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Nestlé Thailand Field Trip Management of Innovation School of Management, AIT
Propose to Dr.Babara Igel Propose by: Laure Chevalier 115322 Caroline Kuster 115315 Rhea L. Gumasing 115329 Tansinee Towongphaichayonte 114265 Neha Manandhar 114272 Alipio Baltazar 114550 Anuj Shrestha 114554 Apipat Iamsakul 114267
Nestle Thailand Field Trip
Innovation Competitive Advantage Describe the competitive advantages achieved by Nestlé’ Thailand through its local NPD function. Analyze whether these competitive advantages are sustainable (= based on which core competence?) or can be imitated by competitors. Laure Chevalier
Nestlé, as a multinational company has a strong corporate vision to be recognized as a leader in health nutrition. It focuses on key dimensions: pleasure, balance and understanding. Innovation is one of Nestlé's key competitive advantages, creating value from investment in science and technology. To maintain a good level of innovation, the company relies on 3 science and research centers, 12 product technology centers and 18 R&D centers. Nestlé’s new product development function is based on interrelated notions: strategy, exploration, execution and assessment. Moreover, the company’s strategy relies on the “5 generation pipeline”: research with innovation partners, early stage research, product development, launch preparation, and launch. These 5 steps are based on Nestlé research center, product technology centers, and the markets. This innovation pipeline is applied to all businesses. Moreover, Nestlé tries to create value not only from investment in science and technology but also from deep consumer insight. They want to be at a global scale but with local relevance. Nestlé ensures that the consumer, and the consumer benefit, remains at the core of all their activities. Nestlé R&D focuses on three areas of benefits for consumers to reach a sustainable success: safety and quality, nutrition and health, taste, texture and convenience. The company wants to create value from farmer to consumer, trying to understand both of them. Nestlé’s new product development strategy is based on the “B3”: bolder initiatives, bigger opportunities, better execution. Nestlé tries to find what is needed by consumers, what is commercially achievable and what is technically and scientifically possible. This is achieved by intellectual property, fast deployment, regulatory claim development, standardized raw material & recipe management, and packaging and design. With this, Nestlé is able to go from consumer benefit to fast deployment. Nestlé’s NPD function is a means to achieve competitive advantages, creating unique product and brand portfolio, unique R&D capability, but also particular geographic presence. These hard-to-copy advantages are based on core competences: innovation & renovation, wherever, whenever, however, consumer engagement and operational efficiency. It is a way to strongly differentiate from competitors. Nestlé also relies on trademarks, patents and confidentiality to make these advantages sustainable.
Innovation Strategy and implementation Assess if Nestlé’s corporate technology policy is consistent with mission, corporate strategy goals and provides clear guidelines for the choice of innovation strategies at Nestlé Thailand (acquisition, licensing, imitation, in-house development, outsourcing, technology partnership, etc.) Is there strategy document with clear, explicit criteria for implementation? How is this strategy communicated to Nestlé Thailand and the operating manager in the local factories? Caroline Kuster
When implementing an innovation strategy the firm’s technology policy should provide clear guidance. Based on information gathered during a field trip to Nestlé Thailand, it can be concluded that Nestlé’s Corporate Technology is very much consistent with its mission, strategic goals and provides guidance for innovation strategies. The following analysis will present the necessary evidence: The corporate strategy of Nestlé functions as a starting point for the development of the innovation strategy. The company’s mission of "Good Food, Good Life" is to deliver the consumer best tasting and most nutritious choices of food and beverage categories. Nestlé’s objective is to be recognised as the world leader in Nutrition, Health and Wellness, trusted by all its stakeholders, and being reference for financial performance in the industry. In order to achieve the objective, Nestlé’s unmatched R&D capability focuses on driving innovation and renovation (existing Management of Innovation - Group C
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products with a refreshed aspect). Science and the technology behind enable the development of products while focusing on continuous improvement of quality, nutritional profile, sustainability and affordability. “Think global, act local” is the dictum of the decentralized organization to respond to local consumer needs. The role of technology at Nestlé is simple: Consumer drive, technology s. Technology helps to convert innovation into good food and good life products. Therefore, the idea generation is based on a clear market pull rather than a technology push. The market dictates the course of action by defining market needs first. It is a consumer-centric innovation model, which starts and ends with the consumer. Science and consumer insight together create a competitive advantage; a type of target innovation. Procedures leading to innovation at Nestlé are clear since they consistently aim to achieve major corporate objectives. To ensure the achievement for all new R&D projects, a set of four criteria must be fulfilled first: Consumer need must be confirmed, technology needs to be feasible, commercial potential must be existing and shared value being created. The “60/40” rule deployed by Nestlé further functions as a stage gate for new innovation projects and provides evidence for the competitive leadership strategy being a technology leveraging one. Nestlé aims at being better than its competitor. Innovation projects are being coordinated and somehow communicated through the innovation network: At the global level there is the so-called PTC (Product Technology Center), where product and process development take place. Every PTC is specialized on a specific product category, which leads to the work distribution being product related. The choice of innovation strategy is further based on a simple process: Through the cluster approach comes the input from relevant areas, that specific technology might be available in one location, and that this technology will improve the business development of Nestlé in that country. In addition, Nestlé analyzes the potential relevancy for alliance (e.g. acquisition in Russia) in that specific market and its ability to travel across the globe. If the requirements are met, there is a high chance for the alliance to take place and the concept being rolled out in other countries. Besides acquisition as one choice for innovation strategy, Nestlé further uses outsourcing in case the necessary resources are internally unavailable, and external technology partnerships (e.g. universities and start-ups) to harvest new technologies. With an open innovation approach scientists at Nestlé makes use of knowledge from internal (PTC) as well as external sources, which allows the company to exploit bigger, bolder, better opportunities. Based on the cluster approach and various other cross-country and cross-functional meetings, it can be concluded that the communication at Nestlé is a knowledge sharing one. The two corporate culture values “openness and curiosity” make sure that the communication path within the organization is kept to a minimum to ensure quick market responsiveness. However, we can further conclude that the communication system highly depends on the personalities being involved. This might lead to problems in the overlapping areas. In conclusion we can say, that innovation at Nestlé is led by the consumer, driven by science (rather than technology) and delivers shared value.
Knowledge Transfer Assess the capability of Nestlé Thailand to acquire and absorb new science and technology knowledge in their research (absorptive capacity). Give examples how new science/technology knowledge was applied in Thailand by Nestlé’s NPD. Rhea L. Gumasing
The idea of absorptive capacity of Nestlé Thailand can be explained as a function of three concepts: culture, strategy and human development. Absorptive capacity is about the capability exhibited by an individual, a group or the firm in recognizing and using valuable information to improve a particular process or product or to develop new ones. Central to understanding absorptive capacity suggests that experience and having an enabling environment can lead to better capacities to absorb ideas and transform these ideas that will influence performance of the organization.
