Schafer: General Mills aims to think like a smaller company

The future of General Mills is partly in products like the Nature Valley Bistro Cup, a single serving of oatmeal that is prepared in a Keurig coffee brewer.

It's fast, tastes good and, based on the label, seems more or less healthful to eat. It may even sell well, although it's hard to imagine it being a giant hit.

So why get excited about it? It's because General Mills can take a product like this from an idea all the way to a store shelf in six months.

"Less than six months, I think," CEO Ken Powell said. "Fast."

Powell calls innovation "the only way forward" for General Mills. But the company's idea of innovation is changing, and increasingly focuses on reinventing the process itself to create more new products in less time.

The way to do that, Powell said, is to rely more on intuition and far less on data.

In short, managers need to act more like the entrepreneurs who have had so much success in the food industry the last decade. At General Mills that's called becoming "the best big small company."

Net sales in the U.S. retail segment for the year ended in May were essentially flat from the year before, at about $10.6 billion, as volume was flat. For the whole company, net sales grew just 1 percent for the year.

The company can make money on flat sales, but with no growth in unit volume the earnings growth formula in the industry doesn't really work. Flat volume means little opportunity to leverage fixed costs and show some growth in earnings.

Powell pointed out that if the company could only figure out what else consumers will buy from it then it should be able to grow nicely. He likes a lot of the trends he sees in the market.

In much of the rest the world there is a growing middle class with both less time for food preparation and more income to spend on prepared foods. Here at home there are more single-person households who value convenience along with more nutritious and healthful foods, and all of us seem to "graze" more throughout the day rather than eat meals.

In a way it's almost a heresy to talk about relying more on intuition to figure out how to capitalize on all that opportunity, particularly at a Fortune 500 company the stature of General Mills. This was a company that enjoyed a reputation for being very good at getting new products into the market.

And many months would go by.

"General Mills developed a lot of really good products using those approaches," Powell said. But the company deeply studied some of the new product successes launched by entrepreneurial and start-up food companies and learned, he said "that they don't do any of that."

Maybe the most painful lesson was learned in the yogurt market, where General Mills makes a lot of money with its Yoplait brand. As Powell wryly explained, "as you may know, we were not the first in the Greek yogurt market."

Yes, not the first. And then its first efforts stumbled.

"That was a person who probably started out making it for himself, and for his family and for his neighbors," Powell said, of the founder of Chobani, the upstart that just in a few years almost single-handedly created a billion-dollar Greek yogurt market in the United States. "That would be Exhibit A of how food entrepreneurs develop successful new products. He got it into a few stores in the Northeast, and it sold itself."

The Greek yogurt story also helps to illustrate how changes in the market have eroded some of the advantages big companies used to have over the upstarts.

With social networking and blog sites, millennial moms have been sharing ideas with each other on what their families should be eating, and they don't so readily trust products sold by big food companies.

Those same digital tools also allow entrepreneurs to directly connect with their customers and start building a brand without the help of big retailers like Target and Kroger, although even big retailers are more open to the product ideas of entrepreneurs than they were a decade ago.

And it's not like the entrepreneurs were going off intuition and ignored consumer feedback, just that they got their consumer insights cheaply and very fast from their cousins or roommates. General Mills decided it needs to do a little of that kind of work, too.

So instead of a focus group, Powell talked about going into someone's house, sitting down for hours at the kitchen counter and watching what goes on in the kitchen — including new uses for the Keurig single cup coffee maker.

That Bistro Cup idea came out of 301 Inc., a product development unit that gets its name from the address of an old Pillsbury flour mill.

When 301 staffers came up with this oatmeal idea they didn't develop a prototype and then hand it off to a marketing team. That's big-company thinking. Instead, they stood in the aisles of the Twin Cities-area stores where the Bistro Cup oatmeal first appeared, actively pitching it to customers.

The company is not depending on this small group to come up with its new products, Powell said, and product innovation is far from the only part of what the company does that could benefit from the style and thinking of the industry's entrepreneurs.

"We got plenty of ideas," he said. "We're generating them constantly. What we need are people to take a chance, to move on one. To try it."