Open Innovation at Kraft
Creating New Value from External
Innovation Partnerships
Mark Barrett
Senior Associate Principal Scientist
Kraft Foods
February 27, 2012
An
Amazing
Brand
Portfolio
Impressive global reach
• 12 brands with more than $1 billion in revenue
• 70+ brands with more than $100 million in revenue
• 40 brands over 100 years old
• 80% revenue from #1 share positions
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Kraft
Foods
Global
Inc.
–
2012
Impressive global reach
• World’s #2 food company, #1 in North America
• Approximately $49 billion in revenues
• Sales in approximately 170 countries
• #1 in global biscuits and confectionery
• Approximately 127,000 employees
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Global
R&D
Organization
Impressive global reach
3000 scientists and engineers in 15 sites globally
Banbury
Bournville
Tarrytown
Saclay
Reading
Suzhou
Munich
Eysins
Madison
Whippany
Glenview
East Hanover
Mexico City
Melbourne
Curitiba
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Why do Open Innovation?
The Business Challenge
+
5%
Top Tier
Growth
$2.5B
Annual
New Business
Growth
Innovation is the fuel that will drive growth
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Why do Open Innovation?
• For Kraft, 5% growth is the equivalent to creating a
$2.5B business every year
• Cost of innovation is growing
• Speed to market needs to improve
• Additional internal R&D investment difficult to
secure
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…and 97.% of food related IP is
owned by others!!
FOOD-RELATED IP*
97.8%
40000
30000
• We need to actively
expand our external
networks to tap this
vast IP pool of
innovations
20000
10000
2.2%
0
KRAFT
ALL OTHERS
* From 1990-2004. Food Related means patents coded with International
Patent Classification A21/A22/A23 or
US Classification 426. US, Europe and PCT.
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• Although Kraft has
strong patent
estate, the vast
majority of IP is
external to Kraft
• Open Innovation is
the strategy to
address
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Open Innovation is the way forward
The goal of Open Innovation is to accelerate Kraft growth
by levering unique and relevant external solutions to meet
our strategic consumer needs
• Getting new innovations
• Getting bigger, game-changing innovations
• Accessing more talent
• Managing risk
• Less investment
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• Speed
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Innovation fueling growth
•Harnessing the power of internal innovation
networks
– >3000 scientists & engineers
–>125,000 employees
Complemented with…
• Levering external innovation networks
–Open sourcing of innovation
–Expanding innovation capacity and capability
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Open Innovation is an Evolution
Building on past success and developing new capabilities
Establish the
Foundation
Addressing
the
Culture
Build Capability
STRATEGIC IMPERATIVES
1. Focus
2. Building Capabilities
3. Partner of Choice
AND…
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Deliver Game- Changing
Innovations to Drive
Growth
Enabling Open Innovation
Success
Evolution versus revolution
Focus
TO
Tactical,
incremental
Strategic, gamechanging
• Separate OI &
BU needs
• One set of BU
OI goals, needs
• Separate OI
team
• Hub & Spoke
construct
Capabilities
• Few innovation
brokers
• Broad suite of
tools, networks
Culture
• OI is “their role
• Embedded into
OI framework
Needs
Organization
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FROM
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Open Innovation Workflow
Development Strategy
“WANT”
WANT
FIND
Partner Selection
“FIND”
MANA
GE
GET
Partner Engagement
“GET”
Partnership Optimization
“MANAGE”
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Translating Wants into “Scoutable”
Needs
WANT
•
•
•
•
Technologies
Package Innovation
Partnerships
Business
Opportunities
• Experts / Know-how
• Equip/Mfr Solutions
WANT
MAN
AGE
Needs
FIND
Priorities
GET
Deliverables
Implications
Customer & Enterprise Needs
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Internal “Hub & Spoke” network design to
drive open innovation
• HUB
Candy &
Gum
Tools, Process, Culture
– Build organizational capabilities and
Chocolate
networks
– Prospecting for game changers and
new business partnerships
– Governance and metrics
– Lead OI Community of Practice
Biscuits
• SPOKE
Research
Centers
(US & UK)
OI
Corporate
Hub
Regional
Centers
Scout, Content, Collaborate
– Identifies key business unit priorities
– Scouts for opportunities
(suppliers, innovation brokers,
licensing, game-changers)
– OI champion/change agent
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Refreshment
Coffee
Beverages
Cheese &
Dairy
Suite
Open
Innovation
Tools
Suiteofof
Open
Innovation
Tools
NEXT
The Alliance
Management
Group, Inc.
