Large food companies are losing the growth game to smaller, more nimble competitors. Large companies are responding by acquiring some of the most successful of these smaller companies. There is another strategy to consider: Making the internal innovation process within these companies more agile. This step will require embracing "open innovation" with a new discipline of agile strategy. This report explains how "agile innovation" can be accelerated by companies partnering with research universities in new ways.

1. AGILE
INNOVATION
FOR THE FOOD
INDUSTRY
Report prepared by the Purdue
Agile Strategy Lab in collaboration
with the Whistler Center for
Carbohydrate Research
December 2017

2. | 2
TableofContents
3
This report provides an overview of how companies in the food
industry, by adapting a new set of disciplines and frameworks can
significantly improve the productivity of their innovation system.
7 10 15 22
page page page page page
Background
A brief introduction to the
innovation challenges
facing the food industry
The Growth Game
How large food
companies are losing the
growth game
Agile Innovation
Introduction to agile
innovation,a discipline
developed at Purdue over
the last 12 years
The Opportunity
An explanation of how
companies in the food
industry can design and
guide their innovation
ecosystems
References
Citations to articles used
in this document

3. BACKGROUND

4. | 4
Early Experiments
with Open
Innovation
Large, established food companies face a difficult challenge: How to
accelerate top line growth with rapidly evolving markets.
Traditionally, the food industry has been characterized as a mature, slow
growth industry with low research intensity and incremental innovation (Costa
& Jongen, 2006; Bigliardi, & Galati, 2013).
Beginning over a decade ago, the food innovation landscape began to shift.
To accelerate their innovation performance, some food companies began
experimenting with open innovation models (Sarka & Costa, 2008; Bigliardi &
Galati, 2013; Martinez et.al., 2014; Miglietta et.al., 2017).
Open innovation promises to accelerate innovation by linking and leveraging
both internal and external resources (Chesbrough, 2006). These open
innovation practices first appeared in the software, electronics,
telecommunications, biotechnology and pharmaceutical industries. They
eventually spread to the food industry (Saguy, 2016).
The graphic representation of open innovation
reflects the perspective of the individual firm: How
does innovation change when the boundaries of
the firm become porous?
Source: Chesbrough, H. et. al., eds., (2006) Open
Innovation: Researching a New Paradigm.

5. | 5
Early Experiments
with Open
Innovation
Experiments in the food industry have included a number of
different models designed to take advantage of the promise of open
innovation.
So, for example, Nestlé has experimented with the “Sharing is Winning”
model (Trailer, et.al., 2011). Other firms have experimented with different
models, such as “Connect and Develop”; the “Food-Machinery Framework”;
The “Living-Lab” model; the “Want-Find-Get-Manage” model; and the “Value
Cocreation” model.
Given the complexity of trying to implement these models, it is not surprising
that food industry experiments with open innovation have been relatively
modest, and that food companies prefer to engage in partnerships of actors
with which they are already familiar (Bigliardi & Galati, 2016).
There is not much research to evaluate which approach leads to higher
innovation performance, and none of these models have scaled significantly.
Nevertheless, the main trend appears to be toward increasingly open
innovation processes (Miglietta et.al., 2017).

6. | 6
The Challenges of
Open Innovation
The difficulty, of course, comes in determining how to implement
open innovation. The process opens the door to new complexities.
Finding new growth opportunities through open innovation is not easy.
Designing an open innovation process poses significant organizational
challenges. Established businesses are often hampered by outdated
mindsets, legacy business models, restrictive intellectual property rules, and
other corporate rigidities.
Beyond that, the open innovation process itself creates challenges due to the
unequal bargaining power among participants. Smaller companies are wary
that larger companies will abuse their relationship. Issues of governance —
who decides? — creates significant challenges. Balancing open participation
with management direction presents still more problems.
Seeing these difficulties, Purdue began exploring how research universities
could become effective intermediaries in an open innovation process. Purdue
began the search fro a disciplined, replicable process that can extend beyond
any single organization.

