Best practice innovation and NPD strategy

Transcription

1 Best practice innovation and NPD strategy Highlights from some global benchmarking studies Phil Webster Even Better Innovation & NPD Strategy Food & Drink Innovation Network 8 March 2016

2 Over the last couple of years, Arthur D. Little have run a series of large scale, global best practice studies on innovation and NPD in food and beverage Some of our recent benchmarks UK food industry innovation needs 1 Global innovation excellence survey Still open! Food industry benchmark on innovation and NPD processes This presentation sets out the good practices and key success factors based on these and other benchmarks Defra, Arthur D. Little, Mapping current innovation and emerging R&D needs in the food and drink industry required for sustainable economic growth. Available to download here. Arthur D. Little Global Innovation Excellence Survey tool. Available at Food industry benchmark on innovation and NPD processes available to download here 3

3 But first why innovate? 4

4 The most innovative food and beverage companies realise higher sales and EBIT and have products which generate greater long term value in the market Innovation success in food and beverage companies Product and service innovation Top vs. Others 1 New products/services share of total sales New products/services share of total EBIT 1 year on market 0.7x 3 year on market 1.8x 1 year on market 1 % 0.4x 3 year on market 15 % 1.9x Average time for new products/services to break even (Months) Process innovation Cost reductions 3yr accumulated 1.5x Yield improvements 3yr accumulated 1.9x Output/Capacity improvement 3 % 4 % 6 % 8 % 8 % 7 % 6 % 7 % 5 % 10 % 14 % 12 % 16 months 19 m Accumulated 1.3x 0.8x Source: Arthur D. Little Global Innovation Excellence Survey (2013 snapshot) 1) Top innovators are those organisations which report better returns on investment in R&D and NPD, and score well against Arthur D. Little s innovation excellence model Top innovators Others 5

5 The sector is now addressing increasingly substantial and longer term innovation topics Above all, brand innovation and then after that Healthier products More sustainable, higher quality products Reducing salt, fat and sugar 59% Sustainable and traceable raw materials 48% Products targeted at specific consumer groups 43% Minimising packaging and improve recycling 38% Allergen free products 38% Improving supply chains and logistics 34% Retaining nutritional value after processing 33% Improving efficiency in line changeovers 27% New sources of protein 22% Improving methods for food safety risk control 27% Source: Arthur D. Little, Mapping current innovation and emerging R&D needs in the food and drink industry required for sustainable economic growth. Report to Defra. Original question: What are the top three challenges that your organisation is trying to overcome, or you believe needs to be addressed? n=273 Improving supply chain efficiency Minimising waste and raw material consumption Improving processing and manufacturing efficiency

6 Our clients mention common issues when trying to do this Issues We have all these great ideas, but never do anything with them Does anyone actually know what R&D are doing? The technology to do this is too expensive consumers won t pay for it I thought we killed this project last year why is it still running? We never have time to do anything truly breakthrough Our NPD budget isn t big enough to deliver our innovation targets 7

7 What do leading companies do differently? 8

8 1 Getting the right inputs before you begin Draw on both consumer and technology foresight, and use an effective means of screening ideas 2 Setting the right direction from the outset 3 Agreeing budgets and allocating resources 4 Measuring success 5 Organising all of the above 9

9 1 Getting the right inputs before you begin The best way of gathering consumer insight depends on whether it informs incremental or breakthrough NPD; solution design capabilities are important in translating it into products 1 Direct R&D approach R&D 2 Indirect single channel approach One commercial function Better for incremental NPD 3 Hybrid approach R&D + other commercial functions Better for breakthrough innovation Solution design 4 Indirect multichannel approach Several commercial functions Source: TU Eindhoven, Arthur D. Little R&D department Commercial departments (marketing, sales, services, applications) Customer 10

