Why innovation funnels don't work and why rockets do

It's true. Innovation funnels don't work. In fact, they stifle creativity and make innovation less likely to be successful.

But how can this be? The innovation funnel is the way that nearly all big branded businesses manage their innovation. Innovation is the business strategy of our age – saving brands, businesses and share price with the power of its promise. CEOs every where have their innovation speeches prepared and will roll them out as the answer to a panoply of corporate ills: encroaching competition, margin erosion, brand revitalisation, sluggish growth to name but a few. CEOs are also putting their money where their mouth is and innovation is attracting more and more resources – dedicated teams, huge R&D departments and seemingly bottomless research budgets.

But the statistics make for dismal reading: eight out of ten brand extensions fail. If you add in how many innovation projects fail before even getting to launch, then the real chances of success for a team starting an ideation process are very small indeed. Oh dear. The innovation funnel, it appears, is only good at funnelling one thing, resources – right out of the marketing budget.

SIX REASONS FUNNELS DON'T WORK

Here are six ways that innovation funnels encourage bureaucracy, negative thinking and conservatism; stymieing the very thing they were created to promote.

1. Focus is on Picking Winners not Creating Winners

The entire focus of the funnel and stage-gate process is to 'whittle down' a large number of ideas to a smaller number by 'killing off' weaker ones and 'picking' the winners, rather than being constructive and finding solutions to the problems each idea poses.

A great example of using problems as stimulus for improving ideas is Kellogg's Coco Pops. In development, the team kept hitting a product problem. R&D couldn't find an easy, cheap way of making the chocolate coating stay on Rice Krispies when put in milk – it all fell off. The team took it as a challenge to find an ingenious solution – so they thought like kids. The answer was suddenly obvious: 'New Coco Pops, so chocolately, it even turns the milk into chocolate milk!' The 'problem' became a key part of the launch of a huge success.

At a standard evaluation stage-gate the focus would have been on marking this concept down as it had a manufacturing 'problem'. This deconstructive mindset gets reinforced at every gate and can easily pervade the whole system.

2. Admin is at the Core, not Ideas

The funnel process brings with it a huge paper load, one that is getting bigger, not smaller. As companies put more and more expectations on their innovation, so too do they expect it to be efficient, accountable and best-in-class, and thus it must be measured.

An accountability-free innovation process is not the goal. Far from it. But with no counteractive force, the weight and influence of data and admin can take over. This is very dangerous because when ideas are so new and ill-formed, the data we can get are at best 'iffy'. An issue highlighted very well by Clayton M. Christensen in his book The Innovator's Dilemma is that data-led innovation evaluation tends to favour the familiar. Concepts that are close to the existing product get scored higher than new, difficult, strongly different ideas. Flavour variants suddenly become very appealing as you can predict how they will perform pretty accurately. But that is a nonsensical reason to favour them over newer ideas. Isn't it?

3. Promotes 'Not Invented Here' Syndrome

If ever there was a company destined to own a whole new category it was Sony and portable digital music players. It owned the world's leading brand in the portable music market, Walkman; it had all the technological expertise in storage, file formatting, user interface, consumer electronics design and distribution. It had all the retailer relationships you could wish for. But Sony blew it, big time. Why?

One of the key reasons has to be Sony's insistence on only using bespoke components, developing its own software (not its strong suit) and building it around its own proprietary file format, ATRAC, not the common MP3 format. The result is that two full years after iPod's launch is the first time Sony managed to release a player that accepts MP3 files; even so, they still had to be irritatingly converted before they could be played. Here is a company being killed by the 'not invented here' syndrome. Funnels promote this kind of bickering behaviour. When several concepts are in the funnel, it is all too easy for teams to show how 'mine is different' in order to get picked as the winner over your internal competitor.

4. Senior Expertise is Focused on Evaluation not Improvement

In your last few innovation projects, when did the most senior and experienced R&D, marketing or operations people get involved or were asked for their opinion? Most likely it was at an important 'go/no go' meeting and evaluation point. Their experience and expertise was being called upon to do one thing: spot the flaws. Which ideas won't work, won't go down the manufacturing line or won't pass muster with the retailer? Which concepts contain hidden costs or unforeseen problems further into their development? Spot the weaklings and weed them out, that's the job. This is no doubt a valuable task, but is this the best value that these venerable people can bring to your project?

Would it not be better to focus the inputs of senior people into solving problems thrown up by new ideas such as: how can we get this to go down our line? What cost savings does this new idea allow vs our existing product?

