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Kraft Crafts an Open Innovation Strategy

Nov. 7, 2008
Consumer packaged goods manufacturer finds innovation value in collaborating with suppliers.

By its own analysis, Kraft Foods holds 2.2% of all food-related patents. The percentage may be surprising, given that Kraft is one of the largest global food and beverage companies, employing more than 100,000 people and some 2,000 scientists and engineers. To Kraft, however, the percentage tells a different tale. It says many good ideas for food innovation exist outside its four walls.

"We recognize that we don't know everything," explains Nanako Mura, associate program director, open innovation, at Kraft Foods.

Indeed, recognizing that expertise exists outside of Kraft's core competencies -- expertise that could help the company grow -- has spurred Kraft to adopt the concept of "open innovation." By Kraft's definition, open innovation is about working with external innovation partners to speed the development of new products as well as speed the time it takes to bring new products to market. The partnerships allow access to additional talent and reduce R&D costs. And they complement Kraft's internal innovation networks. (Kraft's open innovation Web site is

And it's not just Kraft that is embracing this idea. According to a recent study by consulting firm A.T. Kearney, innovation leaders are characterized in part by their embrace of open innovation as a means to generate new ideas. "No single company is large enough or inventive enough to be an innovation leader without collaborating with an array of partners," write the authors of the A.T. Kearney report, "Open Innovation: the next frontier in innovation management."

"When developing new ideas, innovation leaders say they rely on their customers, business partners and competitors to supplement their own internal functions. In fact, companies that profess best practices in innovation produce nearly half of their innovations from ideas generated outside the company."

Kraft has multiple avenues of engaging with its external partners for open innovation opportunities. For suppliers, it employs several tools, including a supplier relationship segmentation assessment as well as an innovation potential diagnostic tool. These tools help the company identify which among its suppliers have the most potential to help Kraft bring more innovations to market, explains Mark Barrett, senior program leader, open innovation. Barrett and Mura discussed their company's open innovation efforts during a recent online seminar.

Additionally, the company has several means of engagement with suppliers it wants to move forward with. One is the Supplier Innovation Challenge. This is a formal, disciplined engagement of one or more suppliers to address a Kraft business need, and it follows five principles:
  1. A consumer brief owned by the marketing department that is clearly written and includes information such as the scope of the challenge, acceptable cost range, competitive positioning and other details. It is critical that the brief be clear, Mura explains, but "not so prescriptive that it inhibits supplier innovation."
  2. A compressed time frame (two to three months) to work on the innovation.
  3. A "fair and reasonable" legal framework.
  4. A showcase in front of a cross-functional Kraft team including marketing, procurement and other relevant functions.
  5. A 30-day "go or no go" decision on whether to move the innovation to the next step in the development process.
Kraft tracks several metrics to document the success of its Supplier Innovation Challenge: number of challenges conducted; number of ideas generated by the suppliers; number of ideas advanced in the process; number of ideas that remain in the development pipeline; and number of ideas commercialized.

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