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By this definition, Nestlé Thailand explicitly built their organization with the belief that its success depends on how strong their human resources are. And by strong, meaning, the management and the individuals themselves recognize that they should embody the corporate culture which requires everyone to keep an open mind towards new ideas that comes from within or outside Nestlé, design a program that matches the development of its employees and that employees should be proactive in finding out on their own which programs are suitable for their current and future directions. Building on from this, Nestlé has always been consumer centric as the core driving force behind their leadership in the nutrition business. Nestlé understand that nutrition is a basic need yet the differences in the consumption pattern, consumer preferences, changes in the environment all play a role in making each product uniquely different depending on the local context. Nestlé Thailand operates as an Applications Technology group, and as such they are the last end of the NPD innovation process, and yet equally crucial in the overall operations of Nestlé global. Nestlé Thailand has six factories, employing more or less 2,800 employees and these are geographically spread across Thailand with diverse backgrounds. As such, Nestlé Thailand is very conscious to take people in that are outright competent, motivated and has the values that can work well with the Nestlé culture. ing such large diversity in number and talent is a commitment that Nestlé Thailand takes into heart. Nestlé believed in learning by doing and they practice this by giving their employees responsibility as early and as is reasonable by providing opportunities to work across different countries and culture. Additionally, they also have the Job Success Profile, a key document that outlines the career development path of each and every employee, monitored closely by their Human Resource department, learning consultants and auditor. Factory employees uses a tailored made matrix as a way to track development and learning needs. Also, Nestlé offers opportunities to transfer employees’ own expertise to other global offices on short term assignments. They also recognize that at different levels of the organization, there are potential leaders which can either work as a team or individual. And lastly, Nestlé Thailand exposes its people to associate and work closely with the industry, academic partners and experts as a way to constantly re tool themselves on what is happening in the ground These development for the human resources allows for Nestlé Thailand to make the transition from just knowing to understanding what works for Nestlé Thailand. The cumulative experiences from doing by learning, from training and from cross posting, all add up to building the absorptive capacity of Nestlé employees. This was demonstrated when the idea of developing a product came directly from Thailand and not from one of the R&D centers. The Nescafe Protect Proslim, a 3 in 1 coffee mix, was born out of the idea that coffee, always seen as a beverage that stimulates energy due to its caffeine content, can be also seen as a healthy option among Thai people. The Thai working class people are always one of the healthiest people in the region, yet the changing landscape due to hectic working hours, consumption of fast food products, among others, meant that Thailand’s dietary practices are shifting. With its Creating Shared Value policy, Nestlé Thailand toyed and developed the idea that coffee might be a good value proposition, believing that coffee has more antioxidants compared with tea. After which, they conducted an extensive internal research in collaboration with Nestlé HQ to get formulation of combining roasted beans with fresh coffee green beans. Integrating all this information, Nestlé Thailand brought this concept to one of the Cluster meetings and was approved. Marketing was designed to have an effective marketing mix, and the rest is history. To date, the Protect ProSlim remains one of the fastest selling products of Nestlé Thailand and is forecasted to grow in the next coming months. Essentially, the experience of Nestlé Thailand made them the first mover, resulting to huge returns for Nestlé. This happened because they did the following:
Nestlé management enabled their local staff with global experiences to embrace rather than shy away from responsibility, inspiring them to be open and that they can make contributions their own way The use of external or customer insights to develop a valuable proposition that stemmed from local knowledge/ expertise/experience.
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Collaborated with Nestlé HQ to get internal inputs on the formulation of Protect Proslim and transformed those inputs into a promotional strategy that is meaningful and understandable to local consumers
In summary, the absorptive capacity is a concept that is embedded within the culture, strategy, and human resource development of Nestlé Thailand.
Cultural-specific issue of Innovation management As a Western company conducting R&D and NPD in Thailand, did Nestlé change or modify its original innovation management system/technique/practices to better fit the Thai business environment / business culture context? If yes, identify and describe what techniques and/or practices were modified and why the change was made. Tansinee Towongphaichayonte
Nestlé distributes research centers around the world. Each research centers has specific level and role in research and development product. As Figure 1, Nestlé has four levels of R&D. Application Group
R&D Centres
Product Technology Center System Technology Center Nestle Resrach Centre Nestle Institue of Health Sciences Nestle Clinical Development Unit
Figure 1 Nestle Research Organization Design
The first level research centres focus on fundamental research to explore knowledge of nutrient and health science as platform technology. The second level are consisted of Product Technology Centres(PTC) which exploring critical mass of technology and knowledge of specific product categories and System Technology Centres which developing machines, packaging, electronics and design. R & D Centres provide the science knowledge and research to specific product categories and develop competency of each product. The top level: Application Groups develop new products by applying existing technologies and knowledge and localize product to local environment, culture and specific preferences of each countries.
In bottom level of research organization, the research focus on generic knowledge that can be applied globally and more upper level focus on more specific product and geographic environment. Nestlé Thailand is assigned as ‘Application Group’ to localize products to Thailand’s environment and develop application of product categories to increase more value to customer. Nestlé designed standard process for innovation management since idea sourcing to benchmarking after product launch. However, the process is defined broadly in order to enable innovation team can adapt implementation practices to local environment, cultural context and regulation of each countries. Nestlé Thailand is assigned as application group, thus localization of product development practices is significant in customer need elicitation. For example, interpretation of customer survey. 50% percentile is usually used as threshold of satisfaction level, but it cannot be applied in Thailand. Thai people are, in all likelihood, highly considerate and avoid to rate satisfaction question low. Thus, satisfaction level threshold is risen for Thai customers. As considerate and welcome guest culture, it is open for the company get customer insight more closely. ‘Popularly Positioned Products’ (PPP) is new strategy of Nestlé to design product specific for poor people. Poor population in Thailand are mainly farmers. Nestlé Innovation team decided to gain customer insight by setting up a marketing team to live with farmer for several days. With this way, they could observe insightful behavior and living attitude of farmer to cluster the new target group and design new product responding to their real behavior and need. These examples demonstrate highly customizable practices. Since Nestlé produces commodity products, which tightly connect to people culture and lifestyle. Opening to localize practices s idea exploring process very well. Adapting customer elicitation techniques is important to high customized product as food, which preferences are different to countries. Not only idea exploration process, adapting practices and techniques accelerate NPD process as team environment. Innovative team of Nestlé Thailand is relatively small comparing to huge product Management of Innovation - Group C
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portfolio Nestlé has. The team needs agile and flexible way to co-ordinate with outsource marketing team as well as global R&D centres. Adaptive team structure are adopted to fit with local environment and co-ordinate with global teams. Localized practices and techniques boosts up NPD of high local-connected product to get closer to customer needs. It also enabled the local staff finding new ways of working that their norms and environment to be more creative on new product idea generation.
Human Resource Management for Innovation Assess whether the incentives & rewards to individuals and team, the career path and performance evaluation stimulates innovation in the local workforce. Evaluate which incentives and rewards are most motivating for the local researchers and NPD managers. Neha Manandhar
In Nestlé, the business partners are the HR manager who offers solutions and advices for an organization’s effectiveness. Not only from the professional contribution, have the HR managers also excelled from their communication skills. Interpersonal relations are given a great importance in the Nestlé culture. As per the Nestlé Thailand, the top management employees mainly had an International Experience; the top level employees were given equal chances to roam around the different Nestlé branch around the globe. The company does not consider the candidate’s origin, nationality, religion, race, gender or age. It also provides a working environment where the health and safety of employees are protected with the highest affordable standards of safety, hygiene and security. While promoting the employees the organization keeps an eye on the valuable candidates and sets up a benchmark between internal and external offers as it sets up a policy of long term employment. Nestlé focuses on motivational, stimulating and fair remuneration and compensation package. The remuneration package consists of basic salary, pension and other benefits. The company rewards its team by offering the remuneration above the relevant benchmark; this depends upon the company’s productivity and sales as a whole. It broadens its span by allowing sufficient flexibility so that they can reward the employees effectively for high professional insight and performance as well as individual potential. The individual incentives and rewards are achieved on the basis of the local market, individual performance, skills and potential for development. Another important factor is the communication skills, and dialogue that each manager has with him/her. The company uses an internal position evaluation to reward the employees, it mainly focuses on actively promoting the employees by giving them the opportunity to work in International assignments. This type of projects helps the expatriate employees to participate in regional projects and make decisions accordingly, this enhances the senior level managers to build up their knowledge, skills, decision making potential etc. which will be a plus point to the managers for getting the incentives and rewards. Internal position rewarding system is a job evaluation that targets towards making functions across an organization with regards to different key aspects based on numerical scale. This helps to develop each and every individual inside the organization for growth of their career path. The rewards and incentives are given on the basis of depth performance evaluation. The main idea for motivation for the workers inside is the product itself, when they see their products being displayed finally in the market, nothing is more rewarding than the product being sold and appreciated in the mass competitive market. This leads the workers to innovate new products and introduce it to the market where it is being valued the most.
