Nestle is known all over the globe as the largest multinational food and beverage company. It’s among the FMCG leaders. The company has its headquarters in Vevey, Switzerland. It operates in over eighty countries and has almost four hundred and fifty factories. The company follows a similar network in nearly all the markets it operates in (King, 2009).
Nestle utilizes open innovation to co-develop innovation and produce quality with both customers and consumers. Intelligence presses forward through innovation. It is recognized as as significant economic growth contributor. Generally, a well implemented innovation results from challenging the conventional wisdom, searching, finding and implementing solutions to both the new and old problems the company faces. This paper will look into the open innovation process of Nestle, the innovative lessons learnt and the reasons those lessons have made Nestle a successful company (Chesbrough, 2007).
The industries are currently competing to with open innovation by opening up to external partners, working with many partners in the value chain becoming less protective with their intellectual property and increasing dependence on collaborative idea generation. Consequently successful open innovation partnerships are enabling meaningful and new ways of meeting the consumer’s demand. Nestle isn’t any different (Spradlin, 2011).
In 2007, Nestle faced increased competition from multinational companies such as Danone and Unilever. Additionally, there was increased competition in the local market in China, Brazil and the US. For the company to maintain it target 5% to 6% growth rate, it was necessary for the company to use innovation to counter this. Instead of seeking internal innovation, Nestle found a way to work with partners in a new way (Chesbrough, 2007).Through open innovation, the goal of the company was co-creating innovationand value with both external suppliers and partners.
INNOVATIVE PROCESS IMPLEMENTED BY NESTLE.
Innovation partnership collaboration is the key piston that drives economic growth in the new millennium. In the open innovation context, companies increasingly acquire technologies from external source. Additionally, a lot of companies have recently started to commercialize technology(Chesbrough, 2009). Nestlé’s adopted an innovation strategy that focused on conducting business with its partners. The company ensured that their joint work met all the rules and regulations that surrounded antitrust(Editor, 2010). All the things were presented as having a clear innovation goal. It was paramount that everything was done transparently and withstood all the scrutiny of the trade commission in any country(Spradlin, 2011).
To sustain open innovation, Nestle adopted the ‘sharing is winning’ business model. The company recognized that for it to thrive and survive in the global market, it was important to seek alliances. The slogan represented the spirit of partnership the company was practicing. It didn’t suggest the naive approach that the partners were giving up any proprietary territory. However, it expressed deep respect that the partners would have for each other as they entered co-development(Chesbrough, 2009).
Value partnership, trust and goodwill evolve via three essential stages; value, trust and goodwill. It’s the creation of value at the beginning is the ultimate partnership goal. Without creation of value, the whole concept is meaningless(Linssen, 2009). To drive creation of value, Nestle, applied a disciplined approach to the process of innovation. The company involved its partners in briefings. Additionally, for its upstream partnerships, Nestle compiled all its future needs for all its business units and shared information with its innovation partners.
Before any company shares its vital and confidential information, it should consider legal issues. The company should establish a legal framework. Initially, Nestle used existing agreements that spelled out the terms and confidential information that could be shared. As progress on shared innovation path was made, however, partners realized the information shared was inadequate. To overcome such obstacles, the company established master joints development agreements.(Linssen, 2009)
LESSONS LEARNT FROM OPEN INNOVATION OF NESTLE.
Embracing open innovation
The company recognized that for it to achieve its growth objective, it was necessary to extend the company’s internal capabilities by establishing a big number of strategic partnerships relationships. By embracing open innovation and working aggressively with strategic partners, Nestle co-created significant product and new market opportunities. Globally, the company has more than 5000 people working in 24 R&D centers. It has extended its research by tapping into the expertise and technologies of over a million researchers all over the world (Perkins, 2012).
Strategic focus importance within the target benefit areas
Nestle had a clear framework of screening new opportunities. The company identified target benefit areas that related to taste, compliance, quality and nutrition. Any idea that was to be pursued had to align with at least one of the identified target benefit areas (Chesbrough, 2014).
Building Partnerships based on trust and goodwill
The company developed an internal culture based on “sharing is winning’ philosophy. It recognized that massive growth opportunities can be achieved by co-created with partners if the relationship is based on the trust and goodwill foundation (Lindegaard, 2010).
Upfront Clarity on handling intellectual property
The company recognized that the manner of sharing IP was the key determinant in moving the partnership discussions toward the desired goals. It made its framework of sharing IP very clear early in the conversation to ensure there were no gaps (Chesbrough, 2014). While there were exceptional cases the norm was that every physical solution was owned by the organization that provided competency. In turn, Nestle owned the new smart applications solution for the period specified in the individual agreement. The partners were aware on the expectation of Nestle right from the start which enabled a more efficient process of partnership evaluation (Lindegaard, 2010).
CHALLENGES AND RECOMMENDATIONS OF ADOPTING OPEN INNOVATIONS
Open innovation has a wide range of constraints and challenges that limits both small and large companies. They range from; legal risks and intellectual property issues, lack of creative resources, processing ideas efficientlyand adopting a more open culture (Gutierrez, 2013).
Legal risks and intellectual property issues
Intellectual property is the most complex and problematic issue that companies face when implementing open innovations. The potential for dispute over intellectual property rights can stall the innovation development submitted by outside sources.The fact is; companies need sufficient information to make innovation decisions while being legal aware (Sloane, 2011).With this in mind, the open innovation program of a company should be designed to accept the desired information. The key for the open innovation being successful is controlling the quantity and type of information being submitted to limit the litigationrisk of the receiving company (Straus, 2010).
Lack of creative resources
There are companies that believe their employees are not cut for thinking creatively. This is an anti-ethical cultural belief to the open innovation principles. Sloanestated that there should be no communication, collaboration, innovation or ideation barriers that people should hide when applying for jobs (Sloane, 2011). There have been suprise idea gleaned from unexpected areas with crowdsourcing assistance simply by availing a platform. Thus, companies implementing open innovations shouldn’t overlook their employees (Chesbrough, 2014).
Processing Ideas Efficiently.
The amount of ideas submitted is one of open innovation’s success. However, when the volume of information hinders the reviewing process and decision making, it creates a huge challenge (Gutierrez, 2013). Without a strategy, there certainly will be disorganization and can result in many receiving companies to either set aside or completely abandon the efforts of open innovation. To overcome this challenge, the companies should establish a strong criteria of evaluation that will allow for submissions to be scored and ranked for business value (Sloane, 2011).
Adopting a More Open Culture
Individuals’ ‘absorptive capacity’ in a company is one of open innovation’s barrier. It isn’t just about the not invented here syndrome, it’s also about the openness of people to different ways of doing, or thinking than what they are normally used to. It’s also about individuals being open to change and developing comfort level with fluid ownership and a certain uncertainty level.Any company that realizes this can assistfoster a more accepting work culture. One of the way of countering this challenge is by instituting activities that will require collaboration across internal groups (Chesbrough, 2014).
Open innovation is comparatively a new concept. Both large and small companies are adopting it while still learning how to get the best results with open innovation. There are barriers for open innovation that are difficult to overcome (Straus, 2010). Nestle company will have to refine its existing practices for it to benefit more from open innovation. Additionally, with digitalization, open innovation has become an even more distributed phenomenon (Sloane, 2011).Open innovation has evolved from a company oriented concept to a more distributed phenomenon the organizational boundaries are blurred and the digital technology has created a new playing field (Chesbrough, 2014).
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