Kevin McFarthing IACCM 11 May 2011

Open Innova*on, Contrac*ng
and Rela*onship Management
IACCM 11 May 2011 

Dr Kevin McFarthing 

© Innova(on Fixer Ltd 2011  1

Contents
 
1.  What is Open Innova(on? 
2.  Why and how? 
3.  Role of suppliers 
4.  Role of procurement 
5.  Contracts 
6.  Rela(onships and communi(es 


The Closed Innova(on Paradigm 

Science 
&  The 
Technology  Market 
Base 

R  D&E 

The Open Innova(on Paradigm 
Other Firm’s  
Licensing 
Market 
Technology Spin‐oﬀs 
New  
Internal  Market 
Technology 
Base 

Current 
Market 
External 
Technology 
Base 
Technology Insourcing 
R  D 

Outside In OI
 
•  Deﬁni(on: 

•  "Outside In" OI is when you access other 
people's assets to add value to the products 
and services that you deliver to the market. 


OI – basic principles
 
•  Your customers really don’t care where the solu(ons come 
from – why should you? 
•  There are more smart people outside your organisa(on 
than inside 
•  OI increases the number and range of solu(ons to your 
technical and product problems 
•  OI can be faster depending on your ability to integrate and 
the partner’s ability to cooperate 

•  AND  
•  Your compe(tors are doing it – you are now ﬁgh(ng on 
another ba_leﬁeld 


OI – basic principles
 
•  A greater propor(on of IP is being registered 
by SMEs 
–  e.g. Kra` quote that ≈98% of food IP is generated 
outside Kra` 
•  An increasing propor(on of IP is being 
generated in countries like China 
•  OI leverages exis(ng internal resource 
•  OI doesn’t have to be riskier 


Want/Find/Get/Manage framework 
•  Understand what you need 

•  Understand where to ﬁnd it 

•  Understand how to secure it 

•  Understand how to manage the rela(onship – 
and build open innova(on for the long term 

Where do you look? 
•  Exis(ng contacts  
–  Suppliers 
–  Customers  
–  Universi(es  88% of companies use
suppliers for innovation
–  Friends  (HEC, Paris)
–  Referrals 
•  Research tools 
–  Google!! 
–  Patents, publica(ons, news 
•  Intermediaries 
–  Consultants  
–  Brokers 
–  Technical experts 


Suppliers
 
•  You have a lot already in 
place 
–  Rela(onship 
–  Systems 
–  Enterprise integra(on 
–  People 
–  Responsibili(es and 
governance 

•  They have competencies you don’t have 


Suppliers
 
•  You may also have 
–  Power 
–  Mul(ple sourcing 
–  Leverage  
–  Lack of trust 
–  A thick contract  
–  More lawyers 


How does the supplier feel? 


The internal dilemma 
•  R&D and Marke(ng want innova(on 
•  Procurement also want 
–  Lowest price 
–  Guaranteed delivery 
–  Favourable payment terms 
–  Mul(ple sourcing 
–  The upper hand 


Nestlé 
•  “Sharing is winning” philosophy 
•  Partners include 
–  Barry Callebaut, BASF, Cargill, Cognis, DSM, DuPont, Firmenich, 
Fonterra, Givaudan, IFF, Kerry, Mane, Symrise, Tetra Pak 
•  Nestlé shares its future needs for all its business units with 
innova(on partners 
•  Have a Master JDA, with project addenda 
•  IP ownership principle 
–  Every physical solu(on is owned by the competency‐providing 
partner 
–  The smart applica(ons are owned by the receiving party 
(Nestle) 
•  SiW has added $200M in revenue 
Source: Nestlé © Innova(on Fixer Ltd 2011  14

Nestlé and Cargill 
•  Cargill won the 
ﬁrst “Nestlé 
Research Open 
Innova(on Award” 

Source: Nestlé © Innova(on Fixer Ltd 2011  15

Kra` ‐ Open Innova(on Driving Value 
Crea(on 
Scouting for New Solutions

Searching Alliances /
inside your Partnerships
VALUE CREATION

network
Licensing In
- Technology
Product
In-bounding
Licensing In
- Trademark
Supplier &
Coman
Challenges
Supplier Co -
development

DIFFICULTY & TIME
Source: Kraft © Innova(on Fixer Ltd 2011  16

Kra` 
•  From transac(on to collabora(on 
•  Being less prescrip(ve opens up more 
opportuni(es 
•  Supplier challenge process 
–  Brief 
–  Develop solu(ons 
–  30 day go/no go 


Kra` 

Evaluate/ Advance per 
Iden(fy business  Engage  Develop/
Decide/ agreed 
need  supplier  Work/Product 
Communicate  process 

Challenge   Kick   Check  Check  Decision 
brief  oﬀ  in  in  deadline 

                     SHOWCASE 
•   Best ideas presented 
•   Key stakeholders in a_endance 
•   Supplier and marke(ng interac(on 


A diﬀerent approach… 

•  $6bn household product company 
•  Usually #2 or #3 in their categories 
•  WIN BALANCING 
•  If an Open Innova(on project comes oﬀ, 
everybody wins 
•  If it doesn’t, Clorox compensate the supplier 
•  There is always money on the table for the 
supplier – so they come back to Clorox 

Source: Clorox © Innova(on Fixer Ltd 2011  19

Help them 
•  Do your suppliers know 
–  Your strategy? 
–  Your priori(es? 
–  Your consumer/customer insights and needs? 
–  Your technical needs? 
–  Product priori(es? 

