Article I in a series of four articles published in the Innova Food and Beverage Innovation publication in 2011. Reprinted with permission from Carlos Barroso, a former client of NineSigma's while at PepsiCo.

This is the first in a series of “how-to” articles for getting tangible results with an open innovation approach to research and development specifically in the food and beverage category. Written from hands on experience and a strong knowledge of the open innovation space, this article covers both how to get started and how to set the strategy. The remaining series will address:

·         Soliciting proposals for external research partners

·         Filtering proposals and getting to contracts with research partners

·         Managing a network of external partners including weeding and feeding

About the Author

Carlos Barroso is a highly experienced, international Research & Development Executive in consumer products, with deep experience in Foods and Beverages.  He has built an extensive, open innovation network with external research partners across universities, suppliers, consultants, and small entrepreneurs located around the world.

Carlos is the Founder and President of CJB and Associates, a high level R&D consulting firm specializing in Product Development for the Food and Beverage category. CJB and Associates manages open innovation projects, conducts Innovation Assessments, creates Quality Assurance programs, and facilitates innovation and strategy ideation sessions as well as helping with high level R&D strategy.

Prior to starting his consulting firm, Carlos was the Senior Vice President for R&D for PepsiCo’s $27 billion global food and snacks business. Before joining PepsiCo, Carlos was an Associate Director of R&D at Procter & Gamble. In addition to R&D he has Market Research experience in consumer product testing.

How to begin

You’re ready to embark on an open innovation project. Maybe you’ve already had some projects. Maybe it’s your first time. Regardless, the first step is to clearly define the problem and what success would look like. Let’s also be sure to ask why we think we need an open innovation approach and how do we think it will be different from the way innovation has been done in the past.

Open innovation has become part of the innovation vernacular since Dr. Henry Chesbrough coined the term in his 2003 publication on it. Procter & Gamble embraced it early and brought it to the world of Consumer Product Goods companies with the 2006 publication of  “Connect and Develop” by Larry Huston and Nabil Sakkab in the Harvard Business Review.

It’s a good idea to spell out what open innovation means to your company. Keep it simple. If all your R&D has been done in house it may be as simple as looking for some development or technology from outside the company. If you already have a strong network of external partners it may mean expanding that network to research partners in other fields or industries or geographies

Set The Innovation Strategy And Define Success

I have often seen teams jump on an open innovation project without spending enough time up front to define and align on what success will look like. The focus is often on the scouting part of the process without having spent a lot of time agreeing on the problem to be solved and the criteria for success. While seemingly trivial, setting a solid idea for what qualifies as “success” is a vital first step in any innovation oriented project. All too often, an otherwise capable team will embark on a project without clearly outlining this step and will be brought to a standstill when confronted with the varying goals in the different functions or divisions of a company.

Setting the innovation strategy should be done cross functionally and with strong management support and involvement. Too often we’ll see an open innovation project go after solutions to problems that are not seen as priorities because the team has not done the alignment with enough of the internal customers. In the CPG world you have to have engagement from Supply Chain, Marketing, Sales, Legal and R&D and possibly Human Resources if there is a cultural hurdle to over come.

At CJB and Associates, we spend a lot of time on the upfront part of a project assembling the right team and having an in depth review of what the innovation priorities are and where and how open innovation can help. It’s important to include the existing network of research partners. Every company we’ve worked with has some sort of network in place. Usually, they include suppliers, a group of consultant experts, and possibly some universities and trade association groups. If a good solution can be found with an existing relationship it saves the time and risk of having to establish a new one.

Considerations For Setting The Success Criteria

Every project will have a unique set of success criteria, the more specific the better. We ask the client to clearly describe what will be different a year from now and three years from now if the open innovation project is a success. The use of imagery is especially helpful for a cross-functional team as it allows each function to describe success from their perspective.

The R&D function may talk about breakthrough technology. The legal team will want solid intellectual property (IP) protection and little risk of infringing on other’s IP. The marketing team will think about a superior consumer proposition. Sales will want a great story to bring to customers and a cost basis they can work with. Supply chain will want to make sure the new technologies that emerge can be scaled up and planned for in their capacity and ingredient purchasing planning. Finally, senior management should be able to articulate expectations of what a successful increase in sales and profit would look like and over what time frame.

