Future R&D Strategies in Food & Drinks: Evolution from orthodox approaches to open innovation models
R&D is a key driver of sales growth in the CPG industry, but returns from investments in R&D and innovation have been falling. This has led to further cuts to R&D budgets, making breakthrough innovations (which typically have higher returns than incremental innovations) even less likely, leading to lower returns still.
This downward spiral in R&D investment is not the only problem. A rigid adherence to orthodox approaches towards innovation, which once served the industry well, are now holding back innovation as they lead to large numbers of undifferentiated innovations hitting the shelves of retailers.
However, major changes are afoot. The advent of open innovation seems to offer a magic bullet solution; it can both improve innovation and simultaneously reduce costs. Certainly the larger, global, players have been quickest of the mark in adopting open innovation approaches, and smaller companies risk being left behind. But open innovation itself is only part of the puzzle – it needs to fit in with a coherent set of innovation strategies and approaches in order for it to work in the long term.
The multitude of approaches available also makes deciding upon innovation strategy (and surprisingly this basic step is often not given enough attention) , approaches and processes increasingly difficult. This report examines what the latest strategies and approaches are, what is required in order to execute them effectively and crucially assesses the areas where companies need to tailor approaches to fit their own company’s needs and drive future success.
Key features of this report
• Review and assessment of the strategic innovation options that CPG companies should examine. Crucially, this analysis also covers the need to develop a coherent innovation strategy across categories and platforms and for alignment with overall corporate strategy.
• Failings with current CPG innovation approaches and how these are holding back innovation are examined.
• The various types of innovation approaches and the keys to unlocking their potential are analysed.
• Analysis of open innovation and its potential benefits for the CPG industry is provided. Crucially the steps required in order to effectively approach open innovation are covered.
• A framework for managing innovation pipelines is developed which allows it to be seen if an innovation portfolio contains enough of the right types of innovations in the pipeline in order to secure a flow of innovative products in not just the short-term, but also the medium and long-term.
Scope of this report
• Evaluate all the strategic options available to a CPG company in order to start the processes of deciding upon how to update innovation strategy to lay the basis for future growth.
• Understand the crucial actions and approaches required in order to execute strategic decisions effectively – from updating corporate cultures and skills sets to establishing more effective innovation processes.
• Identify flaws in current innovation practices and understand why these are holding back product innovation. Use this to be able to select only the best, most useful practices for use in the future.
Key Market Issues
• Innovation budgets are under pressure as a result of current innovation approaches resulting in lower returns than before. Companies need to innovate to maintain their sales, but new approaches are required in order to achieve the gains sought.
• Opening up innovation teams and practices to people external to the company (open innovation) is a hot new topic. Yet most firms are only in the early stages of their open innovation programs and need help in optimizing their approaches.
• Many companies can improve their innovation practices and approaches by incorporating, where appropriate, best practices found in other firms. Yet to do this effectively they must first analyze exactly what their overall innovation strategies are and how these fit with overall corporate strategy.
Key findings from this report
• Orthodox approaches to innovation in CPG companies are leading to most new launches being incremental innovations which are poorly differentiated from other products in the market.
• The CPG industry invests relatively little (as a percentage of sales) in R&D compared to many other industries. This is despite breakthrough innovations (which typically require greater levels of investment than incremental innovations) offering higher returns.
• Breakthrough innovations accounted for just 1.5% of all product launches over the last three years.
• A changing innovation environment is creating many challenges to innovation. One major change is the incoming Health Claims Regulation in Europe which will both increase the cost of healthy product innovation and challenge current innovation practices.
Key questions answered
• What are the latest strategies in product innovation and which are likely to offer the best returns for my company in the future?
• What are the pitfalls to avoid when making use of open innovation? What are the best practice approaches to emulate in order to maximize the chance of success?
• What are the flaws in current R&D practices and how should they be addressed?
• How can I manage my overall product development pipelines strategically in order to ensure that innovation activity is optimal for my company?
• What are the latest best practice approaches towards innovation in the CPG industry and which should I seek to apply to my business?
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