A consortium of food and drink companies is successfully working together to harness the potential of ‘open innovation’.
Dominic Oughton, principal industrial fellow at the Institute for Manufacturing, explains why this collaborative approach to innovation is a compelling strategy for FMCG businesses and others.
The companies most likely to thrive in the complexity, speed and uncertainty of today’s global business environment are those who are able to innovate effectively.
This increasingly calls for firms to be ready to collaborate beyond their own walls. Companies cannot afford to rely entirely on their own research or assume that all the best ideas can be generated internally.
As Bill Joy of Sun Microsystems famously commented, “No matter who you are, most of the smartest people work for someone else.” The wisest business leaders are those seeking to work collaboratively with others, and looking for partnerships in innovation.
In sectors like food and drink and FMCG, forward-thinking companies have been identifying opportunities to create value by challenging a rigid insistence on traditional ‘closed’ approaches to R&D.
A closed approach would emphasise confidentiality over openness, and internal capabilities over external strategic partnerships. ‘Open innovation’ (OI) refers to a broad approach that offers a bright alternative.
What is ‘open innovation’?
Open Innovation (OI) involves embracing both internal and external ‘ideas’ and ‘paths’ to market. It moves away from the traditional organisational view that successful innovation requires strict control, towards a set of more ‘open’ principles.
The term ‘open innovation’ was coined by Henry Chesbrough, then at Harvard Business School, based on initial case study research at Xerox’s Palo Alto Research Centre (PARC).
It provides an alternative model to the conventional funnel for new product development, in which companies invest heavily in research, taking a subset of those projects through to development, and a further subset through to commercialisation and market launch – a process which is slow, expensive, and fraught with risk, and often leaves good ideas behind (perhaps mistakenly) if not deemed sufficiently lucrative.
Instead, Chesbrough advocated OI, “to accelerate internal innovation, and expand the markets for external use of innovation.” He identified ‘inward-out’ and ‘outward-in’ flows of knowledge. (See the ‘open innovation funnel’ diagram below.)
This model encourages companies to be more receptive to working with external partners, actively seeking paths to integrate external ideas into the company, as well as pursuing opportunities for spin-outs, licensing and co-branding.
OI Forum: a collaborative model
Building on OI research by Professor Tim Minshall and Dr Letizia Mortara at the University of Cambridge’s Institute for Manufacturing (IfM), the Open Innovation Forum has developed over the past nine years, with companies in the food and drink and FMCG sector coming together to share OI best practice, explore hot topics, and engage actively with research.
Members include industry-leading multinationals such as P&G, Walgreens Boots Alliance, Mars, Moy Park, Crown, Siemens, Domino, Heineken and PepsiCo, among others.
They span different echelons of the supply chain – manufacturers, raw materials and packing producers, machinery and ingredients suppliers, and retailers – enabling development of insights along the entire value chain.
The Forum considers OI to refer to a set of behaviours and processes that have been well established long before the phrase was coined in 2003. The OI ‘brand’ provides a convenient umbrella to discuss all aspects of collaborative innovation and partnerships between organisations.
A key element of the Forum’s work is the critical self-evaluation members undertake of their company’s current OI approach, enabling them to analyse their own strengths and weaknesses. This is also valuable for seeing trends and comparisons across the group, opening discussions on different ways to address challenges and drive improvements.
The opportunity to learn from the collective experience of the group, combined with research input and frameworks from the IfM, has become a significant asset to members.
Often, strategies vary between companies. There are times when a more traditional approach to innovation is more appropriate, and companies may choose to keep certain areas ‘closed’ – for example, when dealing with deep know-how that is important to the business, such as a secret recipe.
So, collaborative discussion is the emphasis of the Forum rather than a dogmatic insistence on OI for everything.
Heineken’s Innovators Brewhouse
A ‘Nespresso for beer’ was an unexpected innovation that builds on collaboration between Heineken and its partners.
The company has been experimenting with different models for facilitating ideation with external partners. Its web portal, Innovators Brewhouse 2.0, aims to balance creativity with finding solutions to real-world needs.
A systematic process of looking for external sources of innovation has been refined by Heineken over several years.
Through the web portal, targeted, client-owned challenges are communicated to a broad innovation ecosystem including consumers, suppliers, academia and start-ups, all connected by an efficient platform to minimise effort and enable communication and adoption.