Once the expectations from the various functions on the project team are clearly articulated it is up to the team to distill them down to a short list of project objectives with a clear definition of success and expected actions. CJB and Associates strongly recommends that these objectives and definitions of success are written in a “contract” and signed by all team members. This is the time for second guessing the priorities, not once the requests for proposals are out and the team is contracting work with external research partners.

What May Be Included As Success:

Solutions from non-obvious sources

Keep an open mind towards non-conventional solutions to achieve your goal. Often times such a solution will end up saving valuable time and money. We have found one of the hallmarks of successful open innovation is when a solution comes from an unexpected source. For example, we found a lead for a lower sodium salt from a group working on solutions for osteoporosis. The research group happened to use salt in their proof of principle for a technology that was never intended to apply to the food sector. In a different project that looked for a better way to refine healthy edible oils we found a promising lead from a group working on fuel cell technologies. In this case the fuel cell team was working with novel separation technologies that as it turned out could work for edible oils as well. 

In projects involving food ingredients we have found many break through solutions from the pharmaceuticals world. Pharmaceutical companies have spent years working on better drug delivery technologies. Many of those technologies are ideal for delivering flavors. The pharma groups are usually happy to find new applications for existing technologies and the food companies can take advantage of the years of development and safety testing without spending the many millions of dollars typical of a pharma R&D project.

Protect the Technology

Protecting the technology can be realized a number of ways. The important thing is to make sure your company will own it for the applications you’re interested in. Patents are a common way to protect IP. However, you need to be thoughtful about who owns the patent if you engage external research partners. You can demand full ownership of any emerging IP. But, it may be more constructive to consider jointly owned IP where each party defines the applications they want to own. For example, if you are looking for a better oil for frying potato chips, you may be willing to do joint research with an edible oil producer who is primarily interested in the french fry business. As long as you own the IP for potato chips and have no vested interest in the french fry business you can allow the oil producer to own the french fry application. 

Building a superior consumer proposition

Because we’re focusing on the CPG world any success criteria has to involve a benefit to the consumer. It could be better taste, a health benefit, a cost benefit or some combination. A tangible and measurable definition of success will make defining actionable objectives much easier. For example, if better taste is an objective set a consumer test win versus competition or an internal reference as success criteria. If health is an objective you may need a clinical trial or at least very clear product nutritional guidance (e.g. no trans fat and less than 15% saturated fat; less than 100 calories per serving).

Strategic fit

Having a strategic fit assumes there is a clear innovation and business strategy in place. For example, you may have a strategy of improving the health and wellness of your portfolio against a clear set of objectives such as having over 50% of new revenue from healthy products. A project that addresses that strategy such as a lower sodium technology or a natural non-caloric sweetener would likely be a good strategic fit. Though you may chose to pursue an open innovation search that is not a strategic priority it will still be helpful to be explicit whether or not a strategic fit is a relevant success criteria or not.

Likelihood of Success

There is a natural tension between the degree of breakthrough of an objective and the likelihood of success. A tasty and inexpensive non-caloric carbohydrate with heart health benefits would be a breakthrough objective but a higher risk (or lower chance of success) and should be reflected accordingly. CJB and associates recommends a portfolio of objectives and a mix of prospective technical solutions to balance a risk / reward portfolio.

Lay out the game plan and communicate milestones

With the project objectives set and aligned be sure to communicate broadly to the team and senior management what to expect in the coming months and even years. In our experience many senior teams are enthusiastic about taking on breakthrough innovation but are used to time tables that are more appropriate for close in product upgrades, not game changing technical innovation. We have found it is especially helpful to define tangible milestones in the project on a least a quarterly basis to make sure the broader team and management knows what to expect and has the opportunity engage in the process if they don’t agree with the project flow or want to build on it.

The diagram below is an example of how a team can lay out a general game plan for the project.

Open Innovation Project Kick Off

With the objectives set and the key milestones and timing broadly communicated the next step is an official kick off. Key stakeholders from all the functions should be invited. It’s important to make roles clear. Some individuals will be advisors while others will be owners and, of course, there is an overall project leader who can make decisions.

