Analysis: How to Sustain Innovation

Nestlé Waters can't rest on its laurels as an innovation leader. It must think about what consumers will want three years from now

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How do you keep the innovation spirit alive—not to mention how do you get the message out there—when you're a company that has been a leader in innovation, but not exactly an apostle about it?

That's the situation Nestlé Waters North America and its CEO, Kim Jeffery, found themselves in. Best known for its Poland Spring water brand, Nestlé Waters North America was feeling increased pressure to let the public know about its efforts to reduce its carbon footprint, which it had done most notably in reducing the weight of the Poland Spring bottle to make it the lightest on the market, and to find avenues beyond the bottling efforts. The last challenge was particularly acute, because Jeffery admits that eventually the company will reach its limit with reducing bottle weight. "After a point, we can't make it any lighter," he says.

"When you're the underdog or when you're behind, it's easy to rally people where you have a target of what you're trying to achieve," says Judy Estrin, Chief Executive Officer of JLabs and author of Closing the Innovation Gap. She says it's not as easy when you're a leader, as is the case with Nestlé Waters North America and its lightweight bottle. People—especially internally—get used to their position and don't see it or their efforts as remarkable. That's why she recommends that companies constantly think about innovation in multiple planning horizons.

She sees the process as a three-phase one: "You want to have the current product that you're continually improving, and that's what I call incremental innovation," she says of Phase 1. In the case of Nestlé Waters North America, it was about the company's initial efforts to reduce the weight of the bottle. "That phase of innovation is really about a current-generation product that you are incrementally approving to meet the customer's needs."

Leap and Look

The next phase, she says, is about the "next-generation product," which usually has what she calls "some leapfrog element." In the case of Nestlé Waters North America, that next-generation product is the bottle it plans to introduce by 2010. "Their issue was, 'How do I get beyond just making this lighter,' and an example of that is when they first came up with a new type of bottle that hadn't been done before," says Estrin. But now that it is "leapfrogging" to the point where it won't be able to make the bottle any lighter, the company must focus on other things and can't rest on its laurels of having been the leader in producing a light, more environmentally friendly plastic bottle.

Where many companies miss the mark, according to Estrin, is in focusing only on the first two stages of innovation. "They're being driven by customer needs to either incrementally improve or leapfrog a little bit to what the customer might want in a year or two years. But you always have to have a small group or multiple groups that are focusing on what I call future-generation innovation, and that actually is not driven by your customer." Future-generation innovation should be driven by what your core competencies are and what people might want in a few years. "The reason it can't be driven by the customers is the customer often doesn't know [what it will want]," she says.

One smart approach to this is to look at an adjacent business, an adjacent market, with a completely different customer base than your current one. "A great leader will not just be running a business for today, but planting those seeds with small programs trying multiple things that will allow you to have that future growth, that market for the future," she advises.

"With Nestlé Waters North America, it might be a completely new technology for a completely different bottle, or it might be some new drink or some new product that doesn't have to do with the bottle but has to do with the content of the bottle that drives their growth, three, four, five years from now."

Patricia O'Connell is Management Editor for BusinessWeek.com.