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Orchestrating Product Innovation Success in CPG and Retail
Shifting consumer trends are challenging retailers and CPGs to innovate against unmet needs
Focus on self-fulfillment
Channel Needs Product NeedsConsumer Trends
Ubiquitous online and mobility access
Continue drive for value
Increase demand for variety
On-the go convenience
• Experiential • Authentic
• Thematic
• Mobile, Social • Interactive
• Inexpensive • Increased value / utility
• Endless shelf • Customized
• Be where the consumer is
• Portable
Unmet Needs
Delivering effective innovation requires the power of Convergence
Emerging Convergent Platforms
Coca-Cola Freestyle©
Tesco HomePlus
Nestle BabyNes
Clinique Smart BarTM
Pro
du
cts
Ch
an
ne
ls
Consumer Needs Targeted
• On the go convenience
• “Endless shelf” assortment
• Customized content (i.e. mixing different flavors)
• Interactive experience
• Interactive exploration (expert recommendation)
• Single dose convenience and speed
• Customized variety (temperature, concentration)
Convergent Technology and Capability Enablers
• Digital LCD display
• Mobile shopping
• Integrated last mile delivery
• Micro-dosing
• Wireless CRM data management
• Social media interactivity
• High resolution image recognition
• Genius recommendation analytics
• Micro-electronics
• Ultra-concentrate powered food formulation
Convergent product platforms are increasingly cross-disciplinary, complex, and externally sourced
Current Future “Convergent” Platforms Unchartered Territory for CPG
and Retailers
• Design / engineering complexity
• New, diverse supply base
• Numerous component technologies
• Complex assembly
• Shorter product lifecycles
• Focus on new experience and functionality
• Multi-function and disciplinary technologies
• Increased variety
Increasing Complexity in Convergent Innovation
• Focus on consistency
• Anchored on one primary technology
• Limited variety
A shift from traditional outsourcing to network orchestration is required for Convergent platform success
Effective orchestration and partnerships will be the next battleground for competitive
advantage
Traditional Outsourcing Platform Orchestration
Strategic capability / activityNon-core activity
Scope of Firm (in-house vs. outsource boundary)
Increased “cross-boundaries” coordination
(i.e. more firms and functions)
Increased Complexity
Higher risk and stakes in sourcing strategic
competencies
Increased need to balance collaboration with
competition
3 building blocks for effective innovation orchestration
Platform Orchestration
Create the Right Orchestration Organization
Build & Evolve the Right Partnerships
Understand and Check Ecosystem Entropy
1
2
3
Breakthrough Impact
• 25%-50% faster develop to market launch
• 20%-40% cost advantage
• Improved bottoms-up innovation
• Sustainable platform and next generation introduction
12
3
Installing the right organization and management team 1
Critical Requirements Unlocked …
• Speed and agility
• Autonomy
• Culture of risk taking and experimentation
• Outside the box thinking
“Incubator” organization for effective orchestration
Incubator “Company”
Dedicated and autonomous
Mandate & Objectives
Mgmt. Team
Resources and personnel
Decision Rights across
FunctionsFunctional Units
Shared incentives
Senior Leadership
Parent Company
Champion
Resources and Personnel Shared Incentives
• Empower and compensate to secure true “boundary” spanning talent
➢ Value chain function “boundaries”
➢ Technology “boundaries”
• Significant % of personal compensation tied to incubator objectives, not divisional profit
• Executives evaluated by total external span of control, not just direct FTE report count
Establishing and sustaining the right partnership structure critical for coordination and performance
2
How to ensure effective integration activity outsourcing in innovation?
“Activity Integration” ... Failures in “Activity Integration”
Can be Costly …
"The [launch delay] news is negative.
Even without the technological problems,
the issues regarding the console's
profitability remain” Nomura Securities
Analyst
Boeing … aggressively farmed out big
chunks of its new 787 and stumbled
badly. … it has since … integrated more
closely with its remaining contractors.