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R&D Network – Role of Nestlé Thailand Identify the structure on Nestlé’ Thailand’s research organization including any R&D done at manufacturing sites. Analyze the role that Nestlé’ Thailand plays in Nestlé’ corporate R&D network. Alipio Baltazar
Nestlé Thailand is operating under regional office. The regional office composes of five countries Thailand, Cambodia, Myanmar, Vietnam and Laos. These five countries have eleven factories in total, which Thailand itself has six factories. Thailand does not have R&D separately however; it is attached to application group of every Nestlé factory. The group works closely with the Product Technology Centers (PTCs) to test scientific applications for product development. The applications of scientific test is carried out at research centers and for further development will be taken care by technical development expertise of global or local R&D for adapting with local taste. Nestlé of Thailand aligns its research structure with NRC, PTCs and R&D centers to product development. The alignment of the organizational structure is to gain adequate from expertise of designated product categories to develop products accordingly. Thus, Nestlé of Thailand structurally operates in close collaboration with Nestlé’ Research Center as major scientific knowledge research base, Nestlé Institute of Health Sciences biomedical research, Clinical Development Unit medical expertise and R&D Tours as scientific expertise. These structural organizations and R&D centers play slightly different roles in Nestlé business. Nestlé Group of Thailand role is to ensure the company’s products delivery to consumers fulfilling the highest quality and reflecting local tastes, which is scientifically proven to hygiene standard, which will tightly coordinate with designated expertise of R and D centers (global or local). In order to achieve consumers’ expectation and local tastes, the Nestlé of Thailand performs its prevalent practice by gathering intelligent information about consumers and markets. The information is collected using a consumer-based approach by staying with people to understand their behaviors in their daily lives. The approach brings up various ideas on how Nestlé of Thailand can gain consumers insights for developing products based on 60/40 principles. From those ideas will be distilled into product concepts then transforming into product development. The involved activities of consumer-base approach consist of brainstorming, interviewing and the use of survey; for example ProSlim Nescafe product was coming from consumer insights then Thailand group tly developed with Nestlé Research Center (NRC). These business processes enable Nestlé to address issues on complaints on existing products, ideas on what consumers’ expectation from the company including activities of competitors. The designated expertise product categories of PTCs and R&D work hand in hand with Nestlé Thailand to develop new products. Prior to engaging R&D, the Thailand group will have to prepare product concept, prototype development through workshop being carried out earlier as part of collecting ideas. Product initiation from Nestlé Thailand will have to well communicate to designated product expertise of R&D to ensuring products fulfill nutrition, health and wellness. For technical development, the designated product expertise of PTCs helps application group in deg technical product development to ensure local tastes adapted. For instance Peelable Ice-Cream Eskimo Monkey was developed in Thailand and launched it in 2010 rollout worldwide. Prior to product launch, Nestlé of Thailand plays important roles with interrelated structural centers to guarantee regulatory compliance for all Nestlé products. Thus, it is able to launch new products quickly and efficiently in Thailand, by integrating regulatory affairs in all its R&D activities from start to finish products.
R&D Performance Benchmarking Analyze how Nestlé’ Thailand evaluates R&D outcomes and new product performance and if they benchmark hot they manage the innovation process. Anuj Shrestha
R&D at Nestlé is not only focused on innovation but also its relative application within its business, which meets consumer needs, be developed as a product or service, comply with all relevant regulations, protect its intellectual property and above all commercialize every innovation. Nestlé Thailand does not have a R&D center but it has an application group which focusses on getting consumer insight and deg a new or existing product to suit local needs. Proslim is a perfect example of architectural innovation coming out of Nestlé Thailand.
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Nestlé Thailand combined the existing technologies of coffee, milk powder and sugar and created a novel product, at the same time focusing on health and wellness of its consumers, and created a different market segment by changing the notion of drinking coffee from unhealthy to a means of losing weight and getting healthy. The local team in Thailand gets the required technological knowhow from a specific PTC or R&D center, as each research center /PTC specializes in a different product type or technology, and in this case from PTC Marysville as it focusses on ready to drink products. Nestlé Thailand also gets valuable inputs from its two plants located in Nava Nakhon (multi product) and Bang Phu (coffee cream). Nestlé Thailand benchmarks its products with competitors like DANONE. Benchmarking however doesn’t have any effect on the innovation efforts in Nestlé Thailand as it can be seen in the case of Proslim. Nestlé Thailand benchmarked its products with its competitors before launch and they evaluated the product’s performance based on the sales. Since the consumer goods consumption trend in Thailand is moving towards out-of-home consumption, Nestlé Thailand’s new product development is deeply affected by it. Nestlé Thailand uses Nestlé’s competitive advantages like product and brand portfolio, unmatched geographic presence, R&D capability and its people in its innovation and new product development process. Innovative ideas are not just used by the Thailand team but many innovative products have originated from Thailand (for example Proslim) and are now sold worldwide after being altered to suit each market. Nestlé Thailand also focusses on the four growth drivers’ i.e.
Nutrition, health and wellness Popularly positioned products isation Out-of-home consumption
Nestlé Thailand at the same time also keeps communicating with the consumers at every level of the innovation and the NPD process to give the perfect taste and health benefit to consumers. They use the 60/40 rule and provide superior products both in taste and nutrition which helps them communicate the taste and nutritional advantage of the products to the consumer. Nestlé Thailand measures this by asking the target consumers whether they prefer Nestlé’s product or the competitors’ and to explain why.
