|  14.07.2014

Consumer products and retail companies struggling to innovate

The opinions of 267 consumer products and retail senior executives were analyzed as part of a new study by EY, Delivering agile innovation, conducted at a global level.

The vast majority of consumer products and retail executives (66%) say that collaboration with smaller entrepreneurial firms has become increasingly important to drive innovation and achieve their strategic goals. Yet only one in 10 deem their companies very effective at both sourcing potential collaborators and aligning incentives between the two partners.


On consumer products industry nearly one in five (19%) respondents say they are very effective at achieving revenue increases, 16% are very effective at achieving margin increases, 12% each are very effective at brand equity and building a broader culture of innovation and only 10% are very effective at generating intellectual property from these partnerships. On retail the percentages of respondents for achieving revenue increases and margin increases are similar to consumer products industry while a slightly difference can be noticed for brand equity 10%, building a broader culture of innovation 10% and intellectual property generated 7%.


At the question “what are the key challenges of collaboration on innovation with smaller entrepreneurial firms?” respondents say that for consumer products the top three challenges are: identifying the right partners 52%, ongoing management of the relationship with the entrepreneurial firm 44% and structuring the arrangement with the entrepreneurial firm 42%. For retail 51% of respondents consider identifying the right partners, 48% structuring the arrangement with the entrepreneurial firm and 42% ongoing management of the relationship with the entrepreneurial firm as the main challenges to collaboration on innovation with smaller firms.

Constantin Magdalina, Knowledge Management, EY Romania: “As the retail and customer products industries evolve, executives will need to enable innovation in order for their companies to be able to capture new value and address the changing customers’ needs and expectations. Access to real time consumer data from several sources, including by using data analytics to respond customers’ needs, stresses the importance of gathering information for innovation. Companies future revenue increase and market share depend on how good they will be at identifying the right partners, leveraging the relationship and arrangements with entrepreneurial firms to develop such innovative solutions”.


Traditional approaches to innovation are no longer fit for purpose. Consumer products companies and retailers must innovate both their products and their business models. Growth is challenging, margins are stressed and the rapid evolution of technology and data has fundamentally changed consumer behavior.


Succeeding in the age of innovation requires companies to rethink their approach to new product and process development. Companies must collaborate with external partners, particularly smaller entrepreneurs, to identify, develop and scale up promising new product and process ideas. Additionally, companies need to look at innovation opportunities beyond just products and processes, and consider business models, consumer experiences and brand engagement as part of an overall innovation portfolio.


It is smaller entrepreneurial firms that can offer the agility and creative thinking that larger organizations need to unplug innovation bottlenecks. Overcoming the difficulties of collaborating with entrepreneurs will be critical if companies in the sector are to thrive in the long term.


The paper, which also features the insights of 45 in-depth interviews with senior industry figures, outlines nine key principles that larger consumer products and retail companies should follow to create value from collaborating with smaller entrepreneurial firms and deliver agile innovation.


These are:
1. Make the case for being agile
2. Cultivate an agile culture of experimentation
3. Think simple, act fast
4. Identify the right team
5. Determine the appropriate framework for each collaboration
6. Maintain open and frequent communication
7. Adapt processes and break the rules as necessary
8. Define and measure success
9. Iterate and work incrementally


The full paper can be downloaded here: www.ey.com/CP-innovation.


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