delivering more breakthrough products final
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www.kalypso.com
Delivering More Breakthrough Products
from R&D in Food & BeverageGeorge Young, Kalypso
2
Agenda
• The Innovation Engine
• A Survey of Breakthrough Products in the Industry
• How Do You Develop Breakthroughs?
• 7 Practices for Cultivating Breakthroughs1. Articulate an Innovation Strategy
2. Keep the Front End Fuzzy
3. Understand Macrotrends
4. Create the Right Innovation Culture/Climate
5. Create Unique Environments for Innovation
6. Manage Portfolio and Investment Allocation for Breakthrough Products
7. Process and IT Are a Must But Won’t Make You More Innovative
04/07/2023 2
3www.kalypso.com04/07/2023
The Innovation Engine
Our services are designed to help companies become more innovative and provide a systemic view of new product & service development.
Business & Innovation Strategy
PLM Technology
Leadership & Learning
Intellectual Property Management
Front EndOf Innovation
Portfolio & PipelineManagement
New Product Development
Execution
Pricing and ValueManagement
4
Agenda
• The Innovation Engine
• A Survey of Breakthrough Products in the Industry
• How Do You Develop Breakthroughs?
• 7 Practices for Cultivating Breakthroughs1. Articulate an Innovation Strategy
2. Keep the Front End Fuzzy
3. Understand Macrotrends
4. Create the Right Innovation Culture/Climate
5. Create Unique Environments for Innovation
6. Manage Portfolio and Investment Allocation for Breakthrough Products
7. Process and IT Are a Must But Won’t Make You More Innovative
04/07/2023 4
5Source: IRI New Product Profiler
<$7.5 $7.5-$10 $10-$20 $20-$50 $50-100 $100+0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
78.0%
3.0%
8.0% 9.0%
2.0%0.3%
Food & Beverage
Non-Foods
% o
f pro
duct
laun
ches
in e
ach
laun
ch fr
ame
2005
-201
0Breakthrough products in F&B are
rare
6
NPD effort in F&B is declining while CPG is increasing
2005 2006 2007 2008 2009 20100
100
200
300
400
500
600
700
800
900
1000
931903 916
859
659 647
821 796833
963 949 957
Food & Beverage
# o
f N
ew
Pro
du
ct
La
un
ch
es
by C
PG
Co
mp
an
ies
Other CPG Companies
• Non-food CPG efforts are increasing• CPG conglomerates have been divesting F&B units
Source: IRI New Product Profiler
04/07/2023
7
Kraft South Beach
Dreyer's/Edy's Slow Churned Ice Cream
Campbell's Select Harvest
POWERADE ION4
Slim-Fast Optima
Gatorade G2
Chobani Greek Yogurt
Breyer's Double Churned Ice Cream
Bud Light Lime
Dannon Activia Yogurt with Probiotics
$0 $50 $100 $150 $200 $250
$231.0
$229.0
$201.8
$190.5
$166.0
$159.0
$149.4
$135.0
$132.6
$128.0
Launch year revenues in millions of dollars
Top
Ten
F&B
Lau
nche
s (2
005–
2010
)
Source: IRI New Product Profiler
Top 10 F&B Product Launches (2005–2010)
8
Kraft South Beach
Campbell's Select Harvest
Slim-Fast Optima
Chobani Greek Yogurt
Bud Light Lime
Budweiser Select
Gatorade Rain
Dunkin' Donuts Coffee
Glacéau Vitaminwater Zero
Cherry Vanilla Dr. Pepper
$0 $50 $100 $150 $200 $250
$231.0$229.0
$201.8$190.5
$166.0$159.0
$149.4$135.0$132.6
$128.0$123.0$121.0$120.0
$114.1$112.0$112.0$110.3
$107.0$107.0
$101.0
Launch year revenues in millions of dollars
F&B
Pro
duct
s ov
er $
100M
in R
even
ue
Source: IRI New Product Profiler
F&B Products over $100M in First Year (2005-2010)
9
Agenda
• The Innovation Engine
• The State of Innovation in the Industry
• How Do You Develop Breakthroughs?
• 7 Practices for Cultivating Breakthroughs1. Articulate an Innovation Strategy
2. Keep the Front End Fuzzy
3. Understand Macrotrends
4. Create the Right Innovation Culture/Climate
5. Create Unique Environments for Innovation
6. Manage Portfolio and Investment Allocation for Breakthrough Products
7. Process and IT Are a Must But Won’t Make You More Innovative
04/07/2023 9
10
R&D spending is not the answer
11
• “No correlation” does not necessarily imply cutting innovation spending
• The bottom 10% of R&D spenders perform worse than the rest• Optimizing current processes should be the focus
Cutting R&D is not the solution
12
• ~2% of revenue
• Expected to be flat
R&D Spend
Trade promotion spend vs. R&D spend
www.kalypso.com04/07/2023
• ~20% of revenue• Expected increase of 1-
3% each year• Second only to COGS as
a P&L item
Trade Promotion Spend?