Innovation barrier and ing factors Identify major internal barriers and factors ing NPD and innovation at Nestlé Thailand, and discuss how to overcome those barriers to their innovation efforts. Apipat Iamsakul
Developing successful innovative products does not always mean using the latest patented technology. However, a succeeded managing innovation is much be a better way of thinking and finding creative solutions within the company. I would examine factors that contribute to success and failure of innovation and NPD. The factors will be identified into four major groups: 1. Firm related factors Organizational heritage –Since 1893, The Heritage of Nestlé remains with the slogan of “good food, good life.” Till today, Nestlé has continued to develop and innovate new and better quality products in Thai market to satisfy the Thai consumers. Since then the Thai consumers have developed trust in the Nestlé products. R&D Team- the Thai Nestlé consists of six factories employing over 4000 dedicated work force and more than 3,000 scientists over the world, who sincerely works towards attaining consumer satisfaction and providing better quality products. They are diversified with nationality, culture and language. Organizational structure- flat and flexible organizations with minimal levels of management and broad spans of control, which also enable people development. Strategy towards innovation- With Open Innovation, Nestlé are moving their scientists from inventor with Nestlé to be translators of knowledge from external partner such as universities and start-ups harvest new technologies and being as decentralized as possible to optimally respond to the needs of consumers, within Management of Innovation - Group C
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the framework defined by Nestlé fundamental policies, strategic directions and operational efficiencies that lead to innovative idea will be created by the employee. R&D intensity- PTCs, R&D Centers who are required a deep understanding of Nestlé’s target consumers, a clear definition of the value proposition and a significantly different business model and cost structure to the developed markets. For example, they do have to stay with Thai farmer to learn their behavior. 2. Project related factors Management style- The management believe that in order to develop a successful long-term business they must go beyond sales growth, economic returns, compliance and sustainability, towards creating value for society. The concept of ‘Creating Shared Value’ (CSV) is embedded in everything management does throughout the value chain of Nestlé’s business. This means, for example, that in addition to consumers they also aim to create value for farmers, for small entrepreneurs, for their employees, and for the communities where they operate. In alignment with their global priorities, they are focused on research and development the areas of ‘nutrition’, ‘rural development’ and ‘water’. Complementarity- There is the analytical methods developed by Food Safety and Quality develops in order to smooth operations and products meeting all regulations for compliance at Nestlé factories. Moreover, there is an Early Warning System for preventing any safety and quality issues happening at the businesses, markets and R&D Network. 3. Product related factors Relative price- Applying Popularly Positioned Products (PPPs) that could make full-quality products with affordable price for these important customers by challenging Nestlé’s business models, formats and formulations in order to come up with the product and the quality product with affordable price for their customer in the bottom of pyramid. Uniqueness- Nestlé’s brand-builders share their in-depth consumer understanding and insight with R&D. Nestlé’s coffee purchasing stations produce thousands of tiny coffee plants by accelerated propagation and farmer buy their plants from there and Nestlé Thailand buys their green coffee. Thai coffee farming more sustainable by gaining more productivity and price, so farmers can get an equitable, long-term reward for their efforts and For Nestlé, a more stable, long-term coffee supply. 4. Market related factors Nestlé marketing strategy involves Nestlé fair that reaches to the remote consumers in Thai villages. The extra-curricular activities, such as sport events for children and lectures for mothers allow enhancing the reach of the products to the masses. The slogans and ment targeting the emotional connection of the consumers to the product such as child growing with milk powder and clean drinking water. Nestlé organized consumer immersions on packaging around the world - in Mexico, India, Thailand, and Brazil. These included in-home interviews with cooking observations and pantry checks and accompanied shopping and store visits. Concentration of target market- As Nestlé’s offering Nutrition com thus the ‘Voice of the Consumer’ is heard loud and clears across Nestlé with ‘good to talk’ providing how to Nestlé if you have problem or question. This helps Nestlé to solve quality problems and to learn more about consumer needs and concerns. As a result the impact of complaints will be reduced and s strategic business development. Moreover, the customer want to know ‘What on the label’ that must be easy and quick to read before purchasing because the consumer become more health and nutrition conscious then Nestlé responded to this ‘good-to-know’ Timing of market entry-Nestlé will wait until their product and its technology are ready before launching to the market by identify the opportunity to win according to 60/40 rule. For example, Nestlé ice cream peelable Eskimo Monkey has been found since 2001 but the technology of peelable ice cream is not completed yet till 2010. Consequently, as these four factors are providing tendency increases in ing NPD and innovation. However, the diversification of R&D team who are having different language, Nestlé overcome this problem to leverage smoothly communication in R&D process by apply SAP software in order to be a central language to effective communication in NPD and innovation.
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Innovation Framework Draw a figure showing the innovation management framework and practices actually applied by Nestlé Thailand and make recommendations for improving the innovation management and NPD practices
Innovation Strategy Nestlé is not just the largest food and beverages company in the world but is increasingly becoming a world leader in nutrition, health and wellness. Nestlé follows the “Think global – act local strategy”, which has been also adopted by Nestlé Thailand. The reasoning behind this strategy is the belief that differentiating key technologies is crucial in serving different customer requirements. Consequently, added value is created which allows Nestlé to sell more, increase prices and invest more. Due to the absence of an R&D center in Thailand, Nestlé Thailand focuses on delivering the needed value proposition to its consumers through a tailored value chain. Nestlé Thailand has adapted their innovation management and NPD processes to deliver products which fulfil customer needs. Furthermore, Nestlé Thailand focuses on finding the innovation sweet spot, which is at the center of customer needs, technological capability, business capacity and creation of shared value (Figure 2). They have created an innovation framework in which all the activities fit together with clear and distinguishable tradeoffs to deliver a superior quality product. Nestlé Thailand follows the company’s mission of “Good Food Good Life”. Figure 2 Foure imperative creteria for targeted innovation
SBU (Strategic Business Units) of Nestlé Thailand strives towards driving the innovation strategy. SBU’s develop “winning strategies” through consumer led innovation & renovation and communication. Nestlé Thailand also uses its people as its core competence. Employee development is achieved through spending time at the SBUs and taking that experience back to Thailand and applying it there based on local consumer insights. In addition, Nestlé Thailand focuses on relevant consumer benefits, which help Nestlé to sell more and increase prices by investing in brands, strengthening its position in the category and through incremental profitability. Figure 3 represents the Innovation Management framework of Nestlé, which has moved from a fragmented R & D approach to a clustered approach (Apollo). The cluster approach is about focused innovation and sharing similar process attributes throughout the organization. This approach has been integrated very well by Nestlé Thailand in all of its products. Nestlé Thailand has tailored its products to customer needs and made sure to always achieve the 60/40 objective before launching a product. The expectations of the innovation are to make it B3 (bigger, bolder, better). The way it works is demonstrated by strategies being built around growth Management of Innovation - Group C
Figure 3 Innovation LIfe cycle
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drivers and shaped together with the market. Initially, the focus is on technology and developing the new product. Then the focus moves towards incorporating consumer segments and finally to establishing the benefits of the product offering. The growth drivers are driven by a cross functional team. Nestlé Thailand follows the approach of an innovation funnel i.e. a lot of ideas originate from different R&D centers or start from Thailand and through the funnel. They are presented to an innovation board. Afterwards Nestlé analyzes its portfolio and checks whether the product will fit with its current product portfolio. The portfolio review leads to the idea being pitched in the cluster meeting, where the feasibility of the product is discussed. This phase brings in a lot of experience from all parts of the region, which helps information flow and further improves the product. Due to the large product portfolio and long-life production line, Nestlé Thailand develops Innovation & Renovation pipeline as an innovation framework to enhance existing product performance and leverage new radical technology. This pipeline is a continuous process of generating, developing and marketing ideas in order to improve its current products and simultaneously creating new products for the future. It develops fresh and relevant innovation to replace existing innovation. The pipeline is also a decision making tool that helps Nestlé in deciding which product to prioritize based on impact and urgency (consumer impact, category relevance and consumer segment size). The I&R pipeline undergoes five generations, which may sometimes overlap: -
Generation 1: Product already launched in the market Generation 2: Ready for launch (R&D, PTC finished) Generation 3: In development at PTCs, translating R&D into projects Generation 4: Early stages of PTC Generation 5: Research at NRC
Nestlé works on different levels of research and application center across 86 countries. They have three science research centers (NRC, CDU and NIHS), 12 PTC, and 18 R&D centers and application group centers. R&D centers are more local and they work with the application groups. They also work with other partners like universities,
Opportunities
Strategy
Strategy
Ideation
Concept
Exploration
Develop ment
Industrial ize
Execution
Launch
Post Launch
Optimize
Assessment
Figure 4 New Product Development Process
industry and with different experts in the field.
New Product Development Process The NPD process is a process flow from opportunities to insights to ensure ideas include a benefit for the consumer (think consumer, think shopper). The NPD process applies the stage gate process in which a decision whether to go or not to go has to be made before it proceeds to the next stage. In case an idea was unable to a stage, the team who conceptualized it has the opportunity to go back and rework it from the beginning. The NPD process follows four major steps, namely: Step 1: Strategy formulation. This step defines opportunities based on customer insights, environment and ing research. Then strategy is defined to ensure focusing on new product concepts can achieve customer needs by existing researches. Step 2: Exploration phase to seek for an idea that is consistent with the defined strategy. The ideas are gathered, screened and refined by many aspect, for example fulfilling customer needs, financial feasibility,
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overlapping with products from other companies. After the idea is refined with clear concept and evaluated as a good idea, it is sent to the execution process where it will be developed as a product. Step 3: Execution phase is to develop the idea into a product. It does not focus only on creating real product to market. The execution phase includes fulfilling the market concept to products to ensure that the final product is usable for target customer behaviour, industrializing the product to make sure it is manufactured effectively in Nestlé factories and testing the product to market to further refine the product details. Then the product is finally launched to market. Step 4: Assessment is a post-product evaluation and development process. Even though the product is already launched, consumers and shoppers response and buying behaviour is gathered and analyzed to further enhance the product in the future.
