Nielsen: Secret to Successful New Product Innovation is to Keep the Boss Out

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July 6, 2010

A new study reveals why the best CPG companies realized more than six times the new product revenue compared to the rest, insights that can help retailers develop more successful store brands.

Although billions of dollars are spent developing and launching new consumer packaged goods (CPG) products annually, only a select group of companies realize true success.

One secret to success lies in the degree of senior management involvement in the creative process, according to a first-of-its-kind study conducted by The Nielsen Company.

In fact, companies with less senior management involvement in the new product development process generate 80 percent more new product revenue than those with heavy senior management involvement, according to Nielsen’s research of the innovation processes at 30 large CPG companies operating in the U.S.

Companies that employ best innovation practices identified by Nielsen derive on average 650 percent more revenue from new products compared to companies that do not.

Interestingly, simply being physically near corporate headquarters can stifle new idea generation. “In fact, it turns out that having no Blue Sky innovation team at all is better than having a team on-site at corporate headquarters,” according to Nielsen.

So, where is the best place for your breakthrough innovators? Apparently, far away. Companies with an off-site Blue Sky innovation team report 5.7 percent of revenues coming from new products, compared to 4.8 percent from companies with no Blue Sky team at all. Companies with Blue Sky teams on site report just 2.7 percent of revenues derived from new products, according to Nielsen.

“One of the keys to successful new product innovation is to manage new ideas lightly,” said Tom Agan, senior vice president and managing director at Nielsen. “While we don’t dispute senior management’s strengths and good intentions, they are often too quick to get involved in the creative process, especially when things are not going well, and their mere presence can stifle free-thinking and boundaryless ideas, which can doom the new product development process to failure.”

Senior management needs to play a different, more important role in new product development –– management of the new product development process, not the ideas themselves.

CPG companies with rigid stage gates –– decision points in the process where a new product idea must pass certain criteria to proceed forward –– average 130 percent more new product revenue than companies with loose processes.

“New product development success comes down to two important principles - - managing ideas lightly while managing the process precisely,” said Agan.

CPG companies with the most successful new product innovationrecords tend to have:

• Two to three stage gates that are strictly followed across the organization;
• Focus on growing brands, not ones acquired or designated by senior management;
• Development focus two to three years out;
• Formal scorecard to provide structure to organizational learning;
• Standardized and required post-mortem on all new product development efforts; and
• Knowledge management system to retain learnings from previous product launches.

“From the outside, it can often feel like innovation simply ‘happens,’ arriving like a bolt of lightning out of the sky,” said Agan. “The truth is that companies with successful innovation track records go to great lengths to create an ideal creative environment and the right behaviors, supporting policies and procedures. When they execute well, the best ideas rise to the surface and into consumers’ homes.”

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