7. THE GROWTH
GAME

8. | 8
Smaller firms are
innovating faster
Large food companies are facing strong headwinds, and these open innovation
experiments have not had much impact on industry performance.
As one recent review puts it: “Large food manufacturers are losing the growth game”. Over the
past few years, revenue growth for the largest 25 food manufacturers has barely increased. In
contrast, smaller companies have grown 6 to 8 times faster. From 2012 to 2015, overall market
growth was 3.4%.
The top 25 food manufacturers had a compound annual growth rate of only 1.8%. Meanwhile
medium and small companies saw their sales grow with a compound annual growth rate of 11%
to 15%. As a result, the market share of the largest 25 manufacturer slipped from 66% to 63%
(A.T. Kearney, 2016).
Clearly, the market landscape is shifting, and larger companies are struggling to keep up.
Changes in consumer core values, amplified by social media, provide new pathways to growth
that smaller companies are following. Consumers are less interested in packaged or diet foods
and are more interested in healthy foods that promote well-being. These products are natural,
organic, locally sourced, and vitamin rich. Increasingly, consumers are looking to innovative,
small brands to meet these needs.
In other words, in addressing this market shift, smaller firms have the wind at their back.
Changes in e-commerce and retail channels make it easier for these companies to gain
distribution without paying exorbitant slotting fees. Digital marketing and retailers that are
friendly to start-up companies have dramatically lowered distribution costs. These shifts have
placed even more pressure on traditional brands. In the face of these revenue pressures, large
companies have kept their marketing budgets high, while constraining their R&D budgets.
According to a report by the early – stage investor group, CircleUp, larger food companies
invest less than 2% of the revenues in research and development compared to 15% of
revenues for marketing. With smaller companies the situation is reversed. They invest 13% of
their revenues in research and development and only 2% in marketing (McGInnis, 2017). In
other words, according to CircleUP, these large companies spend six times more marketing and
advertising all products than they do on innovating for new products. Their analysis goes
further. With large company investments in innovation, only 39% goes to actual new products.
The other 61% goes to incremental changes in existing products like product extensions, new
recipes and new packaging. Clearly, large food companies are struggling with innovation.
The top 25 food manufacturers in
the United States have grown 1.8%
compared to 11 – 15% growth for
the smaller companies.
Source: A.T. Kearney (2016)

9. | 9
Capturing growth
through acquisition
To respond, large companies are establishing venture-capital funds
to invest in startups.
Through acquisition, they hope to learn from smaller companies how to be
more entrepreneurial and innovative. (Gasparro, 2017). Consider:
• Kellogg Co. acquired Chicago-based RXBar, a fast-growing protein bar
company only four years old, for $600 million.
• Chicago-based Conagra Brands, maker of Orville Redenbacher’s and
other brands, said it would buy the maker of Angie’s Boomchickapop
ready-to-eat popcorn for $250 million.
• Campbell Soup Co. announced it would buy Pacific Foods for $700 million
in cash. Founded in 1987, the company is known for its organic soups and
broths.
• Atlanta-based Flowers Foods, the nation’s second-largest bakery and
owner of the Wonder Bread brand, acquired Oregon-based Dave’s Killer
Bread for $275 million.
Acquisitions provide a convenient pathway to growth. But are there other
innovation approaches that are worth trying? Can big company innovation
processes become more agile and productive?
Acquisitions provide one path to
growth. But are there others? Can
big company innovation processes
become more agile and productive?