Recommendation
R&D performance evaluation and benchmarking – Nestlé uses sales revenue as a main criteria for performance evaluation. Even though sales revenue directly reflects the product performance, it is not the only factor. Nestlé should further include other aspects of product development, such as brand promoting, market coverage expanding, knowledge exploration etc. in order to enable the innovation team to have a wider picture on new ideas. Moreover, a product with radical change needs time to get accepted by the market. Therefore, basing the evaluation only on sales revenue may obstruct highpotential products with slow market respond.
Empowerment of employees in the new product development process – Profit sharing and employee empowerment is not significantly adopted at Nestlé. Lower level employees should be given opportunities to share their ideas for new product or enhancing existing process performance. The incentive to share ideas should be attractive enough so that employees feel motivated to create new innovations and enhance risk taking even if the project might fail in the end. Moreover, Nestlé has ‘cluster meetings’ which are arranged annually. A formal meeting to gather ideas and define the strategy is necessary, but the frequency should be increased. Instead of arranging one global meeting, Nestlé should promote smaller groups to refine their ideas prior to the global meeting, such as regional level and country level meetings.
Open to local research partnerships – Nestlé products need rich knowledge of local environment and culture. Seeking more local partnerships, such as universities or research centres might shorten the product development and localize the process through existing local knowledge or discovering knowledge specific to the target countries.
Giving opportunities to non-strategy-fit ideas – Many ideas are useful, but they do not fit the corporate strategy of the firm. Discarding those ideas are like throwing away good resources. Nestlé should promote more ways of ing those ideas such as spinning off or collaborating with its partnerships to develop ideas that have indirect benefit to the firm.
Customer insights are essential for products with high-connection to people lifestyle, but it is not the only factor. Aligning products with customer needs is a safe way. However, radical technology, which may lead customer demand, should be included in the R&D portfolio to diversify product concepts as well as seeking new opportunities of the firm.
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Propose to Dr.Babara Igel Propose by: Laure Chevalier 115322 Caroline Kuster 115315 Rhea L. Gumasing 115329 Tansinee Towongphaichayonte 114265 Neha Manandhar 114272 Alipio Baltazar 114550 Anuj Shrestha 114554 Apipat Iamsakul 114267
Nestle Thailand Field Trip
Innovation Competitive Advantage Describe the competitive advantages achieved by Nestlé’ Thailand through its local NPD function. Analyze whether these competitive advantages are sustainable (= based on which core competence?) or can be imitated by competitors. Laure Chevalier
Nestlé, as a multinational company has a strong corporate vision to be recognized as a leader in health nutrition. It focuses on key dimensions: pleasure, balance and understanding. Innovation is one of Nestlé's key competitive advantages, creating value from investment in science and technology. To maintain a good level of innovation, the company relies on 3 science and research centers, 12 product technology centers and 18 R&D centers. Nestlé’s new product development function is based on interrelated notions: strategy, exploration, execution and assessment. Moreover, the company’s strategy relies on the “5 generation pipeline”: research with innovation partners, early stage research, product development, launch preparation, and launch. These 5 steps are based on Nestlé research center, product technology centers, and the markets. This innovation pipeline is applied to all businesses. Moreover, Nestlé tries to create value not only from investment in science and technology but also from deep consumer insight. They want to be at a global scale but with local relevance. Nestlé ensures that the consumer, and the consumer benefit, remains at the core of all their activities. Nestlé R&D focuses on three areas of benefits for consumers to reach a sustainable success: safety and quality, nutrition and health, taste, texture and convenience. The company wants to create value from farmer to consumer, trying to understand both of them. Nestlé’s new product development strategy is based on the “B3”: bolder initiatives, bigger opportunities, better execution. Nestlé tries to find what is needed by consumers, what is commercially achievable and what is technically and scientifically possible. This is achieved by intellectual property, fast deployment, regulatory claim development, standardized raw material & recipe management, and packaging and design. With this, Nestlé is able to go from consumer benefit to fast deployment. Nestlé’s NPD function is a means to achieve competitive advantages, creating unique product and brand portfolio, unique R&D capability, but also particular geographic presence. These hard-to-copy advantages are based on core competences: innovation & renovation, wherever, whenever, however, consumer engagement and operational efficiency. It is a way to strongly differentiate from competitors. Nestlé also relies on trademarks, patents and confidentiality to make these advantages sustainable.
Innovation Strategy and implementation Assess if Nestlé’s corporate technology policy is consistent with mission, corporate strategy goals and provides clear guidelines for the choice of innovation strategies at Nestlé Thailand (acquisition, licensing, imitation, in-house development, outsourcing, technology partnership, etc.) Is there strategy document with clear, explicit criteria for implementation? How is this strategy communicated to Nestlé Thailand and the operating manager in the local factories? Caroline Kuster
When implementing an innovation strategy the firm’s technology policy should provide clear guidance. Based on information gathered during a field trip to Nestlé Thailand, it can be concluded that Nestlé’s Corporate Technology is very much consistent with its mission, strategic goals and provides guidance for innovation strategies. The following analysis will present the necessary evidence: The corporate strategy of Nestlé functions as a starting point for the development of the innovation strategy. The company’s mission of "Good Food, Good Life" is to deliver the consumer best tasting and most nutritious choices of food and beverage categories. Nestlé’s objective is to be recognised as the world leader in Nutrition, Health and Wellness, trusted by all its stakeholders, and being reference for financial performance in the industry. In order to achieve the objective, Nestlé’s unmatched R&D capability focuses on driving innovation and renovation (existing Management of Innovation - Group C
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Nestle Thailand Field Trip
products with a refreshed aspect). Science and the technology behind enable the development of products while focusing on continuous improvement of quality, nutritional profile, sustainability and affordability. “Think global, act local” is the dictum of the decentralized organization to respond to local consumer needs. The role of technology at Nestlé is simple: Consumer drive, technology s. Technology helps to convert innovation into good food and good life products. Therefore, the idea generation is based on a clear market pull rather than a technology push. The market dictates the course of action by defining market needs first. It is a consumer-centric innovation model, which starts and ends with the consumer. Science and consumer insight together create a competitive advantage; a type of target innovation. Procedures leading to innovation at Nestlé are clear since they consistently aim to achieve major corporate objectives. To ensure the achievement for all new R&D projects, a set of four criteria must be fulfilled first: Consumer need must be confirmed, technology needs to be feasible, commercial potential must be existing and shared value being created. The “60/40” rule deployed by Nestlé further functions as a stage gate for new innovation projects and provides evidence for the competitive leadership strategy being a technology leveraging one. Nestlé aims at being better than its competitor. Innovation projects are being coordinated and somehow communicated through the innovation network: At the global level there is the so-called PTC (Product Technology Center), where product and process development take place. Every PTC is specialized on a specific product category, which leads to the work distribution being product related. The choice of innovation strategy is further based on a simple process: Through the cluster approach comes the input from relevant areas, that specific technology might be available in one location, and that this technology will improve the business development of Nestlé in that country. In addition, Nestlé analyzes the potential relevancy for alliance (e.g. acquisition in Russia) in that specific market and its ability to travel across the globe. If the requirements are met, there is a high chance for the alliance to take place and the concept being rolled out in other countries. Besides acquisition as one choice for innovation strategy, Nestlé further uses outsourcing in case the necessary resources are internally unavailable, and external technology partnerships (e.g. universities and start-ups) to harvest new technologies. With an open innovation approach scientists at Nestlé makes use of knowledge from internal (PTC) as well as external sources, which allows the company to exploit bigger, bolder, better opportunities. Based on the cluster approach and various other cross-country and cross-functional meetings, it can be concluded that the communication at Nestlé is a knowledge sharing one. The two corporate culture values “openness and curiosity” make sure that the communication path within the organization is kept to a minimum to ensure quick market responsiveness. However, we can further conclude that the communication system highly depends on the personalities being involved. This might lead to problems in the overlapping areas. In conclusion we can say, that innovation at Nestlé is led by the consumer, driven by science (rather than technology) and delivers shared value.
