The Business Times
This article originally appeared on The Business Times Singapore (subscription required).
Consumer goods companies need an innovation in innovation. The largest companies invest an average of US$1.4 billion in research and development (R&D), typically 2-5 per cent of their net sales, each year to bring new products to market. When they factor in costs beyond R&D, however, such as advertising investments and supply chain enhancements, companies may find themselves devoting up to 30 per cent of their resources to innovations.
Unfortunately, far too often, there is little to show for the huge investment. For example, a study of new products introduced in Western Europe in 2011-2013 determined that only 15 per cent survived after their second year.
Executives at these companies often see sales growth drop for their top products and become convinced that those best sellers have maxed out their potential. They may then attempt to compensate by unleashing a host of variations of new products or brands, with the hope that at least one will eventually catch on. However, excessive innovation can actually hurt overall growth by shifting resources away from supporting their pipelines of existing winners. In essence, innovation ends up causing more bleeding to the core portfolio.
The writers are members of Bain & Company's Consumer Products practice.