The secret to successful new product innovation is...

Billions of dollars are spent on developing and launching new consumer packaged goods (CPG) products each year, and some companies see tremendous success while others - don't. Why? One secret appears to lie in the degree of senior management involvement in the creative process, according to a first-of-its-kind study unveiled today by The Nielsen Company at its Consumer 360 Conference, the global intersection of what consumers watch and buy.

Nielsen's research of the innovation processes at 30 large CPG companies operating in the US reveals that companies with less senior management involvement in the new product development process generate 80% more new product revenue than those with heavy senior management involvement. Companies that employ this and other best innovation practices derive on average 650% more revenue from new products compared to companies that do not.

"New product innovation is a top priority of every major company CEO, yet success varies so widely that it's absolutely critical to understand what drives successful innovation and what undermines it," said Tom Agan, senior vice president and managing director, The Nielsen Company. "Once you understand it, then you need to ask yourselves, are we living it?"

Nothing but blue skies?

Nielsen's research shows that simply being physically near corporate headquarters can stifle new idea generation. In fact, it turns out that having no Blue Sky innovation team at all is better than having a team on-site at corporate headquarters. The best place for your breakthrough innovators? Far, far away. According to Nielsen, companies with an off-site Blue Sky innovation team report 5.7% of revenues coming from new products, compared to 4.8% from companies with no Blue Sky team at all.
Companies with Blue Sky teams on site report just 2.7% of revenues coming from new products.

"One of the keys to successful new product innovation is to manage new ideas lightly," said Agan. "While we don't dispute senior management's strengths and good intentions, they are often too quick to get involved in the creative process, especially when things are not going well, and their mere presence can stifle free-thinking and boundary-free ideas - which can doom the new product development process to failure."

New product development mantra: Consistently and precisely

Senior management needs to play a different, more important role in new product development. Nielsen's research shows that another important key to success is for senior management to precisely manage the new product development process, not the ideas themselves.

According to Nielsen, CPG companies with rigid stage gates - decision points in the process where a new product idea must pass certain criteria to proceed forward - average 130% more new product revenue than companies with loose processes.

"New product development success comes down to two important principles - managing ideas lightly while managing the process precisely," said Agan.

Nielsen's evaluation shows that CPG companies with the most successful new product innovation records tend to have:

• Two to three stage gates that are strictly followed across the organisation. The first stage gate is typically designed to identify ideas that will then be developed into a concept and prototype, while the last stage gate is usually designed to determine whether a product should be committed to production and market;
  
• A focus on growing brands, not ones acquired or designated by senior management;
  
• A development focus two to three years out;
  
• A formal scorecard to provide structure to organisational learning;
  
• A standardised and required post-mortem on all new product development efforts;
  
• A knowledge management system to retain learnings from previous product launches.

In total the study identifies about 24 best practices that drive better-than-average incremental revenue from new products.

"From the outside, it can often feel like innovation simply 'happens,' arriving like a bolt of lightning out of the sky," said Agan. "The truth is that companies with successful innovation track records go to great lengths to create an ideal creative environment and the right behaviours, supporting policies and procedures. When they execute well, the best ideas rise to the surface and into consumers' homes."

About Nielsen's study

Nielsen's research is the most comprehensive and objective new product development study, documenting more than 50 dimensions of new product development. Objective survey results were compared to actual in-market success and the percentage of revenue from new UPCs in Q4 2009.