13
Breakthrough innovation requires commitment
• In mid-1990’s, Toyota saw environmental factors affecting the automobile industry
• Made a big bet on radical innovation based on environmental factors and market trends
• Assembled on the same production lines as mainstream models like the Camry
• Functional deficiency and timing prevented its initial success in 2000
• In the mid-2000’s, it became “cool” to drive a hybrid
• Bestselling hybrid car in the US – passed 1 million cars in US sales since launch in 2000
14
Breakthrough innovation requires commitment
• Highly caffeinated and disruptive drink• “No other new product has ever failed this
convincingly!” – Red Bull market research organization
• Intentionally created a new beverage category and took industry by surprise
• Commercialization strategy key to success - clever marketing and channel management
• Holds 70-90% of the energy drink market share in over 100 countries
• $5+ Billion in revenues annually
15
Agenda
• The Innovation Engine
• A Survey of Breakthrough Products in the Industry
• How Do You Develop Breakthroughs?
• 7 Practices for Cultivating Breakthroughs1. Articulate an Innovation Strategy
2. Keep the Front End Fuzzy
3. Understand Macrotrends
4. Create the Right Innovation Culture/Climate
5. Create Unique Environments for Innovation
6. Manage Portfolio and Investment Allocation for Breakthrough Products
7. Process and IT Are a Must But Won’t Make You More Innovative
04/07/2023 15
16
Agenda
• The Innovation Engine
• A Survey of Breakthrough Products in the Industry
• How Do You Develop Breakthroughs?
• 7 Practices for Cultivating Breakthroughs1. Articulate an Innovation Strategy
2. Keep the Front End Fuzzy
3. Understand Macrotrends
4. Create the Right Innovation Culture/Climate
5. Create Unique Environments for Innovation
6. Manage Portfolio and Investment Allocation for Breakthrough Products
7. Process and IT Are a Must But Won’t Make You More Innovative
04/07/2023 16
17
Articulate your innovation strategy simply
“We will deliver 25% revenue growth from new products in the next 5 years. Half of that growth is expected to come from breakthroughs.”
2010 2015
$500 $450
$275
$275
Business Growth GoalExisting Products Acquisitions Innovation
$1,000
Breakthrough
Would you rather be the 1982 St. Louis Cardinals or the 1975 Baltimore Orioles?
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Where will your emphasis be as part of your innovation strategy?
M&A
New business systems
New suppliers
New markets/distribution channels
New plants/expansion
New equipment
New productsNext 12 months
New Product De-velopment
Organic Growth
Mergers & Acquisi-tions
1
3
2
Food & Beverage Growth Strategies 2011
Fast Facts on Food Processing: Growing the business. Grant Thornton and Food Processing magazine, 2011.
19
Agenda
• The Innovation Engine
• A Survey of Breakthrough Products in the Industry
• How Do You Develop Breakthroughs?
• 7 Practices for Cultivating Breakthroughs1. Articulate an Innovation Strategy
2. Keep the Front End Fuzzy
3. Understand Macrotrends
4. Create the Right Innovation Culture/Climate
5. Create Unique Environments for Innovation
6. Manage Portfolio and Investment Allocation for Breakthrough Products
7. Process and IT Are a Must But Won’t Make You More Innovative
04/07/2023 19
20
Don’t kill all of your good ideas
• Avoid evaluating projects the way you would with Stage-Gate – keep that at Concept and after
• Develop scoring models and evaluation methods that favor the qualitative over the quantitative– Ex. Wagering: Allocate $ or units and ask people to bet on
projects– Ex. Tournament theory: Set up an NCAA bracket for projects
21
Agenda
• The Innovation Engine
• A Survey of Breakthrough Products in the Industry
• How Do You Develop Breakthroughs?
• 7 Practices for Cultivating Breakthroughs1. Articulate an Innovation Strategy
2. Keep the Front End Fuzzy
3. Understand Macrotrends
4. Create the Right Innovation Culture/Climate
5. Create Unique Environments for Innovation
6. Manage Portfolio and Investment Allocation for Breakthrough Products
7. Process and IT Are a Must But Won’t Make You More Innovative
04/07/2023 21
22
Breakthroughs have come from understanding macrotrends
• Health and Wellness – Functional foods• Experiential Eating – Extreme flavors• Impulse and Indulgence – Treat/reward• “Free” – Trans fat, caffeine, gluten...• Convenience/Ready-to-eat – On-the-go lifestyle
Ex. Pepsico investing $50M in expanding nutrition business to triple revenues from $10B in 2010 to $30B by 2020.
23
Do we develop breakthrough products for a market or develop products for a breakthrough market?
