actual consumer perception [%] 1) 

Better product/ingredients quality 

Better performance/results 

100% 100% 

73% 

88% 

88% 

64% 

55% 

27% 

Successes Failures Successes Failures 

Target proposition Consumer perception 



35 I 

Consumers are willing to pay more for innovation that 

has real functional benefits 

Price index of new product vs. average market price 1) 

250 

200 

183 183 

180 

Successes 

150 

100 

116 112 

100 

Failures 

500 

Year 1 Year 2 Year 3 

1) Index 100 = average price of reference market 


36 I 



1 

2 

3 




4 

Overcome boundaries 

5 

6 

Offer functional benefits and charge for them 

Push innovations into distribution channels – Successful innovations use more 

distribution channels than failures

37 I 

Successful innovations use more distribution channels 

than failures 

Distribution of product innovations per channel 1) [%] 

CHANNELS 

Successes 

Failures 

Food retail (excl. discounters) 

100% 

100% 

Other (e.g. drugstores/perfumeries) 

56% 

27% 

Convenience/impulse 38% 

36% 

Discounters 31% 18% 

1) Within the first year, multiple assumes possible 


38 I 



1 

2 

3 




4 

Overcome the boundaries 

5 


6 Push innovations into distribution channels 

7 Let consumers try innovations – Sampling is an effective way to introduce a new 

product to consumers

39 I 

Successes receive much higher M&S support with more 

focus on sampling 

Link between marketing spending and success rate [%] 

M&S support on innovations [% total sales] 

Type of support [% total M&S support] 

142 

100 

100 

+51%-pts 

Other 

5 6 

Trade promotions 9 10 

Trade terms 

6 

5 7 

Other BTL promotions 

5 

8 

91 

Sampling 31 

Advertising 44 

64 

Successes Failures 1) Successes 

Failures 1) 

1) Excluding one example with 240% M&S support 


40 I 



1 Identify the needs and fulfill them 

2 Think the unthinkable 

3 Don't waste your time 

4 Overcome boundaries 

5 Offer functional benefits and charge for them 

6 

Push innovations into distribution channels 

7 Let consumers try innovations 

8 

Be prepared – A well-planned post-launch phase is key to anticipating competitors' 

reactions and securing long-term success

41 I 

A well-planned post-launch phase is also key – Successes 

are better prepared for competitor reactions than failures 

Preparation of scenario on 

competitive reactions [%] 

100 

100 

No 

47 

70 

Yes 

53 

Successes 

30 

Failures 


42 I 

Eight key actions are necessary to reach innovation 

excellence 


1 

2 

3 




4 Overcome boundaries 

5 


6 

Push innovations into distribution channels 

7 

Let consumers try innovations 

8 Be prepared

43 I 

Successful innovations can substantially improve the 

company's market and financial position 

Market share development and investment payback 

Avg. market share development 

[Year 1 = Index100] 

Investment payback 

[Months, in %] 

+32% 

132 

+9% 

141 

Successes 

>48 

25-48 

0 

43 

25 

100 

50 

57 

7-24 

EXIT Failures 

25 

Year 1 Year 2 Year 3 

Successes 

Failures 


44 I 

You see things and you say, "Why?" 

But I dream things that never were 

and I say, "Why not?" 

George Bernard Shaw (1856-1950)

45 I 

Please contact us if you have questions or would like to 

discuss this study in greater detail 

Please feel free to contact us at any time: 

Andreas W. Bauer 

Head of the Global 

Consumer Goods & Retail 

Competence Center 

Tel.: +49 (0)89-9230-8316 

Mobile: +49 (0)160-744-8316 

Fax: +49 (0)89-9230-8391 

e-mail: andreas_ bauer@de.rolandberger.com

46 I 

Strategies 

that 

work.

Innovation excellence - Roland Berger

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