Setting the Budget

Be sure to have a budget in hand to get things moving. It’s hard to know exactly how much to budget but we recommend having enough to get through the first six months which is typically how long it will take to solicit proposals from external research partners, filter the proposals, and establish contracts to engage a short list of partners. Ideally, there should be enough for some early seed money, typically for generating early prototypes. For example, if you ask prospective research partners to submit “proof of principle” prototypes there may be a cost involved. If it is coming from a university where budgets are typically strapped even a modest cost of a few thousands dollars will likely need to be covered by the requestor.

A typical budget for the first phase of an open innovation project is $250,000 - $500,000 which includes engaging a firm for the search, related project travel and consultants if needed. Doing an open innovation search “on the cheap” usually means talking to suppliers and partners who are already in your existing network. This may be fine but don’t expect novel or protectable solutions.

The Next Step

With the team assembled, success criteria articulated and communicated and a budget set you are ready to begin the process of soliciting proposals from external research partners. Stay tuned for the next article in this open innovation primer series . . .

At some point in each of our careers we have learned Michael Porter’s Value Chain approach to understanding the movement of materials and information from early stages of inbound logistics to customer-facing services.  While the Value Chain model served us well over the years by providing an understanding of the various functions within a company, it has done little to represent the flow of ideas and information that lead to new innovations.  In fact, I would go as far to say that a company’s complete buy-in to the Value Chain model to represent organizational design and process flows can actually stand in the way of collaborative innovation.  Allow me to explain.

The Value Chain model portrays an organization as a segmented, linear flow of business functionality.  Many companies have designed their various departments to enable this flow, believing that they were conforming to best business practices – and the flow works fine within a typical operational cycle.  But this is only a part of what companies do.  When it comes time to innovate (i.e., stretch beyond the current bounds of the organization), people have a tendency to generate isolated solutions that are relevant only to their department, and not thought through or tested in a systemic manner.  Ever wonder why most organizations today suffer under the silo effect that inhibits the transparency of ideas and information?  A case in point is the proverbial gap between Marketing and R&D.  While ERP systems can help to alleviate some transparency issues, this does not address the core issue, and has little to no effect on innovation. 

If we were simply to take the linear Value Chain model, and bend it around the edges to create a circle (or cycle), it would have an entirely different effect within the company.  In the center of the new “Value Cycle” could be cross-functional teams, processes and social media systems that enable the introduction of new ideas from anywhere within the company, while allowing people from other departments to contribute their perspectives, thus building on and improving the original idea.  Around the outside of the new Value Cycle are the company’s suppliers, business partners, and even regulatory bodies who, if plugged into the process (i.e., the inner circle), can bring yet another perspective to what is now emerging as a new innovation that has been tested and vetted from within.  This merging of internal and external sources into a central innovation process, or cycle, must not be thought of as temporary – it has to become the norm.

If a company is still faced with what appears to be an insurmountable innovation challenge, it can reach out to yet another tier of innovation resources – the global innovation community.  Companies typically do this by instituting a technology scouting function, or simply by engaging an open innovation intermediary like NineSigma, that maintains a global network of solution providers representing virtually every technology category.  This next tier of innovation reach provides yet another perspective that comes from individual inventors, companies and universities from around the world, and often outside the company’s industry.  When new technologies and partnerships are forged from this tier, they too can become part of the inner circle of the company’s Value Cycle.  It is at this point that the company experiences the true essence and value of collaborative innovation.

One of the challenges I still see in open innovation is when it is tried in a highly conservative environment, typically an ‘old school’ engineering company.  By ‘old school’  I mean a company  that is used to doing everything the same way they have for years and years. They use external development partners such as universities and suppliers but they always first try to solve problems internally and then only if that fails will they go to a network of external partners. But typically this external network is the same groups they have relied on in the past which results in the same answers they’ve already received.

We recently wrapped up an open innovation pilot at a client who readily admits they are conservative. They were very impressed with the breadth of the potential partners we presented to them on the different projects we ran. They talked about how we “opened their eyes” on one particular project and uncovered work on the topic they were not aware of. They talked about how open innovation is an excellent way to connect with thought leaders from around the world. Another researcher talked about how the process of creating the NineSigma RFP really made them sharpen their thinking around the problem definition.