An example of a successful project to emerge from this is the Heineken Blade, a countertop draught beer dispenser, which enables the company to target huge new growth markets for draught in the casual dining sector, which can currently only offer bottled beer.
The unit is completely ‘plug and play’, with no maintenance or installation costs, and can easily be set up to ‘pour the perfect pint served at 2°C’.
As Arjen Reijnierse, commercial director of Global Innovations, explained, working with external partners becomes ever more important as Heineken broadens its innovation efforts beyond the product into new business models, channels and e-commerce, tapping into new skills and experience.
OI in practice
OI can take many forms. An example may be increased collaboration and information sharing across an end-to-end supply chain. For example, traceability is a major concern for FMCG retailers and consumer groups, but the costs can end up falling heavily on one party in the supply chain, such as the packaging company.
If supply chain partners can find a joined=up process to share information without contravening IP or consumer rights, they can all derive value from the ability to provide better data on traceability, thereby benefiting their customers while dispersing the burden of risks and costs.
Another example is co-creation. Outward looking companies find proactive ways to encourage innovators to come to them with new ideas. For example, Heineken has created a web-portal called Innovators Brewhouse, which communicates challenges and encourages external parties to submit solutions, producing successful inventions such as the Heineken Blade (see box above).
Siemens has also recognised the value of working jointly with partners and customers to create new solutions and has created a co-creation toolset to support the process.
The Forum’s Roadmap, a powerful sector-specific tool used and updated by the members to identify key issues and trends, provides topics for focus at meetings. Workshops are held three-times a year, hosted by a different member each time.
Recent themes have included supply chain security, flexible batch manufacturing, intellectual property strategy, and plastic packaging. While broad underlying industry needs tend to remain the same – sustainability, health, productivity, quality – the strategies for achieving them, and hot topics within them, shift over time.
Combined innovative power: small and large companies
Another major aim of the Forum is to facilitate large corporations to work alongside start-ups and SMEs. This has been a research focus for the IfM’s Tim Minshall and Letizia Mortara.
Major corporations need access to new ideas and technologies to feed their innovation processes. Small firms are significant generators of innovation but are typically resource constrained.
Bringing together small and large companies in mutually beneficial partnerships therefore harnesses the speed, entrepreneurship and innovative capacity of small firms to feed the channels, brands and resources of the large company, creating new value for consumers they could not deliver alone.
The Forum holds an annual pitching contest, an opportunity for start-ups and SMEs to pitch innovations to the members. The combined power of the Forum, with a significant global market share among the members, provides a huge opportunity for smaller enterprises.
The contest will usually focus on common challenges identified by the Forum, seeking relevant solutions. Forum members may jointly invest in a new enterprise, which is good news for everyone as it spreads the risk and widens the opportunity for the innovator.
Siemens leading the charge towards digital factories
The latest OI workshop was hosted at Siemens’ digital factory in Congleton, showcasing that a culture of innovation must be absolutely at the forefront of a successful transition towards
digitalisation, alongside any equipment and technical upgrades.
This cultural aspect of innovation was a major discussion point throughout the workshop and tour, as it’s something that takes time and a considered approach to build, with an understanding from the business that this is a critical long-term investment.
Siemens has achieved this at Congleton through involving the workforce at every stage of their digitalisation journey, using a suggestion centre that allows employees to contribute and share ideas, as well as ensuring there’s an opportunity to feedback on everything that is implemented.
There is also an apprenticeship scheme in place to focus on the next generation, developing internal skills which are future looking, rather than just learning the traditional trades. One apprentice has already developed a testing application for electrical components which has now been rolled out as its own proposition to clients and is therefore benefiting the wider business.
How do firms adopt OI?
A successful OI culture cannot be created overnight; however, making changes to company structure, skills, incentives and control methods can gradually help to develop a company culture that supports and promotes OI.
The starting point for change is most likely to be an OI implementation team, which can seed an OI culture within the organisation. It is inevitable that different units in a firm will have different subcultures of their own, but it is possible to make use of these cultures and find ways to support OI within them.
Dominic Oughton is a principal industrial fellow at the University of Cambridge’s Institute for Manufacturing (IfM).
His role – within IfM’s knowledge transfer arm, education and consultancy services – involves leading projects with partner companies aimed at putting IfM research output into practice. He leads IfM’s practice activities in the area of open innovation and heads the Open Innovation Forum.