Innovation Management Seminar #1

11 September 2011

March 2009 Arla R & D Presentation

2

Henrik Andersen

Senior Director

The Process of MakingArla becomming

The Leading InnovativeDairy Company

Arla Foods facts …

Arla Foods is a cooperative owned by approximately 7,200 Swedish, Danish and German milk producers

Turnover 2010: DKK 49 bn. (≈€ 6.54 bn)No. of employees 2010: 16,215

Milk intake 2010:…from ownership: 6.174 billion kg…totally: 8.713 billion kg

Arla Foods has production facilities in 13 countries and sales offices in a further 20 countries.

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Arla Foods in a historic view

2008 2011

Innovation situation of yesterday

Fragmentation

Technologydevelopment

NPD

Research

Innovation in the past

Innovation profile

Why no strategic dimension?

Focus on economical bottom line

No common innovation culture

NO COMMON LANGUAGE AND MANAGEMENT SYSTEM - Differences in competence and approach to the specific solutions

No efficient knowledge transfer

No efficient global ’Gate Transfer’

Each ’island’ does not know what the others expect and candeliver

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Innovation performance

Stra

teg

ic d

ime

nsio

n

Innovation

excellence

Change in innovation strategy

From innovation performance

Innovation performance

Stra

teg

ic d

ime

nsio

n

Innovation

excellence

Change in innovation strategy

Towards innovation excellence

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Arla Foods is the world’s eight largest dairy company

and the world’s largest supplier of organic dairy

products.

Turnover in 2010 was DKK 49 billion (≈€ 6.54 bn.)

Arla Foods’ position and turnover

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Fresh products 40.2%

Cheese 24.5%

Ingredients 12.8%

Butter and spreads 13.5%

Others 9.0%

Turnover by products Total DKK 49.0 billion (≈ € 6.54 bn.)

Arla Foods 2010

We want to bring consumersCloser to Nature™

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Arla Foods has taken a stance towards nature, where we want to be even

better to ensure more natural products and less environmental

impact, for the benefit of consumers and society as a whole.

…by combining nature and technology…

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Modern technology

Nature

Natural evolution

In order to succeed, we start with nature and combine it with our

innovation, know-how and modern

technology. We call it natural evolution

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..... .....

.....

16

Innovation is in the heart of what we do- Innovation

Customers Consumers

Arla Foods

Why innovation?

Innovation occurs when technology and

inventions are combined with business understanding in an effort to solve real challenges and problems

Innovation Paradox…….Innovation is important but not urgent!

1. New products & services launches

2. Economic turnaround

3. Industry market growth rate

4. Developing new markets channels

5. Entering new geographic markets

6. Joint ventures/strategic alliances

7. Merger/Aquisition

1. Product quality

2. Customer service

3. Manufacturing productivity & costeffectiveness

4. Manufacturing flexibility/responsiveness

5. Supply chain cost structure

6. Sourcing effectiveness

7. Logistics effectiveness

8. Manufacturing lead time

9. Time-to-market

10. Product Innovation

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World of Creation

Top Groth Factors 2004-2007

World of Control

Top Priorities for Supply Chain Strategy

First step in making innovation both important and urgent

- CHANGE IN MINDSET!!!

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We need to make sure supply chain operations and commercial share the innovation agenda and innovate across the value chain- Innovation across functions and areas

Supply chaininnovation

Commercial innovation

Strong link

Examples

• Save processing time

• Bind more water

• Processed cheese with cheap fat source

• PAT – process controls

• Line extensions

• New Packaging

• Convenience

• New experience

• New category

Main focus

CapacityCostEfficiencyFlexibilityComplexity reduction

NPD-Renovate the core-Cost savings-Real new-Roll out

ChannelPackagingProduct MarketingRoll-OutCategory Business Model

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Our re-structured organizational structure and new marketing governance is a first step to change innovation performance – but more is required- Organization

CATEGORIES &INNOVATION

SUPPLY CHAINFresh Dairy Products,Cheese, BSM, Powder

Consumer InternationalConsumer UKConsumer DKConsumer SE

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Source: CUK Future Create, ICB, Ulysses action learning, Boston Consulting Group, CCST, Brands of the World

Innovation will have to come from multiple sources and areas- everyone in Arla Foods need to commit-Definition of Innovation

Innovation is not…

• Only new product development

• Solely a department

• Just about ideas/creativity

• Free of risks

Free return if fired scheme

Innovation is…

• Making newness happen

• A functional discipline, i.e. something which can be managed and led

• Finding and combining insights and translating them into concepts

• Often a collaborative activity exploiting knowledge across functions and companies

Product Process Marketing Packaging Channel Category RolloutService

Big impact innovationexamples

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Key requirements to truly step change innovation performance in coming 3-5years

?What would it require to truly

step change Arla Foods innovation

performance?