10. AGILE INNOVATION

11. | 11
The PurdueAgile
Innovation
Opportunity
Are there other pathways to growth for large food companies? We
believe there are.At Purdue, we have found a way for companies to
design and guide their own innovation ecosystems to lift their core
businesses with a simple, lightweight process.
Over the past twelve years, we have incubated and market-tested a new
approach to strategy, designed specifically for open, loosely connected
networks. The process accelerates complex collaborations by following a
protocol of simple rules. Following the discipline, companies can form
sophisticated collaborations quickly and move toward measurable outcomes.
The process makes adjustments quickly as circumstances change.
Based on the ideas of agile software development and open source software
development, this new strategy discipline, called Strategic Doing, opens the
door to new innovation opportunities for both larger and smaller companies.
The Whistler Center is partnering with the Purdue Agile Strategy Lab to provide
this new innovation service to member companies of the Whistler Center.
The European Commission’s Open Innovation Strategy and Policy Group
refers to the next stage of open innovation as Open Innovation 2.0. Focused
on the development of innovation ecosystems, the Group has promoted the
metaphor of a cellular structure to capture an innovation ecosystem. This
metaphor is not very poetical or actionable, however. The Purdue Agile
innovation approaches leverages Purdue’s work in agile strategy with
Fraunhofer IAO’s expertise in technology and innovation management.

12. | 12
Proof Point: Lockheed
and Condition-Based
Maintenance for the
Navy
In an early test of this approach with Lockheed Martin, the Agile
Strategy Lab developed a network of over 20 smaller high-technology
companies to assist Lockheed Martin in addressing a complex
technology challenge for the U.S. Navy.
The Navy presented the Purdue Agile Strategy Lab with the challenge. Could
we help Lockheed develop a technology roadmap for the deployment of
condition-based maintenance across the Navy fleet? (Condition-based
maintenance is a system of predictive maintenance, using sensors to predict
when equipment needs repair.)
Quickly, Lockheed understood that it did not have a window on some of the key
advanced technologies needed for a condition based maintenance deployment:
sensors, augmented reality, machine learning, and predictive analytics.
Lockheed turned to Purdue and its partner, the New Jersey Innovation Institute,
to identify leading-edge high technology companies to fill these gaps. Over the
course of four workshops over six months, the Purdue Agile Strategy team
guided the formation of a new innovation ecosystem to address the Navy’s
challenge to Lockheed.
Todd Tangert, a Combat Systems Architect at Lockheed commented that this
process “allows a business to quickly identify an interested ecosystem of
smaller businesses to solve the defined customer problem.”
Mark Scotland, CEO of 4.0 Analytics, a smaller company involved in the
Lockheed process, called Strategic Doing “the most clear and concise open
innovation process I’ve seen.”
Purdue’s process “allows a business
to quickly identify an interested
ecosystem of smaller businesses to
solve the defined customer problem.”
Todd Tangert, Combat Systems
Architect, Lockheed

13. | 13
Welcome toAgile
Innovation
Open innovation has evolved in the past decade. From a singular
focus on an innovation problem, advanced forms of open innovation
now focus on designing and guiding innovation ecosystems.
Anticipating this shift over a decade ago, Purdue began working on new
approaches to strategy and innovation in open, loosely connected networks.
in 2013, Purdue formed a partnership with Fraunhofer IAO. The Fraunhofer
partnership integrates some of the latest innovation in technology
management tools into a new agile innovation discipline.
The Purdue approach is based on the concept of innovation ecosystems and
business platforms (Gawer & Cusumano, 2014). By designing a business
platform and a simple strategy process, we are able to form complex
innovation ecosystems quickly. These ecosystems are customized for the
particular competitive challenge that a company faces.
Organization A Organization B
Organization C The Purdue approach to agile innovation relies on
platforms.The strategic conversations on the
platform are artfully designed to test hypotheses and
build trust. The conversations take place within 2 to
3 hour workshops.
Strategic Doing is “the most clear and
concise open innovation process I’ve
seen.”
Mark Scotland
CEO
4.0 Analytics