• Big Players in Asia• Nestle: Sales growth of 12% in Asia in the first half• Unilever: Expects 5 times its current business in China• Kraft Foods: Double-digit growth in Asia in 2010• PepsiCo: 17% volume growth in India from April-June• Coca-Cola: Profits jump 18% in Asia and Latin America
• Products imported from Asia into western markets• Beer: Sapporo, Kirin, Asahi, Hite, Cass• Ramen: Ichiban Ramen, Shin• Tea: Lupicia Fresh Tea• Prepared: Wanchai Frozen Chinese Food
24
Agenda
• The Innovation Engine
• A Survey of Breakthrough Products in the Industry
• How Do You Develop Breakthroughs?
• 7 Practices for Cultivating Breakthroughs1. Articulate an Innovation Strategy
2. Keep the Front End Fuzzy
3. Understand Macrotrends
4. Create the Right Innovation Culture/Climate
5. Create Unique Environments for Innovation
6. Manage Portfolio and Investment Allocation for Breakthrough Products
7. Process and IT Are a Must But Won’t Make You More Innovative
04/07/2023 24
25
Breakthrough products may require a fundamental change in culture
• Does the structure permit the right people to work together?
• Do we have the right people in critical roles? Do we have enough people?
• Are people rewarded for results and do we learn from failure?
• Are timely, informed decisions made?
• Is relevant data readily available to make decisions?
• Are the work processes efficient and clearly defined?
Structure People
Decision Making
RewardsDecision Making
WorkProcesses
Adapted from David Hanna, Operational Performance Model 1988
26
Agenda
• The Innovation Engine
• A Survey of Breakthrough Products in the Industry
• How Do You Develop Breakthroughs?
• 7 Practices for Cultivating Breakthroughs1. Articulate an Innovation Strategy
2. Keep the Front End Fuzzy
3. Understand Macrotrends
4. Create the Right Innovation Culture/Climate
5. Create Unique Environments for Innovation
6. Manage Portfolio and Investment Allocation for Breakthrough Products
7. Process and IT Are a Must But Won’t Make You More Innovative
04/07/2023 26
27
P&G Innovation Initiative: GYM
What• An offsite innovation center and collaboration space built to immerse P&G
team members in the innovation process Goals• Strengthen innovation and initiative work where teams develop just-in-time
expert solutions to their challengesWhat Worked• Active working session to address specific issues and challenges• Operating GYM as a business• Client-centric focus• An environment conducive to innovationSuccesses• Crest Vivid White Night• Olay Ribbons Body Wash
P&G also created an alternative innovation structure called The Garage which was “sanctioned skunk works”
28
Agenda
• The Innovation Engine
• The State of Innovation in the Industry
• How Do You Develop Breakthroughs?– Look for Historic Metrics/Trends
– Look for Practices that Led to Breakthroughs
• 7 Practices for Cultivating Breakthroughs1. Articulate an Innovation Strategy
2. Keep the Front End Fuzzy
3. Understand Macrotrends
4. Create the Right Innovation Culture/Climate
5. Create Unique Environments for Innovation
6. Manage Portfolio and Investment Allocation for Breakthrough Products
7. Process and IT Are a Must But Won’t Make You More Innovative04/07/2023 28
29www.kalypso.com04/07/2023
Manage portfolio and investment allocation for breakthrough products
Support40%
Ex-ten-sions35%
New Plat-
forms20%
5%
Average Company Example Product Mix
Support35%
Extensions25%
New Plat-
forms25%
15%
Innovative Company Example Product Mix
Breakthroughs
Breakthroughs
30
Agenda
• The Innovation Engine
• The State of Innovation in the Industry
• How Do You Develop Breakthroughs?– Look for Historic Metrics/Trends
– Look for Practices that Led to Breakthroughs
• 7 Practices for Cultivating Breakthroughs1. Articulate an Innovation Strategy
2. Keep the Front End Fuzzy
3. Understand Macrotrends
4. Create the Right Innovation Culture/Climate
5. Create Unique Environments for Innovation
6. Manage Portfolio and Investment Allocation for Breakthrough Products
7. Process and IT Are a Must But Won’t Make You More Innovative04/07/2023 30
31
Innovation Capability Framework
Innovation Strategy
Fuzzy Front End
Business Strategy
Innovation Leadership
Consumer& Customer
Insights
Brand
Technology
NPD Portfolio ManagementIn-market Portfolio
Management
Idea Concept Portfolio
Management
Launch Manageme
nt
Product Lifecycle Management
New Product Development & Commercialization
Results Analysis
32
Closing Thoughts
Breakthrough innovation requires commitment, strategy, investment, resources
Evaluate trade spend vs. R&D spend
Look to macrotrends and new markets
Fail fast, often and well
Conduct strategic experiments
33
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twitter.com/KalypsoLP
facebook.com/KalypsoLP
george.young@kalypso.com
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