Authored article by Manish Aggarwal, Director, Bikano, Bikanervala Foods Pvt Ltd

Innovation plays a crucial role in driving progress, especially during these times of rapid change and evolving needs like the post-Covid-19 era. This holds true across various industries, including the fast-moving consumer goods (FMCG) sector, as they strive to establish a competitive presence in the global economy. To achieve this, companies are placing increased emphasis on strengthening their research and development (R&D) divisions to foster innovation.

The concept of innovation extends beyond the creation, introduction, and promotion of new products. It encompasses enhancing the shopping experience, providing consumers with convenient tools for purchasing, and ensuring the entire organization is dedicated to enhancing overall customer satisfaction. As Indian consumers become more globally aware and are exposed to international products through business and leisure travel, a sudden influx of foreign brands in the country and increasing digital penetration, their desire to consume local market goods have also grown. In response to this demand, FMCG companies must prioritize R&D and innovation to expand their businesses.

Simultaneously, product lifecycles are shrinking, leading to a surge in new product launches across various sectors. This intensifies the pressure to swiftly market innovative products. Innovation becomes not only a strategic advantage but also a survival tactic. FMCG companies recognize the immense potential for sustained demand and growth in markets like India, where incremental penetration and consumption opportunities abound. Consequently, many FMCG brands are racing to conceive, develop, test, and launch new products that resonate with Indian consumers.

Why Invest in R&D?

While the primary goal of R&D is to create and enhance products, its benefits extend far beyond that. A well-executed R&D strategy can bring numerous advantages, while a flawed one can potentially hinder your company’s success. Here are some of the key benefits of investing in R&D:

Product Innovation: R&D enables FMCG companies to develop new and improved products that cater to evolving consumer demands and preferences. It allows them to stay ahead of the competition by introducing unique features, formulations, packaging, or functionality that resonate with customers.

Market Expansion: Investing in R&D can help FMCG companies explore new markets and expand their consumer base. By understanding local preferences, cultural nuances, and specific needs, R&D efforts can lead to the development of products tailored to different regions, allowing companies to enter new markets with a competitive edge.

Cost Optimization: R&D can contribute to cost optimization by finding ways to enhance manufacturing processes, improve supply chain efficiency, or develop more cost-effective ingredients or materials. This can lead to economies of scale, lower production costs, and increased profitability.

Competitive Advantage: Continuous R&D efforts enable FMCG companies to differentiate themselves from competitors. By consistently introducing innovative products, they can build brand loyalty, attract new customers, and maintain a competitive edge in the market.

Consumer Insights: R&D activities often involve extensive market research, consumer surveys, and data analysis. This helps FMCG companies gain valuable insights into consumer behavior, preferences, and trends. Such insights can guide decision-making processes, product development strategies, and marketing campaigns, leading to more targeted and effective approaches.

Adaptability to Regulatory Changes: FMCG companies operate in a highly regulated industry. Investing in R&D allows them to proactively address and adapt to evolving regulations, such as those related to safety, labeling, or environmental concerns. This helps companies stay compliant and avoid potential penalties or reputational damage.

How to Device an R&D Strategy

Creating a robust R&D strategy poses unique challenges that differ from other organizational functions. Scientists and engineers involved in R&D must consider factors beyond their core expertise, such as market dynamics, customer needs, and economic considerations. On the other hand, stakeholders outside the R&D labs must grasp complex technologies and development processes, while also adopting longer-term perspectives compared to their usual time horizons.

To ensure an R&D strategy serves as a comprehensive blueprint guiding the organization, it must engage stakeholders from both within and outside the R&D group. This includes involvement from leading scientists to chief commercial officers. Additionally, the strategy should provide a progressively detailed view of capabilities, technologies, talent, and assets as it is implemented throughout the various levels of the R&D organization. Assessing the effectiveness of a new strategy in the R&D context can be done through two key tests:

Does the strategy leverage true sources of advantage? It is common for R&D organizations to mistakenly equate technical necessity with strategic importance. It is crucial for organizations to regularly reassess whether their capabilities truly differentiate them from competitors, as once-differentiating capabilities can become commoditized over time.

Does the strategy balance commitment-rich choices with flexibility and learning? While R&D strategies often have long-term horizons, they should not be isolated from external changes or immune to revisions. Establishing clear milestones, such as technical or regulatory checkpoints, allows organizations to make informed decisions on resource allocation for different research areas. These milestones also help track progress and ensure the execution of the strategy stays on track.

Moreover, effective communication of the R&D strategy is essential, both internally within the organization and externally to stakeholders. One approach to enhance clarity is to distill the strategy into fill-in-the-blank components. These components should outline how the company anticipates the evolving world and plans to refocus accordingly, the choices R&D will make to support the new focus, and the concrete actions and milestones that will drive strategy execution. If the entire strategy cannot fit on a single page using this exercise, it indicates the need for further synthesis.

To reinforce the impact of the strategy, it is important to cascade it down through the R&D organization. This includes managers communicating the strategy to their subordinates, which helps deepen their understanding and alignment with the overall strategic direction.

Final Say

The significance of R&D cannot be overlooked, as it forms the foundation of the product lifecycle. In a rapidly evolving market where consumer demands are constantly expanding, it is crucial for companies to align themselves with these needs and remain updated. This holds particular importance in the Fast Moving Consumer Goods (FMCG) market, where maintaining competitiveness necessitates a significant allocation of revenue towards research and development efforts. By investing in R&D, companies can focus on creating new products and services, or enhancing existing ones, ensuring they meet the evolving demands of consumers and stay ahead of the competition.

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