Funnels don't demand this kind of input. What they do demand is strict evaluation, flaw-spotting and the systematic weeding out of ideas with weak links. That's why they are highly-efficient idea-killing machines.

5. Makes it Longer and More Expensive

How much does it cost to come up with an idea? Nothing or several millions? One thing that's sure is that developing an idea through a stage-gate funnel process costs more and takes longer than it needs to. If you add up the time you spent in your last innovation project on all the admin, justification and evaluation, then similarly add up the time spent in creating ideas, what is your ratio? 2:1, 5:1? I bet your ratio is probably nearer 10:1, admin to creativity. The stage-gate system creates this imbalance and turns a simple (but challenging) process into a much longer and more arduous one. In these days of own-label copycating and internet business models, speed is an essential competitive tool you cannot afford to squander so readily.

Funnels are there to weed out the under-performers. They are designed to do it systematically, traceably and with defendable logic. That is why to decide between two fairly similar concepts – say, one of which suggests that a blue product colour cues increased efficiency and the other indicates that a green product colour cues extra efficiency – requires a detailed, nationally representative comparable, repeatable and totally objective quantitative study with a control cell of the existing concept to provide an answer. The result is that costs rise and timescales lengthen, but idea impact stays the same.

6. Assumes Good Ideas are Easy to Come by

Whenever an innovation funnel is drawn there are always loads of arrows coming in at the larger end representing ideas. It's as if it's the easiest thing in the world to get ideas to fill a funnel with. The funnel is utterly indiscriminate in its entry criteria for initial ideas.

Well, that's good, isn't it? We shouldn't be screening ideas at birth, should we? And as to the source of ideas, that's just a matter of doing a brainstorming; they always produce tons of output, right? Er ... no.

The issue here is one of quality. Anyone can come up with 100 ideas for innovating, say, a yoghurt – let's make it blue, taste of eels, smell like deodorant etc. – but how easy is it to come up with the idea of putting the fruity bit in the corner, separately, so people can mix it in themselves? How about coming up with 25 ideas of that quality? Not so easy.

Funnels are open to any ideas, and tend to get filled with any old ideas. They all get dutifully worked up into neatly typed concepts and suddenly everything looks shipshape ... to an accountant.

Generating ideas is somehow a low-status affair in the innovation funnel process. You can get away without any kind of process, if you want to. Senior managers seldom come to brainstormings. Why is that? Surely it is the most important part of the process? Because no matter how good your process for development is, if your input is bad then so will your output be. So dictates one of the most wellknown and fundamental innovation principles: CRAP IN = CRAP OUT.

ROCKETING

Here is a way to avoid the tears and frustration of yet more funnel-driven 'hamster-wheel' innovation (where you keep going round the innovation loop but never actually launch anything successful). Turn your funnel into a rocket.

Rocket motors are very simple, but very powerful. They turn potent fuel into vast amounts of energy which is directed and built up into maximum thrust – thrust so strong it lifts the entire structure up. If we take this as an analogy for innovation, it works extremely well.

1. DESTINATION:

Set a Clear End Goal

The first and single most important part of generating a successful innovation is to know where you are going. This is the job of your brand vision (you knew it was there for something). Being clear on where you should and shouldn't go with your brand makes it a lot easier to run a process to create new ideas. Like a great tennis player, you need to visualise the end result before you even swing your racket (see Figure 1).

A few years back, when I was working at Added Value, we were tasked to develop a breakthrough innovation for Unilever's Calippo water ice brand. It wasn't the growth star that Magnum or Cornetto was, and it was consumed mostly by young kids. The stretchy task was to innovate it into a teen refreshment brand.

The starting point was the sharp brand positioning the team had developed, from which they wrote themselves a detailed innovation brief that fitted the corporate process. But they took it one step further and boiled their ambition down to a crystal clear, unequivocal challenge.

Calippo – the innovation challenge

• Target teens
• Substitute soft drinks, not ice cream

The clarity and simplicity of this innovation challenge gave the team the strongest possible startingpoint: a clear vision of the end game. No vagaries here, no bland requests to simply increase share or hit broad volume targets. This was a tangible target that the team could see in glorious technicolour; a teen goes into a newsagent looking for refreshment with taste. On going to the fridge he sees Calippos in the freezer, and buys that instead of his big brand can. This was a target that could be easily qualified by seeing if teens actually did buy it, and easily quantified by looking at substitution effects in teenagers' refreshment portfolios. The other side of this challenge was the commercial one; anything new in the freezer had to replace something already there – no extra shelf space is available when you are locked in a freezer that you supply yourself. This meant it had to either have a better margin per unit or a significantly higher rate of sale to win through. The result was Calippo Shots, which outsold everything in the freezer by a factor of three in its first outing, stealing directly from soft drinks, not ice cream. As a teen refreshment, it has earned its place in freezers worldwide. Rocketing Workout: Write your next innovation brief as succinctly as the Calippo team did.