10 1 Getting the right inputs before you begin Getting the right inputs involves some good ideation Stage Gates TM, a means of capturing recycled ideas, and technology, and great consumer insight Underlying principle Consumer led Technology enabled Consumer Consumer Insights Portfolio Strategy Opportunity Screening & Concept Development Involves continuously testing ideas with consumers, and recycling idea fragments back into the process Consumer Concept Evaluation Concept / Opportunity Selection Technology Source: Arthur D. Little Technology Insights Involves robust idea screening, rapid prototyping and generally failing faster Involves drawing on technology trends and insight from suppliers and customers in the food industry, and from adjacent industries 11

11 1 Getting the right inputs before you begin Draw on both consumer and technology foresight, and use an effective means of screening ideas 2 Setting the right direction from the outset Jointly set direction across the business, and prioritise on an ongoing basis 3 Agreeing budgets and allocating resources 4 Measuring success 5 Organising all of the above 12

12 2 Setting the right direction Setting the right direction requires involving the right people, and getting commitment from them Markets Technical and commercial implementation R&D Scientific and technical solutions SBU Drive business specific strategy Set business strategy Set innovation strategy Share consumer insight Manage direction once it s set Amongst food and beverage companies, this is often not a formal process Source: Arthur D. Little; Nestle Research, NPD Excellence & Innovation In F&B Accelerating Product Innovation. Amsterdam, May 17,

13 2 Setting the right direction The leading companies set joint vision and strategy for long term research and near term NPD across the business and are increasingly focusing on managing portfolios of projects Vision & Strategy Where to innovate Innovation vision Product innovation strategy Process innovation strategy Business model innovation strategy Innovation and renovation roadmap Innovation process How to innovate Innovation strategy Intelligence and insight Product/Service Portfolio Mgmt. Technology Portfolio Mgmt. Idea Management Development & Launch Resource & Competence Management Post- Launch Benchmarks in the food and beverage industry: Current strengths Desired future focus Source: Arthur D. Little 14

14 Portfolio management: Decision-making, not just reporting 15

15 1 Getting the right inputs before you begin Draw on both consumer and technology foresight, and use an effective means of screening ideas 2 Setting the right direction from the outset Jointly set direction across the business, and prioritise on an ongoing basis 3 Agreeing budgets and allocating resources Bottom up, with an element of top down, and a ring-fenced fund for breakthroughs 4 Measuring success 5 Organising all of the above 17

16 3 Agreeing budgets and allocating resources Product and service innovation is the main focus, but leading innovators are also looking increasingly at new business models Resource allocation across different types of innovation Food and beverage industry avg. 61% 25% 14% F&B top companies* 60% 15% 25% Product/service Process Business model *Top innovators are those organisations which report better returns on investment in R&D and NPD, and which score well against Arthur D. Little s innovation excellence model 18

17 3 Agreeing budgets and allocating resources There are a wide range of budgeting models, though the most common involves a top-down and bottom-up hybrid Agreeing budgets for innovation Longer term corporate ambitions Innovation and renovation roadmap New budget Previous budget Negotiate based on a common unit of currency Products Processes Breakthrough Shorter term SBU ambitions SBU SBU SBU Business models SBUs need the freedom to allocate budgets according to their ambitions, whereas more breakthrough activities are often set at the corporate level Source: Arthur D. Little. SBU: Strategic Business Unit 19

18 There are advantages and disadvantages to different decision-making models Advantages Disadvantages 1 Top-down funding Provides stability to encourage capability development Can support alignment of R&D activities with corporate R&D strategy Enables more uniform accounting practices (price cards, allocation on the basis of NSV, etc.) Risk of a free money perception due to a lack of financial pressure from internal SBU customers Risk of focusing too much on capability and longer-term development at the expense of market-responsive renovation and innovation Potential misalignment or lack of support to individual market strategies 2 Top-down, with SBUs bidding for funding Provides stability to encourage capability development Can support alignment of R&D activities with the European R&D strategy Provides mechanism by which BU innovation needs can be reviewed and prioritised Could lead to some SBUs missing out on innovation funding Adds extra level of bureaucracy with respect to internal contracts 3 Top-down for long-term R&D, bottom-up for short-term R&D Provides clear budget allocations for short term vs. long term innovation Ensures support for local market innovation needs Supports capability development Two separate, smaller budgets Difficult process to allocate short vs. long term funds, with many stakeholders and potentially conflicting priorities involved 4 Bottom-up funding Creation of a strong link between investment and results Project-based accountability Strong alignment with needs of the individual market strategies Risk of too many incremental projects because of market decisions and many small budgets Funding may fluctuate based on business unit s performance R&D focuses on low-risk, short term projects 20