•Key requirements (what to achieve)

a. Innovative mindset at all levels • Overall innovation target & KPI’s for innovation at all levels from supply chain to sale

•Actions implied (how to achieve it)

b. Speed up innovation (T2M) • Change from innovation chain (Research (3-5 y) Technology (2 y) N PD (1-2 y)) to strategic innovation mindset

• Cross functional thinking

• Open innovation

c. 1 + 1 = 3 • Open Innovation

d. Innovation, project leader competences & entrepreneurial mindset

• Recruitment & Education

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Key requirements to truly step change innovation performance in coming 3-5years

What would it require to truly

step change Arla Foods innovation

performance?

•Key requirements (what to achieve)

e. Those who benefit have the responsibility to drive associated innovation

• Anchor innovation where it belong (innovation is not only an innovation centre issue)

•Actions implied (how to achieve it)

f. Defined focus • Fewer projects

g. Improved ideation • Open Innovation (partnering)

• Ideation process

h. Next generation issues & breakthroughs are global responsibility

• Corporate anchoring

?

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What is our strategic ambition?

We want to…• …create the best dairy company for

250+ million consumers in Northern Europe/UK

• …pay the highest possible milk price• …reach a turnover of 75 billion DKK

Expand core markets

3 global brands (Arla®, House of Castello®, Lurpak®)

Double product development budget

Develop sales of whey proteins

Reduce CO2 25 % (2020)

Strategic focus areas

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Arla Foods - ”Innovation Toolbox”

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Innovation and R&D organisation spends 220 MDKK/year and employs 230 FTEsdistributed on 3 innovation centers, 2 marketing departments and 1 corporatefunction- Arla Foods Innovation set up

BU Global Fresh Dairy Products, Cheese & BSM

Innovation CentreBrabrand

Cheese & BSM

BU Ingredients

Innovation CentreNr. Vium

Ingredients

Innovation CentreStockholm

Fresh Dairy Products

Arla Strategic Innovation Center

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Research

Technology

NPD

Arla Foods Innovation Chain

Internal long term

R&D

..

Interaction with

external research

environments

Implementation of

new technology

..

..

Improve efficiency

Maintenance of

categories

..

..

line extensions

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Research

Technology

NPD

Arla Foods Innovation Management

Corporate Vision & Strategy

Global Category Vision & Strategy

PROJECT AND PORTFOLIO MANAGEMENT

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The Stage - Gate model- Simplified example

ExplorationPre-

AnalysisAnalysis Design

Implemen-tation

Evalu-ation

Initiatio

n

Co

ntract

Sele

ction

Acce

pt

Han

do

ver

Clo

sure

Sail over water to an island ?-Is there a better way?

Alternatives- Ferry-Tunnel-Bridge

Select the best long term solution - Wood- Iron

Drawing of the bridge-Prod. spec

Building the bridge

Handover

Did we deliver the desired function and quality?

Task: You have to go from here to an island – how to get there ?

Stage – Gate model

100’s

of

ideas

5-10

solutions 3-5

solutions

At Accept gate the

final product is

approved

1-2

solutions

ExplorationPre-

AnalysisAnalysis Design

Implemen-tation

Evalu-ation

Initiatio

n

Co

ntract

Sele

ction

Acce

pt

Han

do

ver

Clo

sure

Example NPD Pipeline- Mould Category

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New Segment in Market Hard blue

New Segment for Arla Chef cheese

Føtex

Foods (0,1)

Saga Sliceable Brie Cooking

Line Extensions

Castello blue & white mild organic

Castello Blue & white mild (20)

Frozen brie & camembert (44,2)

Round format blue/white, new recipe (Bongrain ref.) for costumer

PL ”Blue Castello”

PL ”Danablu”

Castello round format

Canada Gorgonzola wedge

New Castello blue mould(41,8)

Castello brie & camembert

Product Improvements Improved shelflife in open packaging (11,2 est)

New Packaging on Coreassortment

Castello Bites ->

New Packaging on Core assortment

Cost savings White mould big unit –low priced (4,9)

Increased water-binding, same quality

201* 201* + 1 201 * + 2 201 * + 3 201 * + 4

i.e.

New product

New system

New process

New technology platform

The projectobjective

Deliverables

Cost Time

DELIVERS

i.e.

