Point: Open innovation can accelerate new product development

Story: When Irene Rosenfeld took over as CEO of Kraft, she saw an anemic innovation pipeline. The company had 2000 corporate R&D staff — scientists, engineers and chemists — but new products weren’t flowing rapidly enough.   Her solution to encourage innovation?  To get everyone to “Think of Kraft as a $40 billion start-up,” she said at the World Business Forum on October 7, 2009.  One way to emulate start-up thinking is to be open to new ideas from anywhere and quickly turn them into something valuable. Kraft reached out beyond its corporate R&D to enlist the help of employees across the whole company, as well as suppliers and partners, to spur innovation.

For example, Kraft runs an online “Innovate with Kraft” program whereby anyone can submit product ideas.  Although skeptics call such programs gimmicks or fads, Rosenfeld maintains that they’re not gimmicks if the programs and the ideas generated from them are being used.

Kraft’s recent new product introduction, Bagel-fuls (frozen bagels pre-filled with Philadelphia brand Cream Cheese), for example, came from an unsolicited idea from a third-generation bagel maker in a niche market. The idea was a win-win for both companies: it solved some technical challenges that Kraft had faced in delivering a bagel and cheese combo, and it expanded the bagel-makers product beyond his niche.

Rosenfeld also mentioned the value of platform-based innovation (ideas that span multiple brands and geographies) in the innovation process.  Now, “Our innovation pipeline is quite full,” Rosenfeld remarked, with new products coming out in four core areas: Snacking, Quick Meals, Premium and Health & Wellness.

Action

• Look for ideas in the corners: reach out to employees and suppliers, especially niche people, to uncover obscure ideas that merit more widespread use
• Celebrate the use of submitted ideas to show the value of participation in innovation submission programs.

For more information:
Irene Rosenfeld at the World Business Forum on Oct 6, 2009 #wbf09

http://www.usatoday.com/money/companies/management/profile/2008-12-10-ceo-forum-kraft-irene-rosenfeld_N.htm

Staggs, Sandy. Foster Innovation at Kraft Foods, Oct 27, 2008.

New York Times, Sept. 9, 2009

Point: Innovate the experience, not just the product

Story: At the World Innovation Forum today, C. K Prahalad asked the audience about their experiences with “Build-a-Bear” — an e-commerce company that lets kids of all ages design their very own Teddy Bear. Audience members reported spending as much as $200 in choosing the look of the bear, the amount of stuffing in the bear, adding a custom sound to the bear, getting the bear’s birth certificate, buying clothing for the bear, and buying accessories and siblings for the bear. This culminates in making “The Bear Promise” to care for this personalized stuffed animal. Discussing the depth of the experience and the simplicity of the physical product revealed that the bear embodies both negligible product costs and priceless customer experiences.

One of the “trick questions” for job interviews is to ask the candidate, “How would you redesign a Teddy Bear?” This example shows that the design of the bear may not change much, but the design of the experience of buying the bear may be where the real opportunities are. In fact, Build-a-Bear is more about the customer redesigning the Teddy Bear than it is about the company redesigning the Teddy Bear. Therefore, C. K Prahalad recommended that companies think more about experience innovation to complement and enhance product innovation.

The Build-a-Bear phenomenon is not unique to toys. Other companies provide experience-intensive products. These include Medtronic’s pacemaker (the device is augmented with remote monitoring, health records coordination, and provider networking services), Bridgestone Tires (by-the-mile fleet usage pricing with value-added vehicle usage services), Nike’s iPod-connected shoes (shoe sensor feedback that drives work-out feedback and performance). The point is to think about the value chain of the experience, rather than the value of chain of the product.

Action:

• Seek to solidify customer relationships through well-designed experiences
• Innovate to improve the value of the experience, not just the performance/cost of the product
• Leverage customer innovation through co-creating experiences and products
• Create an ecosystem of collaborators to support the experience

Point: Innovation processes must reflect people’s true behavior

Story:
Dan Ariely, author of Predictably Irrational, finds that people display a host of consistent behavioral quirks in how they respond to products and marketing. These cognitive biases change not only people’s decisions and subjective opinions, but also their objective performance with products.

For example, in his work on behavioral economics, Ariely and his colleagues documented such quirks as:

• how “free” items can bias decisions
• how arbitrary numbers (e.g., the last two digits of your social security number) can affect the price a person is willing to pay
• how adding a choice that almost no one will choose can cause many people pick the more-expensive choice
• how publicly-made choices differ from privately-made choices.

Note: Dan Ariely will be speaking about the hidden forces that shape people’s decisions at the World Innovation Forum in New York City on May 6, 2009 at 4-5:30 pm.

One strong example from Ariely’s research is the effect of product price on performance. Does getting a good deal on a product change how well that product works? To test this, Ariely and his colleagues studied the efficacy of products such as pain killers, cold medicine, and energy drinks as a function of the price people pay from them. In the energy drink study, people bought an energy drink (some test subjects got a price discount), drank the drink, and then performed a word puzzle test. People who paid more for the drink solved more of the puzzles than did people who got a discount for the identical drink. Similar patterns appeared in the pain killer study and cold medicine research.

The implication for innovation: This research helps explain why good products can fail because of the discrepancies between beliefs in how people should act versus how they actually do act. Moreover, this irrational behavior is consistent across people, products, and time. Because the irrational behavior is consistent, companies can adjust their innovation, product development, product testing, and marketing processes to fit people’s real behaviors.

Action:

• Understand the human biases that affect product choice, willingness to pay, and product performance.
• Design products that suit how people are, not how people should be.
• Create product testing processes (e.g., focus groups and lead user studies) that replicate or control for the effects of actual retail and usage scenarios