Keeping It Fresh in Packaged Food: An Examination of Open Innovation at Mondelez International

This piece briefly examines the adoption of various open innovation practices by Mondelez International to better react to competitive pressures and position itself for long-term sustainable growth

The packaged food paradigm is rapidly changing as we know it. Shifting consumer preferences towards better-for-you products[1] and the rise of social media-enabled “challenger brands” have put tremendous competitive pressure on legacy incumbents like snacking giant Mondelez, the owner of iconic brands like Ritz and Oreos.

In search of new growth avenues, Mondelez has increasingly turned to open innovation (“OI”) to increase its agility and experimentation through collaboration[2]. Coined by Henry Chesbrough in 2003[3], OI differs from traditional closed innovation models by leveraging external knowledge sources—including suppliers, customers, research institutions, start-ups, and competitors[4][5]—to complement internal capabilities for new product development and process improvement[6][7]. A growing body of empirical evidence suggests OI can improve business performance[8]. OI offers many advantages, allowing Mondelez to generate more top-of-the-funnel ideas, promote disruptive idea generation (versus just incremental innovations)[9], accelerate time to market, reduce development costs, and react quicker to evolving customer needs[10][11]. Furthermore, crowdsourcing can reveal customer preferences, build brand equity, de-risk the launch process, and improve R&D productivity. Exhibit A lays out the OI process in more detail[12].

Historically, Mondelez has embraced various forms of OI since establishing its original OI submission portal in 2006[13]. Mondelez launched its Mobile Futures program (2012), followed by its Shopper Futures program (2015), where Mondelez partnered with start-ups (so-called “intrapreneurs”) in 90-day pilot contests to revolutionize mobile marketing and in-store grocery shopping, respectively[14][15]. The mobile futures pilot appeared to gain early traction, driving 50% higher conversion rates[16]. In 2016, it established a “Collaboration Kitchen” in Poland which hosts scientists from around the world to experiment with new ideas[17]. Then in 2017, it crowdsourced the new Cherry Cola Oreo flavor from its customers, which has already hit the shelves[18]. To support these OI efforts, companies like NineSigma, InnoCentive, and Yet2 have arisen to facilitate these interactions[19].

Notably, OI has become a core pillar of Mondelez’s long-term snacking strategy. To help achieve its stated target of 3% long-term revenue growth and high-single digit EPS growth[20], Mondelez launched its SnackFutures program[21], whose objective is to “mobilize the ecosystem of entrepreneurs” to drive “customer-centric new product invention” through investment in outside ventures that are pursuing disruptive technologies and healthy snacking. From the SnackFutures program alone, Mondelez targets $100M revenue by 2022[22]. Additionally, its newly renovated OI portal offers various innovation contests to solve longer-term business needs. Requested ideas include low-cost cocoa production automation solutions and novel ingredients that reduce sugar content [23][24+Exhibit B].

Beyond these initiatives, Mondelez can still do more to harness the full potential of OI. Near-term, Mondelez should increase its level of disclosure regarding its OI program efficacy, to drive greater accountability and improve brand perception. Proctor & Gamble has done this well with its Connect-Develop program, by publishing that 35% of new products have components that were externally developed[25]. Longer term, I believe there is opportunity to incorporate other forms of OI beyond customer crowdsourcing and backing entrepreneurs. For example, Mondelez could pursue academic partnerships to stay at the forefront of emerging food technologies, consider retail partnerships to improve retail execution in the Digital Age, and even consider out-licensing unused technology to other parties[26]. Lastly, Mondelez must critically examine its organizational infrastructure to ensure it has the capabilities to manage a robust OI program[27][28]. Empirical studies have indicated that although OI is being increasingly adopted, most managers remain dissatisfied with implementation[29][30]. To effectively integrate and commercialize OI innovations, Mondelez should ensure that its hiring practices, organizational design, managerial decision-making, and procedures adapt effectively to sustain high-impact OI.

This discussion raises two primary questions for further investigation. First, OI isn’t a silver bullet and is subject to its own limitations. I’d be curious to better understand the applicability of OI[31]: what are the conditions under which OI is most appropriate versus not? What are the key enablers of successful OI programs, and the primary pitfalls of unsuccessful ones? Are certain OI tools / practices more effective than others? Are there specific firm capabilities required to wrap around these tools? And how does one even quantitatively measure OI outcomes?

The second relates to the longer-term consequences of growing acceptance and adoption of OI across industries[32] Given that Mondelez’s peers like Nestle, Kraft, and General Mills are also investing in this domain[33], what impact will this have on brand differentiation in the future? What is the right equilibrium between internal vs. externally-led innovation efforts? How can a company like Mondelez mitigate the risk of becoming excessively reliant on innovation beyond its 4-walls?

