The backing of senior management is crucial in the development of new ideas
Corporate leaders and government ministers are forever exhorting UK business to do more to develop new ideas. But what are the qualities that mark out the most innovative companies?
Some of the answers can be found by going to the pub. At Bass, the brewing group, new brands such as All Bar One and O'Neill's represent a novel partnership between corporate might and individual spark.
Bass's traditional market on the housing estates in the Midlands and the north of England was flagging in the early 1990s. 'We needed a radical 'break-out' strategy of new product development and concept innovation,' says Tim Clarke, chief executive of Bass Leisure Retail.
Senior executives went talent-spotting in the pub business and persuaded two young entrepreneurs, Amanda Wilmott and David Lee, to come and work with the group for a fixed period in exchange for a share of profits if the venture succeeded.
Ms Wilmott developed All Bar One, the upmarket, female-friendly chain that has opened 50 outlets in city centres in the past five years. Mr Lee was responsible for It's a Scream, a 75-strong chain of student venues.
'They've had the personal satisfaction of expressing their creativity, which is very important to them,' says Mr Clarke. 'We take ownership of the brand and the intellectual property, but they have corporate cashflow behind them and an extremely attractive earn-out.'
Other brands, including Vintage Inns and Hollywood Bowl, were conceived in house by aspiring entrepreneurs who were taken off regular duties and encouraged to put their ideas into practice in a kind of 'fit-out studio'. The retail brands Bass has developed over the past five to six years are now contributing a third of turnover, he says.
Top-level backing in the company is crucial. 'Senior management spends two or three nights a week out and about in the business, understanding where the creative ideas are and tying them back in with the formal process of consumer market research.'
Bass's experience accords with new research from PA Consulting, the management consultancy group, that emphasises the importance of creativity and leadership for stimulating innovation.
PA questioned chief executives, marketing directors and technical directors at 150 companies, identifying nine elements of innovative companies.
'There's no silver bullet to making innovation happen,' says John Buckley, PA's head of technology. 'You have to have all the jigsaw in place, the infrastructure, the technology and so on. But the surprise for me was that without this vision and committed leadership from the top, it's not going to happen.'
PA finds that high R&D expenditure does not necessarily lead to greater innovation or bigger turnover from new products. Indeed, companies spending most on R&D are getting the least return, says Mr Buckley.
Larger, more mature companies are often under considerable pressure to improve existing products rather than develop new ones, he says. They often have a greater aversion to risk than smaller or younger companies.
'Although they have much larger R&D budgets in absolute terms, they spend much less of them on really innovative products,' he says. 'The leaders of smaller companies are showing more vision and leadership and fostering a creative culture.'
Both he and Mr Clarke at Bass argue that companies need to pursue both risky new projects and straightforward product improvements if they are to increase total shareholder return.
'For every All Bar One that emerges, there has to be a willingness to take the failures,' says Mr Clarke. 'The investment in pilots would be anything from £1m to £3m per outlet, and you never know whether they're going to be successful or not.' From nothing, Bass put £25m to £30m of revenue investment a year over three years into new brand development.
'The payback can be quite dramatic. If you do a concept trial on five outlets and write that off, it's completely dwarfed by the results from 75 It's a Scream pubs.'
How do companies make the necessary shift to a more creative environment? They may only be forced into it by finding themselves in a strategic cul de sac, as Bass was.
This was the case with Kenwood, the appliance maker that is undergoing a painful restructuring and switching the bulk of its production from Hampshire to China.
'We took the decision to encourage innovation as part of our turnround strategy,' says Colin Gordon, chief executive. Last year, Kenwood launched 28 products ranging from dishwasher-safe deep fat fryers to a bathroom steam cleaner for the Italian market.
This was more than double the number of new products two years ago, he says. The changes have included recruiting more 'creative' people, improving the timing of launches, learning from mistakes, ensuring successes are widely broadcast in the company, and introducing multi-disciplinary development teams. Designers can get the chance to see their product through to the manufacturing stage and ensure it is made to the right specifications.
Innovation is now part of a broader strategy, not something locked away in the R&D department, he says. 'People can push their ideas forward and have them listened to. This was missing before.'
The most profitable companies put far more emphasis than less profitable ones on innovation in the marketplace, the research finds. Yet there are serious disagreements between technical directors on one side and chief executives and marketeers on the other about whether innovation is primarily a technological issue or a customer issue.
'Far too many companies are trying to focus on the product,' says Mr Buckley. 'If I'm a shareholder in a food company, do I want them spending my investment on basic research or getting a better product on to the market faster? I think it should be the latter. Innovation is a chief executive issue, not an R&D issue.'
Going for growth - realising the value of innovation. Price £199. Available from tel: 01763 267492 or e-mail: innovation@pa-consulting.com
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View PA article on innovation.
