Understanding the Innovative Organisations and Leaders

Innovative organizations are the leaders in their respective industries. A more precise definition of innovation is getting creativity and invention into the market place. A study has shown that in the China over a period of four-years 48% of sales revenue came from new products and almost 65% of this came from internally-sourced innovations. This also give the indication that product lifecycle is getting shorter. Leaders of organizations must set out a vision and strategic intent in their support for innovation. Some leaders have make innovation part of the company's policy. For example, management of Royal Dutch Shell spelt out Shell's strategic commitment as: 'innovation is the future of our companies. We all have to innovate faster. We need to accelerate a stream of good ideas and businesses to market'. Management sees innovation as an opportunity to grow in their respective industries. 3M Company has developed a reputation for being able to stimulate innovation over a long period and have stated objectives of innovation to come from 30% of sales. (Robbin, 1998). Management of Coca-Cola would only support innovations that have the prospect for commercialization and would use existing plants and equipment. 1.1 Definition of New Product and Innovation Innovation is defined as an idea, product or piece of technology that has been developed and marketed to customers who perceive it as novel or new (Kotler, 1999). Schumpeter (1934) defined innovation broadly to include: the introduction of a new goods, the introduction of new method of production Innovation generally moves product, market and production processes beyond their current boundaries and capabilities. It also provides organizations with the ammunition to move ahead of the competition. Hence innovation can deliver three priceless assets to corporate strategy. Competitive advantage Ability to leapfrog major competition, even dominant competitors Substantial future growth 1

