Open Innovation at Nestle – Establishing an extended innovation ecosystem

In a world of distributed knowledge and expertise, it’s clear that open innovation has clear advantage across the value chain. This essay discussed the challenges of traditional in-house innovation model and why it is important for Nestle to use open innovation model. Then it introduced several milestone initiatives Nestle has taken to apply Open Innovation and gave two recommendations for the management team to further consider.

A global player in Food & Beverage business, Nestle has been relying on its in-house R&D to develop numerous new products. Despite the great success for 140 years, there are several challenges from in-house innovation model that make OI(Open Innovation) an important choice for Nestle.

 

First, considering the size and complexity of Nestle, in-house innovation could meet a lot of hurdles before it is proved to be economically desirable and feasible. The successful business result also creates a sense of complacency that stifles innovation, which instead flourishes under a sense of urgency.  Therefore, the business size and past success are both assets and liabilities for Nestle’s innovation forward.

 

Second, for a CPG (Consumer Packaged Goods) business, new products are made with simple technologies and creative designs. A wider group of people without specific insider knowledge are able to contribute into the idea generalization.  Limiting the idea generation only in-house could make the company miss external creativity.

 

Third, big data could potentially play an important role in speeding up the innovation process, such as identifying white space, finding out target persona, on-line test-learn, etc. However, because of the traditional sales channels, the capability of leveraging data is quite limited.

 

Finally, the R&D expense for Nestle was high. It was around 1.9% of annual sales in 2016 and 2017, largely exceeding that of Kraft, at around 0.4%. There could be potential for Nestle to leverage open innovation to cut internal R&D costs.

 

Therefore, to combine in-house expertise and external agility, Nestle started to apply Open Innovation to develop new products and service as early as 2006. There could be three levers of partnership: (1) University and research institute; (2) Start-ups; (3) Strategic partners and customers. At the early stage, the partnership was mostly about technology solution development together with research institutes.

 

In 2013, Nestle started collaboration with startups by launching the Silicon Valley Innovation Outpost (SVIO) in the San Francisco Bay Area. There an internal Nestle team with very experienced marketing and technical experts worked together with Silicon Valley early-stage entrepreneurs to on innovative on-line services and products for worldwide consumers.

 

In 2016, Nestle launched the Henri@Nestle program. It is an open innovation platform where Nestle publishes its business challenges around nutrition, health and wellness. The expectation and strategic importance for each challenge are articulated on the website and each project will be published for 45 days. Start-ups could review the challenges and apply by submiting their proposed solutions on-line. Later the proposed solutions will be reviewed and selected to pitch. This program enables Nestle to open it’s challenge for worldwide startups.

Exhibit-1: Projects published on Henri@Nestle for startups to apply with solution

In 2017, Nestle signed up to join Terra, a US based Food and Agriculture Tech Accelerator program founded by Rabobank and RocketSpace. Startups that work on CPG, AgTech or FoodTech area and are between Seed and B series are eligible to apply for this program. As corporate collaborator, Nestle could select and coach startups working on joint interests. So far two cohorts have been finished under this program. The cohort III has kicked off in 2018 Sep and will be closed in Feb.

Exhibit-2: Introduction of Terra program

From local perspective, in 2018 Nestle China also works with Tmall (B2C platform under Alibaba) innovation center to leverage Ali’s digital insight, big data, an quick on-line testing system for new product development. It also collaborates with many China-based crowdsourcing platforms to innovate on big data mining, media marketing and graphic design.

 

Overall, after 10 year application, Open Innovation has become a common practice for Nestle, both globally and locally. There are two steps I would recommend the organization’s management further take to address this topic in the future.

 

First, given there could be unlimited ways to foster Innovation Partnership, it’s very crucial to establish a strategical way to allocate resources and measure the effectiveness. Resources should be allocated to research institutes, startups, and customers in a transparent and trackable way. The measurement of success should also be set up.

 

Second, given the crowdsourcing platforms and startups are often locally based, I believe Nestle should apply a very decentralized model in terms of Open Innovation. Global corporate should develop the necessary working process and guidelines to best enable local teams to seek for partnership opportunities. Local units should be involved in a community to share their best practice with each other. The innovation process and talent requirements should also be re-examined to ensure the cross departments collaborate the best and right talents get recruited.

