Start-ups have streaked ahead in the race to find the great transformative innovations of our times. The biggest game-changing developments in marketing have come from pioneering technology companies, which often leave big brands looking flat-footed. The leviathans have been upstaged over the years by the inventiveness of brands such as ASOS, Ocado, Amazon and iTunes, that have gone on to become major players in their own right. In sectors such as retail, financial services, entertainment and travel, marketers of established brands are being outpaced by companies willing to take a risk and challenge the status quo.
The old guard is retaliating, however. Some are trying to identify the next trend-setting innovations by creating venture-capital funds. Others are tackling the problem by launching their own mould-breaking initiatives.
One example is insurance brand Aviva, which last year hit back at the online insurers fighting for business on price-comparison sites. In August 2011, it launched Quotemehappy.com, an arm's-length internet insurance brand designed to compete on sites such as Gocompare.com and Comparethemarket.com. Aviva itself has always refused listings on the sites, as it claims they over-emphasise price, ignoring customer service and other brand values.
Quotemehappy (QMH) brand and marketing manager Steve Jay says the online-only insurer has a clear purpose, offering low-cost, comprehensive insurance to 'careful drivers': those aged between 21 and 75, and those with a significant no-claims bonus. This is a world away from the more traditional - and inclusive - approach of its parent brand.
Innovative offshoots
At QMH's South London headquarters, staff are allowed to wear jeans, and there is a level of informality that would be unacceptable at head office.
The offshoot is also fast to adapt, according to Jay, and can introduce products quicker than many bigger insurers. QMH launched with comprehensive car insurance, and expanded quickly into home insurance last April. Jay claims the brand has competed successfully through price-comparison sites, attracting 200,000 customers. It has no call centre, with most queries handled online.
'We are still unique in (not having a call centre), and view it as an innovative approach,' says Jay. 'When launching the business, we accepted that we couldn't rely on Aviva's existing back-end systems and infrastructure, because we couldn't do things quickly enough on that platform.
We needed to start again.
'It is hard to see how we would have succeeded if we hadn't set up Quotemehappy separately from Aviva,' he adds. 'Most importantly, it is down to the individuals involved, and the empowerment you are given by the management team.'
Big brands have a track record of launching innovative offshoot brands.
A prime example was Midland Bank's ground-breaking launch of First Direct in 1989, the first bank to operate only remotely, by phone and later online. Other instances include the online-only banking offshoots that followed in the late 90s, and British Airways' launch of Go, to take on budget carriers.
The lesson for marketers in big companies is that they should not be intimidated by start-up culture, but analyse how the entrants succeed and imitate their strategies.
Smaller measures
However, marketers need to keep the power of technology in perspective. Technical innovation is not the only way to build profits or storm ahead of the competition; small-step innovations can also deliver incremental profits.
Jim Slater, managing director of Costa Enterprises and a former marketer at Diageo, Kraft and Phones4U, argues that innovation can take many forms, from a tweak in internal processes or services up to important patent applications.
'All of these can contribute significantly to shareholder value,' he adds. 'Minor or continuous innovations often deliver major profit impact quickly. They could take the form of a cost reduction, or a smarter or faster way of executing part of the value chain, and are generally far less risky than disruptive innovations.'
However, Slater warns against setting too much store by innovation to solve a company's problems. 'Blind faith in innovation is a recipe for disaster. There needs to be a clear consumer need, backed by a sensible profit opportunity and a strong team, before innovation is taken seriously by senior executives.'
So where does the inspiration for innovation come from, and what can marketers do to ensure they are at the cutting-edge of the latest developments? Some companies adopt the belief that all their staff should take part in innovative thinking. Google gives its engineers a day each week to pursue their own activities, which it calls '20% time'.
This has yielded such developments as Google News and the YouTube Symphony Orchestra. Meanwhile, Tesco's research and development chief, Nick Lansley, recently echoed this approach by saying every employee in a business should be given the time, tools and resources to be 'their own head of innovation'.
That may well be, but according to Ashley Stockwell, former Virgin brand and marketing director, now a tutor at Telefonica's Wayra Academies for start-up businesses, the marketing department is the powerhouse of innovation in many companies. 'Many business ideas come from the creative and marketing departments, rather than other units,' he contends. 'The link between marketing and innovation is down to the creative nature of a marketer's work, and their closeness to the customer experience.'
Stockwell points to the development of Virgin Drinks in the 90s; it was the brainchild of Virgin Atlantic's marketing department. 'Most of Virgin's innovation over the past 20 years had major brand and marketing influence,' he claims.
Nonetheless, with the rise of digital, businesses are pouring funds into technical developments. A recent trend from the US, which is catching on in the UK, is for companies to appoint a 'chief innovation officer', who is often a research and development manager, or the head of IT. This might lead to tension with marketers, as the latter usually assume that all innovation should be channelled through them.
Consumer viewpoint
However, Matt Kingdon, founder of innovation consultancy ?WhatIf! and a former Unilever marketer, argues that the issue is not that simple.