CHAPTER TWO

2.0 Major sources of Innovation at Coca-cola The two major drivers of innovation are market pull and technology push. Technology push is the development of new initiative in technology and market pull is identifying customer needs. Literature review suggests that innovation occurs when companies identify new market opportunities or segment of an existing market that has been neglected. The Coca-Cola Company offers a portfolio of more than 3,000 products in over 200 countries and its innovation track record is hard to beat. The Coca-cola innovativeness started in the early 1886, when a pharmacist, John Pemberton produced first the coca-cola drink. The company is always looking for ways to refresh consumers around the world. Coca-cola is the most popular and biggest selling soft drinks in history, as well as the best known product in the world. In 1980s, the fitness craze, led to the introduction of the diet-coke which became top low-calorie drink in the world. Here are some of the most recent additions at Coca-cola: Jianchi and samurai - energy drink from fruit and plant extracts sold at pharmacies in part of Europe and Asia. Inca - cola, a sparkling beverage found in North and South America, Vita and Bonaqua water found in four continents just to mention a few. Innovation at coca-cola has led to the introduction of plant bottle made of 30% plant based materials. There has also been the introduction of video vendors, which debuted at 2008 Beijing Olympics and now throughout the world. 2.1 Organizational Culture Leaders can challenge the organization, by proclaiming the strategic imperative for innovation. The leader must commit the organizational, financial and human resources to help create a sustainable innovative culture. At Coca-cola innovation is at the heart of everything we do. The concept of the innovation is defined by most authors as company's collection of structures, processes, knowledge and talent that makes innovation possible. Managers at coca-cola use this concept to capture learning from individual projects and apply it to a portfolio of initiatives. Clearly, the set up rate for new projects must be fast enough to ensure there are products at each stage of the innovation life cycle. Coca-cola uses this concept most often in the acceleration of the development process. 2 2.2 Organizational structure Organic structure positively influences innovation. This is because they lower the vertical differentiation, formal and centralization structures of organizations the more easily to adapt to innovation. An innovative organization must have, at its helm of affairs, top management that gives priority to new products. Their vision for innovation is also clearly communicated to, and its value shared by staff at all levels of the organization. Management of Coca -Cola are strongly committed to its staff and continually invest in their skills to maintain innovation prowess. Knowledge acquired in the business is used to facilitate learning and customer focus is built into these training. 2.3 Company's Innovation Plan Activities Coca- cola Create a cadre of innovation experts Encourage interaction between projects and other parts of the company, as well as external partners Benchmark others Stimulate and capture radical innovations Create opportunity for constructive involvement of senior managers Create system to capture knowledge Prepare project teams to evaluate funding needs Training of staffs Participation and Involvement The innovation process can be emergent with ideas freely generated from many sources. Coca -Cola gives the opportunity for all employees to participate and involve themselves proactively in the innovation process. The Coca-Cola Company has as its culture that allows employees to invest 10% of their time on an innovative idea. Rewards are given for such initiatives and form a good package for future opportunities in the company. 2.5 Market Segmentation Areas such as lifestyles, technology, and demographics are examined by the Coca-Cola Company to generate significant opportunities and ideas for growth. The Coca-Cola Company benefited from the rise of awareness of intake of fresh juices and energy drink by introducing ready-to-drink fruit drinks. One litre family pack size was also introduced to meet the need and demand of various lifestyles. In conclusion, the Coca-Cola's methodology process of innovation involves: i) Generation of ideas and concepts. ii) Research and data that can support or discard the first output are considered. iii) Finally the commitment and investment to launch the product. 3 CHAPTER THREE PART B NEW PRODUCT DEVELOPMENT PROCESS - KOTLER 3.1 Introduction In this era of competition and globalisation, forward thinking companies are focusing on improving the product development process by using new business strategies, new organisational approaches and new technology. Companies have created an idealised set of stages that should be applicable no matter the size of the project. Key to these is analysing customer complaints and competitor products. Kotler and other authors have their own variations, but there are some similarities in the core elements. That outlined by Kotler begins with generation idea to commercialisation. The similarities and the contrasting approaches as outlined by Kotler and other authors can be seen in the following literature and the process templates. Generation of ideas Screening of ideas Strategy for new product Development and testing concept Marketing strategy Business analysis Product development Test marketing Commercialisation 3.2 Generation of Ideas The product innovation charter should then direct the search for new product ideas. Generation of ideas should be systematic rather than haphazard. Otherwise, although the company will find many ideas, most will not be good ones for its type of business. A company has to generate many ideas in order to find a few good ones. Chief sources of new product ideas include internal sources, customers, competitors, distributors and suppliers. 3.3 Screening of Ideas The screening of ideas is the first idea reducing stage. The purpose of screening is to spot good ideas and drop poor ones as soon as possible. As product-development costs rise greatly in later stages, it is important for the company to go ahead only with those product ideas that will turn into profitable products. Surviving ideas can be screened further using a simple rating process. For example, the Sony Walkman was rejected by researchers that it was doomed to fail. But the company pressed ahead and launched the product. The sales exceeded expectation within weeks. (Drummond and Ensor, 2001) 4 3.4 Strategy for New Product Effective product innovation is guided by a definite corporate strategy for new products. The product strategy achieves four main goals: Integration of functional or departmental efforts Focus team efforts Acts as a delegation tool by letting team members operate independently, effectively and efficiently while remaining integrated with the rest of the project team. The very act of producing and getting management agreement on strategy requires proactive, not reactive management, which increases the likelihood of a more thorough search for innovation opportunities. 3.5 Development and testing concept Attractive ideas must now be developed into product concepts. It is important to distinguish between a product idea, a product concept and product image. A product idea is an idea for a possible product that the company can see itself offering to the market. A product image is the way consumers perceive an actual or potential product. Concept testing calls for testing new product concepts with a group of target consumers. The concepts may be presented to consumers symbolically or physically. It can be argued that consumers do not know what they want when it comes to new product development. 'It is entrepreneurs who look into the future, not consumers and certainly not market research'. (The Marketer, Issue 23 April 2006) 3.6 Marketing Strategy Development The statement of marketing strategy consists of three parts: Target market, planned product position, and the sales, market share and the profit goals for the first few years. Products planned price, distribution and marketing budget for the first year. The planned long-run sales, profit goals, and marking mix strategy. 3.7 Business Analysis The next point is business analysis after the product concept and initial marketing strategy. This is where the strategist is in a firmer position to determine the product's attractiveness and in particular whether sales, costs and profit projections are satisfactory. In other words, business analysis involves a review of the sales, costs and profit projections for a new product to find out whether they satisfy the company's objectives. The common problem encountered here is how to predict accurately the likely levels and pattern of sales. 5 3.8 Product Development After the business analysis, those product ideas that satisfy business objectives progress into the next stage. This will show whether the product idea can be turned into a workable product. Physical development of the product in the form of prototype will involve a substantial increase in commitment and investment as outlined by Kotler. The prototype must have required functional features and also convey intended psychological characteristics. When the prototype is ready it is again tested, here the tests take on a physical nature 3.9 Test Marketing Test marketing is where the product is launched into one or more relatively small geographical areas that are seen to be representative of the market as a whole. The aim and purpose of this activity is to test the product in real market situations. It also allows testing the entire marketing programmes for the product. The results can be used to make better sales and forecasts. Thus a good test market can provide a wealth of information about the potential success of the product and marketing programme. For instance, eleven people died in Alzheimer's drug trial in Japan whilst taking part in this research. (Metro, Friday March 17, 2006) Test marketing methods varies with the type of market and product situation, and each method has advantages and disadvantages. When using test marketing, consumer's products companies usually choose one of these three approaches: Standard test market Controlled test market Stimulated test market 3.10 Commercialization Test marketing will give the needed information for management to take the final decision whether or not to launch the new product. A successful launch incorporates a well-defined strategy and implementation of tactics, ranging from the marketing platform to the logistics of distributing product on time. Introducing new products into the market is associated with high costs because the organisation needs to invest in manufacturing facilities and marketing activities like advertising and promotion, packaging, building brand image, and distribution networks. When launching new products decision must be made on when it should be launched, where it should be launched, target groups and how it should be launched. 6 CHAPTER FOUR

