Can corporate giants also be innovators?

New Nutrition Business

September 2010

How do you measure the success of an

innovation? Part of the answer to that

question depends on who is doing the

measuring. How else, for example, could

two companies launch innovative snack

products that achieve similar levels of

retail sales, yet one company describes its

brand as a success and the basis for future

growth while the other sees it as a

disappointment and decides to withdraw

support from its brand.

The difference in perspective is, in this

case, accounted for by the fact that one of

these companies is an entrepreneurial startup

and the other an established corporate

giant. As [the] case study of Popchips and

PepsiCo’s Flat Earth [chips] show, both

the entrepreneurs behind Popchips and the

corporate giant behind Flat Earth

(PepsiCo’s Frito-Lay business, which

launched Flat Earth, is the world’s biggest

snack company) were targeting the same

consumer need. That need is for snacks

that have good taste and are healthy, lower

in calories, sodium and saturated fat, and

interesting for restless consumers who are

always on the look-out for variety and

something new in their snack choices.

Both used technological innovations –

PepsiCo with ingredients such as

vegetables and fruit which produce a very

different chip from conventional potato

chips, and Popchips with a processing

technique which produces a potato chip,

but one that’s different from anything

previously seen in the snack aisle.

[…] Both innovations quickly achieved

very respectable levels of sales. The

difference in perspective is attributable to

the very different innovation criteria of the

two companies.

The late Professor Peter Drucker of

Harvard Business School was one of the

best-known writers on innovation of the

20th century and his book, Principles of

Innovation, is a standard textbook. Among

the criteria Drucker sets out for successful

innovation are some which, it seems, will

almost always trip up large companies and

which explain why innovations in food and

health usually come from small start-ups.

Innovations, says Drucker, should be

capable of being started small and should

be aimed at “only a small limited market”.

Taking an innovation to market, he adds,

requires patience because you will need

time to make the adjustments and changes

to your product, because at first

“innovations rarely are more than almost

right”. The necessary changes can be made

only if the scale is small.

The other conditions Drucker says are

essential for success are diligence,

persistence, and commitment.

Popchips seems to perform well against all

of Drucker’s criteria. And while it’s true

that with Flat Earth PepsiCo was

seemingly attempting to act like an

entrepreneurial innovator (for example,

making adjustments and changes to the

product soon after launch) it’s nevertheless

difficult, perhaps impossible, for a

company of PepsiCo’s size to “start small”

and then persist.

That’s not because it lacks the skills – it’s a

company with an abundance of talented

and entrepreneurial individuals – but

because top management in all large

enterprises is impatient for fast results. So

investing to patiently building up a brand

to $100 million in sales over five or 10

years is, in the eyes of most CEOs, a

failure. But for a start-up company such a

long road is usually built into the business

plan – and achieving even half that number

would be the proof of success.

The qualities of “persistence” and

“commitment” hold no value the moment

that your boss’s number one success

criteria becomes “become a big success,

fast”. And until the current generation of

boards of directors grasps that the

landscape of the food and beverage

industry has changed, that creating a

successful mass brand – as was a common

and viable goal 20 years ago – is now the

(near-unattainable) exception, and that a

landscape that is filled with a plethora of

niche brands is the “new normal”, many

innovations will founder. They will

founder not because the products and

brands weren’t good enough, but because

the CEO insisted on sailing the innovation

ship towards the rocks and shoals of the

coast of unrealistic expectation.

It seems that few large companies create

new categories or commercialise

innovations – the energy drink market, for

example, was not created by a householdname

company or a corporate giant but by

an entrepreneurial company, Red Bull,

which was a 10-person start-up back in the

late 1980s.

Red Bull began by aiming at a limited

market – 18-25-year-olds in bars and

night-clubs – and slowly grew its

popularity with diligence, patience and

single-minded commitment. Only much

later – some 10 years after Red Bull

debuted in the West – did the big beverage

groups enter the energy market, and by the

time they had they were unable to dislodge

Red Bull from its established market

leadership.

Big beverage groups played no part in

creating the energy drink market, nor did

they create the energy shot market (which

was pioneered in the US by 5-Hour

Energy, a small entrepreneurial company

which defined and still leads the category).

Nor, it seems, will they play any part in the

development of a “relaxation drink”

market, even though what that market

needs is a breakthrough in innovation in

ingredients that can deliver the benefit

better than anything that’s currently

available – an area in which well-resourced

corporates should have an advantage.

As a cautionary tale, the case study of

Slim-Fast illustrates what happens when

the tendency of a large company (in this

case Unilever) to “play it safe” becomes its

dominant characteristic.

In its 12-year ownership of the Slim-Fast

brand Unilever has managed only one

significant innovation, the creation of a

variant, called Optima, offering a satiety

benefit. As the Chart on page 18 shows,

Optima hasn’t arrested Slim-Fast’s decline,

but it has at least slowed the pace of the

decline and without Optima Slim-Fast

would already be history. Optima aside,

Slim-Fast has retained broadly the same

image, packaging design and product

formats which were already looking

severely dated when Unilever bought the

brand back in 1998.

Slim-Fast shows what conservatism can do

in the long run – it can leave a company

unable to keep up with shifts in the market.

Combine corporates’ tendency to play it

safe with their expectations of rapid and

large returns and you have a recipe for

disappointment.

But should corporates even try to innovate

like entrepreneurs? In truth, innovation is

an essential part of how any business, even

the largest, must renew itself if it’s not to

end up like Slim-Fast. But one thing that’s

clear is that in most large companies there

needs to be a shift in attitude to risk and

innovation – and a willingness to embrace

“starting small”, coupled with Drucker’s

virtues of diligence, persistence and

commitment.