INITIAL
Supplier
CoDev/
Challenge
OI Kiosks
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Supplier Joint
Value
Creation
Open Innovation at Kraft
Combination of existing and new capabilities
OPEN INNOVATION
University
Research
Supplier
Challenge/
SIS
Supplier
Collaboration
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Licensing - Out
TM/
Technology
Licensing - In
TM/
Technology
Alliances/
Partnerships
External
Ready-To-Go
Products/
Packaging
Venture
Capital
InnovatewithKraft.com
Yet it is often “push” versus “pull”
We need to be more open and collaborative
internally and externally
• Know what we know
Knowledge
•
Documenting,
sharing,
and
reusing
Management
our institutional knowledge
Open
Innovation
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• Knowing what others know
• Levering external solutions and
capabilities
Inventing Delicious Framework
Strengthens How we
innovate by integrating
the competencies and
best practices of
Knowledge Management,
Open Innovation and
Intellectual Property into
the technology
development process
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The Inventing Delicious Framework
Helping you deliver better … faster.
The “What”
Corporate/
Business Unit
Strategy
The “How”
Technical
Challenges/Needs
Intelligence
Gathering
IP & Technology
Sourcing Strategy
Development &
Commercialization
Ask three high-level
questions:
1
What do we
know?
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2
3
What do others
know?
What is our IP
strategy?
Business Process – Embed open innovation
into strategy
Consumer
Needs
1. ~~~~~
2. ~~~~~
3. ~~~~~
OI Lead
R&D
Sales
Cross-Functional
BU Team
Marketing NPD
Operations
(Internal & Ext)
Legal
Possible
Solutions
Procurement
► Open innovation considered at onset of project
► Shared ownership & alignment
► One set of goals: BU owned; OI enables
► Created an Innovation Framework incorporating OI
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Creating Value from External
Development Partnerships
What OI levers to pull?
VALUE CREATION
Scouting for New Solutions
Searching
inside your
network
Supplier Co development
Supplier &
Coman
Challenges
Alliances /
Partnerships
Licensing In
- Technology
Licensing In
- Trademark
Product
In-bounding
DIFFICULTY & TIME
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Building external innovation networks
Where to scout?