However, when the discussion turned to whether they saw open innovation as a fit to their current innovation strategy, they felt that it would be quite a while before they could adopt open innovation beyond the few projects in the pilot.

The challenge was culture. Even though they clearly saw the benefits of open innovation, they could not see how to change the culture. It is interesting that some seven years after the book “Open Innovation” was published that companies will still revert back to their old ways.

I would be interested in your thoughts and observations on the cultural aspect of open innovation adoption?

Watch what happens when you ask for volunteers to lead an innovation project.  Some individuals will wish that they were invisible while others will jump out of their seats with the enthusiasm of a first grader being offered an extra recess.  What is it that motivates people to respond in such different ways?

That is the question that NineSigma set out to answer in our partnership with Caliper.  We had often observed that a client would succeed when they had a motivated innovation champion, but they would then struggle in duplicating that success organization-wide.  After working with hundreds of clients over the past ten years, we could describe the characteristics of an innovation champion, but we did not have the organizational development expertise to answer our clients’ question “how do we create a team of people who have a passion for innovation?”

Caliper, a human resources consulting firm with 50 years of experience advising over 25,000 companies in team building, and employee and organizational development, was a perfect partner.  We found that Caliper shares many of NineSigma’s core values, like a respect for scientific methodology and an insatiable curiosity.  By combining Caliper’s expertise in human resources and personality assessment with NineSigma’s expertise in innovation, we collaborated to create the world’s first Collaborative Innovation Profile.

Caliper’s rigorous methodology started with a validation study, which included a customized innovation job analysis and development of a competency model for innovation leaders and project managers.  Caliper incorporated interview and assessment results from a sample group of Innovation professionals and implementers.  Caliper’s research team then analyzed the data to determine which traits are most associated with success within the competency model.  The result is a specialized tool that helps management and innovation professionals select and develop successful innovation teams.

Of course, the NineSigma team was eager to learn the results of our Collaborative Innovation team assessment.  No surprise to us, the results confirmed that we are a highly innovative and collaborative group.  Our partnership with Caliper is a shining example of how an open innovation company can grow through open innovation. 

I often see people struggling to understand the difference between Crowdsourcing and Open Innovation (OI).  Are they the same or completely different?  Is one a sub-set of the other?  Well, the unpopular, yet correct answer is “it depends.”  While Crowdsourcing is, by definition, different than OI, the two disciplines can, in fact, overlap.  Let me try to explain.  Crowdsourcing is a process by which an organization leverages the power of crowds (either a captive community or the general public) to help identify trends, or to source new concepts, ideas or designs for the marketing and development of new products and services.  Open Innovation, on the other hand, is the process of going outside an organization’s physical boundaries to identify and/or acquire new innovations, which can be in the form of a concept, expertise, intellectual property (i.e., technology), or a new supply source. 

Using the fishing metaphor, think of Crowdsourcing as a broad net, where the net (or challenge) is cast out to a larger population of loyal customers, targeted communities or the general public.  The person casting the net is interested in identifying trends and ideas coming directly from a large population (at least much larger than can be achieved by a typical consumer insight study).  OI, on the other hand, uses a fishing pole approach to target a very specific community that can solve an existing innovation problem – one that cannot necessarily be resolved by the organization seeking the solution.  For innovation needs that are more conceptual, Crowdsourcing can be used to find a solution.  However, as the seeker’s needs become more specific, other techniques, such as NineSigma’s RFP (request for proposal) method have proven time and again to be much more effective – especially when the seeker has access to a broad network of potential solution providers to whom the RFP or challenge can be sent.

It is important to know which approach to use and when to use it.   As companies begin to rely more heavily on OI and Crowdsourcing to resolve innovation issues and to support broad-reaching marketing efforts, picking the right approach can make a world of difference in terms of efficiency and overall success. 

Want to learn more about crowdsourcing? Contact us today to find out how our open innovation experts can help you.

It’s difficult to chart a path forward if you don’t fully understand your starting point. After years of working with companies at all levels of open innovation maturity, we have developed an open innovation diagnostic tool, the NineSigma OI Scorecard, which helps Solution Seekers quickly assess their open innovation capabilities. The web-based tool provides an initial evaluation of a company’s ability to collaborate as part of their innovation process, both with internal and external partners. The tool also assesses the organizational structure and systems that are needed to effectively support collaborative innovation.