14. | 14
Collaborations and
trust are quick to
form
This approach to agile innovation is designed to form collaborations
quickly, launch experiments and move ideas into action.
Through a disciplined process of following simple rules, complex
collaborations form. They move toward measurable outcomes and make
adjustments as circumstances and opportunities shift.
Conversation shifts.--
Collaborations begin to form
with conversations among
companies that share a
similar “competitive space”.
Participants begin testing
ideas about colabrotion.
Network forms.-- As focused
conversations continue,
common interests emerge.
These shared interests drive
conversations to deeper
detail. Connections among
!rms become stronger.
Strategic agenda emerges.--
Members of the emerging
network begin to focus on
strategic opportunities.
These opportunities emerge
as !rms “link and leverage”
their assets.
Anchor investments made.--
As the collaborations form,
members develop a strategic
agenda: a portfolio of
investments to strengthen
themselves through
collaboration.
Networks continue to
invest, adapt and expand.--
Connections within the
network become more dense
and spontaneous. New
shared investments build out
the collaboration.
Time
Level of
Network
Development
Conversation shifts
Network forms
Strategic agenda emerges
Anchor investments made
Networks continue to
invest, adapt, expand
1
1
2
3
4
5
2 3 4 5

15. THE BUSINESS
OPPORTUNITY

16. | 16
The Business
Opportunity: Piloting
a new approach to
innovation
The food industry can significantly speed innovation by transforming
existing innovation practices. Companies how have the opportunity
to go beyond Open Innovation to design their own innovation
ecosystems with Agile Innovation.
Interested companies can work with a team from the Whistler Center and the
Purdue Agile Strategy Lab to design a pilot project to test this new approach to
open innovation. Typically, the design process involves a core team from the
company and from Purdue.
This core team will design the pilot project in terms of project scope, time
frames, budget, specification of the process, and deliverables. The agile
strategy discipline can be easily taught, so the process can be scaled.
The process starts by framing an innovation opportunity. So, for example, in
Lockheed’s are, we began with the challenge: “Imagine that Lockheed and its
partners developed a technology roadmap for Condition-Based Maintenance
across the Navy fleet. What would that look like?”
We then designed a series of workshops to both attract and engage these
companies. Unlike the popular approach of an innovation challenge or
crowdsourcing, the Purdue Agile Innovation process is more intentional and
managed.
We conduct a series of workshops to design a strategy for collaboration. At the
end of each workshop we have a version of the strategy. Subsequent
workshops refine the strategy. Much like agile software development, the
strategy improves with each iteration.

17. | 17
The Foundations of
Agile Innovation
Innovation in open, loosely
connected networks requires a
new generation of management
tools and frameworks.
Markets are increasingly defined by
collaborative strategies undertaken by
multiple parties.
Recognizing the challenge that both
companies and universities would be
facing with these challenges, the
Purdue Agile Strategy Lab began
working with Fraunhofer IAO in 2013.
Based in Stuttgart, Germany,
Fraunhofer IAO is a global leader in
developing new tools and frameworks
to manage technology development
and innovation.
Purdue has become a global leader in
advancing new approaches to
strategy in open, loosely connected
networks.
Agile Innovation represents a
marriage of the strengths of Purdue
and Fraunhofer. .
The development of agile innovation
has emerged from a partnership
between the Purdue Agile Strategy Lab
and Fraunhofer IAO, The Lab has
become an international leader in the
development of new disciplines of agile
strategy, designed for networks. We are
now expanding the Purdue-Fraunhofer
partnership to the Whistler Center for
Carbohydrate Research.
Fraunhofer IAO, based in Stuttgart,
Germany, has developed a range of
powerful tools for technology and
innovation management. They include
TechnologyRadar and MarketExplorer,
two platforms that leverage smart data.