 

A question I keep thinking is  – should the company apply a more proactive way to collaborate, monitoring the market dynamics of the startups, or a passive but open attitude to collaborate, publishing requests and waiting for startups to come?

[797 words]

Reference:

[1] Barbas, Rui, Mark Brodeur, Duncan Logan, and Manuel Gonzalez. 2018. “Nestlé Joins Rabobank And Rocketspace In Food + Ag Tech Accelerator, Terra”. Terraaccelerator.Com. https://www.terraaccelerator.com/media/nestl%C3%A9-joins-rabobank-and-rocketspace-in-food-ag-tech-accelerator-terra.

[2] Cooper, Robert, and Scott Edgett. 2008. “Ideation For Product Innovation: What Are The Best Methods?”. PDMA Visions Magazine March: 4-5

[3] Coyne, Andy. 2018. “Nestle-Backed US Accelerator Terra Reveals Latest Cohort”. Just-Food.Com. https://www.just-food.com/news/nestle-backed-us-accelerator-terra-reveals-latest-cohort_id140177.aspx.

[4] Traitler, Helmut, Heribert J. Watzke, and I. Sam Saguy. 2011. “Reinventing R&D In An Open Innovation Ecosystem”. Journal Of Food Science 76 (2): R62-R68. doi:10.1111/j.1750-3841.2010.01998.x.

[5] 2018. Nestle.Com. https://www.nestle.com/investors/annual-report.

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15 thoughts on “Open Innovation at Nestle – Establishing an extended innovation ecosystem

  1. We often think of large companies as being very “traditional/bureaucratic” and slow to embrace innovation/unwilling to cede control over their processes, so I really enjoyed your article as it showed a positive example of how Nestle is going against this stereotype. With regard to your open question, I do think that the company could pursue a dual strategy where it continues its actions around releasing competitions/requests to collaborate, but also works with relevant partners such as accelerators and incubators to connect with startups who would be most well-equipped to build solutions for these questions.

  2. With your experience in Mars, I am not surprised that you have chosen Nestle as the protagonist of the post. Remarkable writing, and very insightful. It is so exciting how the wisdom of the crowd can disrupt (or at least – gain a foothold) in almost any industry.

    Regarding your question, I was wondering – at what point a company moves too much to the crowd and too much for open innovation, to the extent they lose their drive for solving their own problems? I think that there is a wide range between ‘waiting for startups to come’ and a proactive approach. Yes, Nestle can use the crowd, but it should make sure not to rely on the crowd too much. The crowd is there for the more difficult problems, and for the out of the box innovation.

  3. Yaping —

    Thank you for sharing how Nestle is using open innovation for product development and identifying solutions to challenging issues. I really enjoyed the article! You pose interesting questions on how proactive Nestle should be in acquiring open innovation content. I think that being proactive to reaching out to not only startups, but also universities or research facilities could be advantageous to assisting with the R&D process. I wonder also how Nestle manages the intensely competitive consumer packaged goods industry. If Nestle is promoting open innovation, what other companies are also using this method, and then at what point is in-house innovation more advantageous? Also, I wonder why Nestle reached out to startups initially and whether public forums or research institutions could have been more productive towards identifying solutions. Thanks!

  4. Hi Yaping – I really enjoyed your article and take on this issue. I agree that open innovation has many benefits for Nestle, and potentially other CPG companies. I wonder how their competition is responding to the use of open innovation. Are they able to create some sort of sustainable advantage in using their platform? My biggest concern is that this approach can be applied by their competitors, resulting in over-investment and bidding up of these start ups. I also worry about their ability to synthesize and act on the data they receive. How can they turn crowd-sourced ideas into business strategies? This process will likely be their challenge in the medium term.

  5. A rather comprehensive read on Nestle’s effort in conducting innovation. I was surprised to see how advanced they are in terms of extending their tentacle to all potential innovators: students, researchers, average consumers etc. What I would be curious is: has any of their initiative failed? and if so, why they fail? I think it’s very easy to praise open innovation because it’s based on an inclusive methodology, but are there any drawbacks? Happy to discuss more!