Specifically, the open innovation tool measures a company’s ability to collaborate on innovation in three tiers: within and across the company, with the company’s existing external network, and with the global innovation community. What’s different about this tool is that it not only provides a snapshot of the company’s current status, it offers concrete recommendations for how to address the gaps identified while building on the company’s strengths. The scorecard survey takes about 5-7 minutes to complete and is free of charge. We encourage Solution Seekers to check out this new tool and gain a deeper insight into effective collaborative innovation. 

Read more about NineSigma's new OI Scorecard tool. Get your open innovation score today.

Developing and then measuring the benefits from an OI program can be a challenging exercise. We have coined the term Benefits Case to differentiate this from a more formal Return-On-Investment (ROI) analysis. The Benefits Case has financial elements, but also has “softer” measures as well.

Benefit cases all have the core elements of:

•          Quantifying major improvement opportunities

•          Ensuring that OI resources are allocated to the areas of highest leverage

•          Establishing the range of benefits to be achieved through OI implementation activities

•          Providing the basis for assessing the OI return and tracking benefits during the OI program implementation

•          Developing the rational basis for an OI program

Overall the OI Benefits Case identifies areas of opportunity and quantifies the improvement potential as a result of OI activities. The figure at the bottom of this post shows the components of a OI Benefits Case.

The OI Benefits Case will have both Measureable and Non-Measureable components. Measureable benefits may include revenue projections from new products and services as a result of OI activities, increased revenue impact from improved manufacturing operations due to OI projects, reduced costs due to improvements in speed-to-innovation or time-to-market, increased innovation productivity and other potential measureable impacts. Non-financial impacts may include increased customer satisfaction due to enhanced product features or improvement in product quality as a result of OI project impact.

Non-measurable benefit impacts include clearer roles & responsibilities, the impact of external knowledge gained through OI on decision making, enhanced innovation skills, improved leveraging of internal knowledge and other “soft” or non-quantifiable measures.

In addition to the positive financial benefits, we must subtract the cost side of an OI program. The cost side will include both internal personnel costs and external costs such as training, OI consultants, OI project costs and technology costs. This then provides the top left quadrant of the Benefits Case which is the OI program breakeven point and anticipated return.

The development of a Benefits Case at the start of an OI program provides both guidance in terms of areas of focus and a tool to use during the implementation of the OI program to guide the implementation team. One of the challenges in OI programs is the eagerness to jump right to a ROI, when in fact the full financial impact of an OI program can take significant time to develop due to time-to-market consideration in product development and launch. This is why capturing some of the “soft” benefits and then tracking these as leading indicators can be very valuable to both guide the implementation team and to assure senior management that progress is being made.

Indicators such as early stage innovation portfolio impact from OI, number of projects with a significant OI component, decisions impacted as a result of external knowledge gained through OI activities are all leading indicators of the future ROI as the result of either revenue or cost impacts to the business.

With the exponential growth in Open Innovation, companies have a broad assortment of services and platforms to fill their Open Innovation toolbox.  This presents a challenge for the casual-user of OI services who sees a toolbox that looks like mine – a well-loved jumble.  The Project Owner needs to sort through to find the right “tool”, but often he doesn’t know if he needs a screwdriver or a hammer.

How does a Project Owner with a Need select the right way to engage in Open Innovation?   Start by asking questions that will help you narrow down your options.

·        Can you clearly state your Need and what you seek to accomplish?  Test this out with someone who is not familiar with the project.   If they have to ask you many clarifying questions, then you probably should not “post” your Need on an open innovation platforms, where detail is generally scant.  An open innovation process that is fully facilitated can drive better results for more complex Needs.

·        Do you know if the answer can be found inside your company?  Have you tapped into all of your company’s resources and capabilities, both inside your company and with your extended network, like suppliers or university contacts?  If you identify an external solution through open innovation, you will likely be asked this question before the external party will be engaged.