'If there is tension between marketers and innovators, it depends whether the marketer's job is to stick up for a brand or stick up for the customer,' he says. 'If a brand has a lot of capital invested in a factory, ad campaign or distribution route, that builds a certain resistance into the system, but a good marketer is obsessed with seeing things from the point of view of the consumer.'
Some innovators might be reluctant to get involved with innovation, because it means working on a new product and then handing control to the marketing and sales teams, who will take the glory if it succeeds. 'An innovator needs a dose of humility, and is not the sort of person who needs to take the glory,' says Kingdon.
This image of the humble, even eccentric, innovator fits with what Kate Jones, brand director of brand and marketing consultancy Added Value, calls 'the funny little projects man', who can be found in the corner, working on outlandish schemes. However, the other side of being an innovator is that they tend to be entrepreneurs who are creative, commercially minded, and want to challenge the status quo.
Jones says: 'Quite often these people don't flourish in the process-driven, big corporate world. Part of being an entrepreneur is getting your hands dirty in an end-to-end process, and this is hard to do when you are a cog in a giant corporate machine.'
One core area where marketers can trump technically minded innovators is the ability to interpret consumer trends. The former need to keep an eye on the trends that might transform their business.
For instance, car-sharing schemes such as Zipcar are a trend that might affect automobile manufacturers. Indeed, many car-makers are experimenting with their own versions of car sharing. Henry Mason, global head of research at Trendwatching.com, points to BMW's launch this summer of DriveNow in the US and Germany. This is a mobile app that allows users to rent the nearest available electric BMW car in San Francisco, or regular BMWs and Minis in Dusseldorf, Munich and Berlin.
'There might be a lot of luck involved with innovation, but companies also need to be constantly looking for the signals about coming trends,' says Mason. 'It's important to draw parallels with your business from other industries. You see things play out in similar ways - can you learn from what other successful businesses are doing and use that as a road map?'
A strong example of innovation through trend-analysis is O2's launch in 2009 of Giffgaff, the SIM card-only mobile phone service aimed at young people. The service also acts as a social network where members give advice on customer-service queries and act as a source of innovative ideas.
Tom Rainsford, O2's head of brand, says the launch was the brainchild of Gav Thompson, the network's head of brand innovation, who identified a gap in the market for such a service.
The brand plays on the idea of 'mutuality' where members help each other and are offered 'payback' credits for recruiting others to the service.
Rainsford says: 'The size of company we are means we can be really fleet of foot with decision-making, implementing ideas as quickly as possible.'
He considers himself both a marketer and an innovator. 'All good marketing starts with customer insight,' he adds. 'If you are true to that, it doesn't matter if you work in marketing, innovation or sales: the product will be better.'
Established brands are in a strong position to create their own innovations, though the process-driven bureaucracy of big organisations can stamp out the entrepreneurial spirit. The great challenge for the big brands is to regain and retain that spark of creativity.
INSPIRATION
HOW DO GREAT IDEAS COME ABOUT?
Some of the world's great innovations have been lucky breaks. Viagra was discovered accidentally when tests of a drug intended to combat angina found it enhanced sexual arousal in men.
Similarly, Alexander Fleming famously discovered penicillin by chance.
This is what Matt Kingdon, founder of innovation consultancy ?WhatIf! terms 'the science of serendipity'. He contends that if you look hard enough, you will eventually find a great way of doing things.
He says: 'An innovation is a little green shoot sticking out of the ground. You have to ask yourself, is it a weed, or is it a beautiful flower that needs nurturing? Root up the ones that aren't full of potential and focus on a limited number.'
Meanwhile, consultancy Added Value's brand director Kate Jones says: 'Inspiration is not difficult. Ideas are cheap and plentiful; it is what you do with them that counts.
If they are not robust and commercially driven in single-minded fashion, they will remain as no more than ideas. Creating a mind-blowing concept is one thing, delivering it to the market is another.'
FUNDING START-UPS
VENTURE CAPITAL
Many businesses are warming to the idea of becoming venture capitalists by lending their assistance to promising start-ups, with a view to using their innovations. However, critics argue that these venture funds rarely produce many notable successes and
that the companies involved should leave venture capital 'to the professionals'.
Nonetheless, the trend of big brands seeking out entrepreneurs is taking off, particularly in the tech sector, although many FMCG businesses are also funding start-ups.
Mobile brand Telefonica set up Wayra Academies, a scheme to attract creative tech start-ups with funding, training and advice, in exchange for a 10% stake. Former Virgin brand director Ashley Stockwell, now a lecturer and mentor at the London Wayra Academy, which opened in June, says the scheme is partly a way for Telefonica to locate technologies which it can build into its business, but is also intended to 'give something back to society'.
He says: 'Some businesses are good at innovation, those which are created by entrepreneurs, such as Virgin or Innocent Drinks. A business that has entrepreneurial creativity at its heart is more disposed to mirroring that and encouraging it, whereas bigger companies struggle.'
There are many examples of the latter addressing this. Vodafone is about to launch an incubator operation in East London's Tech City.
Unilever Ventures, meanwhile, has been in existence for years and has discovered and funded businesses such as Scandinavian smoothie brand Froosh, and Snog frozen yoghurt.