The packaged food paradigm is rapidly changing as we know it. Shifting consumer preferences towards better-for-you products 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. Coined by Henry Chesbrough in 2003, OI differs from traditional closed innovation models by leveraging external knowledge sources—including suppliers, customers, research institutions, start-ups, and competitors—to complement internal capabilities for new product development and process improvement. A growing body of empirical evidence suggests OI can improve business performance. OI offers many advantages, allowing Mondelez to generate more top-of-the-funnel ideas, promote disruptive idea generation (versus just incremental innovations), accelerate time to market, reduce development costs, and react quicker to evolving customer needs. 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.
Historically, Mondelez has embraced various forms of OI since establishing its original OI submission portal in 2006. 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. The mobile futures pilot appeared to gain early traction, driving 50% higher conversion rates. In 2016, it established a “Collaboration Kitchen” in Poland which hosts scientists from around the world to experiment with new ideas. Then in 2017, it crowdsourced the new Cherry Cola Oreo flavor from its customers, which has already hit the shelves. To support these OI efforts, companies like NineSigma, InnoCentive, and Yet2 have arisen to facilitate these interactions.
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, Mondelez launched its SnackFutures program, 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. 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 [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. 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. Lastly, Mondelez must critically examine its organizational infrastructure to ensure it has the capabilities to manage a robust OI program. Empirical studies have indicated that although OI is being increasingly adopted, most managers remain dissatisfied with implementation. 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: 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 Given that Mondelez’s peers like Nestle, Kraft, and General Mills are also investing in this domain, 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”. Mondelez has the unique opportunity to embody this paradigm and remain a leader in the space for years to come.
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