Collaborative Innovation: CPG Leaders Discuss Best Practices for Manufacturers and Retailers

Successful collaborative innovation requires a non-adversarial mindset, the ability to learn to speak 'another language,' new metrics, and the willingness to share intellectual property.

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.

For example, Cameron Jones, vice president of R&D, information management, and information technology at Unilever, noted that with, "The All Small and Might product we introduced with Walmart, we went to them and said, 'How do we grow the segment, and how do we grow the market?' It was really a joint effort. We engaged them very early to create the market, and create the demand, and put the products there."

#3 Build Trusted Relationships

Collaborative innovation provides an opportunity to create indispensable, mutually beneficial relationships. However, partners first must build trust-something that is difficult to gain and all to0 easy to lose. One important element is to develop and document an intellectual property strategy that helps protect the brand. Because retail sees extensive turnover, it also helps to clearly document the collaborative partnership and market back the benefits to the partner.

Hamilton, discussed an example of how Coca-Cola North America builds trust with partners in Japan: "Japan is a very relationship-driven market. What we've gotten to in terms of both with working with our bottling partner, and partners we want to embark on collaborative innovation with, is to be very, very clear around communicating a consistent vision, and then really laying out, 'Here are the big what's and the who's.'

We have gone so far as creating one-page documents where the senior-most sponsors-the executive sponsors-sign off on that. We celebrate it with a signing party saying, 'This is the collaboration work we're going to go do together,' and we've framed those and put them into the offices, so that everyone can see them. These aren't short-term projects, some of them are multi 2- to 3-year-type projects, so it's a good reminder of who the senior sponsor was, what the vision was, who was going to do what, and to really formalize it. That's very important because of the symbol it sends to the organization of that commitment."

#4 Get Your House in Order Before Attempting External Collaboration

Of course, before innovating with a business partner, a company needs to be certain that its own organization is structured to collaborate. Successful collaborative innovation requires a non-adversarial mindset, a multi-level and multi-functional organizational approach, the ability to learn to speak "another language," new metrics, and the willingness to share intellectual property. In other words, a complete internal transformation must take place before attempting collaborative innovation with external sources.

Karen Sadick, executive vice president of merchandising at Aerosoles, described the importance of internal alignment. "We distribute to our own retail stores, as well as sell to Macy's and other wholesale accounts. A lot of times in our organization, if we're not all on the same page together, we can't execute what we'd like to as a company. We have to get everybody together and let them talk about the uniqueness of their business because, even though we're one company, our divisions have different practices and different success stories on what works and doesn't work for them."

Sadick added, "If you're open and listen to everybody's challenges and have a really good discussion in advance, you can start to move towards getting everybody to feel like they're a part of the collaboration."

Manufacturers interested in hearing more about the experiences and recommendations of Coca-Cola North America, Aerosoles, and Unilever can download a podcast of the panel session at http://www.kalypso.com/insights/how-to-win-with-collaborative-innovation-panel-podcast/

George Young is a founding partner of management consulting firm Kalypso, which specializes in innovation, and he leads Kalypso's Consumer Packaged Goods practice. He holds four U.S. patents and was named the 1994 Northeast Ohio Inventor of the Year. www.kalypso.com
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