Innovation hubs boom driving development

In 2013, the world’s largest spirits maker Diageo opened an ‘innovation centre’ in Singapore; the following year consumer goods giant Procter & Gamble launched a US$250-million equivalent. Nielsen has its own Asia innovation centre, and life sciences company DSM Nutritional Products, which already had an innovation centre in Shanghai, opened a 40,000 square-foot Singapore hub.

The trend for global brands to have innovation hubs gives them the ability to create batches of new products, and focus expertise on new product development. Many form public sector relationships, and most choose Singapore as their gateway to Asia.

Pieter Nuboer, VP at DSM Nutritional Products Asia-Pacific, says, “While Silicon Valley has been held up as the success story in developing innovation hubs, there has been a shift eastward to knowledge-based economies like Singapore in which R&D has historically been driven by government institutions and universities.”

However, the result doesn’t seem to be a sharp upswing in breakthrough products. Where innovation hubs have been successful is product variations and making gradual improvements.

Pedro Mendonca, general manager for innovation at Diageo, says innovation hubs are a “commitment to innovate at scale to continually meet new consumer needs”.

When it comes to the centre’s outcomes he refers to the development of the Johnnie Walker brand. “Five years ago, the Johnnie Walker range ended at Blue Label,” he says. “Today, with the global reserve team and innovation hub together in Asia, we have built out the ultra-deluxe John Walker & Sons range.” The group has also introduced new ‘smart bottles’, which detect counterfeit alcohol.

DSM says it has been able to “shave off months of development time for certain products” through its innovation work, and Nielsen’s hub has focused on projects measuring cross-platform audiences and advertising effectiveness. DSM expects 75 per cent of launches to depend on support from its Nutritional Innovation Center. 

Improving existing products, rather than launching new ones, can make sound business sense. A recent Nielsen study found just one in every 100 new products launched in Southeast Asia meets innovation success.

The report, based on 2,500 consumer product launches in Malaysia, Indonesia, Philippines and Thailand, concluded that less than 2 per cent met the criteria for a successful launch. Products were assessed on how they delivered a new value proposition to the market, their ability to generate significant year-one sales, and achieving at least 90 per cent of those sales in year two.

Mike Anthony, CEO of Engage Consultants, says: “One of the key benefits of innovation centres is that it gives you the ability to do small-batch testing very quickly, which means you can do a lot of small improvements with existing products.”

Measuring success in innovation hubs is not based purely on “obvious” innovation. Creating a corporate environment that fosters entrepreneurship is a key objective.

“The facility brings very diverse disciplines together in constant contact, science and marketing being a good example,” says DSM’s Nuboer. “This stimulates a very inclusive environment and breaks down silos.”

But could corporate innovation hubs lead to less innovation, not more?

“If I’ve got a great brand, and it’s doing a great job, why wouldn’t I just keep that brand at the top of its game?” Anthony asks. “Looking for a big breakthrough is clearly risky, expensive, and more time consuming.

“What I see is an awful lot of ‘renovation’ — making relatively small changes. I certainly haven’t seen an increase in ground-breaking new stuff as people put up innovation hubs.”

Hubs can also be a drive by larger companies to match the nimbleness of smaller players. Johan Vrancken, managing director of innovation at Nielsen Southeast Asia, North Asia and Pacific, says, “Local contenders are appreciated for their speed, local consumer understanding and agility as their core point of differentiation versus multinationals.”

Innovation centres seem to be here to stay. They are challenging the perception of innovation, as brands focus not just on new products but marketing innovation, corporate integration and consumer analysis. “The FMCG industry has got a little bit lazy in its innovation,” concludes Anthony. “That’s why many of these major companies are saying, ‘We need to be innovative.’ Innovative not just in their products, but in their marketing, how they take products to market and how they understand the market.”

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CASE STUDY P&G’s giant research centre in Singapore

With more than 400 engineers and 250 laboratory modules, P&G claims its Innovation Centre in Singapore is the nation’s biggest private research facility. There is also a ‘Consumer Hub’ to measure consumer engagement, and a Wella Salon to conduct hair product testing; the group says it develops all its hair conditioners in Singapore.

“Having our global hair conditioners innovation based here in Singapore makes sense because to understand the hair needs of consumers , we need access to the most sophisticated consumers — which we have found in Japan and Korea — to the consumers whose hair receives the most amount of stress, like in very sunny and humid South Asia,” a P&G spokesperson said.

The centre is designed to span the entire innovation chain, which includes gaining consumer understanding, discovering new product formulations and testing them. P&G says its scientists are “equipped to conduct end-to-end innovation”. The centre has also signed a five-year R&D tie-up with Singapore’s Agency for Science, Technology and Research.

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Our View: Innovation does not need to result in major shifts to have an impact. To add to the conversation please write to [email protected].