There was a time when a new product idea was kept close to the vest until your team had time to develop it and bring it to market. After all, you didn’t want anyone to scoop you. It was your idea, your baby; your company held the intellectual property, and it was risky to divulge information.
Closed innovation is the name given to this model by Harvard Business School professor Henry Chesbrough. His 2003 book, Open Innovation, traces the changing business climate and philosophy regarding product innovation over the past century. In a world where the only constant is change, how that change occurs becomes an issue of great importance to everybody with a business interest, including food processors.
According to Chesbrough, the process of bringing new ideas to market is undergoing what science historian Thomas Kuhn describes as a paradigm shift from the old model of closed innovation to new open innovation. In the old model, successful innovation required complete control. Companies generated new ideas and then developed, built, marketed, distributed, financed and supported the resulting products on their own.
This “self-reliant” model was characterized by a “virtuous circle.” Investment in R&D led to many breakthrough discoveries that enabled companies to bring new products to market and realize more sales and higher margins, which permitted reinvestment in more internal R&D, which led to further breakthroughs.
In this model, which had generated innovation for decades, internal R&D was viewed as a strategic asset, a barrier to competition in many industries because rival companies needed the resources to invest in their own labs. But evolution proceeds from a change in climate. For many reasons, the closed innovation model evolved.
In 1980, Congress passed the Bayh-Dole Act, which allowed researchers to patent inventions developed with government funds. The effect was to make research more available as national labs became open for commercial applications. Add to this the influence of the Internet and open innovation was on its way.
Opening the model
The open innovation paradigm, unlike the virtuous circle, expressed the need to work with people both inside and outside the company. It recognized that external R&D can create significant value, while internal R&D is needed to claim some of that value. You don’t have to originate the research to profit from it.
Erosion of the closed innovation model and movement towards a more open innovation paradigm meant that sharing expertise was now a wise move. Application of this model to the food industry means firms can and should use external ideas as well as internal ideas to advance their technology.
The risks and pressures in creating a new product or extending a successful product line have increased greatly in the last few years, according to Alan Reid, senior vice president for U.S. manufacturing and ingredient marketing at Dairy Management Inc., Rosemont, Ill. DMI is a not-for-profit organization that leads and manages the American Dairy Assn., the National Dairy Council and the U.S. Dairy Export Council and works to increase demand for U.S. dairy products and ingredients on behalf of America’s dairy producers.
“Expectations for sales are increasing for new products and for line extensions, but the success rate is not. This tends to favor fewer creative products and more sequels,” says Reid.
“It’s expensive to launch entirely new products, and that means opportunity left on the table,” he continues. “A third party can help manage risks, introduce new thinking, supply needed data, provide insight and inject the energy necessary to make the new ideas successful.
“The best practice for new product development is a cooperative approach. Research and development, sales, marketing, production, operations, finance and procurement are different functions that may not always coordinate efficiently. The purpose of the third party is to make certain these departments talk to each other effectively. The third party may provide seminars with different presentations ranging from consumer trends to potential health claims to product development to help assure the most efficient cross-functional team,” adds Reid.
Dairy does a good job delivering product value. But to make greatest use of its potential, the in-house research and development team must have specialized resources that only state-of-the-art dairy science can provide. At DMI, the specific expertise is readily at hand.
In order to stay ahead of trends and provide expertise that may not be available at the company, DMI funds centers for dairy research like The North Carolina State University Sensory Service Center. One need only look at the booming yogurt category to see evidence of the application of this expertise.
Connecting to the network
At NineSigma, Cleveland, the approach is something clients call “insourcing innovation,” rather than outsourcing product development. “Typically companies need enhanced research and development capability. NineSigma’s role is to help the client put together a team based on their needs, which from one client to another can vary extensively,” says Paul Stiros, CEO of NineSigma.
Note to Plant Ops … and Packaging
Just as the management and/or R&D team must carefully consider outsourcing product development, so must they consider outsourcing manufacturing. Contract manufacturing and packaging can help food processors improve operational efficiency, shorten time to market and improve cost control.