by Alessandro Di Fiore
First Published on HBR.ORG
Companies the world over find it tough to turn good ideas into great businesses.
That’s partly because, as we all know, organizations and cultures rebel against innovations, especially when they are first conceived. Companies that can protect ideas in their early years usually have a better chance of success.
Take the Vevey-headquartered Nestle, for example, whose Nespresso has become Europe’s leading coffee brand by packing a variety of high quality coffees in aluminium capsules that can be used only with the company’s three types of coffee machines. Executives had to vanquish three hidden enemies that surfaced before the concept could see the light of day and become the Swiss company’s fastest growing new business in the 2000s.
Nespresso took off when it stopped targeting offices and started marketing itself to households. There was little data on how households would respond to the concept and whatever information was available suggested a perceived consumer value of just 25 Swiss centimes versus a company-wide threshold requirement of 40 centimes.
The Nespresso team had to interpret the data skilfully to present a better case to top management. Because it believed strongly in the idea, it forced the company to take a bigger-than-usual risk. If Nestle had gone only by market research — usually innovation’s first enemy — the concept would never have gotten off the ground.
Another enemy Nespresso faced was the incumbent business model. The Nespresso system, a machine and single dose capsules, didn’t fit with the company’s mass-market distribution system. Eventually, Peter Brabeck, Nestle’s CEO, had to create a separate company and locate it in a different building. Only then could the new unit, Nestlè Coffee Specialties, pioneer the mass market household espresso coffee segment and boost Nespresso’s sales.
Nespresso’s third foe was Nestle’s culture, which could have killed the concept. That’s why Brabeck brought in Yannick Lang, a 33-year-old marketer from Philip Morris. Instead of reacting like a typical Nestlè manager, he drove the idea forward any way he could. Being an outsider helped him escape the capability trap; that is, the tendency to repeat what we know and have done in the past. For instance, Lang rejected the idea of selling coffee capsules in supermarkets and started the Nespresso Club. Anyone who purchased a machine became a club member. The club takes orders round the clock over the telephone, and delivers capsules in two days’ time.
Beware of innovation’s hidden enemies; they are often the offspring of good management practices such as market research policies, the resource allocation process, the business unit and product organization structure; and the strategic planning process. Unless you identify these issues early and figure out how to work around them, your company will never be able to benefit from all its ideas.