Creating a Culture of INNOVATION

Since early August, hungry consumers in Lakeland, Fla., have been ordering custom subs and wraps online or via smartphone for pickup at the local Publix store.

This online shopping test follows the company's decision earlier this year to shut down an 18-month experiment in online grocery shopping with curbside pickup in Tampa and Atlanta that wasn't profitable.

The new deli pilot indicates Publix's willingness to probe opportunities in the still tiny, but potentially explosive realm of digital shopping. The grocery chain's desire to experiment and innovate is exactly what supermarkets and consumer packaged goods companies must do to survive, say industry experts.

More than half of senior executives at leading consumer product companies, such as Nestlé, Walmart and Procter & Gamble, say new products and breakthrough innovations have high potential for creating value for the business over the next five years, according to a 2012 Ernst & Young survey. Sixty-seven percent report established markets offer limited growth without real innovation.

Building a culture of continuous innovation "is the challenge in today's fast-changing marketplace," says Patricia Novosel, Americas Consumer Products Leader in Ernst & Young's Chicago office.

"You would be hard-pressed to find an organization that does not say it wants innovation," said Lisa Gundry, director of the Center for Creativity and Innovation and professor of management at the Driehaus College of Business at DePaul University in Chicago. "The challenge is how to do the day-to-day and still have time to think about the future."

To foster collaboration among employees, customers and suppliers, enlist as many people as possible, Gundry says. "To get the best ideas, you've got to have a lot of ideas," she says.

Creating a Pipeline

Managers can take the lead in building an idea pipeline by getting out of the office, talking to customers, suppliers and staffers at every level, attending conferences and shopping the competition. They should encourage every employee down to the maintenance workers to do the same, she says.

"What is the experience you are creating for your customers? How can you make it better?" and "What is it that we ought to be doing in six months?" are key questions for leaders, Gundry says.

Leaders should provide time and space for employees to reflect on what they're seeing from customers or the larger marketplace and consider opportunities that might arise from it. They also should encourage workers at all levels to interact with others for cross-pollination of ideas, she adds. But don't expect every idea to pan out. "You have to give a little room for failure," Gundry says, and not "settle for an idea that is good enough."

But innovation doesn't mean reinventing the wheel. Simply tweaking an existing concept for a new market can lead to success. Based on experience with its Duane Reade stores in New York, Deerfield, Ill.-based Walgreen Co. built a high-profile, multilevel store in the heart of Chicago's busy Loop with features designed to entice shoppers to return again and again.

"It is an amazing experience," Gundry says of immediately encountering a sushi bar, all kinds of fresh foods for lunch and wine-tasting in an outlet known for its pharmacy and over-the-counter drug products. "I mean, who would have come up with the idea of Tylenol and sushi?"

"Most ideas when first thrown out are crude and half-baked."

–Lisa Gundry,

DePaul University

To make such a creative leap, company leaders must be open-minded and nonjudgmental. "Most ideas when first thrown out are crude and half-baked," she says. Too often, "there is a temptation to dismiss them out of hand," which is the quickest and surest way to kill an embryonic innovation.

Most organizations have "inside the box" creative potential waiting to be unleashed if they can foster more staff collaboration, says Bruce Jones, programming director of the Disney Institute, the Walt Disney Co.'s professional development arm. "Even a small creative idea can start a snowball effect that will build," he maintains.

"Even a small creative idea can start a snowball effect that will build."

– Bruce Jones,

The Disney Institute

From the Front Line

The one-on-one interactions retailers' employees have with consumers is not unlike the staff at Disney parks and resorts, Jones says. Who better to tap for an ongoing stream of ideas about customer needs and preferences than those who work directly with customers?

Getting those ideas from the checkout lane to the CEO's office can be tricky unless the company puts a system for innovation in place. Disney has "a collaborative culture by design," Jones says.

People are hired, in part, based on their ability to collaborate, he says. "By that I don't mean they just get along with other people, but [we look at] their ability to have a tough conversation around ideas," Jones says. "We don't assume people will know how to do this" so every employee goes through training on problem-solving and presenting ideas to others, he adds.

Creative ideas and innovations are recognized and rewarded from a list of preferences drawn from employee polls. "I am usually asked where cash falls" on that list, Jones says. "What we've learned is that cash goes for necessities and usually is down the list. A sincere 'thank you' usually ranks near the top."

