Collaborative innovation -- a strategy in which manufacturers and retailers partner to create compelling consumer product and service offerings-can help manufacturers and retailers increase their sales and profitability by 15% to 20%. However, the consumer packaged goods (CPG) industry has been slower than other business sectors to adopt this practice. The issue is not lack of awareness but rather a limited ability to execute.

At Kalypso, we surveyed executives from 30 global CPG manufacturers and retailers in August 2009, and 95% of them stated that collaborative innovation was very important to achieving their business objectives. Yet only 12% reported having incorporated the needs of strategic partners into their innovation planning.

The Argyle Leadership in Retail and Consumer Products Forum on September 30, 2009 provided an opportunity for executives at Coca-Cola, Aerosoles and Unilever to join me in a panel discussion of how to close the gap. Together we explored best practices for CPG companies, as well as strategies overcoming the roadblocks to successful collaborative innovation. Four key lessons emerged.

#1 Look at Specific Opportunities for Mutual Success

There is no one-size-fits-all collaborative innovation strategy that will work across all partners and categories. Instead, companies need to identify which categories or brands are best suited for the collaborative planning process and then determine the partners with whom to work. By capitalizing on the strategic intersections that benefit both the retailer and manufacturer, the two parties can execute on a common, shared vision.

Julie Hamilton, president of Walmart for Coca-Cola North America, provided a great example of collaboration based on a shared vision, "Several years ago we were very excited by the opportunity to recycle PET (polyethylene terephthalate thermoplastic), and we had just opened the largest recycling PET plant in Northern Mexico. We were working with several customers to close that loop, so that end-to-end you're turning it back into something of value. We put guiding principles into place about how we were going to collaborate, had a structured process, and had metrics and accountabilities down to who did what on what side.

"Flash forward several years later, and we're doing some great things in collaboration with Walmart in Latin America, both in Brazil and Argentina, where we've created recycling stations at their stores, employing cooperatives from very poor areas. It's a big contribution back to the economy and those local areas. We've recycled almost 20 million PET bottles and made a significant difference. And that's all from that first collaboration."

#2 Conduct Collaborate Business Planning that Meets the Needs of Each Partner

Collaborative business planning aligns the goals of the manufacturer and retailer to identify opportunities for win-win product offerings. Of the companies interviewed in Kalypso's research, 81% stated that they used some form of collaborative business planning to address the needs of their strategic customers. It can be difficult for companies to break away from the "not invented here" syndrome. However, a majority of the companies who told us they were incorporating the needs of their strategic customers and partners into their planning also felt that their planning was stronger.

View article on one page