How to get more breakthrough products out of your development pipeline

1. Delivering More Breakthrough Products from R&D in Food & Beverage George Young, Kalypso

2. Agenda The Innovation Engine A Survey of Breakthrough Products in the Industry How Do You Develop Breakthroughs? 7 Practices for Cultivating Breakthroughs Articulate an Innovation Strategy Keep the Front End Fuzzy Understand Macrotrends Create the Right Innovation Culture/Climate Create Unique Environments for Innovation Manage Portfolio and Investment Allocation for Breakthrough Products Process and IT Are a Must But Won’t Make You More Innovative 9/13/2011 2

3. www.kalypso.com 9/13/2011 The Innovation Engine Our services are designed to help companies become more innovative and provide a systemic view of new product & service development. Business & Innovation Strategy Front End Of Innovation Portfolio & Pipeline Management New Product Development Execution Pricing and ValueManagement PLM Technology Leadership & Learning Intellectual Property Management

4. Agenda The Innovation Engine A Survey of Breakthrough Products in the Industry How Do You Develop Breakthroughs? 7 Practices for Cultivating Breakthroughs Articulate an Innovation Strategy Keep the Front End Fuzzy Understand Macrotrends Create the Right Innovation Culture/Climate Create Unique Environments for Innovation Manage Portfolio and Investment Allocation for Breakthrough Products Process and IT Are a Must But Won’t Make You More Innovative 9/13/2011 4

5. Breakthrough products in F&B are rare Source: IRI New Product Profiler

6. NPD effort in F&B is declining while CPG is increasing Non-food CPG efforts are increasing CPG conglomerates have been divesting F&B units Source: IRI New Product Profiler 9/13/2011

7. Top 10 F&B Product Launches (2005–2010) Source: IRI New Product Profiler

8. F&B Products over $100M in First Year (2005-2010) Source: IRI New Product Profiler

9. Agenda The Innovation Engine The State of Innovation in the Industry How Do You Develop Breakthroughs? 7 Practices for Cultivating Breakthroughs Articulate an Innovation Strategy Keep the Front End Fuzzy Understand Macrotrends Create the Right Innovation Culture/Climate Create Unique Environments for Innovation Manage Portfolio and Investment Allocation for Breakthrough Products Process and IT Are a Must But Won’t Make You More Innovative 9/13/2011 9

10. R&D spending is not the answer

12. The bottom 10% of R&D spenders perform worse than the rest

13. Optimizing current processes should be the focusCutting R&D is not the solution

16. Expected increase of 1-3% each year

18. Breakthrough innovation requires commitment Highly caffeinated and disruptive drink “No other new product has ever failed this convincingly!” – Red Bull market research organization Intentionally created a new beverage category and took industry by surprise Commercialization strategy key to success - clever marketing and channel management Holds 70-90% of the energy drink market share in over 100 countries $5+ Billion in revenues annually

19. Agenda The Innovation Engine A Survey of Breakthrough Products in the Industry How Do You Develop Breakthroughs? 7 Practices for Cultivating Breakthroughs Articulate an Innovation Strategy Keep the Front End Fuzzy Understand Macrotrends Create the Right Innovation Culture/Climate Create Unique Environments for Innovation Manage Portfolio and Investment Allocation for Breakthrough Products Process and IT Are a Must But Won’t Make You More Innovative 9/13/2011 15

20. Agenda The Innovation Engine A Survey of Breakthrough Products in the Industry How Do You Develop Breakthroughs? 7 Practices for Cultivating Breakthroughs Articulate an Innovation Strategy Keep the Front End Fuzzy Understand Macrotrends Create the Right Innovation Culture/Climate Create Unique Environments for Innovation Manage Portfolio and Investment Allocation for Breakthrough Products Process and IT Are a Must But Won’t Make You More Innovative 9/13/2011 16

21. Articulate your innovation strategy simply “We will deliver 25% revenue growth from new products in the next 5 years. Half of that growth is expected to come from breakthroughs.” $1,000 Breakthrough Would you rather be the 1982 St. Louis Cardinals or the 1975 Baltimore Orioles?

22. Where will your emphasis be as part of your innovation strategy? Food & Beverage Growth Strategies 2011 1 2 3 Fast Facts on Food Processing: Growing the business. Grant Thornton and Food Processing magazine, 2011.