4.0 New Product Development Process (COCA-COLA)

In Coca-Cola product development, process controls costs and time taken to develop a new product is rather seen as an investment than risk. New product development process for Coca-Cola Company starts with idea generation and moves to rapid screening through to product development and finally product launch.

4.1 Idea Generation

The Coca-Cola Company as a leading beverage supplier for food services industries have much of its ideas coming from customers who turn to us to provide products, programs, packaging and marketing support. For example, the energy drink - jianchi was as a result of ideas coming from customers. Within Coca-cola company creativity programs such as suggestion boxes, meetings and through employee involvement and participation in activities facilitate the flow of technology and new product ideas. The leading factors that drive revenue growth in coca-cola are new product and service launch. The business development department spend from 1.2 % to 2% of revenue, and a fall in time-to-market of 10% on new product and service development. The company allow all employees to spend up to 15 per cent of their time working on projects of personal interest. This helps them to generate new product ideas internally. Externally, ideas are solicited from consumer focus groups and consultants. This is similar to what is advocated by Kotler and other writers.

4.2 Rapid Screening

Screening this ideas into ones that are worth investing more time and effort in, is a priority at Coca-Cola Company. In defining the concept, the market potential, technical feasibility within the timescales and the effect of the new product on other lines are critically considered differently from that of Kotler to make a decision. This is performed under confidential disclosure and determines, through laboratory formulation and analysis. It also aims to identify key technical risk areas that would need to be addressed if the programme goes forward into development and help establish a realistic timeline and cost estimate for development. Screening process is similar to that of Kotler and others, but business analysis comes under Coca-cola delivery systems. At the end of rapid screening, Coca-cola makes recommendation on proceeding with the project under a development agreement.

4.3 Product Development

The objective of the development phase is to develop a technically and commercially viable product for global marketing and sales. The Coca-cola company uses 7 computer-aided design and manufacturing programmes help firms to develop prototype that can be used in concept testing for consumers to see as real product and give their reaction that truly reflect their behaviour. This stage includes product formulation and stability testing, analytical method development, process development and scale up to production. All work is in compliance with global regulatory guidelines. The product development stage is similar to authors such as Kotler, and this is where the physical product is developed.

4.4 Test Marketing

Coca-Cola uses test marketing to learn how consumers and dealers will react to the product or service. One outcome of this stage could be that the concept was wrong, there is no market, and the product should stop prior to committing to the expense of releasing it into the market. Coca-cola Company chooses standard test markets approach to test the new product in similar situations to those it would face in a full scale launch. The company finds a small number of geographical locations where the scales team tries to persuade supermarkets and corner shops to give the product shelf space and promotion support. The company puts on a full advertising and promotion campaign in these markets and uses stores audits, consumer and distribution surveys, and other measures to gauge product performance. It then uses the results to forecast sales and profits, to discover product problems as outlined by Kolter.

