Packaged foods companies demand innovation
Sept. 12, 2017
by Josh Sosland
Search for similar articles by keyword: [G.M.A.
Mark Payne, president and founder of Fahrenheit212.
WHITE SULPHUR SPRINGS, W.V. — At a time when innovation is more critical than ever for the packaged foods industry, legacy companies increasingly have been undercut by entrepreneurs with ever greater access to crucial and heretofore unavailable resources, said Mark Payne, president and founder of Fahrenheit212.
Payne discussed the tension between innovation and scale as moderator of a panel discussion, “Growth through innovation… can scale be an advantage?” The panel was conducted Sept. 9 at the 2017 GMA Leadership Forum of the Grocery Manufacturers Association at The Greenbrier, White Sulphur Springs.
Payne prefaced his remarks by describing how the present time is both the best time ever to become an innovator and the most challenging. He based his observations on many years of work at Fahrenheit212 with large and small companies developing innovation strategy and design.
“Look at the cash coming into innovation,” he said. “Look at the talent coming into innovation. When we started Fahrenheit212 15 years ago, there was no such thing as innovation consulting. We didn’t know where to find innovators. Today we are hiring kids with master’s degrees in innovation out of Oxford. I have no idea what they are teaching them there, but these kids are jumping in and killing it on arrival.
“If we look at the technologies we have. If we look at how we have the ability to listen in on conversations like we never have before to shape our innovation choices. All these reasons, there never has been a better time.”
The importance of innovation is at the heart of why so much money and talent are flowing, he said. By contrast, 25 years ago “it was a backroom activity, skunkworks,” he said.
“No one was betting on the annual or quarterly numbers being made or broken by innovation success or failure,” he said. “Every CEO we talk to now is, ‘Look, I need innovation to deliver not one lightning strike every 10 years but year upon year, quarter upon quarter. The old model of getting a few more facings at Wal-Mart, take pricing, riffing on what we’ve done in the past doesn’t deliver the material growth the market asks of us.’”
At the same time, barriers to innovation have come down, making it tougher than ever to succeed.
“That means that as a large company you aren’t just outfoxing the other big guy like you,” Payne said. “You have to shape your strategies and answers around a much bigger multi-player landscape.
The increasing power of a consolidated retail segment creates challenge as well.
“We also have these fickle, empowered consumers who change brands like they change socks these days,” he said. “They never used to do that before. Disintermediation is happening all around us. The speed with which new ideas spread is really exciting when we are on our way up in the growth curve. But once we are a big incumbent, the speed of new ideas moving means we can lose what we have much more quickly than we ever could before. All of this means the pace of disruption is daunting.”
The perception of small, entrepreneurial competitors has been turned on its head in recent years, Payne said, describing the tension between innovation and scale as a “multiplier effect.”
“Not so many years ago small was viewed by big companies as cute,” he said. “We looked at these things happening around the fringe of our markets with curiosity and perhaps fascination. There was no fear that these things happening at the fringes could come marching to the center of our business and having a material bearing on our P&L (profit and loss). Big was viewed as power and dominant and where the future is. We spent the 20th century chasing scale and efficiency, believing that would bring permanence.”
CEOs working with Fahrenheit212 say small is not a curiosity any longer. To the contrary, small means agile, disruptive, fast, fearless. Perhaps of greatest concern to larger companies, consumers increasingly view small as perhaps more credible than large.
“That’s a game-changing reality,” Payne said.
He contrasted this characterization with large company CEOs’ descriptions of what large means.
“Big means slow, cautious, paradigm locked, blinkered, and big can mean less trustworthy,” he said, noting that this view applies to big government, big banking and all kinds of large institutions.
Suggesting problems aren’t fixed by “throwing energy at symptoms,” Payne said the industry needs to understand the root causes of “this new fetish the world has with all things small.”
He said much of the blame has been directed at “the usual suspects” of process, culture, talent and organizational structure, creating “blockages impeding the ability breaking out into powerful innovation.”
Against this backdrop, the Lean Start-up phenomenon has become “CEO catnip,” Payne said. Characterized as a streamlined and research-grounded approach to establishing and managing start-ups in a way to accelerate the new product pipeline, he said Lean Start-up has “an irrefutably sexy value proposition to CEOs.”
He explained, “‘You mean I can spend tiny amounts of money to do bigger and braver things faster and more impactfully in a repeatable, scalable way?’ No rational CEO can ever say no to that. But as many of us know, there has been a bit of a train wreck as Lean Start-up has collided with big company structures in how resources get allocated etc.”
Underpinning the appeal of Lean Start-up is concern within large companies that “they have become so slow-footed, so siloed and so process oriented that they are at risk of permanent stagnation,” Payne said.
Meanwhile, entrepreneurial start-ups are positioned for success like never before.
“It’s all about the age of access,” Payne said. “Start-ups have unprecedented access to capital, to distribution, to technology, to manufacturing and most importantly, access to an audience.
“We used to grow big companies just by putting better ads on Gunsmoke, with a little more money behind it. Of course, these disruptors can go direct to this audience and build reputation at lower cost. It almost seems unfair when you’ve spent decades spending all that money on ads on Gunsmoke.”