Innovate to escape the commodity trap
By Bengt Järrehult, SCA Hygiene Products


The pulp and paper industry in general, including the tissue industry, has a number of characteristics that all of us may agree upon.

•		Prices are hard to increase when there is overcapacity in the market
•		Production tends to move either to low-price/good-enough-quality raw material sources or closer to major customers. There are pressures to restore the supply-demand balance by closing capacity or by waiting until demand catches up with supply
•		Future profit will most likely be made in the later parts of the supply chain
•		The current sales and marketing organization is often more concentrated on sustaining old customer relationships than in searching for new opportunities
•		Further efficiency measurements, cost cuts and closures at traditional production sites are planned and needed
•		Differentiation is not and has not been a strong area of expertise within the tissue world
•		Market segmentation has been manufacturer driven and is functionally based. This has led to product development being driven towards softness, strength improvements etc. which has restricted our development opportunities and led to the 'ply war'.

All in all, a commodity race is going on........

These trends ^{1, 2} are all pointing towards a commoditized market if we do not act upon them. - but we can. The only difficult thing is that we have to differentiate while at the same time focusing on everyday efforts to improve.

All over the consumer goods world a phenomenon has occurred that has forced us to rethink our strategies. This world has changed from the bell curve to the well curve^3,4 or as we may put it - from the bubble economy to the double economy (Figure 2).

The right part of the well curve is split up into subareas of preference for the consumer and the same person may belong in both curves, depending on the current situation the customer is in and not on his/her demographic profile.

Figure 1. The ply war

Figure 2. The Well Curve/Double Economy

Figure 3. A funnel process for ideas handling

Paradox in handling potential innovation

All companies are proud of their processes and most have their funnels, an example of which is seen in Figure 3. The funnel has two different outlets for the ideas.

The one to the right, the normal outlet of the funnel, is for the so called positives5. These are the projects that after numerous criteria-based decision making procedures at the gates have been found to be potential successes.

The other outlet, the 'back-way', is for the negatives. The true negatives are ideas that rightfully are discarded whereas the false negatives are basically quite good ideas that were discarded not because of their inherent lack of customer value but of their misfit with current company processes, resources and structures normally used to validate the positives. This leads to throwing away the baby with the bathwater.


Figure 4a.Money spent in various areas of innovation9


Figure 4b.Money created in various areas of innovation (9)



Figure 5. Disruptive and sustaining innovations




Figure 6 Two semi-separated processes


Figure 7 indicates the possibility of disruptive innovations being the answer to growth for the time after tomorrow10.


Figure 8 The paradigm shift in perception of the tissue industry possibilities

We need a different process to handle these false negatives....

In this paper we define innovation as creating new and insightful ideas and putting them successfully on the market. Innovation types can be separated in several ways - here are two.

The red area with the dotted line in the middle represents the span within which the customer is willing to pay for performance. The most demanding are found above the dotted line and those with lower demands below. You usually start an innovation in an area where all improvement is welcome and well paid for.

However, at some time during the course of sustaining innovation development the moment is reached where the innovation curve exits the red area. This is when the customer readily accepts the improved product - but is not willing to pay more for it, ie you are overshooting. At this stage, usually a product enters the scene from a competitor with something enabling it to be sold at a substantially lower price compared to your product. In the beginning the performance may be far below the acceptance of the customer. Hence the insurgent is neglected by you, the original innovator. At some point of time, however, the insurgent product is improved to be good enough to attract your low-end customers. What you initially neglected is now entering your main business as a low-end disruptive innovation. You then start to fight back, usually by lowering your profit without sufficiently lowering your costs, which hurts you more than the insurgent.

Another disruption, called new market disruptive innovation, offers another performance initially aimed for a new but relatively minor niche market (see the violet area in Figure 5). As this innovation initially only addresses niches, you are taken off-guard as the niches grow. The innovation may even cause a paradigm shift of the market, something you as incumbent are usually not prepared for.

As indicated in Figure 3, the processes for evaluating the false negatives differ from those of the positives. Running both processes needs a bifocal behaviour of the manager in charge, treating the initiatives semiseparately. The set up is called the ambidextrous organization and seems to be the Columbus egg that more and more experts unite upon8, 9.

Applicability of the theories to the tissue industry

Figure 7 indicates the possibility of disruptive innovations being the answer to growth for the time after tomorrow10. The increasingly important role of differentiation11 necessitates shifting the focus more into innovation in new areas that are not as productivity-oriented as current areas. This paradigm shift in perception means moving out from the old price/softness/strength focal points into other dimensions such as body care, home care, personal care etc2 (Figure 8)

Redefining the industry we are in may allow us to open up a lot more business possibilities and avoid the commodity trap. We have to consciously build our innovation game plan and develop a real innovation mind-set within the company. TW