Innovate or die!

Reading time: ~23 min

About the author

Alexander Koene (1964)

Brand marketer and incurable innovator. Fourteen years of international brand-marketing at Mars, British American Tobacco and Iams International. Held senior posts in the Netherlands as well as Indonesia, Italy and across EMEA. Inventor and co-founder of Brani Belts, the world's most innovative belt. Partner at Positioneringsgroep since 2002.

Innovate or die

Whatever made you successful in the past, won't in the future. (Lew Platt, Chairman & CEO of HP)

A booklet about innovation. Inventing, changing, improving; pick your word. It was written for internal use, but anyone outside Positioneringsgroep is welcome to read along.

I've been obsessed with innovation since I was a boy. It probably runs in the family. I come from a line of Amsterdam shipbuilders. My great-great-grandfather Daniël Goedkoop became the owner of a small shipyard at eighteen. At the close of the nineteenth century he made one of those decisions that quietly bend history: he bought a steam engine. The slipway no longer relied on muscle alone, and on top of that it produced electricity, which meant light. Work could carry on through the dark winters. Werf 't Kromhout grew quickly, and the cramped plot on Amsterdam's eastern islands soon became too small.

At twenty-three, Daniël opened a much larger yard along the IJ, with the rather ambitious name Nederlandse Scheepsbouw Maatschappij. It became the bedrock of Amsterdam's twentieth-century shipbuilding boom. Rivets gave way to welding. Diesel engines to turbines. After the merger with the Nederlandse Droogdok Maatschappij, the NDSM was born; a building and repair yard with a reputation that travelled.

A whole village, Tuindorp-Oostzaan, was built from scratch to house the staff, complete with schools, hospitals and sports fields. Liners such as the Oranje, the Johan van Oldenbarnevelt and the Oslofjord slid down the slipways into the IJ. The NDSM also built the world's first 300,000-tonne mammoth tanker. It was such a colossus they couldn't build it in one piece, so they built it in two and welded it together in the water. Innovation, indeed.

By the late 1970s the whole thing collapsed under fierce competition from Japan and other low-wage economies. The honest reason: the yards had failed to innovate in time and never made the leap to new building techniques and new ship types. They stopped creating new added value. The NDSM was kept upright for years on government subsidies in the name of jobs; an ever-deeper sinking ship.

So this booklet is about innovation. About surviving, or going extinct. The sluggish economy at the start of the millennium has put a sharp edge on the need for organic growth, and with it the need for New Product Development. Often that will also mean New Brand Development, and a growing number of organisations will draw their success from exactly that premise. New Products and New Branded Concepts will play the lead within Brand Driven Marketing. Of that I'm certain.

The world is changing ever faster

The world has become a global village. Time and distance barely register. Wherever you are on the planet, your mobile rings the same number. Not so long ago, a GSM was the preserve of the successful businessman. Today everyone owns one, or several. I bought a new one at Dixons the other week, simply because I fancied a different colour. Text messages whizz past your ears: an estimated 600 billion of them will be sent worldwide in 2003. Who saw that coming?

With a webcam, you can see and hear anyone in the world, with only the speed of light to slow you down. The implications for business are barely imaginable. Industrial design and security services are by now as exportable as VCRs and cars. EMS Control Systems monitors lighting, air conditioning, lifts and CCTV for office blocks in Singapore, all from Sydney. British Airways has moved its administrative back office to India.

Almost everyone in the western world now has an internet connection and an email address or three. Search engines have made information transparent, instantly available and free. With Kazaa's file-sharing software you can already get at more than 950 million files belonging to 4.5 million users. One click, and any mp3, dvd or piece of software you fancy lands on your machine. To say nothing of Wi-Fi, which will soon let every digital device chatter to every other, wirelessly and at speed.