19 1 Getting the right inputs before you begin Draw on both consumer and technology foresight, and use an effective means of screening ideas 2 Setting the right direction from the outset Jointly set direction across the business, and prioritise on an ongoing basis 3 Agreeing budgets and allocating resources Bottom up, with an element of top down, and a ring-fenced fund for breakthroughs 4 Measuring success Link to strategy, set targets and only measure what really matters 5 Organising all of the above 21

20 4 Measuring progress You get what you measure Particularly in terms of how KPIs cascade down the organisation, and how staff are individually incentivised 22

21 4 Measuring progress The most common metrics involve a mixture of inputs, activity, outputs and outcome measures Common NPD metrics Outcome measures influence the extent to which an organisation focuses on near or long term innovation activity Inputs Activities Outputs Outcomes NPD spend as % of turnover Project efficiency (schedule, cost, performance) % of core SKUs with meaningful upgrades % NSV from new SKU launches in last 3 years NPV of the NPD pipeline Ratio of new SKU NSV:NPD spend Innovation value index 1 Impact on customer although there is no standard set, and they should be linked to what the organisation is trying to achieve Source: Arthur D. Little Global Innovation Excellence Survey; 7 th Edition, 2009; Arthur D. Little project work with the food and beverage industry 1) This typically involves a staff survey of i) those involved in NPD, and ii) internal customers for NPD 23

22 1 Getting the right inputs before you begin Draw on both consumer and technology foresight, and use an effective means of screening ideas 2 Setting the right direction from the outset Jointly set direction across the business, and prioritise on an ongoing basis 3 Agreeing budgets and allocating resources Bottom up, with an element of top down, and a ring-fenced fund for breakthroughs 4 Measuring success Link to strategy, set targets and only measure what really matters 5 Organising all of the above Increasingly centralised, yet tied to local market needs, with a smooth handover from R&D to NPD 24

23 5 Organising all of the above There is no silver bullet for organisation, and there is often a pendulum swing between centralisation and decentralisation Organisational design considerations Official criteria Closeness to the consumer Build internal, multidisciplinary capability and recruit talent Greater consistency in the way things are done Greater clarity and simplicity Other factors How the rest of the company is organised Historical legacy Budget availability Personalities of the leadership team Scale of organisation 25

24 5 Organising all of the above Larger food and beverage companies generally use a hybrid model for NPD and innovation, and there is an increasing tendency towards a more centralised approach Organising innovation and NPD Centralised Most common in large Food and Beverage R centralised; NPD mostly decentralised Hybrid Builds critical mass Safeguards local jewels But can be complex Decentralised 26

25 5 Organising all of the above Consistent accountabilities and assessment processes can help to improve the handover from one part of the organisation to another Breaking down organisational barriers Consistent accountability throughout Consistent but flexible Stage Gate TM process Launched new product R&D Co-creation with partners NPD Market 27

26 1 Getting the right inputs before you begin Draw on both consumer and technology foresight, and use an effective means of screening ideas 2 Setting the right direction from the outset Jointly set direction across the business, and prioritise on an ongoing basis 3 Agreeing budgets and allocating resources Bottom up, with an element of top down, and a ring-fenced fund for breakthroughs 4 Measuring success Link to strategy, set targets and only measure what really matters 5 Organising all of the above Increasingly centralised, yet tied to local market needs, with a smooth handover from R&D to NPD 28

27 Thank you for inviting us! We re happy to answer any questions Phil Webster Colin Davies