·        Is this project highly strategic and secretive?  Is there any reason you would not want your extended network to know about your outreach?  Are there IP issues that require you to create an information firewall?  In some strategic cases, you may choose to engage with partners that you know well, to protect your strategy.  In other situations, you may prefer to investigate global resources anonymously through an intermediary.  Selection of your open innovation gateway should be influenced by the specific intellectual property and confidentiality profile of the Need.

·        What is the endpoint?  Will you offer prize money for a single “answer”?  Do you seek an ongoing collaborative R&D relationship?  Do you seek to own or license IP, or must you have unrestricted access to the information?  Crowdsourcing and postings on open innovation boards may be more appropriate for lower value Needs.  If you seek partners for longer-term, high value Needs, select an open innovation vehicle that allow you to vet potential alliances according to your business and technology criteria.

By answering these questions, you will have a much clearer perspective on what you want this OI tool to deliver.  Ask your OI service provider specifically how they will perform against your stated expectations.  If they are doing their job well, they will likely be asking you these same questions.  Let NineSigma help you launch an open innovation program.  Contact us to learn more about open innovation.

Congratulations! You have been tasked with implementing or re-implementing an open innovation program within your organization. What is your first thought? Google ‘open innovation’, read some books and papers, talk to people you know that are at companies that have active open innovation programs, hire a consultant or just wade in and try and make it happen? Actually, all of these are good things to do. Today, there is a rich body of knowledge about open innovation and how to create and implement a successful program.

For the last 15+ years, my work has consisted of consulting to companies that are engaged in large scale transformation programs such as re-engineering, SAP and most recently open innovation. If there is one lesson I learned from my consulting work that I would pass on to someone at the beginning of an open innovation program – it is to communicate, communicate and then communicate some more. Yes, you need a well articulated vision, clearly defined objectives and buy-in from leadership. You will need to make sure you know your innovation organization’s strengths and weaknesses. You will need to fully understand your innovation ecosystem (current network of partners/suppliers). At the foundation you will need to have some type of simple process to leverage your innovation ecosystem, and the people in the functional areas that interact with the open innovation process will need to understand their roles and responsibilities. All of this is necessary - and more.

Ultimately the long term adoption of open innovation will be a function of how well you communicate. You need to communicate that you are implementing open innovation, why you are implementing open innovation, and what you are learning along the way. Share the setbacks and successes and stories about the people on the front lines. This communication needs to happen in many forms, many places and not be limited to the open innovation group. And, when you think you have communicated enough, communicate some more. Think in terms of a constant drumbeat.

One of our clients talks about the three phases they are progressing through in their open innovation program. These are introducing, embedding and delivering. At each stage we have been communicating to the broad organization through multiple channels. They are seeing the benefits of this communication through new innovation as a result of both internal collaboration across business units and new external collaborations. They realize there is still much to be done, but they can see the change that is happening and a new mindset of open innovation emerging. Let NineSigma help you launch an open innovation program. Contact us to learn more about open innovation.

Once upon a time, a long, long time ago, before anyone had heard of “crowd sourcing”, (coined in 2006) NineSigma clients were fascinated by the opportunity to reach into every corner of the globe for answers to their biggest challenges.  The focus was on “how” and “where” to get the solution.  NineSigma solved the “how” by providing the answer to “where”.

Fast forward to 2010…companies have more information than they can process.  Chat rooms, company-sponsored websites, OI intermediaries like NineSigma…Open Innovation can feel like the suggestion box on steroids.  The real challenge today is how to manage and optimize Open Innovation.

The companies that will be the Open Innovation leaders tomorrow are those that are successful in creating their Open Innovation Office – the structure that broadcasts the right information outside to the best external resources, and then funnels the value back inside to act on it efficiently.

We believe that three pillars are essential to building a successful, sustainable Open Innovation Office. 

Framework –Vision, Process and Organizational Design, and underlying Software

Support – People and resources to:

• Develop OI best practices and build OI adoption
• Manage the Needs Funnel, relationships with external partners and integration of OI projects into the product development cycle

OI Toolbox –Partners and tools to engage internally and externally

Framed by executive commitment to your OI Strategy and program management and accountability, these three pillars build an integrated, managed and optimized Open Innovation program. Let NineSigma help you launch an open innovation program. Contact us to learn more about open innovation