What is innovation in the consumer healthcare sector (CHC)?
What is innovation? Nobel Prize winner Albert Szent-Györgyi famously answered: "Discovery is seeing what everybody else has seen, and thinking what nobody else has thought". Innovation is then taking that discovery and acting upon it. Thus, innovation requires two actions: vision and execution. Execution is a process; vision is an event. Companies should be well organized to do the former; but their ability to do the latter is often compromised by risk intolerance and ironically their necessary focus on process and execution. So can the two truly co-exist without mutual interference?
When it comes to consumer health care (CHC) product innovation the bread & butter of the industry has been incrementalism centered on line extension of established brands. Rarely is a new brand launched — it's just too risky. Not only is this behavior due to secular limitations such as set piece government regulation (monographs), financial reporting cycles, planogram resets, but also because brand management seeks to refresh and extend its shelf space, keep the trade and customers happy — or risk being destocked. It must create frequent news and the aura of product superiority. It's important to be changing and visible to maintain shelf presence something I have called "Red Queen marketing". While consumer led product development has its place it is only as good as the vision and creativity of its managers to satisfy those unmet needs in ways that better the competition. Consumer led innovation is best employed to refine mature products in mature markets.
Dislocating, or game changing, technology has arisen sporadically in CHC mostly constrained by risk aversion driven by short time horizons, a wobbly commitment to innovation, lack of imagination, and a process driven organization. Dislocating technology arises from what I call "saltatory innovation". This is innovation as Szent-Györgyi would define it; innovation that roils a market as Schumpeter would have liked. The best transformative saltatory innovations most often come from individuals who see over the horizon, not committees, or consumers, or the trade. To name a random few inventive giants just to make the point: Steve Jobs [Apple], Fred Smith [FedEx], Alexander Fleming [penicillin], Thomas Edison [many], Louis Pasteur [pasteurization], Elon Musk [Tesla], and Tesla himself… the list is long and impressive. Saltation, though often revolutionary, need not be. Nonetheless, once executed it grows a business by leaps --- often unexpected ones.
Although ideally innovation stokes growth, growth and innovation are not synonymous. Growth in CHC comes from a combination of continual incrementalism and occasional saltatory innovation. Importantly, saltatory innovation is of two types: "acquisitive" and "inventive":
One might think of incremental and saltatory innovation as a barbell with incremental changes to a brand on one end and saltatory innovation on the other. Yet this bimodal pattern is less about the length of time horizons since acquisitive actions can happen rapidly, and more about the size of change and how risk is managed. Much of saltatory innovation within the CHC sector derives from acquisition of companies, or brands, and less commonly through licensing technology. Acquisition typically diminishes, or at least defines, business risk. That risk can be priced through well-known valuation metrics. All industries have an escalating array of risk-adjusted assets starting from venture backed start-ups to multinational vertically integrated corporations. At its heart acquisition is a process, a process that can soon be accretive to sales and earnings. So if saltatory innovation is more often acquisitive and less frequently "inventive" the challenge to industry is whether internal inventive innovation can be accelerated to be more than sporadic. The industry needs a functional Dionysian presence — one not populated solely by Apollonians.