Knowledge Transfer Assess the capability of Nestlé Thailand to acquire and absorb new science and technology knowledge in their research (absorptive capacity). Give examples how new science/technology knowledge was applied in Thailand by Nestlé’s NPD. Rhea L. Gumasing
The idea of absorptive capacity of Nestlé Thailand can be explained as a function of three concepts: culture, strategy and human development. Absorptive capacity is about the capability exhibited by an individual, a group or the firm in recognizing and using valuable information to improve a particular process or product or to develop new ones. Central to understanding absorptive capacity suggests that experience and having an enabling environment can lead to better capacities to absorb ideas and transform these ideas that will influence performance of the organization.
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Nestle Thailand Field Trip
By this definition, Nestlé Thailand explicitly built their organization with the belief that its success depends on how strong their human resources are. And by strong, meaning, the management and the individuals themselves recognize that they should embody the corporate culture which requires everyone to keep an open mind towards new ideas that comes from within or outside Nestlé, design a program that matches the development of its employees and that employees should be proactive in finding out on their own which programs are suitable for their current and future directions. Building on from this, Nestlé has always been consumer centric as the core driving force behind their leadership in the nutrition business. Nestlé understand that nutrition is a basic need yet the differences in the consumption pattern, consumer preferences, changes in the environment all play a role in making each product uniquely different depending on the local context. Nestlé Thailand operates as an Applications Technology group, and as such they are the last end of the NPD innovation process, and yet equally crucial in the overall operations of Nestlé global. Nestlé Thailand has six factories, employing more or less 2,800 employees and these are geographically spread across Thailand with diverse backgrounds. As such, Nestlé Thailand is very conscious to take people in that are outright competent, motivated and has the values that can work well with the Nestlé culture. ing such large diversity in number and talent is a commitment that Nestlé Thailand takes into heart. Nestlé believed in learning by doing and they practice this by giving their employees responsibility as early and as is reasonable by providing opportunities to work across different countries and culture. Additionally, they also have the Job Success Profile, a key document that outlines the career development path of each and every employee, monitored closely by their Human Resource department, learning consultants and auditor. Factory employees uses a tailored made matrix as a way to track development and learning needs. Also, Nestlé offers opportunities to transfer employees’ own expertise to other global offices on short term assignments. They also recognize that at different levels of the organization, there are potential leaders which can either work as a team or individual. And lastly, Nestlé Thailand exposes its people to associate and work closely with the industry, academic partners and experts as a way to constantly re tool themselves on what is happening in the ground These development for the human resources allows for Nestlé Thailand to make the transition from just knowing to understanding what works for Nestlé Thailand. The cumulative experiences from doing by learning, from training and from cross posting, all add up to building the absorptive capacity of Nestlé employees. This was demonstrated when the idea of developing a product came directly from Thailand and not from one of the R&D centers. The Nescafe Protect Proslim, a 3 in 1 coffee mix, was born out of the idea that coffee, always seen as a beverage that stimulates energy due to its caffeine content, can be also seen as a healthy option among Thai people. The Thai working class people are always one of the healthiest people in the region, yet the changing landscape due to hectic working hours, consumption of fast food products, among others, meant that Thailand’s dietary practices are shifting. With its Creating Shared Value policy, Nestlé Thailand toyed and developed the idea that coffee might be a good value proposition, believing that coffee has more antioxidants compared with tea. After which, they conducted an extensive internal research in collaboration with Nestlé HQ to get formulation of combining roasted beans with fresh coffee green beans. Integrating all this information, Nestlé Thailand brought this concept to one of the Cluster meetings and was approved. Marketing was designed to have an effective marketing mix, and the rest is history. To date, the Protect ProSlim remains one of the fastest selling products of Nestlé Thailand and is forecasted to grow in the next coming months. Essentially, the experience of Nestlé Thailand made them the first mover, resulting to huge returns for Nestlé. This happened because they did the following:
Nestlé management enabled their local staff with global experiences to embrace rather than shy away from responsibility, inspiring them to be open and that they can make contributions their own way The use of external or customer insights to develop a valuable proposition that stemmed from local knowledge/ expertise/experience.
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Collaborated with Nestlé HQ to get internal inputs on the formulation of Protect Proslim and transformed those inputs into a promotional strategy that is meaningful and understandable to local consumers
In summary, the absorptive capacity is a concept that is embedded within the culture, strategy, and human resource development of Nestlé Thailand.
Cultural-specific issue of Innovation management As a Western company conducting R&D and NPD in Thailand, did Nestlé change or modify its original innovation management system/technique/practices to better fit the Thai business environment / business culture context? If yes, identify and describe what techniques and/or practices were modified and why the change was made. Tansinee Towongphaichayonte
Nestlé distributes research centers around the world. Each research centers has specific level and role in research and development product. As Figure 1, Nestlé has four levels of R&D. Application Group
R&D Centres
Product Technology Center System Technology Center Nestle Resrach Centre Nestle Institue of Health Sciences Nestle Clinical Development Unit
Figure 1 Nestle Research Organization Design
The first level research centres focus on fundamental research to explore knowledge of nutrient and health science as platform technology. The second level are consisted of Product Technology Centres(PTC) which exploring critical mass of technology and knowledge of specific product categories and System Technology Centres which developing machines, packaging, electronics and design. R & D Centres provide the science knowledge and research to specific product categories and develop competency of each product. The top level: Application Groups develop new products by applying existing technologies and knowledge and localize product to local environment, culture and specific preferences of each countries.
In bottom level of research organization, the research focus on generic knowledge that can be applied globally and more upper level focus on more specific product and geographic environment. Nestlé Thailand is assigned as ‘Application Group’ to localize products to Thailand’s environment and develop application of product categories to increase more value to customer. Nestlé designed standard process for innovation management since idea sourcing to benchmarking after product launch. However, the process is defined broadly in order to enable innovation team can adapt implementation practices to local environment, cultural context and regulation of each countries. Nestlé Thailand is assigned as application group, thus localization of product development practices is significant in customer need elicitation. For example, interpretation of customer survey. 50% percentile is usually used as threshold of satisfaction level, but it cannot be applied in Thailand. Thai people are, in all likelihood, highly considerate and avoid to rate satisfaction question low. Thus, satisfaction level threshold is risen for Thai customers. As considerate and welcome guest culture, it is open for the company get customer insight more closely. ‘Popularly Positioned Products’ (PPP) is new strategy of Nestlé to design product specific for poor people. Poor population in Thailand are mainly farmers. Nestlé Innovation team decided to gain customer insight by setting up a marketing team to live with farmer for several days. With this way, they could observe insightful behavior and living attitude of farmer to cluster the new target group and design new product responding to their real behavior and need. These examples demonstrate highly customizable practices. Since Nestlé produces commodity products, which tightly connect to people culture and lifestyle. Opening to localize practices s idea exploring process very well. Adapting customer elicitation techniques is important to high customized product as food, which preferences are different to countries. Not only idea exploration process, adapting practices and techniques accelerate NPD process as team environment. Innovative team of Nestlé Thailand is relatively small comparing to huge product Management of Innovation - Group C
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portfolio Nestlé has. The team needs agile and flexible way to co-ordinate with outsource marketing team as well as global R&D centres. Adaptive team structure are adopted to fit with local environment and co-ordinate with global teams. Localized practices and techniques boosts up NPD of high local-connected product to get closer to customer needs. It also enabled the local staff finding new ways of working that their norms and environment to be more creative on new product idea generation.