In our living rooms, too, the surge in media supply and consumption is impossible to ignore. We're taking in information in entirely new ways. The traditional set-up surrounds us with dozens of channels: newspapers, magazines, books, telephones, television, fax, pagers, SMS, electronic diaries, voicemail, old-fashioned post (with stamps on), email, internet. Inefficient and confusing. Make no mistake: the joystick is the future. Video games such as Medal of Honor, Mortal Combat and Armored Core 2 are training our children for the new information society. You really can't start them young enough.

We're racing toward the ability to identify, understand, improve and control living organisms. With biotech we are at the very beginning of an evolution. Views that today are heavily contested will probably shift before long, and become routine. Many things, meanwhile, are getting smaller; much smaller, thanks to nanotechnology. Since early 2002, hospitals have been treating stomach and intestinal complaints with a swallowable pill containing a tiny camera, battery and transmitter. It photographs your insides as it goes and beams the pictures to a recorder. After 24 hours the pill leaves the body the natural way and the doctors know exactly what's wrong. Work is underway to make this pill steerable from outside the body. Yes, really.

Materials science will let manufacturers produce in ever smarter, more multifunctional and more environmentally aware ways. Picture clothing that warms or cools depending on the temperature outside, thanks to the micro-electronics woven into it. None of these advances stand alone; they goad and stimulate one another. New Product Development through digital CAD, rapid prototyping and rapid tooling is dramatically cutting both development cost and time to market. The only ceiling is our imagination.

Products and services age faster, too. The minicomputer, the PC and the pocket computer arrived within twelve years of one another. Chip speeds will rise a thousand-fold over the next ten years, rendering millions of computers worthless overnight. Off to the scrapheap with them. Not so long ago, Van Berkel's Patent was an internationally respected maker of weighing scales; those big round dials at the greengrocer, the butcher and the fishmonger. They were everywhere. But the management ignored the rise of the electronic scale.

In late 2001, the instant-camera maker Polaroid filed for bankruptcy. Originally a fiercely innovative company, blindsided by competition from the digital corner. Are Kodak and Fuji watching this in time? How are cable companies responding to the threat from Digitenne (a digital terrestrial broadcaster)? And what will Shell do once the electric or fuel-cell car finally breaks through?

Everything is moving. Nothing is as it was, and no one is right anymore. Many of the old certainties have fallen away.

The traditional paradigms are worn thin, our political reference points dated; built as they are on binary opposites that speak to us less and less, like left-right or socialism-capitalism. Many classic givers of meaning, religions and ideologies among them, have lost their pull and their power to inspire. Yet our hunger for meaning has not diminished. If anything it has grown. We are searching, hard, for replacements for the old value patterns. New ideas, new sources of meaning that can step into the role. The rise, and the extraordinary public reaction to the death, of Pim Fortuyn made that startlingly plain.

So we live in a world of phenomenal shifts and merciless, unrelenting hyper-competition. We also live in a world bursting with new opportunities for entrepreneurs who respond to all of this with imagination and intent.

Product parity is a thing of the past

At the close of the twentieth century, plenty of companies enjoyed enormous growth. Maximising shareholder value was the wind in the sails of many a CEO and his executive team. In most cases, the top line kept growing in double digits, and there was always more juice to be squeezed out of the bottom line. Cost savings were delivered through clever operational tweaks: total quality management, supply-chain effectiveness, just-in-time, SKU rationalisation, streamlining, further automation, the lot. In short: running the existing machine a little harder.

In a great many companies, safety-thinking and risk-aversion took centre stage. Growth was chased by copying other people's success, more or less risk-free. They called it 'transfer of proven success' and 'benchmarking'. Breakthrough growth came mainly from acquisitions and mergers, with all the cultural luggage that comes with them. Few of those marriages turned out happy, except for the Big 5 accountancy consultancies, who had their hands full guiding the procession. Integration always proves harder than promised, management's focus gets diluted, and the fabled synergies turn out to be a mirage.

