The Integration of Innovation and Marketing Best Practices for Business Excellence II
3:10 PM MDT | March 19, 2009 | By PHIL ALLEN AND KEVIN WEIR
This is the second article in a series on marketing and innovation in B2B industries, such as chemicals, by Phil Allen of GEMS Europe and Kevin Weir of ISiB (the first article is here). You can learn more about marketing and innovation by participating in CW's webcast on the subject on April 7. The webcast will feature Kevin and Phil.
The Marketing Paradox: Saving through the bad times whilst investing for the future
Share prices reflect the value of existing and future company portfolios. Companies that extract the highest value from existing business whilst continually investing in a strong, balanced innovation portfolio of incremental , disruptive and breakthrough innovation, show consistently higher share price and a more robust, business performance.
Strengthening innovation capabilities has been measured to be the most important lever to increase profitability and growth. Across the cycle, surveys show that top innovators achieve a 4% boost to EBIT compared to their peers. The top 20% innovative firms deliver up to four times the shareholder return of the bottom 20%. Companies generating 80% of their revenue from new products typically double their market capitalization whilst attracting the very best of talent into the company.
An interesting corollary to this is another finding from GEMS Europe’s Benchmark Study of Strategic Marketing in Chemicals, Plastics and Other B2B markets that companies having a higher proportion of marketers with a marketing/MBA education correlate with those making the higher levels of profit.
Putting on the Brakes
Unfortunately, as the financial crisis and global economic downturn take a grip of organizations, top business leaders instruct marketing managers to maximize the value from their businesses with fewer resources , whilst, in parallel, they are expected to accelerate new growth. Marketing managers are forced into a seemingly difficult paradox; to save precious funds and maintain current business and simultaneously to grow new business with a limited or lower budget.
Typically their options are: to save their way through the crisis at the expense of innovation programs; to focus resource only on maintaining current business and at best, push out incremental, low risk line extensions for short term gain; or to “roll the dice” and take a bigger risk and accelerate longer term more valuable but difficult innovations at the expense of short-term profits.
Many surveys show that during an economic downturn, investments in the more valuable breakthrough innovation initiatives are cut in order to fund the short-term, safer, value-destroying marketing incentives. A greater share of shrinking innovation funding is used to release low value undifferentiated product and service extensions that capture more of the ever-shrinking market. Little wonder that forward-looking share prices are affected accordingly.
However, some good news emerged from a recent survey by SpecialChem of over 570 marketers in chemicals and plastics companies, of whom the majority (51%) say that business growth is still their priority in 2009, while one could have expected that restoring profitability would have been their top priority. We clearly see here a diverging voice compared to the recent corporate announcements. People in charge of business development are not ready to give up their growth projects.
How do Marketers tackle this paradox?
It would be a dream for marketers to switch on the innovation lightbulb and immediately start delivering results. The reality is that creating an effective merger of marketing and innovation requires more than adding innovation on top of existing marketing efforts. It requires the conscious integration of all functions across the whole value chain, to deliver those innovations that align with the company strategy. Marketers must make innovation a core part of the marketing strategies, activities and customer focus.
In high performing companies, innovation management and marketing management best practices are interlinked and inseparable. These organizations understand that consistent investment and strong implementations of best practice value delivery and innovation programs, brings consistently best performance across the economic cycle.
Beginning the Process
Inside innovative companies, Marketers play an important role within a series of (new) cross-functional teams that are ideating, screening ideas, developing concepts, launching new products and managing current and innovation portfolios that maintain alignment with the company strategy.
Armed with a strong business strategy that includes well defined value maximization goals and a clear innovation road map, marketing managers ensure their teams are acutely aware of the business and company growth initiatives and that sales, R&D and customer service teams are tooled and well trained in value management and innovation best practices. Metrics are put in place to measure success and reward systems help create customer centric, innovation culture throughout the team. To promote buy-in from their teams, these marketing managers support, encourage and even participate in risky initiatives. There is a high level of trust in the team to deliver on business goals.
Part III in the series will appear on Chem Ideas later this month.