Orchestrating Product Innovation Success in CPG and Retail

Transcription

1 Orchestrating Product Innovation Success in CPG and Retail

2 Shifting consumer trends are challenging retailers and CPGs to innovate against unmet needs Unmet Needs Consumer Trends Focus on self-fulfillment Channel Needs Experiential Product Needs Authentic Thematic Ubiquitous online and mobility access Mobile, Social Interactive Continue drive for value Inexpensive Increased value / utility Increase demand for variety Endless shelf Customized On-the go convenience Be where the consumer is Portable

3 Products Channels Delivering effective innovation requires the power of Convergence Emerging Convergent Platforms Consumer Needs Targeted Convergent Technology and Capability Enablers Tesco HomePlus On the go convenience Endless shelf assortment Digital LCD display Mobile shopping Integrated last mile delivery Coca-Cola Freestyle Customized content (i.e. mixing different flavors) Interactive experience Micro-dosing Wireless CRM data management Social media interactivity Clinique Smart Bar TM Interactive exploration (expert recommendation) High resolution image recognition Genius recommendation analytics Nestle BabyNes Single dose convenience and speed Customized variety (temperature, concentration) Micro-electronics Ultra-concentrate powered food formulation

4 Convergent product platforms are increasingly crossdisciplinary, complex, and externally sourced Increasing Complexity in Convergent Innovation Current Future Convergent Platforms Unchartered Territory for CPG and Retailers Focus on consistency Anchored on one primary technology Limited variety Focus on new experience and functionality Multi-function and disciplinary technologies Increased variety Design / engineering complexity New, diverse supply base Numerous component technologies Complex assembly Shorter product lifecycles

5 A shift from traditional outsourcing to network orchestration is required for Convergent platform success Traditional Outsourcing Increased Complexity Platform Orchestration Increased crossboundaries coordination (i.e. more firms and functions) Higher risk and stakes in sourcing strategic competencies Scope of Firm (inhouse vs. outsource boundary) Non-core activity Strategic capability / activity Increased need to balance collaboration with competition Effective orchestration and partnerships will be the next battleground for competitive advantage

6 3 building blocks for effective innovation orchestration 1 Platform Orchestration Create the Right Orchestration Organization Breakthrough Impact Build & Evolve the Right Partnerships 25%-50% faster develop to market launch 20%-40% cost advantage Improved bottoms-up innovation 3 Understand and Check Ecosystem Entropy Sustainable platform and next generation introduction

7 1 Installing the right organization and management team Incubator organization for effective orchestration Parent Company Senior Leadership Functional Units Incubator Company Champion Mandate & Objectives Dedicated and autonomous Mgmt. Team Resources and personnel Shared incentives Decision Rights across Functions Critical Requirements Unlocked Speed and agility Autonomy Culture of risk taking and experimentation Resources and Personnel Empower and compensate to secure true boundary spanning talent Value chain function boundaries Technology boundaries Shared Incentives Significant % of personal compensation tied to incubator objectives, not divisional profit Executives evaluated by total external span of control, not just direct FTE report count Outside the box thinking

8 2 Establishing and sustaining the right partnership structure critical for coordination and performance Activity Integration Platform development consists of a series of interconnected Activity Integration efforts... Failures in Activity Integration Can be Costly Ribbon Lighting Design LED lighting Electronics Plastic Shell Design Plastic Forming Ribbon Lighting Design Design Body Design Plastic shell Metal chassis GUI screen "The [launch delay] news is negative. Even without the technological problems, the issues regarding the console's profitability remain Nomura Securities Analyst Boeing aggressively farmed out big chunks of its new 787 and stumbled badly. it has since integrated more closely with its remaining contractors. WSJ, Jul 2012 Getting the scope right (who does what)? Getting the span right (how much does one entity do)? Getting the hand-off and coordination right Palomar s partnership with J&J to mass market a home-use wrinkle device was terminated in Oct, 2009 due to economic conditions and extensive earlier FDA approval delays How to ensure effective integration activity outsourcing in innovation?

