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Making innovation meaningful for nutraceutical brands

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Why nutraceutical brands not only need to keep innovation front of mind, but actively work toward it.

Defining innovation

Steve Jobs said: “Innovation distinguishes between a leader and a follower”. As an essential driver of economic progress, innovation is the key to a company’s success. It leads to higher productivity, meaning that the same input generates a greater output. According to a recent report from the Boston Consulting Group, the COVID-19 pandemic has demonstrated once again the importance of innovation. Organisations have to become even more innovative and faster than before to increase overall competitiveness and survive at long-term. In a recent interview, Oliver Gassmann, Professor of Technology Management at the University of St. Gallen, said: “Companies only survive if their speed of learning is faster than the speed of change in their environment”, and Ruppert Murdoch reminded us that, “it's not the big that eat the small...It's the fast that eat the slow”. So business agility and speed have become the biggest competitive differentiators.

Innovativeness is the company’s answer to a constantly and fast-changing environment, its openness to adopt new concepts, latest technology, procedures, and business models. In the midst of a crisis, this is more important than ever.

Why companies should prioritise their investment in innovation

Sustainable growth in a mature industry does not come from business-as-usual, but from new business opportunities—and this is where innovation comes into play. Innovation should be an important part of the corporate strategy and future strategic plans. According to a BCG survey, over 60% of CEOs list innovation as one of their top three priorities and admit that their business strategy depends largely or entirely on innovation. An example that demonstrates that innovation is usually worth the investment: According to Barry Jaruzelski, a thought leader on innovation for Strategy& PwC, 88 companies considered high-leverage innovators had sales growth 2.6 times as high as less innovative companies over a five year period (2012-2017).

Times of crisis: a challenge and an opportunity

A McKinsey study showed that those who invest in innovation during crisis outperform peers during recovery, meaning that prioritising innovation is the key to unlocking postcrisis growth. That’s not new, and there are many examples for increased creativity during crisis. The years following the 1929 stock market crash were years of frantic innovation like the nylons, sunscreen and canned beer, to name a few. In the years following the most recent crisis from 2008, many innovative companies based on completely new business models were founded, like Airbnb, Uber and Zoom.

Today, at the one-year mark of likely the biggest global crisis since World War II, many companies continue to struggle while others show resilience and take the chance to reposition themselves by rapidly adapting their strategies to address both the challenges and the opportunities. Surprisingly, a 2020 survey by Jordan Bar Am et al. showed that most companies deprioritised innovation to play safe, except for the pharma and medical products industry. This seems to be a shortsighted decision. While resilient organisations with future-ready business models, proprietary technology or a strong brand prepare for the post-pandemic world by increasing their competitive edge, the less agile, less innovative players lose ground.

Thinking about COVID-19 within the nutraceutical box

The COVID-19 pandemic has made change faster and more volatile, harder to predict and more challenging to interpret. Companies with the knowledge, capacity and commitment to innovate and adapt to the changed environment and consumer demands will certainly outperform their peers in terms of revenues.

Early in the COVID-19 pandemic and due to the closure of retail stores, e-commerce became a big challenge for some companies, and a huge opportunity for those ahead of the curve or able to adapt and put an e-commerce strategy in place quickly. The industry’s digital conversion got accelerated basically overnight. Consumers purchasing behaviour has changed since then, business as usual is no longer an option. Brands have to adapt and invest to serve the digital shelf and use it as the new way to engage with consumers. We also see changes regarding the interest in certain product categories. Active nutrition and healthy lifestyle products moved into the focus and with gyms closed, endurance-based sports for a broader consumer group like cycling, running, walking and healthy lifestyle became popular and replaced the focus on muscle building.

Today, at the one-year mark, the main consequence of COVID-19 is probably the immense growth of segments like stress, anxiety and closely related sleep across all age groups. Experts estimate that between one-third to one-half of the population may experience psychiatric problems in a pandemic. The New York Times recently published an article titled 'There’s a Name for the Blah You’re Feeling: It’s Called Languishing.' The author predicts that languishing, a sense of stagnation and emptiness, of feeling joyless and aimless, will be the dominant emotion of 2021.

Key areas for investment in nutraceuticals

Perhaps obvious, but the first area to allocate investment is in a company's R&D and innovation departments, and in building an innovation-focused company culture. Regarding products, companies should focus on stress & anxiety, mood & sleep, but also offer the extra energy to those that want to keep the stress level low, body & mind active and the system in balance. There is little demand for a one-size-fits-all solution as consumers request a very specific job of a product, the concrete answer to a personal need. That’s why personalised nutrition is booming in the nutraceutical but also in the functional food and beverage sector.

The COVID-19 pandemic has led to a rapid acceleration of trends that were already present before the crisis. One of them is definitely gaming and esports, a fast-growing industry expected to generate revenues of $175.8 billion with 2.9 billion players worldwide in 2021, according to newzoo, with a demanding community that requests products for gamers by gamers. Companies like the US company skinz.gg, an integrative gamers platform, try to serve the gamers community in an holistic way, with customised supplements, job offers and competitions, while the answer of the UK start-up Play Beyond Nutrition, run by gamers for gamers, are cutting edge nootropics for serious gamers, containing scientifically studied high-end ingredients. Both were founded in the midst of the pandemic by creative innovators who saw an opportunity and acted on it.

Reducing the risk and uncertainty of innovation

The difficulty is that creative ideas don’t have metrics—no data is available for planning, but a lot of unknowns. For leaders with the responsibility of allocating resources to make good, correct and accurate decisions, this is a difficult situation and they might reject a new idea, although craving for creativity and innovation. A long-term vision and as much knowledge as possible about market and customers can help to only take the risks that really matter. Companies should try to make sure the innovation has a market and solves a customer’s problem, ideally a future one- that’s the tricky part. Close collaboration with customers, 'need spotting' and test markets help to find out if the innovation is likely to work. The design thinking approach, based on the philosophy “design, test and repeat,” pioneered by Tim Brown, is a strategic way to help find innovative answers based on human needs, rapid prototyping and a high level of customer involvement and feedback. Products most likely to fail are often created without a customer need or solution in mind.

The risk of the known unknowns can be somehow calculated, but creativity comes with unknown unknowns. Business can only develop a breakthrough product with a culture willing to encourage risk taking. Firms have to rely on their managers rationality but also intuition to make effective decisions.

Why does innovation fail?

In most organisations, it’s not a lack of ideas or the capacity to be creative or innovative, but rather the missing 'innovation readiness' of the company, meaning that the corporate culture isn’t supportive and the needed systems aren’t in place. Often there is also a lack of a leadership team with sufficient experience and vision to recognise the potential of good ideas. The problem is the incapacity of companies to disrupt their own unproductive thinking and break the valid industry logic, as Oliver Gassmann explains in his book 'The Business Model Navigator,' accept risks and the unknown, and their inflexibility and focus on the core business. These restrictive approaches are the very antithesis of the openness that fosters creativity and innovation. The paradox is that in such well managed companies, innovative ideas get killed far more often than they get supported. The company’s expertise is ruining its capacity to deal with a changing and uncertain market. 'The company is blinded by its past success' explains Loizos Heracleous, Professor of Strategy and Organisation at the Warwick Business School in the UK.

There are many well-known examples: Western Union turned down the telephone, IBM turned down Xerography and Decca Records turned down signing the Beatles, Kodak didn’t recognise the value of their digital megapixel camera and Sony stole the future of digital photography out from underneath them and even though Xerox develop the personal computer, it was Steve Jobs and Bill Gates who got inspired by the technology—the rest is history.

Julia Wiebe is chief science officer at Nektium Pharma

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