•  The more they know, the more they can help 


How much to tell them? 
•  Don’t surprise a compe(tor 
•  Be as speciﬁc as possible about the problem 
•  Don’t be too prescrip(ve about the solu(on 
•  Ask yourself – what’s the worst that can 
happen? 

•  Be open to exploi(ng the surprising, 
unan(cipated proposal 

Integrate internally 
•  You must have full buy in and involvement of 
the key areas of the business 
–  R&D 
–  Procurement 
–  Legal 
–  IP 
–  (Marke(ng and supply) 
–  Alliance oﬃce
–  Open innova*on team

Role of procurement
 
•  Be fair to procurement – don’t measure them on one 
thing and demand another 
•  Measure on innova(on and classic commercial goals 
•  Innova(on can deliver new products and cost savings 
–  Kellogg split opportuni(es into these two groups, with 
diﬀerent processes 
•  Train and support appropriately 
•  Understand if policy changes are required 
•  Understand if more training is appropriate 


Contracts
 
•  Common fields  •  Project specific 
–  Exclusivity or not  addenda 
–  Services (both ways)  –  Field 
–  Payments  –  Project brief 
•  Direct  –  Timing and milestones 
•  Supply contract 
•  Royalty 
–  IP 
–  Confiden(ality 
–  Dura(on/termina(on 
•  Boilerplate 

To consider….
 
•  Do you really need  •  Do you really want to send 
exclusivity?  innova(ve proposals out to 
–  Total  tender? 
–  In your field  –  Reac(on of supplier 
–  Will non‐exclusive give what  –  You’re unlikely to get the best 
you want?  they have to offer 
–  How long do you need it?  –  Limits the rela(onship 
•  Dura(on/termina(on  –  Strong disincen(ve 
–  One off? 
–  Ongoing rela(onship? 


To consider ‐ Intellectual Property 
•  Do you really need to own the IP? 
–  Totally 
–  In your field 
–  In your geography 
•  What is the commercial benefit? 
–  What does the IP protect? 
–  What is the expected product life(me? 
•  How easy can compe(tors develop around the IP? 
•  Are you be_er off keeping it a trade secret? 
•  Owner needs to maintain IP 
–  Reversion clause is essen(al 


To consider….
 
•  Indemni(es 
–  Protec(ng your business could put the other 
company’s business at risk 
–  Are they too one‐sided? 
•  Project failure and liability 
–  Innova(on projects fail, it’s a fact of life 
–  Don’t punish the supplier for genuine, competent 
project failure 


Suppliers need to play ball
 
•  It’s not just about increasing volumes 
•  It’s not just avoiding price decreases 
•  It’s not about increasing your slice of the pie; 
it’s about increasing the size of the pie 

•  It’s about building a long term rela(onship 
with your customer for the beneﬁt of your 
customer’s customer 

From bilateral to community 
•  O`en suppliers are managed at arm’s length 
•  Why? 
•  Build an ecosystem, a community 
•  Use the richness of interac(on for your beneﬁt
 
•  Encourage community collabora(on  
•  Supplier days 
•  Mul(ple points of contact 


•  Network of 
exis(ng suppliers 
•  Invita(ons for new 
ones to join 
•  Clear indica(on of 
beneﬁts 
•  Direct contact with 
R&D and 
packaging teams 


P&G 
•  OI projects (external input >50%) reportedly achieve 
70% higher NPV than internal projects 

•  New goals for Connect & Develop (October 2010) 
–  C&D to triple its contribu(on to P&G’s innova(on 
development by delivering $3 billion toward the 
Company’s annual sales growth 
–  P&G to become the Partner of Choice for innova(on 
collabora(on by consistently delivering win=win 
rela(onships 


From briefs to the genuinely new 

Long term 
Joint  supply and 
opportunity  innova(on 
and IP  alliance, as 
Sharing  genera(on  part of a 
Informa(on  supply 
and needs  community 
Innova(on 
briefs 


Ul(mately… 
FROM TO
Threats   Mutual help  
Suspicion   Trust 
Avoiding risk   Seizing opportunity  
Indemni(es   Sharing risk  
What can go wrong   How we can get it right  
Our slice of the pie   Making the pie bigger  
This project   Long term rela(onship  
We must own all of it   We have access to what we 
need  


This is the job!
 
•  You drive the crea.on of new supply chains for 
new proposi.ons that bring sustainable sales 
•  Open Innova*on • 
growth. 
You collaborate closely with the Innova.on 
purchasing/value Theme Leads and the Innova(on Leads on 
deﬁning the search direc(ons. 
sourcing manager •  You collaborate closely with the purchasing and 
supply intelligence teams globally. 
•  You create and maintain the global network of 
knowledge, technology and supply partners, 
•  As Open Innova(on Purchaser  extending way beyond the current supply base. 
•  You connect with upstarts, ventures, technology 
you are responsible for ﬁnding,  brokers, etc to in‐source technologies and 
rela(onship building, selec(ng,  products. 
contrac(ng and monitoring high‐ •  You deliver new supply chains for new‐to‐Philips 
proposi(ons. 
tech knowledge, technology and 
supply partners globally. 
•  You manage the rela(ons with key development,  
marke(ng and supply partners. 
•  You are part of the project teams and inform all 
stakeholders pro‐ac(vely. 
•  Your scope is interna(onal so extensive 
travelling is part of this job 

Thank you!
 


Kevin McFarthing IACCM 11 May 2011

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Kevin McFarthing IACCM 11 May 2011