Value Added Growth

Industry Restructuring

Internal Efficiency

The business

objective

Strategy

Risk

Value

Strategic Innovation Project Objective Delivers Business Objective

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Strategic Innovation Platforms - BG drive essential

Milk Food Safety

ECTWellbeing

PackagingECT

•Commercial potentials e.g

•Commercial potentials e.g•Strategic innovation platforms

Process technologyECT

• Repurchase

• Image

Global Stategic Innovation Innitiatives

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Workflow portfolio management

Update of projectsExtraction of

Portfolio overviews

•Validation ofPortfolio overviews•Presentations made

Portfolio mgt meeting

Portfolio decisions

•Portfolioconsolidation•EMG-reporting

Quarterly

ReportingInnovation NTO

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The Arla Innovation Challenge

Cat

ego

rie

s

FDP

Ch

ee

se

BSM

Milk

Po

wd

er

Milk

an

d w

hey

Supply Chain Needs

Consumer/Customer Drivers

Area E Area F Area GArea A Area B Area C Area D Area E Area F Area GArea A Area B Area C Area D

AF Innovation Strategi

INN

OV

ATI

ON

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The Arla Innovation Challenge

Cat

ego

rie

s

FDP

Ch

ee

se

BSM

Milk

Po

wd

er

Milk

an

d w

hey

Supply Chain Needs

Consumer/Customer Drivers

Area E Area F Area GArea A Area B Area C Area D Area E Area F Area GArea A Area B Area C Area D

AF Innovation Strategi

INN

OV

ATI

ON

Stra

tegi

c

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Research = Knowledge

How to manage?

Knowledge of today

•Becomes more and more mobile

•Are collected and shared with higher speed (electronic media, web-based tools such as Google, LinkedIn, Facebook, Twitter, etc.) Consequently; New knowledge is out-dated "with the same speed. The shelf life of knowledge is decreasing.

• In a competitive field it becomes increasingly important to be very fast and efficient in mobilizing and (re) combining existing and new knowledge Knowledge management is a competence for anyone to be masters in an innovative environment.

Knowledge Management

•Profile and visibility is very functional in such a market situation.

•Workflows will be networking with research groups in and outside the individual organizations.

•The primary 'production processes' will continuously run in changing teams of specialized and highly visible expert groups.

•The combination of extended networks and specialization will make it possible for both research organizations and innovative industries to work faster, more flexible and hereby also more problem-/marked oriented.

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Future Platform for knowledge generation andknowledge access NETWORKING & PARTNERSHIPS

• Knowledge transfer

Innovative partnership must right from the beginning be entered with co-

innovation in mind

WIN-WIN !!!

Networks and partnerships are crucial for mutual inspiration and synergy

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External Collaboration

Arla believe in partnership* with external partners as

an important element to accelerate our strategic

innovation

*A partnership is an arrangement where entities and/or individuals agree to cooperate to advance their interests

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Consequently, to Start a Partnership- We define- What’s in it for the Partner and for AF

Partner

Identify new innovative applications for new or own technologies/sales channels/knowledge etc. with potential for exstra sales or profit

Minimize risks

Speed up innovation through partnership

Close, long term cooperation with Arla Foods as one of the leading dairy companies in the world

Arla Foods

Develop new, innovative and cost efficient solutions to known problems

Minimize risks e.g. eliminate/reduce investments

Speed up innovation <T2M

Be first on market with new (IP protected if possible) solutions

Close long term cooperation with familiar Partner

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The Typical Innovation Partnership Stages

INDISPENSABLEDIALOG STEPS

ESTABLISHTRUST

CREATEValue

BUILDGOODWILL

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Partnership/open Innovation- What does it demand?

Strategy

Governance

World-class project management

Crystal-clear definition and specification of

Goals

Timelines

Deliverables

Milestones

Continuous follow-up

Assignment of IP and value-based solutions

IP Strategy as Part of the Innovation Process

Purpose• Freedom to operate

• Avoid withdrawing good products from the market• Avoid closing down factories• Avoid paying high royalties to our competitors

AIM• Optimize profit margins

• Easier access to new high value market• Lead-time on new product• Fewer competitors higher margins

ExplorationPre-

AnalysisAnalysis Design

Implemen-

tation

Evalu-

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Initia

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General IP Management- within the Overall Innovation Process

Checkpoint 1

Planning of project

• Prior art searches

• Analysis of

competitors

patents

Checkpoint 2

Start of project, evaluation of

solutions

• recognise possible patent conflicts

• recognise possible designs around

• recognise patenting opportunities

Checkpoint 3

Designing the best

solution, prepare

implementation

• update all IP activities

Checkpoint 4

Project execution

confirmed• drafting and filing of patent

applications

ALWAYSPrevent unintended consequences of disclosures to third parties by the use of confidentiality agreements

ExplorationPre-

AnalysisAnalysis Design

Implemen-

tation

Evalu-

ation

Initia

tion

Co

ntra

ct

Sele

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Accep

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5111 September 2011

Sunday, September 11, 2011

“Shoot for the moon”

- Even if you miss you will land among the stars

Les Brown

Innovation Philosophy of Arla Foods

Thank you for your attention!

11 September 2011