Human Resource Management for Innovation Assess whether the incentives & rewards to individuals and team, the career path and performance evaluation stimulates innovation in the local workforce. Evaluate which incentives and rewards are most motivating for the local researchers and NPD managers. Neha Manandhar
In Nestlé, the business partners are the HR manager who offers solutions and advices for an organization’s effectiveness. Not only from the professional contribution, have the HR managers also excelled from their communication skills. Interpersonal relations are given a great importance in the Nestlé culture. As per the Nestlé Thailand, the top management employees mainly had an International Experience; the top level employees were given equal chances to roam around the different Nestlé branch around the globe. The company does not consider the candidate’s origin, nationality, religion, race, gender or age. It also provides a working environment where the health and safety of employees are protected with the highest affordable standards of safety, hygiene and security. While promoting the employees the organization keeps an eye on the valuable candidates and sets up a benchmark between internal and external offers as it sets up a policy of long term employment. Nestlé focuses on motivational, stimulating and fair remuneration and compensation package. The remuneration package consists of basic salary, pension and other benefits. The company rewards its team by offering the remuneration above the relevant benchmark; this depends upon the company’s productivity and sales as a whole. It broadens its span by allowing sufficient flexibility so that they can reward the employees effectively for high professional insight and performance as well as individual potential. The individual incentives and rewards are achieved on the basis of the local market, individual performance, skills and potential for development. Another important factor is the communication skills, and dialogue that each manager has with him/her. The company uses an internal position evaluation to reward the employees, it mainly focuses on actively promoting the employees by giving them the opportunity to work in International assignments. This type of projects helps the expatriate employees to participate in regional projects and make decisions accordingly, this enhances the senior level managers to build up their knowledge, skills, decision making potential etc. which will be a plus point to the managers for getting the incentives and rewards. Internal position rewarding system is a job evaluation that targets towards making functions across an organization with regards to different key aspects based on numerical scale. This helps to develop each and every individual inside the organization for growth of their career path. The rewards and incentives are given on the basis of depth performance evaluation. The main idea for motivation for the workers inside is the product itself, when they see their products being displayed finally in the market, nothing is more rewarding than the product being sold and appreciated in the mass competitive market. This leads the workers to innovate new products and introduce it to the market where it is being valued the most.
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Nestle Thailand Field Trip
R&D Network – Role of Nestlé Thailand Identify the structure on Nestlé’ Thailand’s research organization including any R&D done at manufacturing sites. Analyze the role that Nestlé’ Thailand plays in Nestlé’ corporate R&D network. Alipio Baltazar
Nestlé Thailand is operating under regional office. The regional office composes of five countries Thailand, Cambodia, Myanmar, Vietnam and Laos. These five countries have eleven factories in total, which Thailand itself has six factories. Thailand does not have R&D separately however; it is attached to application group of every Nestlé factory. The group works closely with the Product Technology Centers (PTCs) to test scientific applications for product development. The applications of scientific test is carried out at research centers and for further development will be taken care by technical development expertise of global or local R&D for adapting with local taste. Nestlé of Thailand aligns its research structure with NRC, PTCs and R&D centers to product development. The alignment of the organizational structure is to gain adequate from expertise of designated product categories to develop products accordingly. Thus, Nestlé of Thailand structurally operates in close collaboration with Nestlé’ Research Center as major scientific knowledge research base, Nestlé Institute of Health Sciences biomedical research, Clinical Development Unit medical expertise and R&D Tours as scientific expertise. These structural organizations and R&D centers play slightly different roles in Nestlé business. Nestlé Group of Thailand role is to ensure the company’s products delivery to consumers fulfilling the highest quality and reflecting local tastes, which is scientifically proven to hygiene standard, which will tightly coordinate with designated expertise of R and D centers (global or local). In order to achieve consumers’ expectation and local tastes, the Nestlé of Thailand performs its prevalent practice by gathering intelligent information about consumers and markets. The information is collected using a consumer-based approach by staying with people to understand their behaviors in their daily lives. The approach brings up various ideas on how Nestlé of Thailand can gain consumers insights for developing products based on 60/40 principles. From those ideas will be distilled into product concepts then transforming into product development. The involved activities of consumer-base approach consist of brainstorming, interviewing and the use of survey; for example ProSlim Nescafe product was coming from consumer insights then Thailand group tly developed with Nestlé Research Center (NRC). These business processes enable Nestlé to address issues on complaints on existing products, ideas on what consumers’ expectation from the company including activities of competitors. The designated expertise product categories of PTCs and R&D work hand in hand with Nestlé Thailand to develop new products. Prior to engaging R&D, the Thailand group will have to prepare product concept, prototype development through workshop being carried out earlier as part of collecting ideas. Product initiation from Nestlé Thailand will have to well communicate to designated product expertise of R&D to ensuring products fulfill nutrition, health and wellness. For technical development, the designated product expertise of PTCs helps application group in deg technical product development to ensure local tastes adapted. For instance Peelable Ice-Cream Eskimo Monkey was developed in Thailand and launched it in 2010 rollout worldwide. Prior to product launch, Nestlé of Thailand plays important roles with interrelated structural centers to guarantee regulatory compliance for all Nestlé products. Thus, it is able to launch new products quickly and efficiently in Thailand, by integrating regulatory affairs in all its R&D activities from start to finish products.
R&D Performance Benchmarking Analyze how Nestlé’ Thailand evaluates R&D outcomes and new product performance and if they benchmark hot they manage the innovation process. Anuj Shrestha
R&D at Nestlé is not only focused on innovation but also its relative application within its business, which meets consumer needs, be developed as a product or service, comply with all relevant regulations, protect its intellectual property and above all commercialize every innovation. Nestlé Thailand does not have a R&D center but it has an application group which focusses on getting consumer insight and deg a new or existing product to suit local needs. Proslim is a perfect example of architectural innovation coming out of Nestlé Thailand.
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Nestle Thailand Field Trip
Nestlé Thailand combined the existing technologies of coffee, milk powder and sugar and created a novel product, at the same time focusing on health and wellness of its consumers, and created a different market segment by changing the notion of drinking coffee from unhealthy to a means of losing weight and getting healthy. The local team in Thailand gets the required technological knowhow from a specific PTC or R&D center, as each research center /PTC specializes in a different product type or technology, and in this case from PTC Marysville as it focusses on ready to drink products. Nestlé Thailand also gets valuable inputs from its two plants located in Nava Nakhon (multi product) and Bang Phu (coffee cream). Nestlé Thailand benchmarks its products with competitors like DANONE. Benchmarking however doesn’t have any effect on the innovation efforts in Nestlé Thailand as it can be seen in the case of Proslim. Nestlé Thailand benchmarked its products with its competitors before launch and they evaluated the product’s performance based on the sales. Since the consumer goods consumption trend in Thailand is moving towards out-of-home consumption, Nestlé Thailand’s new product development is deeply affected by it. Nestlé Thailand uses Nestlé’s competitive advantages like product and brand portfolio, unmatched geographic presence, R&D capability and its people in its innovation and new product development process. Innovative ideas are not just used by the Thailand team but many innovative products have originated from Thailand (for example Proslim) and are now sold worldwide after being altered to suit each market. Nestlé Thailand also focusses on the four growth drivers’ i.e.