A fair few CEOs became paper millionaires this way, courtesy of generous stock-option packages. Some weren't above creative accounting either. Meanwhile we have collectively built a 'surplus society': a surplus of comparable companies, run by comparable managers, employing comparable people, with comparable educations and the same ideas, producing the same things on the same systems, at comparable prices and comparable quality.

Which brands still genuinely surprise the consumer? Which brands beat expectation rather than meet it? How many brands resist the gravity of the short term and refuse to settle for average?

Hand in hand with all this, the supply of media has exploded. Brands' dependence on traditional advertising is alarming. Yet hardly any marketers still believe that real revenue growth comes from clever campaigns and heavy media weight alone. So marketing directors and brand managers spend ever more time and money on expensive communications, CRM, one-to-one marketing, GRP optimisation and the rest. Have we forgotten that the most reliable way to build brand preference is product quality and the distinctive benefits that go with it?

How is it that personal computers have flattened into a homogeneous grey blob, with only Apple still in the business of pleasant surprises? How did Renault and Peugeot finally crack the German automotive grip? How did Swatch ('Fashion Watches') stay successful for decades, and how did Nike ('Just Do It!') become one of the very few ten-billion-dollar brands? Why did Procter & Gamble write a 2.3 billion dollar cheque for the Iams/Eukanuba dog-food business, and why did Unilever swallow Ben & Jerry's?

These companies decided to break with the parity paradigm and went looking for smarter answers. We are at the start of a new chapter of organic corporate growth, and with it of innovation through New Product Development.

Step out of your comfort zone

Just when we thought we'd cracked the code for running a successful company, the rules turn out to have moved again. In fact, managers are still being taught at most business schools, colleges and universities (and afterwards in daily practice) to run a company along lines drawn by Frederick W. Taylor in the early nineteenth century. In short: organise the company with crisp lines of authority, define tasks, rights and responsibilities, separate strategy from operations, base bonuses on hard numbers, give management a corrective role (reward results, punish failure), and embrace functional specialisation.

Taylor's way of organising leans almost entirely on the left hemisphere; sequential thinking, ratio, logic, the parts rather than the whole. The manager shuts out, or never even develops, the right hemisphere. Intuition, emotion, feel, the ability to synthesise; many an analytical, 'hard' successful manager still files these qualities under soft, and therefore unwelcome. And yet successful companies are increasingly being run on soft values. This Value Shift is not a luxury or some hippy notion. It's a hard-headed necessity.

The social shifts of the past decades have placed a heavy demand on the adaptability of managers and organisations. How many managers and marketing directors spend an ever larger slice of the day diligently answering email at their screens, when they should be sitting with the consumer or in the lab? Many of them are completely 'disconnected', which is precisely why the market-research agencies are doing such roaring business. Fresh insight is rarely buried in thick stacks of research; more often it's sitting in plain sight on the high street.

Ring your consumer's doorbell. Have a coffee with a customer. Just ask the people queueing at the till or standing at the shelf. Look, listen, learn to notice.

Dare to ask 'why not?' while keeping yourself open to the answer. Why aren't banks open when I'm not at work? Why is there a cord on my telephone? Why do men wear ties? Why is a car fifteen times heavier than the person it carries? Why aren't belts red or yellow? Why isn't there any healthy candy? Challenge the status quo by asking. Decide for a few days to treat something as an open question and see what bubbles up. Use your imagination, invent new solutions to everyday problems. They are everywhere, waiting to be picked up.

Brand Driven Marketing

Brand Driven Marketing is becoming, after People Management, the single most important focus area for top management at many companies and institutions. People Management, in the sense of attracting, developing, deploying and retaining talent, is fast turning into the sharpest weapon in the competition. Whoever has the talent (and the wit to use it) is tomorrow's winner. You'll recognise this. But what does it have to do with Brand Driven Marketing?

On the face of it, almost nothing. Unless we acknowledge that brands have an important part to play with every stakeholder. Not merely with direct customers, but increasingly with their own people (Living the Brand), with society (Socializing the Brand) and with shareholders and financiers (Exploiting the Brand).