  6. Great post and a really interesting view on Open Innovation. I appreciate the view of how a traditional company like Nestle can utilize open innovation to supplement their in-house R&D in their product development, especially in the food and beverage industry where customer preference play such acritical role. I agree with you that Nestle needs to be more pro-active in their outreach. Competitors such as General Mills and Kraft are acquiring small, innovative startups to drive growth but Nestle could do this in a much more cost effective manner by increasing some sort of marketing spend to increase the awareness of their Open Innovation programs.

  7. Great read Yaping! Very interested to learn about how a CPG industry does product development and how they can improve. My doubt regarding this is, with the nature of the industry, product development cycles are usually a lot longer than in technology / software companies, where open innovation started. I assume this makes taking advantage of the dynamism of open innovation a little harder, since it is more difficult to iterate on the go. How do you see this conflict between sticking with an idea and changing while you are developing the project due to new input in a company like Nestle? Again, thanks!

  8. Great work, Yaping — really enjoyed reading your post! In response to your closing question, I think Nestle should lean toward being more proactive, since they can then communicate the key problems they are trying to solve (especially when it has to do with global health/welfare). I wonder whether everything that Nestle incubates has to have the potential to become a for-profit product, or whether they should even try to incubate technologies which are more on the humanitarian/non-profit side.

  9. Very interesting read, Yaping! Your point about Nestle using Open Innovation to lower its R&D spend is interesting. How should the company think about an appropriate balance of continuing to invest in Open Innovation vs. its own internal R&D, and what are the tradeoffs of investing in each? I suspect that Open Innovation has more potential in terms of long-term disruption, but the variability is also likely significantly higher. A minimum level of internal R&D is likely necessary to supplement Open Innovation and to diversify the innovation and development process. Lastly, as other comments have mentioned, I would recommend Nestle lean toward a proactive approach to Open Innovation, particularly in light of its key competitors now starting to focus more on Open Innovation as well.

  10. Great post! I really enjoyed reading about how Nestle uses open innovation. I think there is a broader trend with CPG companies investing in small start-up organizations through venture and innovation groups. I think that given the slow nature of the large CPGs, they will need to more pro-actively engage with the small start-ups to stay competitive.

  11. It’s very interesting to know that Nestle has been using Open Innovation as part of its R&D in the past 10 years. This is definitely a move to show that large MNCs are staying ahead of megatrends and actively seeking ways to innovate and stay relevant. With regards to your question in the end, I think Nestle should take a proactive and decentralized approach in attracting and incubating startups. For example, they could host a regional/local startup pitch competition on a specific topic that they would like to get more ideas of. I see a win-win situation here for both Nestle and startups in Nestle’s Open Innovation model – Nestle gets new ideas and startups could tap on Nestle’s financial, marketing and sales & distributions capabilities to get their products to market quickly.

  12. Thanks for sharing! I didn’t know a company like Nestle was doing this and for 10 years already. Regarding to your question, I would say considering the fast paced world we live in today, it is always better to be more proactive and make sure no competitors are taking the lead.

  13. Very interesting! There were some real gems in there. I loved that you referred to business size as both an asset and liability, because I did not initially think that there was an innovative downside to having a large R&D team, which would (ideally) have people of varying views and thoughts on new products. However, I guess if you really think about it, business size typically correlates highly with bureaucracy. I would be interested in learning how Nestle utilized “open innovation” directly with its consumers, as this seems like the most efficient way to producing products that the masses are actually looking for – just ask them.

    To answer your question though, I do think you need to be proactive in collaboration if you want to stay ahead of your competition, when it comes to consumer tastes, in a very competitive industry.

  14. Thank you so much for sharing! I really enjoyed the reading. I am convinced that, as you mentioned, CPG companies are well positioned to open innovation. I wonder how companies draw lines between what to share and what not to share given the fact that elements such as pricing, packaging, etc. are highly confidential. I hope to see more open innovation in Japan as well…

  15. I believe Nestle’s goals would be best served if it was a passive, but open, approach to working with startups as it would do the most to reduce R&D costs. Open innovation tries to harness that good ideas may come from anywhere; a dedicated team aimed at spotting “the next big thing” would likely run into the same internal barriers to open thinking an organization wanted to circumvent. Nestle did the right thing by putting their passive collaboration tools where many start-ups would look anyway.

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