Orchestrating Effective Platform Innovation in CPG and Retail

Orchestrating Platform Innovation Success in CPG and Retail

The next frontier in building competitive advantage for growth

Shifting consumer trends are challenging retailers and CPGs to innovate against unmet needs

Focus on self-fulfillment

Channel Needs Product NeedsConsumer Trends

Ubiquitous online and mobility access

Continue drive for value

Increase demand for variety

On-the go convenience

• Experiential • Authentic

• Thematic

• Mobile, Social • Interactive

• Inexpensive • Increased value / utility

• Endless shelf • Customized

• Be where the consumer is

• Portable

Unmet Needs

Delivering effective innovation requires the power of Convergence

Emerging Convergent Platforms

Coca-Cola Freestyle©

Tesco HomePlus

Nestle BabyNes

Clinique Smart BarTM

Pro

du

cts

Ch

ann

els

Consumer Needs Targeted

• On the go convenience

• “Endless shelf” assortment

• Customized content (i.e. mixing different flavors)

• Interactive experience

• Interactive exploration (expert recommendation)

• Single dose convenience and speed

• Customized variety (temperature, concentration)

Convergent Technology and Capability Enablers

• Digital LCD display

• Mobile shopping

• Integrated last mile delivery

• Micro-dosing

• Wireless CRM data management

• Social media interactivity

• High resolution image recognition

• Genius recommendation analytics

• Micro-electronics

• Ultra-concentrate powered food formulation

Convergent platforms are increasingly cross-disciplinary, complex, and externally sourced

Current Future “Convergent” Platforms Unchartered Territory for CPG

and Retailers

• Design / engineering complexity

• New, diverse supply base

• Numerous component technologies

• Complex assembly

• Shorter product lifecycles

• Focus on new experience and functionality

• Multi-function and disciplinary technologies

• Increased variety

Increasing Complexity in Convergent Innovation

• Focus on consistency

• Anchored on one primary technology

• Limited variety

A shift from traditional outsourcing to network orchestration is required for Convergent platform success

Effective orchestration and partnerships will be the next battleground for competitive advantage

Traditional Outsourcing Platform Orchestration

Strategic capability / activityNon-core activity

Scope of Firm (in-house vs. outsource boundary)

Increased “cross-boundaries” coordination

(i.e. more firms and functions)

Increased Complexity

Higher risk and stakes in sourcing strategic

competencies

Increased need to balance collaboration with

competition

3 building blocks for effective innovation orchestration

Platform Orchestration

Create the Right Orchestration Organization

Build & Evolve the Right Partnerships

Understand and Check Ecosystem Entropy

1

2

3

Breakthrough Impact

• 25%-50% faster develop to market launch

• 20%-40% cost advantage

• Improved bottoms-up innovation

• Sustainable platform and next generation introduction

12

3

Installing the right organization and management team 1

Critical Requirements Unlocked …

• Speed and agility

• Autonomy

• Culture of risk taking and experimentation

• Outside the box thinking

“Incubator” organization for effective orchestration

Incubator “Company”

Dedicated and autonomous

Mandate & Objectives Mgmt. Team

Resources and personnel

Decision Rights across

FunctionsFunctional Units

Shared incentives

Senior Leadership

Parent Company

Champion

Resources and Personnel Shared Incentives• Empower and compensate to

secure true “boundary” spanning talent

Value chain function “boundaries”

Technology “boundaries”

• Significant % of personal compensation tied to incubator objectives, not divisional profit

• Executives evaluated by total external span of control, not just direct FTE report count

Establishing and sustaining the right partnership structure critical for coordination and performance

2

How to ensure effective integration activity outsourcing in innovation?