People are searching for things bigger than themselves. That can be many things: family, sport, culture, nature, religion, ideology, study, work; and also one or more brands. Nike, by now a classic, gave millions of black youngsters self-confidence through its empowerment idea. Apple is worshipped by millions of creatives for its refusal to play it safe. The corporate brand is on the rise too. Rabobank stands for a way of doing business and, for some employees, a way of life. Brands can be 'bigger than us', and many are. We call them Trust and Power Brands. They offer a philosophy or ideology, a way of life, and quality.

Not just any quality; quality that surprises. Not the kind that meets expectation, but the kind that overshoots it. Häagen-Dazs does it. Singapore Airlines does it. So do Sony, Gillette, Philishave, Calvin Klein, Hugo Boss, L'Oréal, Intercontinental Hotels, Canon, Microsoft, Nokia, Albert Heijn, BMW, McKinsey, the Blakes Hotel, Breedendam Sloops, Adidas, Audi, Club Med, Johnson & Johnson, Michelin, Samsonite, Wedgwood, Real Madrid, Pampers, the BBC, Morgan Stanley and Postbank. It costs enormous effort, but it can be done.

The trend is intensifying. Why? Because many of the classic givers of meaning, religion and ideology among them, are losing their pull at speed. They are seen as too dogmatic and too preachy. New Traditions are taking their place. From sport to culture, from ethics to nature, all the way to 'concepts to live by'; and those happily attach themselves to a range of products and services.

Trust and Power Brands, national or international, with a portfolio of products and a particular ideology that holds the whole together. A system of ideas and meaning hides behind every top brand and creates a very particular bond with its target group; or better, its community. As a striking footnote: the gospel has had a (temporary?) revival of interest, on the back of the uncertainty and fear sparked by terrorism (9/11) and the shock-and-awe war in Iraq.

It's this drift toward meaning, toward a system of ideas, toward something that almost resembles an ideology, that ushers in the next phase of innovation, marketing and brand strategy; really, of doing business in general. With one significant change from the past: it can only be communicated if it is true. It has to be genuine. Real, authentic, unspoiled. The philosophy must be clear and credible. There has to be a vision, a mission and a system of values that engages people and is genuinely lived in practice. Otherwise it cannot become a 'concept to live by'.

For the moment, Brand Driven Marketing is reserved for a limited number of organisations. That is changing fast. We see a growing focus among organisations on building 'a system of ideas and meaning' in which their products and services play the lead. The promise made to the market is no longer purely customer-oriented; it reaches further. It's a promise made to every other stakeholder too, and therefore one that must be carried internally by everyone. Within the next ten to fifteen years, organisations will need to deliver customer value, society value, employee value and financial value. If they don't, they will lose their licence to operate. That requires nothing less than enormous entrepreneurial passion at the top, and that can only be delegated to a very limited extent.

This is why marketing is becoming Brand Driven. With all due respect to CRM, e-commerce, multichannel and customisation, those are tactics that work the rational side. Brand Driven Marketing is the only thing that comes in through the emotional door. It settles in the right hemisphere, like an ideology or a philosophy. Managing emotion is the hardest job in business. That's where the real challenge lives, and that's why the era of Brand Driven Marketing has arrived for good. And clearly, it has far-reaching consequences for the development of New Products and New Branded Concepts.

Mind the details... feminine details

Developing new products and services means working with both an inside and an outside. The hard, instrumental side and the soft, emotional one. The 'masculine' world of the technician who makes sure the bolts, nuts and gears do their job; and the more 'feminine' world of sensory pleasure, design, colour and scent. Deeply emotional matters, decided in the right hemisphere, and decisive in whether you find something beautiful or ugly.

Strikingly few companies treat design as a primary part of the innovation process, let alone seat a designer on the executive board. Form and colour usually arrive at the end of a sequential development run. The packaging should look nice too, people say, almost as an afterthought. We forget that 50% of consumers are women, while most products are made by men with conventional ideas about form and taste.