2. COMBUSTION:

Get Potent Insight Fuel

I am willing to bet that you have a load of data available on your brand and market. But data are just a collection of findings and, like a badly laid fire, are pretty incombustible. To generate mind-blowingly great innovation that will power your brand into unstoppable growth you will need more than just information 'padding' to get you going; you need potent insight fuel.

To turn data into fuel you need to use different sources of insight. If you look in the standard places – your core target, standard focus groups and existing internal knowledge – you will get standard insight. Probably exactly the same insight your competitors are looking at.

If you look in new places in different ways, you are more likely to turn up something potent. Fringe user groups and ethnic minorities can illuminate your product afresh, as can using techniques that sound a bit scary like semiotics, observation or talking to experts.

Kotex were facing a war of attrition against the big brands in Latin America. They needed a new angle on feminine hygiene to give them an edge. Instead of asking the same twenty- and thirty-something consumers they were used to interviewing, they spoke to a different type of user: prostitutes. This eye-opening experience brought them a whole new view on menstruation – that it was 'time off', a holiday, an excuse for pampering.

This insight took them into the new territory of joy, pampering and celebration rather than the usual 'I can wear white trousers with confidence' area.

Rocketing Workout: Challenge your team to turn their research into potent insight fuel.

3. NOZZLE:

Set 'Drop-Dead' Lines

Why is Apple so good at innovating? One year after its extremely successful launch of the iPod Mini it was ditched and the iPod Nano introduced. Most businesses would simply not be able to do that. After a successful launch, any subsequent new idea would be tested and tested and tested a third time before it was considered for launch. Management teams would go to expensive hotels in far-flung countries and ruminate for hours on the pros and cons of pulling a successful product from the shelves a mere 12 months after launch. It just wouldn't happen. But Apple did it and keeps doing it. Apple is a pathological innovator. Every time Steve Jobs stands up it seems he has yet another dazzling product ready to ship. One of Apple's biggest and most powerful innovation weapons is a thing it calls Macworld Expo.

We've all seen it; Steve Jobs standing on stage in his trademark black polo-neck giving a seamless introduction to a blockbuster new product. It is their 'Drop-dead' line. Everyone including the pizza delivery boy knows when Macworld Expo is, so there is total clarity on the date. No one need even bother coming to a meeting with a serious delay because they know what the answer will be – just fix it. Steve Jobs is not going to stand on stage in front of the world's media and say 'This would have shipped today but we had a few problems with the samples for the quant test so it'll be three months late'.

There is real power in unequivocal, universally acknowledged deadlines. Just imagine if once a year your CEO stood up in front of the media and talked not about what the company has done, but what it will do. If he or she made promises, with timings, on launches of new products. Would that focus the business on delivering? You bet.

Rocketing Workout: Set 'Drop-dead' lines for your innovation projects and commit to them publicly.

4. EXPANDER:

Less Tests, More Testosterone

What is the driving force behind your innovation projects? Is it to outwit the competition? Perhaps to drive margins up? Maybe even to placate the trade? My bet is that the one thing that drives you forward each day is research.

We seem to be running innovation projects in order to meet research timings and to hit research targets: top box scores, blind tests and then link tests when it gets to launch. In principle we use research to give us more certainty, to help define solutions better. In reality we use it as a crutch to make decisions for us. To truly succeed with innovation we need to do less testing and put more faith in real insight (in our heads) and take more risks.

When Peperami was needing innovation to stimulate growth, Unilever took a conscious decision to step outside the normal procedures and launch four innovations at once and see which one worked. Peperami Firesticks was the eventual winner, with Canniballs, Sarni and Dunkers falling by the wayside. Was this a profligate waste of resource? No. In fact internal estimates suggest that this 'suck it and see' method costs them £1 million less that doing it the 'test and decide' way. It also meant that they were on shelf a year earlier, gaining sales all the while.

It is an extreme example, but the point is clear. It might actually be cheaper and faster just to get launching without all the testing.

Rocketing Workout: Do real test markets, not simulated test markets.

CONCLUSION

This simple analogy of turning your innovation funnel into an innovation rocket can help you realign your innovation process and make the funnel work for you, not against you. You didn't know it, but innovation is, in fact, rocket science.

This article featured in Market Leader, Autumn 2007.