Supplier/External Manufacturers
Innovation Brokers
Start-Ups/Entrepreneurs
Universities/Government Labs
Companies with Commercial
Products/Packages/Technologies
Venture Capital
Innovatewithkraft.com
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Strategic Approaches to Establishing
Innovation Partnerships
• Understanding internal core competencies
• Aligning with the business strategic plans
• Identifying platform opportunities to drive growth
• Cross functional alignment
• Assessment of supplier capabilities
• Discussion to gain commitment and support with Kraft
and partner
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Kraft’s Vision for Supplier Relationship
Management (SRM)
Kraft seeks to drive supplier relationships to a new level,
generating shareholder value by achieving breakthrough
innovation and creating new avenues for growth
• Across the enterprise, Kraft views key suppliers strategically and is
committed to evolving our culture to best utilize them
• Kraft is actively dedicated to promoting the joint success of the
company and our key suppliers – a success greater than we can
achieve working independently
• Kraft is dedicated to earning a reputation among its suppliers and in
the marketplace as “Most Desired Partner”
• Kraft is committed to jointly measuring and continuously improving
the way in which we work with all suppliers
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External development partnerships are enabled
by OI Tools and Processes
•Relationship Segmentation Assessment
•Supplier Challenges Process
•Joint Value Creation Workshop
•Legal Frameworks & Roadmaps
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Segmentation of suppliers is critical to the
optimization of supplier relationships
TIER
1
TIER 2
• Determines what kind of relationship
to develop with suppliers
• Ensures supplier assets and
capabilities are optimally leveraged
TIER 3
TIER 4
• Ensures optimal allocation of resources to maximize the
return on Kraft’s SRM investment
• Clarifies and manages supplier expectations
• Ensures internal alignment around supplier
management activities, roles, and responsibilities
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Supplier Innovation Challenge
• Marketing owned Consumer oriented brief
• Compressed time frame
• “Fair and reasonable” legal framework
• Showcase with cross functional team
• Disciplined 30 day GO/NO GO decisions
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The purpose of the Joint Value Creation Process is to
lever external partners for creation of breakthrough
and new category adjacency innovations
OBJECTIVE
Step up collaborative external relationships to solicit breakthrough
innovations and new category adjacency opportunities to
accelerate top line growth
BENEFITS

In-bounding of game-changing innovations
 Gaining privileged access to technology
 Increasing capability of internal R&D
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
Developing pipeline of innovations new to Kraft/industry

Strengthening Kraft’s “Partner of Choice” credentials

Partner gains greater benefits from deeper collaboration
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Legal Agreement Options
What is the type of
interaction between
Kraft & Supplier?
What is the
Supplier’s role?
Sample Request &
Application
Support
Provide technical
support
Coordination
What is the desired
Kraft outcome?
Which Agreements
are executed?
How is IP
Ownership
Addressed?
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Identify optimal inmarket ingredient
solution
Confidentiality
Agreement or
Sampling
Agreement, as
needed
Not Applicable
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Innovation
Collaborative
Development
Research
Create and present
Supplier solutions to
solve Kraft problems
Contribute to the
development and
commercialization of
new Kraft products
Invent and
develop technical
solutions
Innovation
Collaboration
Invention
Increase innovation;
Create new avenues
for growth
Innovation
Agreement(s)
Negotiated based
on type of
innovation activity
Improve quality and
speed of
development
Create enabling
technology / IP
Development
Master
Agreement
Research
Agreement
Defined in the
Project
Agreement
Negotiated based
on type of
research activity
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Key Takeaways
• Open Innovation is a compliment & not a replacement
for in-house R&D
• There are different times and places for the different
types of Open Innovation
- Impact versus speed
• Getting it right requires striking a balance between -  Culture
 Tools
 Processes
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Partnering with Suppliers have delivered
innovations that fuel Kraft’s growth
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Game Changers
Challenge: Identify Breakthrough
Innovation to drive growth
Lessons Learned
• Serendipity in open innovation
• Scouting non-food/beverage
networks to identify breakthrough
innovation
• Co-development agreement ensures
success will be based on levering
strengths of both partners
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Supplier Challenge
NPD Challenge: Identify Breakthrough
Ideas to leapfrog the competition
Lessons Learned:
• By leveraging the supplier challenge
process, new products & packaging
can be developed quickly while
taking advantage of “end-to-end”
thinking
• The business can access supplier
creativity and optimize the design
and commercialization efforts
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Joint Development
Challenge: Create a platform technology
Lessons Learned:
• Getting the right partner gets us to
market first
• The right relationship and contract allows
relationship to mature and diversify into
other value creating opportunities
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Near Market Licensing
Challenge: respond to competitive threat &
key consumer dissatisfier
Lessons Learned:
• Can turn a consumer dissatisfier into a
growth enabler
• Proactive scouting for external
technology enabled a get-to-market
faster solution
• Can build off the licensed patent to
deliver additional IP & value for Kraft
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