Four Steps Hershey’s Uses to Reduce Innovation Risks

By Scott Kirsner |  January 15, 2014

Deborah Arcoleo is Director of Adjacency Innovation for The Hershey Company, where she is regularly involved with conducting in-market experiments for new products; getting real-time feedback from shoppers; and using that feedback to improve products, packaging, placement, and more.

Arcoleo has more than 30 years experience as a consultant and innovator helping companies with strategic growth and large-scale change. Before joining Hershey, she held innovation roles at Campbell Soup Company, J&J Consumer Group of Companies, and Pfizer Consumer Healthcare. Her earlier career was spent in management consulting with McKinsey & Company, KPMG, Ernst & Whinney and her own firm. Her essay on how “How to De-Risk Innovation ‘Seeds'” will appear in “Innovation Alchemists,” a forthcoming e-book. We’re offering an advance look at it here.

Large organizations are under constant pressure to grow. In my industry, consumer packaged goods, that means we need to launch a steady stream of new products each year. A great deal of energy, effort and expenditure is applied to keeping brand franchises healthy and ensuring there is “new news” at the shelf to engage our consumers and draw shoppers into our retail partners’ stores. These are the least risky innovations in the portfolio: familiar categories, brands, product and packaging formats, channels, consumers and competitors.

Greater Returns Require Greater Risks

But we all know that an innovation portfolio can’t be comprised solely by these lower-risk, closer-in initiatives. We aspire to the greater returns and market –leading opportunities from bigger, further-out innovations — those that move the business into adjacent categories, leveraging assets and capabilities — or further still into white space and disruptive opportunities. But developing these kinds of propositions proves to be much more difficult, especially in large, established companies. The level of complexity and range of unknowns can make these bigger innovation opportunities feel quite risky, and leaders are often squeamish about allocating scarce resources and funding to initiatives with higher levels of ambiguity and uncertainty.

Managing Uncertainty and Minimizing Risk

In my nearly ten years’ of experience in consumer packaged goods innovation (and decades more managing large-scale change), I’ve learned that there are ways to manage the uncertainty and perceived risk associated with adjacent and disruptive innovation. It involves planting “seeds” to minimize risk and has four key steps:

(1) Forge a team with unique skills

(2) Drive integrative thinking

(3) Design smart experiments

(4) Ensure stakeholder alignment up front.

Seeds of Innovation

First, a quick comment on my intentional use of the word “seed.” I really like this analogy. In planting seeds, it’s important that the soil be prepared well, and that the basic necessities be provided if the seed is to have any hope of growing. And of course, it’s hard to tell early on which seeds will germinate and grow, and which will die underground. Seeds grow at different rates, and some of the weaklings need to be weeded out to make room for the heartier ones. So it is with a portfolio of truly innovative ideas. Seeds compel us to think in organic ways about growth opportunities: conditions need to be right, not all seeds develop in the same way, and we come to expect that only some of the seeds will evolve into outstanding market offerings. Now to the four key steps.

1. Forge a Team with Unique Skills

If you remember back to Apple’s first “Think Different” TV ad in 1997 (see below), it opens with these words: “Here’s to the crazy ones: the misfits, the rebels, the troublemakers, the round pegs in the square holes, the ones who see things differently.” Breakthrough innovation needs an infusion of fresh and different thinking, and it benefits from the quirky personalities, those odd people who bring unique points of view and ways of thinking to projects. It’s tempting to compose a team of subject matter experts, those most experienced in the various cross-functional disciplines that innovation demands. But a few “wild cards” will provide the inspiration and stimulus needed for the team to push beyond the obvious solutions to the innovation challenge.

So I seek team members who are insanely curious, who have diverse interests and who intentionally collect new experiences. I want individuals who possess an unusual capacity to take the filters off, to pull stuff from the background into the foreground, and vice versa.

2. Drive Integrative Thinking

To be sure, the ongoing operations and financial management of a large company demand analytical rigor and convergent thinking. What concerns me is that we often place too much emphasis on this operational mode of thinking when we turn to innovation work. There’s great pressure to converge, to narrow the range of possible choices, and to find the right solution quickly. We all want the financial rewards from successful innovation as quickly as possible! Yet, we need to train our brains to operate at the intersection of analytical thinking and more divergent, intuitive thinking (what some would call design thinking or integrative thinking.)

Especially in the early stages of innovation, there is tremendous value in keeping one’s lens wide, looking for insights not in the usual places, but at the intersection of seemingly unrelated types of information, trends, materials and data. Much can be learned if we “forget” what we think we know and instead view the world around us with fresh eyes, becoming keen observers of the daily lives, habits and rituals of our consumers. True, there may not be anything “uniquely new” out there to discover in some cases. But without this way of thinking, those fresh insights are unlikely to be uncovered.

3. Design Smart Experiments

The best way to de-risk an innovation initiative is through well-designed, fast and low-cost learning experiments to test assumptions, fill in knowledge gaps and see how the idea performs in a real-world situation. This can range from a weekend test to a more comprehensive test market over several months. The key is being crystal clear about exactly what learning is needed, what will drive a go/no go decision to proceed, and ensuring that the experiment design will deliver the needed learning. I have seen a fair amount invested in research, only to discover that the information we received was interesting but not useful in driving decision-making and getting the project advanced to the next milestone.

Speaking of acting fast, no doubt speed is important in the innovation process — momentum and a sense of urgency are good fuel for the creative process — but there is also a balance to be struck with cutting important corners. An example illustrates the point. We were on a path to a market launch that accommodated our typical product testing with consumers. For competitive reasons, the CEO of the company I then worked for desired to accelerate the launch, and the timeline adjustments necessitated that we forego consumer testing. We crossed our fingers and launched. Our product performed well in the first year. Then the not-so-good news: consumer re-purchase was below expectations in the second year, and research showed it was due to less-than-spectacular product performance that our pre-launch testing might have uncovered. While we did redesign the product for year three, we could never recover the lost economic benefit and consumer credibility from the year one “corner cutting.”

From that experience, I offer some of the questions to ask to get “seed” experiments right:

  • What exactly are we seeking to learn? Will this test answer those questions?
  • Whose opinion or inputs are essential? Will these people participate in our test? Will we reach them in sufficient numbers?
  • Where is the best place to test? Will the test conditions be enough of an approximation of “scale” that the test results will be convincing and credible to decision-makers?
  • Will those responsible for the logistics of the test devote the necessary time and attention to it? Or will it be viewed as a “distraction” from the more important daily work?

4. Ensure Stakeholder Alignment Up Front

Nothing creates pull and excitement in a large organization like in-market success. While stakeholders often want speed to market, they also want investments placed on ideas that have gone through some measure of validation. It’s easy to spend money on advertising and other media that have a predictable and easily measured impact. It’s more difficult to gain funding for in-market tests that might delay a national roll-out but provide the needed learning to ensure an idea gets fully vetted and is set up for a fantastic outcome when it does scale. I have learned to engage important stakeholders early on to secure their alignment and commitment to the various elements of our “seed”:

  • The learning objective(s) of the experiment
  • How and where we intend to execute (and why)
  • Timing, funding and resources required
  • The hypothesized outcome we expect, and the other paths that may result
  • Metrics for success and the next actions we will take for each potential outcome. What will constitute a home run? A “meh”? A fail?

This is about strategic dialogue early on. By influencing stakeholders at inception — and incorporating their considerations — our success with seeding has been higher in most cases.

Get some of these fundamentals right, and I am sure you and your innovation teams will enjoy greater success from seeding new products and offerings to drive growth.