23. Agenda The Innovation Engine A Survey of Breakthrough Products in the Industry How Do You Develop Breakthroughs? 7 Practices for Cultivating Breakthroughs Articulate an Innovation Strategy Keep the Front End Fuzzy Understand Macrotrends Create the Right Innovation Culture/Climate Create Unique Environments for Innovation Manage Portfolio and Investment Allocation for Breakthrough Products Process and IT Are a Must But Won’t Make You More Innovative 9/13/2011 19

24. Don’t kill all of your good ideas Avoid evaluating projects the way you would with Stage-Gate – keep that at Concept and after Develop scoring models and evaluation methods that favor the qualitative over the quantitative Ex. Wagering: Allocate $ or units and ask people to bet on projects Ex. Tournament theory: Set up an NCAA bracket for projects

25. Agenda The Innovation Engine A Survey of Breakthrough Products in the Industry How Do You Develop Breakthroughs? 7 Practices for Cultivating Breakthroughs Articulate an Innovation Strategy Keep the Front End Fuzzy Understand Macrotrends Create the Right Innovation Culture/Climate Create Unique Environments for Innovation Manage Portfolio and Investment Allocation for Breakthrough Products Process and IT Are a Must But Won’t Make You More Innovative 9/13/2011 21

27. Experiential Eating – Extreme flavors

28. Impulse and Indulgence – Treat/reward

29. “Free” – Trans fat, caffeine, gluten...

30. Convenience/Ready-to-eat – On-the-go lifestyleEx. Pepsico investing $50M in expanding nutrition business to triple revenues from $10B in 2010 to $30B by 2020.

32. Nestle: Sales growth of 12% in Asia in the first half

33. Unilever: Expects 5 times its current business in China

34. Kraft Foods: Double-digit growth in Asia in 2010

35. PepsiCo: 17% volume growth in India from April-June

36. Coca-Cola: Profits jump 18% in Asia and Latin America

37. Products imported from Asia into western markets

38. Beer: Sapporo, Kirin, Asahi, Hite, Cass

39. Ramen: Ichiban Ramen, Shin

40. Tea: Lupicia Fresh Tea

42. Breakthrough products may require a fundamental change in culture Does the structure permit the right people to work together? Do we have the right people in critical roles? Do we have enough people? Are people rewarded for results and do we learn from failure? Are timely, informed decisions made? Is relevant data readily available to make decisions? Are the work processes efficient and clearly defined? People Structure Decision Making WorkProcesses Rewards Decision Making Adapted from David Hanna, Operational Performance Model 1988

43. Agenda The Innovation Engine A Survey of Breakthrough Products in the Industry How Do You Develop Breakthroughs? 7 Practices for Cultivating Breakthroughs Articulate an Innovation Strategy Keep the Front End Fuzzy Understand Macrotrends Create the Right Innovation Culture/Climate Create Unique Environments for Innovation Manage Portfolio and Investment Allocation for Breakthrough Products Process and IT Are a Must But Won’t Make You More Innovative 9/13/2011 26

44. P&G Innovation Initiative: GYM What An offsite innovation center and collaboration space built to immerse P&G team members in the innovation process Goals Strengthen innovation and initiative work where teams develop just-in-time expert solutions to their challenges What Worked Active working session to address specific issues and challenges Operating GYM as a business Client-centric focus An environment conducive to innovation Successes Crest Vivid White Night Olay Ribbons Body Wash P&G also created an alternative innovation structure called The Garage which was “sanctioned skunk works”

45. Agenda The Innovation Engine The State of Innovation in the Industry How Do You Develop Breakthroughs? Look for Historic Metrics/Trends Look for Practices that Led to Breakthroughs 7 Practices for Cultivating Breakthroughs Articulate an Innovation Strategy Keep the Front End Fuzzy Understand Macrotrends Create the Right Innovation Culture/Climate Create Unique Environments for Innovation Manage Portfolio and Investment Allocation for Breakthrough Products Process and IT Are a Must But Won’t Make You More Innovative 9/13/2011 28

46. Manage portfolio and investment allocation for breakthrough products www.kalypso.com 9/13/2011 Breakthroughs Breakthroughs

47. Agenda The Innovation Engine The State of Innovation in the Industry How Do You Develop Breakthroughs? Look for Historic Metrics/Trends Look for Practices that Led to Breakthroughs 7 Practices for Cultivating Breakthroughs Articulate an Innovation Strategy Keep the Front End Fuzzy Understand Macrotrends Create the Right Innovation Culture/Climate Create Unique Environments for Innovation Manage Portfolio and Investment Allocation for Breakthrough Products Process and IT Are a Must But Won’t Make You More Innovative 9/13/2011 30

48. Innovation Capability Framework Business Strategy In-market Portfolio Management Idea Concept Portfolio Management Innovation Strategy NPD Portfolio Management Technology Launch Management Results Analysis New Product Development & Commercialization Consumer& CustomerInsights Fuzzy Front End Brand Product Lifecycle Management Innovation Leadership

49. Closing Thoughts Breakthrough innovation requires commitment, strategy, investment, resources Evaluate trade spend vs. R&D spend Look to macrotrends and new markets Conduct strategic experiments Fail fast, often and well

50. george.young@kalypso.com linkedin.com/company/kalypso twitter.com/KalypsoLP facebook.com/KalypsoLP