9 Span of Control Loose Tight 2 Defining the right partnership structure Key Considerations for Establishing Partnership Model Informs Partnership Program Design Internal Firm Competency Does the orchestrating firm have the knowhow to manage upstream value chain? IP Appropriation / Business Risk Is there significant IP risk by delegating control to partner? Is there a risk of undifferentiated solution by delegating upstream value chain control? Controlled Integration Master Turn-Key Single e.g.) iphone production e.g.) Automated kiosk design Distributed Integration Distributed Turn-Key Multiple Degree of Competition Process Modularity Can the underlying processes and sub-activities be easily decoupled and decomposed? Asset Specificity e.g.) Cisco Tele-presence e.g.) Sony PS3 console Are there highly specific asset or know-how? Roles and Activities Incentives & KPIs

10 Loose Tight 2 Evolving partnership over time to sustain performance Market, Competition, Firm Trigger Events for Evolving Partnership Structure Firm Strategy Firm strategy shift vs. upstream competencies Increased inhouse expertise Development Lifecycle Key activity more commoditized Development cycle/speed change Increase in underlying process modularity Activity risk and/or design complexity reduction Market Structure Regulatory / IP law changes Alternative substitute technologies or solutions 1 2 Change Existing Span of Control Change Existing Degree of Competition 1 Controlled Integration Master Turn-Key Single 2 Distributed Integration Distributed Turn-Key Multiple Roles and RACI Evolve Partnership Program Processes Incentives

11 3 Complex innovation orchestration is vulnerable to runaway ecosystem entropy Drivers of Ecosystem Entropy Over focus on speed and convenience during the development process, leading to accumulation of redundant sub-suppliers and contractors Tendency for key partners (designers, integrators, suppliers) to use their own up-stream value chain partners without holistic view of total eco-system requirements Lack of centralized coordinator and shared incentives to encourage downstream value chain complexity reduction Orchestrator is best positioned to manage network wide entropy

12 3 Understanding and containing ecosystem entropy throughput the innovation process Complex eco-system of 15 parties Touchscreen 1 2 User interface 3 4 Metal chassis Micro-electronics Sub- Integrator / Partner A 13 Sub- Integrator/ Partner B 14 Prime Integrator 15 Simplified eco-system = reduced coordination and risk complexity Upstream Designer / Supplier User interface and Touchscreens 1 2 Metal chassis 3 4 Micro-electronics Sub-Integrator / Partner Prime Integrator 8 Common Technology Consolidation Guiding Principles Cross-Technology Consolidation Propagate System Wide Adoption Common Technology Consolidation: Find multiple uses for common underlying technologies Cross Technology Consolidation: All else equal, leverage fewer designers and suppliers working on the same set of underlying capabilities Propagate Ecosystem Adoption: Encourage key partners to mirror your approach to reduce their upstream entropy

13 Thank you. Please reach out to continue the dialog Sean Monahan Partner Check out our companion article in Supply & Demand Chain Executive Mark van Weegen Partner Michael Hu Principal

14 A.T. Kearney is a leading global management consulting firm with offices in more than 40 countries. Since 1926, we have been trusted advisors to the world's foremost organizations. A.T. Kearney is a partner-owned firm, committed to helping clients achieve immediate impact and growing advantage on their most missioncritical issues. For more information, visit Americas Atlanta Bogotá Calgary Chicago Dallas Detroit Houston Mexico City New York Palo Alto San Francisco São Paulo Toronto Washington, D.C. Asia Pacific Bangkok Beijing Hong Kong Jakarta Kuala Lumpur Melbourne Mumbai New Delhi Seoul Shanghai Singapore Sydney Taipei Tokyo Europe Amsterdam Berlin Brussels Bucharest Budapest Copenhagen Düsseldorf Frankfurt Helsinki Istanbul Kiev Lisbon Ljubljana London Madrid Milan Moscow Munich Oslo Paris Prague Rome Stockholm Stuttgart Vienna Warsaw Zurich Middle East and Africa Abu Dhabi Doha Dubai Johannesburg Manama Riyadh A.T. Kearney xx/mm.yyyy/