The success of brands such as Sony, Peugeot, Philishave, Canon, Nike, Nokia, Brani, Gillette, Starbucks and McDonald's is largely, sometimes wholly, explained by their attention to design. A combination of fine functionality with proper aesthetics. Sony goes so far as to say that all its competitors have more or less the same technology, price, performance and gadgets. Design is the only place left to draw a line of difference.

Walk down a busy shopping street and ask yourself how on earth all those mostly mediocre products actually get bought. Products with a perfect right to exist, on which companies (still) make their living, pay salaries and keep families fed.

It also explains, instantly, why the truly successful brands stand out. They jump out at you. Without exception, they excel at design. Wearing or using these brands is a way to set yourself apart. Many people are guided by exactly that, and are happy to pay a premium for the privilege. Around us, you'll increasingly spot feminine forms and softer symbols. Product details are taking on more rounded, sensual lines; flowing and tactile, rather than angular and taut. Look at Nokia and you immediately understand why it is number one in mobile phones. Technology and design together still have an enormous role to play. They are a wonderful source of differentiation and, frankly, of corporate pride.

The best critics still stand on the shore

The human brain rejects every form of renewal. Stepping outside the existing rules is punished. Colleagues, friends and acquaintances are remarkably inventive when it comes to coming up with reasons why:

"Yes, but..." "We've done that before..." "They'd already have done it at Pietersen's..." "That won't work because..." "Have you really thought through the implications...?" "We don't have time for this right now..." "Why don't you put your idea on paper..." "We have other priorities..." "We can't spend that much on development..." "That already exists, doesn't it..." "What planet are you living on...?" "That may be true in theory, but in practice..." "If you ever run the place, you can do it your way..."

Our conformist social habits feed this rejecting reflex. In business it shows up as imitation and incremental thinking; the 15% longer toothpaste tube, the 'two-pack', the 'three-pack', the slightly larger engine displacement, the 12th flavour variant, and a thousand other unimaginative little tweaks companies make to nudge ahead. And the still bigger (and pricier) ad on top.

Incremental thinking also lurks behind the ever-expanding brand portfolios with which companies try to keep up with growing variety by launching a new brand for every new product. That strategy no longer works and is far too expensive. We need to go from more to less. We're heading toward polydentity.

What's striking about innovative ideas isn't merely that they get rejected, but that the rejection usually arrives right at the start. Only once an innovation has been launched successfully does everyone suddenly know exactly why it works. Especially during that fragile first phase, with success still uncertain, a new idea is exposed to all manner of dangers. Development budgets get cut, people move on or leave the company, strategies change. Often it's little short of a miracle if a new idea even gets through that first phase intact.

A reliable trick to help is to make the new idea visible quickly and on a small scale, through prototyping, hothousing or piloting. To give an innovative idea a fighting chance, it's also wise to place it outside the line organisation. Innovative companies free up dedicated, creative people for the work and make sure that, very high up the organisation, someone is willing to act as the project's sponsor. Sheltered from the dogma of every day, new ideas stand a far better chance of flowering.

You can of course go further still and bake innovation into corporate policy by aiming for at least thirty percent of revenue to come from products younger than four years, and by allowing employees to spend fifteen percent of their working time inventing new ones. There are companies that do exactly this. An example? 3M Company.

Our fascination

What drives us at Positioneringsgroep is an outsized interest in people and brands. A fascination with the kind of creativity that produces surprising brand concepts and beats consumer expectation, both emotionally and instrumentally. That is our specialism. It calls for broad knowledge and broader vision, gathered across many corners of business; whether fast-moving consumer goods, services or non-profit. Thanks to that vantage point, we can think along creatively and build relevant positionings for brand concepts and portfolios quickly and easily.

