You would think that consumer goods (CG) manufactures would be the best positioned to generate new and innovative products. However, the findings of a recent research study found that CG manufactures may be struggling to successfully introduce new, innovative products to the marketplace (Sopheon). The study found that CG companies generate 25% of their revenue from new products introduced in the last five year, yet only half of the new products these companies launch ever become profitable. Additionally, of the “new products” introduced, the article indicates that only twenty percent or so of the products are truly considered highly innovative vs. a simple upgrade or modification to an existing product.
Are these bad numbers or a success story for CG manufactures? Based on the article title alone, “New Research Study Uncovers Product Innovation Challenges Facing Consumer Goods Manufactures,” it is clear the researchers are interpreting them as bad results (Sopheon). However, I am not sure I agree with this conclusion. Having one out of two product launches be profitable is not bad for such a competitive marketplace. In comparison, pharmaceutical companies only have a one in ten success rate for bringing new drugs to the market place and the R&D costs in the sector are much higher than in the CG sector (Reuters). Restaurants have a 25% failure rate in their first year of operation and a 60% failure rate over three years (BusinsesWeek). So, in comparison, having one in two product launches be profitable is not necessarily a crippling to the CG industry by any stretch of the imagination. Do CG manufactures want the success rate to be better? Sure. Should it be better? That is up for debate.
Imaging if each week a new innovative product was released to the market place? While the concept may be every CG manufactures dream, such innovation could not be support by consumers demand since consumers have limited. Perhaps the researcher finding that CG manufactures are “mired in processes that inhibit breakthrough innovation, depress portfolio value and contribute to competitive vulnerability” is not really a fault. Could it be intentional? What do I mean? Consider the new iPhone 4s. Why 4s? Why not 5 or even 6 or 7? I would propose that Apple is intentionally phasing in technology in the smallest increments possible to generate the largest potential return of each incremental change vs. introducing a revolutionary new iPhone 7 or whatever they would call it and missing out on the incremental profits along the way (Computer World blog). Does such a technique leave Apple vulnerable to competition? Yes, in fact it could be part of the reason that the Android operating system so quickly overtook and surpassed Apples OS. However, market share is not everything. For Apple, the iPhone 4s has already set initial sales records (Business Insider).
As pointed out in the article, there are certainly things that CG manufactures can do to improve their innovation and product development success rate. However, my guess is that some of the CG companies may not be in a hurry to change…. Perhaps they are using their position as innovators to strategically regulate innovation? This could work for a while, but all companies need to be carefully they don’t miss the critical jumps to new technology, or they will find them self on the wrong side of disruptive innovation curve.
I, too, wondered why those were bad rates as the pharmaceutical industry is far lower. Could it be that the 25%/50% numbers have changed over time for CG manufacturers? Were they used to higher numbers? Was innovation happening at a slower pace in past and now they are struggling to keep pace with global competitors?
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