“Activity Integration” ... Failures in “Activity Integration” Can be Costly …

"The [launch delay] news is negative. Even without the technological problems, the issues regarding the console's profitability remain” Nomura Securities Analyst

Boeing … aggressively farmed out big chunks of its new 787 and stumbled badly. … it has since … integrated more closely with its remaining contractors. WSJ, Jul 2012

Palomar’s partnership with J&J to mass market a home-use wrinkle device was terminated in Oct, 2009 due to economic conditions and extensive earlier FDA approval delays

Platform development consists of a series of interconnected Activity Integration efforts

Plastic Shell Design

Design

Getting the scope right (who does what)?Getting the span right (how much does one entity do)?Getting the hand-off and coordination right

Body Design

Ribbon Lighting Design

• Plastic shell• Metal chassis• GUI screen

• Plastic Forming

• Ribbon Lighting Design

• …• LED lighting

• Electronics

Defining the right partnership structure 2

Degree of Competition

Sp

an o

f C

on

tro

l

Single Multiple

Master Turn-Key

Distributed Turn-Key

Distributed Integration

Controlled Integration

Lo

os

eT

igh

t

Internal Firm Competency

• Does the orchestrating firm have the know-how to manage upstream value chain?

• Can the underlying processes and sub-activities be easily decoupled and decomposed?

Process Modularity

• Is there need for highly specific asset or know-how

Asset Specificity

IP Appropriation / Business Risk

• Is there significant IP risk by delegating control to partner?

• Is there a risk of “undifferentiated” solution by delegating upstream value chain control?

Key Considerations for Establishing Partnership Model

e.g.) Sony PS3 console

e.g.) Cisco Tele-presence

e.g.) iPhone production

e.g.) Automated kiosk design

Informs Partnership Program Design

Roles and Activities RACI

Incentives & KPIs

Evolving partnership over time to sustain performance2

Change Existing Span of Control

Single Multiple

Master Turn-Key

Distributed Turn-Key

Distributed Integration

Controlled Integration

Lo

ose

Tig

ht

1

2

Firm Strategy Development

LifecycleMarket Structure

• Firm strategy shift vs. upstream competencies

• Key activity more commoditized Development cycle/speed change

• Regulatory / IP law changes

• …

• Increased in-house expertise

• …

• Increase in underlying process modularity

• Activity risk and/or design complexity reduction

• Alternative substitute technologies or solutions

• …

Market, Competition, Firm Trigger Events for Evolving Partnership Structure

Change Existing Degree of Competition

1

2

Evolve Partnership ProgramRoles and RACI

Processes

Incentives

Complex innovation orchestration is vulnerable to run-away ecosystem entropy

3

Drivers of Ecosystem Entropy

• Over focus on speed and convenience during the development process, leading to accumulation of redundant sub-suppliers and contractors

• Tendency for key partners (designers, integrators, suppliers) to use their own up-stream value chain partners without holistic view of total eco-system requirements

• Lack of centralized coordinator and shared incentives to encourage downstream value chain complexity reduction

Orchestrator is best positioned to manage network wide entropy

3 Understanding and containing ecosystem entropy throughput the innovation process

Metal chassis

Micro-electronics

User interface

3 4

5 6 7

8 9 10 11 1

2

Sub-Integrator / Partner A

Sub-Integrator/ Partner B

Prime Integrator

Touchscreen

Metal chassis

Micro-electronics

User interface and Touchscreens

Sub-Integrator / Partner

Prime Integrator

14

13

15

1 2

Complex eco-system of 15 parties

Common Technology

Consolidation

Propagate System Wide

Adoption

Guiding Principles

Upstream Designer / Supplier

Cross-Technology Consolidation

1 2

Simplified eco-system = reduced coordination and risk complexity

3 4

65 7

8

Common Technology Consolidation: Find multiple uses for common underlying technologies

Cross Technology Consolidation: All else equal, leverage fewer designers and suppliers working on the same set of underlying capabilities

Propagate Ecosystem Adoption: Encourage key partners to mirror your approach to reduce their upstream entropy

Thank you. Please reach out to continue the dialog

[email protected]

[email protected]

Sean [email protected]

Mark van WeegenPartner

Michael HuPrincipal