The future runway for OI is best summarized by the following quote from an R&D manager: “before open innovation, the lab was our world. Now with open innovation, the world has now become our lab”[34]. Mondelez has the unique opportunity to embody this paradigm and remain a leader in the space for years to come.

(799 words)

Exhibit A
Exhibit B

Footnotes

[1][2] Gharib, Susie. “Mondelez CEO Cooks Up A New Recipe for the Oreo Maker.” Fortune, Fortune, 19 Oct. 2018, fortune.com/2018/10/19/mondelez-ceo-dirk-van-de-put/.

[3][6][10][29][34] Henry, Chesbrough. “The Future of Open Innovation.” Research Technology Management, vol. 60, no. 1, 2017, pp. 35–38. ABI/ProQuest, doi:http://dx.doi.org.ezp-prod1.hul.harvard.edu/10.1080/08956308.2017.1255054.

[4] Sulaiman, Saidu Nasiru, et al. “Open Innovation as Business Driver: Investigating the Impact of Firm-Level Evidence on Opening Up to External Players.” IUP Journal of Entrepreneurship Development, vol. 13, no. 4, Dec. 2016, pp. 44–59. ABI/ProQuest, doi:https://search.proquest.com/openview/2184fc809eb27952dd1eebdc9ae44a70/1.pdf?pq-origsite=gscholar&cbl=54457.

[5][7][13] International, Mondelez. “Call for Open Innovation!” Mondelez International, 8 Aug. 2018, www.mondelezinternational.com/newsroom/our-stories/open_innovation.

[8] Bahemia, Hanna, et al. “A Multi-Dimensional Approach for Managing Open Innovation in NPD.” International Journal of Operations & Production Management, vol. 37, no. 10, 2017, pp. 1366–1385.

[9] Schall, Joshua. “4 Big CPG Brands That Are Getting Innovation Right.” OneSpace, 10 Aug. 2018, www.onespace.com/blog/2018/08/4-big-cpg-brands-getting-innovation-right/.

[11][28] Rubera, Gaia, et al. “Open Innovation, Product Portfolio Innovativeness and Firm Performance: the Dual Role of New Product Development Capabilities.” Journal of the Academy of Marketing Science, vol. 44, no. 2, Mar. 2016, pp. 166–184., doi:https://search-proquest-com.ezp-prod1.hul.harvard.edu/businesspremium/docview/1764079301/A4054CC62B6E477DPQ/1?accountid=11311.

[12][26][27] Chesbrough, Henry. “Open Innovation: Where We’ve Been and Where We’re Going.” Research Technology Management, vol. 55, no. 4, July 2012, pp. 20–27., doi:https://search-proquest-com.ezp-prod1.hul.harvard.edu/businesspremium/docview/1321119655/6C8FC29F75B14171PQ/1?accountid=11311.

[14] International, Mondelez. “Our Shopper Futures Program.” Mondelez International, 2015, www.mondelezinternational.com/newsroom/our-stories/shopper-futures.

[15][16] Cameron, Nadia. “Mondelez Reveals Results of Mobile Marketing Program with Tech Startups.” CMO Australia, 10 Dec. 2014, www.cmo.com.au/article/562240/mondelez-brands-reveal-results-tech-startup-mobile-marketing-program/.

[17] International, Mondelez. “Mondelez International Breaks Ground for New Research & Development Center in Poland.” Mondelēz International, Inc., 8 June 2016, ir.mondelezinternational.com/news-releases/news-release-details/mondelez-international-breaks-ground-new-research-development.

[18] Koman, Tess. “EXCLUSIVE: Oreo’s Newest Flavor Won Somebody $500,000.” Delish, Delish, 8 Aug. 2018, www.delish.com/food-news/a22662768/my-oreo-creation-winner-exlcusive/.

[19] Watson, Elaine. “Open Innovation Update: Unilever Wants Tools to Provide a ‘Radically New View’ of Consumers; Kraft Heinz Seeks New Sustainable Oil Sources.” Foodnavigator-Usa.com, William Reed Business Media Ltd., 1 Sept. 2015, www.foodnavigator-usa.com/Article/2015/09/02/Open-innovation-update-Unilever-Kraft-Heinz-Mondelez#.

[20] International, Mondelez. “Mondelēz International Outlines Long-Term Strategy and Provides 2019 Guidance.” Mondelēz International, Inc., 7 Sept. 2018, ir.mondelezinternational.com/news-releases/news-release-details/mondelez-international-outlines-long-term-strategy-and-provides.

[21][22] Donnelly, Grace. “Exclusive: Mondelez to Launch ‘SnackFutures’ Innovation Team.” Fortune, Fortune, 29 Oct. 2018, fortune.com/2018/10/29/mondelez-snack-futures/.