18. | 18
The Rationale: Part 1 Agile Innovation enables companies to design and manage their own
innovation ecosystems with trusted partners. Here is why this
opportunity is important.
Traditional brands face growing risks. Traditional stage-gate innovation
processes do not address the big risks that large companies face with their
brands. Companies no longer have ample R&D budgets to manage these
risks, and these risks may appear too quickly for companies to respond in time
by following traditional product development processes. Further, traditional
stage-gate processes are not designed to manage the risks associates with an
open innovation process.
A new innovation process must be more open and adaptive. To make the
innovation process more productive, it must become more agile, open and
flexible. A new innovation process must also balance and integrate the rigor of
scientific research with a process that is agile and open. Simply pushing
employees to innovate faster with existing budget constraints leads to growing
levels of frustrations.
A new process must engage high performing employees. Addressing the
growing pressure to innovate involves designing a new process to engage top
talent within the company. The agile strategy process developed at Purdue
can be easily taught and transferred within the company. Without a change in
direction, high performing employees, facing with an increasingly frustrating
work environment, will leave for smaller more innovative companies.
A new innovation process must be faster. The traditional internal innovation
process does not keep up with the speed of market developments. Product
development cycles need to be shorter. Moving to faster cycle times with
smaller budgets will require retraining to innovate with a more agile
methodology. This methodology must be clear and consistent both inside the
company and across company partners.

19. | 19
The Rationale: Part 2 Here are additional reasons why this opportunity to test Agile
Innovation is important to the food industry.
A new innovation process must also manage risks through rigorous
experimentation. Unlike smaller companies with less recognized brands,
failure caries higher costs in damage to an established brand. To manage risk,
traditional linear stage gate processes can be replaced with an iterative
process characterized by fast cycle experimentation (Thomke 2003; Thomke &
Manzi, 2014).
A new innovation process must be customized to the needs of the
company. Each company has a different set of innovation incentives and
imperatives, a different culture, a different set of external partners, a different
set of constraints. No new innovation process can fit without a high level of
customization. The existing open innovation models do not allow for this level
of customization.
A new innovation process can easily leverage the resources of a
research university. Companies can improve the productivity and speed of
innovation by leveraging the extensive research infrastructure of universities
(Saguay, 2011). Up until now, companies have been missing a stable, concise
process to manage these collaborations. With its work in agile strategy,
Purdue has solved this problem.

20. | 20
Next Steps To introduce Agile Innovation to your company, we recommend
designing a pilot project.The process starts with a series of design
meetings, each no more than one hour.
These design meetings focus on the following issues:
• What is the innovation challenge for the pilot? It’s best to pick a challenge
that internal processes have not been able to address.
• How do we frame this innovation challenge into an opportunity that will
attract outside parties? What is the value proposition for their participation?
• How will we engage these outside parties and how restrictive should we be?
What are the ground rules and logistics for the agile innovation workshops?
• What is the design of the first workshop? What is the schedule for
subsequent workshops?
After the design meetings are satisfactorily concluded, we will execute an
agreement to launch the initial pilot workshops. Your company has no
commitments until after the design phase is complete.
Dec Jan Feb Mar Apr May Jun
Design sessions
Workshop
Implementation of an agile innovation pilot consists of three to four
design sessions followed by three to four workshops. In between
workshops, participants are pursuing individual projects to refine the
innovation strategy.

21. | 21
Contact Information The next step is up to you. If this approach to innovation looks
potentially valuable to your company, contact us to discuss designing
a pilot project.
Companies interested in discussing the design of a pilot project should contact
Bruce Hamaker, Director, Whistler Center for Carbohydrate Research
(hamakerb@purdue.edu) or Ed Morrison, Director, Purdue Agile Strategy Lab
(edmorrison@purdue.edu).
The Whistler Center for Carbohydrate Research is a component of the
Department of Food Science in the Purdue College of Agriculture. The web
site is: www.whistlercenter.purdue.edu
The Purdue Agile Strategy Lab is a component of the School for Engineering
Technology within the Purdue Polytechnic Institute. The Lab web site is:
www.agilestrategylab.org
Ed Morrison
Director, Purdue Agile Strategy Lab
edmorrison@purdue.edu
Bruce Hamaker
Director, Whistler Center for Carbohydrate Research
hamaker@purduce.edu

22. REFERENCES

23. | 23
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