Page 28 - Harvard Business Review, Sep/Oct 2018

CONTINUED FROM PREVIOUS PAGE In Practice
costs, thereby increasing profits without
generating additional revenue. He points SANJAY KHOSLA
to one company where researchers
focused on ways to increase food products’ “It’s very risky to bet
shelf life. Still, he observes that companies
operate under two distinctly different
philosophies depending on the size of their only on blockbusters”
R&D budgets. “The motto of companies
with big R&D budgets is ‘bigger, better,
faster,’” he says, whereas companies Sanjay Khosla spent more than 30 years pineapple in the Middle East. It became
with smaller R&D budgets “seem to do as an executive at Unilever and Kraft, entrepreneurial and nimble and looked
extremely well by tweaking and improving and now, as a senior adviser at Boston not only at product innovations but also
things in their brands and creating a lot Consulting Group and a professor at at design and packaging innovations,
more sales.” Northwestern’s Kellogg School, he helps supply chain innovations, and business
The tension between the pursuit companies find ways to increase organic model innovations. Within five years
of ambitious R&D efforts and more- growth and improve their innovation sales were above $1 billion. Following a
incremental innovation isn’t new. In a process. He spoke with HBR about similar approach, Oreo went from sales of
classic 2007 HBR article (“Is It Real? Can balancing the pursuit of incremental $200 million to sales of $1 billion outside
We Win? Is It Worth Doing?: Managing Risk innovations with more-ambitious North America in six years.
and Reward in an Innovation Portfolio”), projects. Edited excerpts follow.
Wharton professor George Day describes How much are returns from innovation
various methods companies can use to What’s the main takeaway from this limited by the culture inside large
ensure the right balance of high-risk, high- research? That companies that are CPG firms? The biggest issue is not how
reward innovations and safer, targeted successful at innovation build on what’s much firms spend or how they spend it; it’s
ones. (He calls the two types Big I and working. They look for what I call the 3Ms: about the connections between functions.
Little I innovations.) Interestingly, when he areas with good profit margins, momentum, At too many companies, R&D is looking
surveyed the landscape a decade ago, he and the potential to make a material in the mirror at itself instead of looking out
reached a conclusion opposite to the one financial impact. They try to find a balance the window at consumers. The scientists
in the new research: that most companies between quick wins and medium- and are doing their own thing, without a focus
were overinvesting in Little I innovations long-term projects. It can’t be just about on achieving commercial value. That’s
and needed to pay more attention to blockbusters, because it’s very risky to bet one reason small companies are winning
potential game changers. only on blockbusters. market share. Big companies can still grow,
Corstjens’s team notes that the different but they need to focus on categories where
approaches to R&D are not only a function When you ran Kraft’s developing they can win, create cross-functional,
of budget size; they also stem from culture. markets businesses, what kinds of entrepreneurial teams, and become far
Among the firms in the study that favor innovations were most successful at more agile in their execution.
smaller innovations, some have roots in driving growth? Tang is an example. By
the chemical or pharmaceutical industries, 2007 its sales outside the United States had How is innovation changing inside
where the R&D function typically enjoys plateaued at about $500 million and begun big CPG firms that, like Kraft Heinz,
more power and respect than at CPG firms. to slide. So we created a cross-functional have been bought by private equity
The researchers believe that in the latter, team on which R&D and marketing and firms? In the case of Kraft Heinz, the buyer,
R&D is often overshadowed by marketing, supply chain experts worked together 3G Capital, has a very different philosophy
reducing the likelihood that spending on and asked it to push sales to $700 million and culture than most companies, so there
it will translate to sales. “When R&D has within five years. We gave it a blank are a lot of changes. Many PE firms are
a respected voice and collaborates with check—lots of resources and autonomy, highly successful at buying companies,
marketing, firms have more success with and encouragement to experiment and cutting costs, and improving profitability.
innovation,” they write. fail fast. It came up with new flavors, I think the jury is still out as to whether
HBR Reprint F1805A such as mango in the Philippines and they can drive organic growth.
ABOUT THE RESEARCH “Newton Versus
Lorenz: Which Is the Better Model for
Successful Innovation in Consumer Goods
Companies?” by Marcel Corstjens, Gregory S.
Carpenter, and Tushmit M. Hasan (MIT Sloan
Management Review, forthcoming)

24 HARVARD BUSINESS REVIEW SEPTEMBER–OCTOBER 2018