The fast-changing environment will require a new style of leadership in which top executives will embrace a facilitating management style with clear accountability outcomes, says Novosel of Ernst & Young. They will need a generation of local, entrepreneurial managers who are comfortable making decisions. And they will add a diversity of people in age, gender and ethnicity to the decision-making process. "Diverse teams add to the profit," she says.

Finding Solutions

Those teams will need to measure ideas against long-term goals for convenience, health-consciousness and labor savings, says Manny Picciola, a vice president in the Chicago office of L.E.K. Consulting. "It is figuring out what's broke and finding a solution," he says, but it "needs to be multidimensional, not a mad scientist with the new flavor of the month... If we think of a lot of innovation, it needs to work on six dimensions: products, channels, marketing, processes, distribution and packaging."

"If we think of a lot of innovation, it needs to work on six dimensions: products, channels, marketing, processes, distribution and packaging."

–Manny Picciola,

L.E.K. Consulting

Fresh Express, a unit of Chiquita Brands, created what is now a $2 billion category of washed, packaged salad when it introduced its first packaged garden salad in 1989 to appeal to convenience-oriented health-conscious consumers, Picciola says. "The company recognized that consumers want to eat more lettuce, but the inconvenience of washing, drying and cutting it makes people stop, think and eventually pass," he says. Since then, the company has added more than 50 varieties of washed, packaged fruit and vegetables.

Similarly, take and bake pizza created consumer demand for freshness in a favorite food and the category is on its way to $1 billion in sales, Picciola says. "Don't get tripped by spurious price comparisons. [If] you provide genuine value, you can work outside the standard price box," he says.

Citing Hormel Foods' use of high-pressure packaging technology for the Wholly Guacamole brand, he says, "Who knew consumers would pay $3 and $4 for a package of avocado?"

In this brave new world of accelerating change, everyone is feeling the pressure, including global giants. And increasingly, it is spurring innovation through collaboration. For example, Procter & Gamble, often lauded for its innovation, is teaming up with Coca-Cola, Ford, Heinz and Nike to develop plant-based plastics. The companies are trying to better control materials costs by finding an alternative to petroleum-based plastic, which often is volatile in price. And they are tacitly acknowledging the growing importance of being environmentally responsible in the world market.

Bruce Brown, P&G's chief technology officer, is responsible for the company's innovation program. He is in charge of $2 billion spent on research and development annually and heads an 8,000-person R&D staff. He sees a distinction between innovators and managers and told Forbes in April, "We recruit people with greater innovation potential, particularly with skills in the areas of cognition, openness and analogy skills. Analogy, for example, is the ability to connect across seemingly disparate things. It's critical to great innovators."

Promoting Collaboration

The company actively promotes cross-disciplinary groups because, "The magic in a big company is how to create space for connections, so an idea person can bump into a technology person," Brown says. "A classic example is Crest WhiteStrips. The film came from packaging work in the paper products area, the bleach technology from fabric products and the glue from another application. The combination produced a novel product delivering a service you could previously only get professionally," he said.

The large CPG companies Novosel worked with used to vet an idea for 18 months for a polished introduction. "But new product development has accelerated to the point where we are seeing more the 80-20 policy. It needs to be 80 percent there–of course you do some consumer testing–you get it out there. If I find in six months it is not working, I will pull it."

With companies of every stripe ramping up the changes in products to technology, multiple ideas are competing and companies can't delay product development, Novosel says. In a competitive marketplace, rolling out one new packaging idea over each of the next three years is too slow. "By the time innovation No. 3 is unveiled, the competition may well have it–or something like it," she says.

Moving an organization to a model of continuing innovation will take time and patience. Jones of the Disney Institute says to count on one to three years for an innovative culture to take hold, while Ernst & Young's Novosel suggests, "Depending upon the company, from two years to 10 years, and 10 is too long."

"If leadership doesn't stand up and support it, it will fail."

–Patricia Novosel,

Ernst & Young

Company leaders are responsible for setting the pace and tone of change, Novosel says. For many companies, the new pace will be jarring. While the manner and suggestions of the hip new head of online media may seem more "weird" than collaborative to veteran hands, company leaders may have to say, "'Yes, this is outside the comfort zone, but let's give it try,'" Novosel says. "If leadership doesn't stand up and support it, it will fail," she says.

Sharon Stangenes has reported on retailing and consumer products for more than 25 years for daily newspapers and industry trade publications.