[23][24]  International, Mondelez. “Welcome to the Open Innovation Submission Portal.” Mondelēz International Open Innovation Portal for Ideas & Tech Submissions, 2018, mondelezinternational.yet2.com/.

[25] Huston, Larry, and Nabil Sakkab. “Connect and Develop: Inside Procter & Gamble’s New Model for Innovation.” Harvard Business Review, Mar. 2006.

[30] Battistella, Cinzia, et al. “Practising Open Innovation: a Framework of Reference.” Business Process Management Journal, vol. 23, no. 6, 2017, pp. 1311–1336., doi:https://www.emeraldinsight.com/doi/abs/10.1108/BPMJ-10-2016-0219.

[31] Christensen, Clayton. “Open Innovation and Getting Things Right.” Clayton Christensen, 19 Sept. 2012, www.claytonchristensen.com/open-innovation/.

[32] Ramírez-Portilla, Andres, et al. “The Era of Open Food? Exploring the Influence of Open and Collaborative Innovation in the Food Industry.” 2nd Annual EDIM PhD Conference on Management Engineering, June 2015.

[33] Friedman, Mike, and Helayne Angelus. “Best Practices in Collaborative Innovation.” Kalypso, 2009.

[Image] Bukhari, Jeff. “Why Investors Are Bingeing on Snack-Maker Mondelez.” Fortune, Fortune, 22 Feb. 2017, http://fortune.com/2017/02/22/why-investors-are-bingeing-on-snack-maker-mondelez/.

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14 thoughts on “Keeping It Fresh in Packaged Food: An Examination of Open Innovation at Mondelez International

  1. Im a huge fan of OI in the food space. I think this is the wave of the future with changing demographics, and quite frankly I think OI is the only way to innovate to changing tastes in society quickly. I fully agree that Mondolez should spread awareness as this will only help push its branding and OI forward.

  2. Thanks for a thought-provoking and interesting pieces. A few thoughts on the questions you raised –
    On when is OI most impactful, I think the condition for success is two-fold: 1) the company needs to have an internal blind spot, and 2) the audience it opens up the question to needs to have unique insights into said blind spot. So for instance, crowdsourcing ideas for snack flavors from end consumers make a lot of sense, but you would not get valuable insights on inventory management from the same crowd. For the latter, all the information you need to make good judgments reside in-house, and opening the forum up to too many opinions will only prove counterproductive.
    On how to measure the success of OI programs, I think back to the A/B testing methods we discussed in the Uber case. For a multinational like Mondelez, it would not be difficult to choose two similar markets (e.g., France and Germany) and run a controlled experiment to see how OI affects performance in a particular area. The challenge here is that, given the nature of the OI process, ideation to implementation will probably take considerable time, so running the test on a topic with limited scope would be beneficial.

    1. I feel like using OI to get customer preferences might actually have some negative impact in preventing the company from thinking differently and independently. Instead of coming up with new, healthier foods with improved tastes and brand images, Mondelez might instead rely too much on customer response to existing products and become complacent in its own development. I like the fact that the company is encouraging people to contribute to their decisions and product choices, but don’t want this to replace their own industry leadership and innovation. Often consumers unfortunately don’t know best and the company should feel ownership over providing better foods and choices to those consumers.

  3. This is a great piece. I would be interested to dig deeper how companies validate what feedback they are getting on these platforms – are consumers saying they like A, but they might not actually like A? What would incentivize them to do this? Can competitors sabotage the process? This may however be a very useful tool when entering new markets, where nuances in consumer taste are difficult to capture on a large scale without trial and error.

  4. Thank you for this thought-provoking piece. There are two things I’d like to add to the discussion on what makes OI successful.

    As @Charlotte Chang noted, one condition to make OI successful is that the company should likely have a legitimate blind spot where consumers can help. I agree and think that OI can help companies rethink strategies, but I also think a successful condition for OI is that companies be able to discern which suggestions have mass appeal. I fear that sometimes OI solicits recommendations from a niche of power users or people who may have their own blindspots when making recommendations. You cite an example of OI as Modelez’s Cherry Cola Oreo, but Amazon and Target reviews suggest that the product was neither like nor broadly bought (https://www.amazon.com/Oreo-Cherry-Chocolate-Sandwich-Cookies/dp/B07BMJVPFT#customerReviews).

    The other idea I’d like to posit is that company could likely do more to foster relationships within it’s OI community. We know from cases like IDEO and IBM Watson, that work culture and being able to brainstorm and bounce ideas off other people can lead to better innovations. This is also a central thesis of a recent HBR article title Open Innovations Next Challenge:Itself (https://www.amazon.com/Oreo-Cherry-Chocolate-Sandwich-Cookies/dp/B07BMJVPFT#customerReviews).

