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?
 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.
 Cooper, Robert, and Scott Edgett. 2008. “Ideation For Product Innovation: What Are The Best Methods?”. PDMA Visions Magazine March: 4-5
 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.
 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.
 2018. Nestle.Com. https://www.nestle.com/investors/annual-report.