WSJ, Jul 2012
Palomar’s partnership with J&J to mass
market a home-use wrinkle device was
terminated in Oct, 2009 due to economic
conditions and extensive earlier FDA
approval delays
Platform development consists of a series of interconnected Activity Integration efforts
Plastic Shell Design
Design
Getting the scope right (who does what)?
Getting the span right (how much does one entity do)?
Getting the hand-off and coordination right
Body Design
Ribbon Lighting Design
• Plastic shell• Metal chassis• GUI screen
• Plastic Forming
• Ribbon Lighting Design
• …• LED lighting
• Electronics
Defining the right partnership structure 2
Degree of Competition
Sp
an
of
Co
ntr
ol
Single Multiple
Master Turn-Key
Distributed Turn-Key
Distributed Integration
Controlled Integration
Lo
ose
Tig
ht
Internal Firm Competency
• Does the orchestrating firm have the know-how to manage upstream value chain?
• Can the underlying processes and sub-activities be easily decoupled and decomposed?
Process Modularity
• Are there highly specific asset or know-how?
Asset Specificity
IP Appropriation / Business Risk
• Is there significant IP risk by delegating control to partner?
• Is there a risk of “undifferentiated” solution by delegating upstream value chain control?
Key Considerations for Establishing Partnership Model
e.g.) Sony PS3 console
e.g.) Cisco Tele-presence
e.g.) iPhone production
e.g.) Automated kiosk design
Informs Partnership
Program Design
Roles and Activities
Incentives & KPIs
Evolving partnership over time to sustain performance2
Change
Existing
Span of
Control
Single Multiple
Master Turn-Key
Distributed Turn-Key
Distributed Integration
Controlled Integration
Lo
ose
Tig
ht
1
2
Firm Strategy Development
LifecycleMarket Structure
• Firm strategy
shift vs.
upstream
competencies
• Key activity more
commoditized
Development
cycle/speed
change
• Regulatory / IP
law changes
• …
• Increased in-
house
expertise
• …
• Increase in
underlying process
modularity
• Activity risk and/or
design complexity
reduction
• Alternative
substitute
technologies or
solutions
• …
Market, Competition, Firm Trigger Events for Evolving Partnership Structure
Change
Existing
Degree of
Competition
1
2
Evolve Partnership ProgramRoles and RACI
Processes
Incentives
Complex innovation orchestration is vulnerable to run-away ecosystem entropy
3
Drivers of Ecosystem Entropy
• Over focus on speed and convenience during the development
process, leading to accumulation of redundant sub-suppliers and
contractors
• Tendency for key partners (designers, integrators, suppliers) to use
their own up-stream value chain partners without holistic view of
total eco-system requirements
• Lack of centralized coordinator and shared incentives to
encourage downstream value chain complexity reduction
Orchestrator is best positioned to manage network wide entropy
3 Understanding and containing ecosystem entropy throughput the innovation process
Metal chassis
Micro-electronics
User interface
3 4
5 6 7
8 9 10 11 12
Sub-Integrator / Partner A
Sub-Integrator/ Partner B
Prime Integrator
Touchscreen
Metal chassis
Micro-electronics
User interface and Touchscreens
Sub-Integrator / Partner
Prime Integrator
14
13
15
1 2
Complex eco-system of 15 parties
Common Technology
Consolidation
Propagate System Wide
Adoption
Guiding Principles
Upstream Designer / Supplier
Cross-Technology Consolidation
1 2
Simplified eco-system = reduced coordination and risk complexity
3 4
65 7
8
Common Technology Consolidation: Find multiple uses for common underlying technologies
Cross Technology Consolidation: All else equal, leverage fewer designers and suppliers working on the same set of underlying capabilities
Propagate Ecosystem Adoption: Encourage key partners to mirror your approach to reduce their upstream entropy
Thank you. Please reach out to continue the dialog
Sean MonahanPartner
Mark van WeegenPartner
Michael HuPrincipal
Check out our companion article in Supply & Demand Chain Executive
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