  5. In this article, I would like to challenge quote from internal R&D innovation that “before open innovation, the lab was our world. Now with open innovation, the world has now become our lab”[34]. I don’t believe that this statement accurately reflects Mondelez innovation process. I would argue as someone who has worked on the launch of more than 20 skus at the company, many of the most innovative ideas and successful product launches at Mondelez have come from the creativity of the employees who have been able to pair the internal capabilities with external consumer preferences. There are many logistical complexity that comes with innovation most specifically in the key categories where the company competes. Examples of this include the launch of OREO as a chocolate brand with the OREO CREME EGG in Canada and the launch of OREO MILK chocolate bars in the US in Europe. Also when addressing innovation in OREO, the Fourth of July OREO used previous similar process to its CADBURY MINI EGGS portfolio while the STRIDE GUM launch of SOUR PATCH KIDS GUM comes from the flavor technology of its SOUR PATCH candy portfolio and ownership of trademarks.

  6. Great effort on putting 800+ words in 799 with abbrevitions and eliminating spaces! 😉
    For the content: I think open innovation can be successful with scale, when you have a large enough dataset to filter out outlier ideas. If you do not have enough data, you are running the risk of implementing something marginal on a high cost. For this, customer engagement will be key and I think the interesting question is how to engage them without compromising any major pieces of the strategy (e.g. pricing, place, etc.)

  7. Awesome article – thanks for sharing! To answer one of your questions above, I think proper metrics and a robust feedback loop are key in successful OI programs. These ensure that the ‘right products’ make it through the product development cycle and eventually to market. These also avoid the scenario that @BuzzLightyear describes above, noise in consumer data and sabotaging competitors. I’d love to know more about how these work at Mondelez and competitors in the space.

  8. Thanks for sharing this super cool lens on open innovation in supply chain. Typically, we think of crowdsourcing only in the “ideation” phase of new product development, rather than other parts of the development process in reducing costs, iterating on consumer needs, and incorporating production innovations (e.g., reduced sugar content ingredients). I believe the biggest challenge here is not simply integration of ideas, but the **validity** of these crowdsourced ideas as applied to the business strategy. When we think about the distribution curve of who may contribute to Modelez’s OI ecosystem at this time, the ideas likely appeal more toward the tail-ends of the distribution — rather than what may “stick” with their target mainstream consumer. Without ensuring that the source of OI is applicable to key target market, the OI products may be more “interesting” than value-add to the business. For example, what @nicivey alluded to in the performance of Cherry Cola Oreo’s above.

  9. This article raises a very important question on how far do you let crowdsourcing dictate your products. OI is useful to get ideas at the beginning of the funnel, but the filtering has to be done by the brand in accordance to what their product vision and positioning stands. Getting customer input is a great step to really build the right product, and these channels could be enhanced further. Announcing challenges for graduate students to create marketing and product development plans provide great platforms to get more data points on the roadmap and identify the right crowd to recruit innovating thinkers as well.

  10. Open Innovation is a disruptive trend that is having huge impacts on many organizations – in this case, the point on “what can make OI successful” is very interesting. Especially from an organizational standpoint, it is important to define the right tools, capabilities and frameworks which can enable OI. As an example, based on my own experience, while I know that OI can be support many different functions and processes in a company, in different companies and industries, I learnt it is important to define well the OI process itself, making sure that two things happen:
    1) that people contributing to OI have the right incentives (as with multiple entities in the value chain, with misaligned incentives the final result of the system would be sub-optimal or anyway worse than what it could have been had all entities be part of the same organization)
    2) that OI happens very upstream in the design phase (to make sure there is the right amount of time and resources to diverge first and converge just at the end, where more disruptive ideas actually have the time to be generated).

  11. Great article! I loved reading about how OI is changing the future of the food/bev industry. Your suggestions on how Mondelez should leverage OI moving forward were very insightful and creative. I would be curious to see if open innovation could actually stifle innovation of new snacks and flavors. For example, Trader Joe’s has a number of odd and quirky flavor combinations that have become a cult favorite but were developed by food scientists. If companies rely more on OI and less on experts, is there a risk that there will be *less* innovation in flavor?

  12. I find that your question regarding the long-term consequences of growing adoption of OI across industries and what impact this will have on brand differentiation in the future is very relevant. You also ask what the right equilibrium between internal vs. external innovation efforts is. I think that as more brands adopt OI, it is true that the majority will have “the world as its lab” – however, the beauty is that the world is incredibly large and diverse and it will likely always be possible for a company to capture innovation and ideas from different populations or in different manners than their competitors do. Thus if done more effectively than others, gaining a competitive advantage in theory is possible. External efforts might determine the product outcomes, but internal efforts will still be crucial as these are the ones that innovate in regards to how to most effectively apply OI to reach a diverse set of differentiated product outcomes.

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