We support clients concretely with proposition development. Our scope spans fast-moving consumer goods, durables and services. Innovative brand-contact strategies fall within our remit too. Starting from the desired brand positioning, we work out the innovation strategy and shepherd the creative process toward identifying innovative concepts; as concrete as it gets. We explore international markets and look at adjacent product categories. In this phase we often act as a catalyst between Marketing, Sales and R&D. We also help build an innovation infrastructure, with clearly anchored procedures, tasks, responsibilities, strategic priorities, timing, budget allocation and approvals.

We test the quality and conceptual relevance of innovation projects and processes. After an innovation analysis, strategy development and structuring, we help kick-start the innovation process. Where it makes sense, we stay with the projects all the way through to market launch and contribute to developing effective consumer-contact strategies.

We're well aware that the innovation projects we work on are at our clients' risk and expense. Our role is to act as the catalyst, to keep the right mix of chaos and control alive, and to push the quality of the ideas. But ultimately it's the client who reaps the credit when it works. We have no problem with that. We know our place.

We also believe in practising what we preach. That's why Positioneringsgroep takes part in promising innovative brand ventures. We make the collective marketing knowledge, entrepreneurial mentality and creative enthusiasm of the whole team available to them. Our professional efforts in those ventures are rewarded through dividends, capital growth or royalties. We think this is important and necessary. It keeps us from becoming theoretical advisers on the sidelines, and keeps us working as entrepreneurs, with, between, and for entrepreneurs. Growth through renewal.

Ten simple tips to encourage innovation

1. Make innovation part of how the business actually behaves. Not just something for the occasional off-site. Make it clear to employees that innovation is a continuous discipline.
2. Start early. Talk about the importance of innovation during the induction programme for new hires. Make it plain that innovation is part of daily culture, and that everyone is invited to contribute.
3. Make someone at executive level responsible for innovation. The executive team sets the innovation vision and the level of ambition. If leadership doesn't genuinely believe in it, every innovation project is doomed before it starts.
4. Keep your eyes open. Learn from as many sources as you can. Don't only look at your own market for inspiration; innovative companies in other markets are often a richer seam to mine.
5. Build the right working environment. Make sure there's a place in the office (or close to it) that's genuinely stimulating to brainstorm in. An essential part of the innovation process. A place where people feel relaxed and find it easy to share half-formed ideas.
6. Provide proper budgets for innovation. It costs money. In the R&D budget, in the marketing budget, and in the time and people allocated to ideation sessions. Including the write-offs for projects that turn out not to fly.
7. Experiment, and make good ideas tangible as fast as possible. Coming up with the idea is often the easy bit. Realising it is the hard bit. Pour energy into prototypes and small-scale tests. Make sure there's enough time in the diary to drive things forward and steer along the way. Build in headroom for setbacks during development.
8. Never punish failure. If people are afraid of making mistakes, you will never see innovation. There has to be room to experiment and learn.
9. Reward good ideas. Employees need to see there's a real benefit in actively taking part in the innovation process. Financial rewards, skills development, or perks like extra holiday days. Put people in the spotlight, properly, when they come up with and execute good ideas.
10. Measure how good your company is at innovation. Track how long it takes and how much it costs to go from first idea to launch. Set targets to do it faster next time. Keep evaluating your innovation strategy; if it isn't working, change course quickly.

Colophon

© Positioneringsgroep BV 2003. All rights reserved. Apart from short quotations for the purpose of criticism or study, no part of this publication may be reproduced, stored in a retrieval system or made public, in any form or by any means; electronic, mechanical, photocopy, recording or otherwise; without the publisher's prior consent.

Positioneringsgroep BV

Dodeweg 6, 3832 RC Leusden, the Netherlands

Telephone +31 (0)33 453 7100

Back cover

Positioneringsgroep has specialised in brand positioning since 1993.

Positioning is choosing. Choosing a relevant and distinctive place in the mind of the consumer, customer, employee, shareholder or other relation. Products, services, people, organisations or governments; all of them occupy a position in the human mind. In short: the contest for the favour of the target group is fought in the mind.