4.5 Commercialisation

Commercialization is introducing new product into the market. This is known as the full product launch at Coca-cola. It is the most difficult and expensive stage. It includes developing the market, the correct sales channels, ramping up the volume of sales and supporting the product to extend its life cycle. For example, Unilever spent about £200 million for advertising and promotion of 'Omo' and 'Persil' soap powder across Europe. The decision make in launching the new product outlined in Kotler is similar to that of Coca-Cola. However in Coca-Cola there are other wide ranges of strategic tools considered in addition. Examples are: Target market - Within the roll-out markets, the company must target its distribution and promotion to customers who represent the best prospects. Action plan- introducing the new product means that the company must know how to target the selected market within a timescale. Location- whether to launch the new product in a single location or region, the national market or the international market. Time- Whether the time is right to introduce the new product. Political stability. This brings the major differences in my company product development process and that of kotler and other authors. 8 CHAPTER FIVE Recommendation The product development best practices can be best implemented and viewed as a continuing process rather than a destination. Coca-cola must start by understanding what practices must be adopted in order to improve effectively the management of the new product development process. 5.1 Communication It is important to get things right and on time since the cost associated with new products are enormous. Information flow and effective communication contribute greatly to creativity. The exchange of information and ideas during the new product development process should be encouraged in Coca-Cola to facilitate innovation and enhance teamwork. Coca-cola Company needs to establish and maintain effective communication with all departments and partners as well as other stakeholders in order to make new product development a success. 5.2 Knowledgeable People During the new product development process specialists knowledge from various departments and partners is needed so that they can analyse the issue thoroughly. There is much evidence to suggest that projects go more smoothly when a cross-functional team is in control. In certain circumstances, it may be advisable to involve customers in the new product development process. Technological and marketing synergy is also important in new product development process, since an organisation might not have all the necessary resources and know-how to make it a success. Management needs to encourage staff to suggest product development ideas and have systems to enable and reward such activity. Unilever (Ghana) in 2000 was able to save on development costs by drawing on its experience in India, where Unilever had developed a low-cost iodised salt-Annapurna. The goal is using existing systems, not to stretch the financial budget 5.3 Quality and Reliability According to Philip Kotler et al (1999), higher product quality has 98% advantage to succeed than moderate product which has 58% advantage. One of the most crucial aspects of succeeding in business today is getting high quality new products to market. It is the most difficult to achieve in Coca-cola. The Company should have a systematic game plan from generating product ideas to launching the finished product. 9 The new Nescafe cappuccino product launched in 2002 by Nestle' has astonished consumers with incredibly rich creamy foam. This breakthrough is an example of what quality can do for a product in a competitive market. 5.4 Gap Analysis and Improvement Plan The Coca-Cola Company must do a position review by assessing its strengths and weaknesses, by focussing on gap between where it is and where it needs to be. This might help in choosing ideas that can generate products that have a dramatic impact, example is, James Dyson's introduction of the bag-less carpet cleaner which is based upon the cyclone principle rather than the vacuum. The company must look for gaps in the market and develop new products to satisfy the needs of those particular segments. Hallmark has introduced lines targeting specific segments of the market. For example, Fresh Ink targets 18 to 39 year old women, Hallmark En Espanol targets Hispanic cardgivers, and Mahogany is aimed at African-American consumers. (Kotler, 2003) 5.5 Analysing Process Products fail for many reasons. The roots of failures can be found at any point in the product development process. Failure happen because information is overlooked, taken for granted, misinterpreted, or acted upon inappropriately or with insufficient financial and human resources. Properly analysing product development process will lead to the right conclusions. Also, management of Coca-cola must be prepared to provide sufficient resources for stable and efficient day-to-day operations for it to accomplish tasks effectively. For example, it costs Tate & Lyle around £150 million to develop a new sugar substitute. Philip Kotler et al, 1999: 511) 10

6.0 Conclusion

New product development is essential for organisations to maintain or increase market share and grow profitability in the competitive business environment. Toyota has achieved growth and profitability through new product development and innovation. Their new product 'Toyota Hybrid' is an example which is selling well in U.S.A. and U.K markets. Is new product development applicable to all industries? Those in manufacturing and service industries need to develop new products to satisfy their customers. What about those industries producing or extracting raw materials in their natural state? For example, cocoa bean and crude oil which has been always the same. Though innovations can be done on the services attached to these products, the actual product cannot be altered. There is high risk in developing new products. For example, Texas Instruments lost $660 million before withdrawing from the home computer business. Also Motorola and several partners lost $5 billion in launching global satellite-based wireless telephone system. New products continue to fail at a disturbing rate. A company needs to work on several new product ideas to hit one jackpot. The failure rate of new consumer products is 95% in America and 90% in Europe, research has shown. Ford Motors (1950) lost more than $100 million when it introduced the Edsel. (Philip Kotler et al, 1999) Coca-cola knows that it must try thousands of new product ideas to get one successful. In fact, its philosophy seems to be 'if you aren't making mistakes, you probably aren't doing anything'. Therefore companies need to manage the new product development process well by cultivating an innovation culture in the organisation, providing the necessary resources and infrastructure to enhance new product development and recruit knowledgeable people to handle the new product development process. 11

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