Nutrition, health and wellness Popularly positioned products isation Out-of-home consumption
Nestlé Thailand at the same time also keeps communicating with the consumers at every level of the innovation and the NPD process to give the perfect taste and health benefit to consumers. They use the 60/40 rule and provide superior products both in taste and nutrition which helps them communicate the taste and nutritional advantage of the products to the consumer. Nestlé Thailand measures this by asking the target consumers whether they prefer Nestlé’s product or the competitors’ and to explain why.
Innovation barrier and ing factors Identify major internal barriers and factors ing NPD and innovation at Nestlé Thailand, and discuss how to overcome those barriers to their innovation efforts. Apipat Iamsakul
Developing successful innovative products does not always mean using the latest patented technology. However, a succeeded managing innovation is much be a better way of thinking and finding creative solutions within the company. I would examine factors that contribute to success and failure of innovation and NPD. The factors will be identified into four major groups: 1. Firm related factors Organizational heritage –Since 1893, The Heritage of Nestlé remains with the slogan of “good food, good life.” Till today, Nestlé has continued to develop and innovate new and better quality products in Thai market to satisfy the Thai consumers. Since then the Thai consumers have developed trust in the Nestlé products. R&D Team- the Thai Nestlé consists of six factories employing over 4000 dedicated work force and more than 3,000 scientists over the world, who sincerely works towards attaining consumer satisfaction and providing better quality products. They are diversified with nationality, culture and language. Organizational structure- flat and flexible organizations with minimal levels of management and broad spans of control, which also enable people development. Strategy towards innovation- With Open Innovation, Nestlé are moving their scientists from inventor with Nestlé to be translators of knowledge from external partner such as universities and start-ups harvest new technologies and being as decentralized as possible to optimally respond to the needs of consumers, within Management of Innovation - Group C
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the framework defined by Nestlé fundamental policies, strategic directions and operational efficiencies that lead to innovative idea will be created by the employee. R&D intensity- PTCs, R&D Centers who are required a deep understanding of Nestlé’s target consumers, a clear definition of the value proposition and a significantly different business model and cost structure to the developed markets. For example, they do have to stay with Thai farmer to learn their behavior. 2. Project related factors Management style- The management believe that in order to develop a successful long-term business they must go beyond sales growth, economic returns, compliance and sustainability, towards creating value for society. The concept of ‘Creating Shared Value’ (CSV) is embedded in everything management does throughout the value chain of Nestlé’s business. This means, for example, that in addition to consumers they also aim to create value for farmers, for small entrepreneurs, for their employees, and for the communities where they operate. In alignment with their global priorities, they are focused on research and development the areas of ‘nutrition’, ‘rural development’ and ‘water’. Complementarity- There is the analytical methods developed by Food Safety and Quality develops in order to smooth operations and products meeting all regulations for compliance at Nestlé factories. Moreover, there is an Early Warning System for preventing any safety and quality issues happening at the businesses, markets and R&D Network. 3. Product related factors Relative price- Applying Popularly Positioned Products (PPPs) that could make full-quality products with affordable price for these important customers by challenging Nestlé’s business models, formats and formulations in order to come up with the product and the quality product with affordable price for their customer in the bottom of pyramid. Uniqueness- Nestlé’s brand-builders share their in-depth consumer understanding and insight with R&D. Nestlé’s coffee purchasing stations produce thousands of tiny coffee plants by accelerated propagation and farmer buy their plants from there and Nestlé Thailand buys their green coffee. Thai coffee farming more sustainable by gaining more productivity and price, so farmers can get an equitable, long-term reward for their efforts and For Nestlé, a more stable, long-term coffee supply. 4. Market related factors Nestlé marketing strategy involves Nestlé fair that reaches to the remote consumers in Thai villages. The extra-curricular activities, such as sport events for children and lectures for mothers allow enhancing the reach of the products to the masses. The slogans and ment targeting the emotional connection of the consumers to the product such as child growing with milk powder and clean drinking water. Nestlé organized consumer immersions on packaging around the world - in Mexico, India, Thailand, and Brazil. These included in-home interviews with cooking observations and pantry checks and accompanied shopping and store visits. Concentration of target market- As Nestlé’s offering Nutrition com thus the ‘Voice of the Consumer’ is heard loud and clears across Nestlé with ‘good to talk’ providing how to Nestlé if you have problem or question. This helps Nestlé to solve quality problems and to learn more about consumer needs and concerns. As a result the impact of complaints will be reduced and s strategic business development. Moreover, the customer want to know ‘What on the label’ that must be easy and quick to read before purchasing because the consumer become more health and nutrition conscious then Nestlé responded to this ‘good-to-know’ Timing of market entry-Nestlé will wait until their product and its technology are ready before launching to the market by identify the opportunity to win according to 60/40 rule. For example, Nestlé ice cream peelable Eskimo Monkey has been found since 2001 but the technology of peelable ice cream is not completed yet till 2010. Consequently, as these four factors are providing tendency increases in ing NPD and innovation. However, the diversification of R&D team who are having different language, Nestlé overcome this problem to leverage smoothly communication in R&D process by apply SAP software in order to be a central language to effective communication in NPD and innovation.
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Nestle Thailand Field Trip
Innovation Framework Draw a figure showing the innovation management framework and practices actually applied by Nestlé Thailand and make recommendations for improving the innovation management and NPD practices
Innovation Strategy Nestlé is not just the largest food and beverages company in the world but is increasingly becoming a world leader in nutrition, health and wellness. Nestlé follows the “Think global – act local strategy”, which has been also adopted by Nestlé Thailand. The reasoning behind this strategy is the belief that differentiating key technologies is crucial in serving different customer requirements. Consequently, added value is created which allows Nestlé to sell more, increase prices and invest more. Due to the absence of an R&D center in Thailand, Nestlé Thailand focuses on delivering the needed value proposition to its consumers through a tailored value chain. Nestlé Thailand has adapted their innovation management and NPD processes to deliver products which fulfil customer needs. Furthermore, Nestlé Thailand focuses on finding the innovation sweet spot, which is at the center of customer needs, technological capability, business capacity and creation of shared value (Figure 2). They have created an innovation framework in which all the activities fit together with clear and distinguishable tradeoffs to deliver a superior quality product. Nestlé Thailand follows the company’s mission of “Good Food Good Life”. Figure 2 Foure imperative creteria for targeted innovation
SBU (Strategic Business Units) of Nestlé Thailand strives towards driving the innovation strategy. SBU’s develop “winning strategies” through consumer led innovation & renovation and communication. Nestlé Thailand also uses its people as its core competence. Employee development is achieved through spending time at the SBUs and taking that experience back to Thailand and applying it there based on local consumer insights. In addition, Nestlé Thailand focuses on relevant consumer benefits, which help Nestlé to sell more and increase prices by investing in brands, strengthening its position in the category and through incremental profitability. Figure 3 represents the Innovation Management framework of Nestlé, which has moved from a fragmented R & D approach to a clustered approach (Apollo). The cluster approach is about focused innovation and sharing similar process attributes throughout the organization. This approach has been integrated very well by Nestlé Thailand in all of its products. Nestlé Thailand has tailored its products to customer needs and made sure to always achieve the 60/40 objective before launching a product. The expectations of the innovation are to make it B3 (bigger, bolder, better). The way it works is demonstrated by strategies being built around growth Management of Innovation - Group C
Figure 3 Innovation LIfe cycle
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drivers and shaped together with the market. Initially, the focus is on technology and developing the new product. Then the focus moves towards incorporating consumer segments and finally to establishing the benefits of the product offering. The growth drivers are driven by a cross functional team. Nestlé Thailand follows the approach of an innovation funnel i.e. a lot of ideas originate from different R&D centers or start from Thailand and through the funnel. They are presented to an innovation board. Afterwards Nestlé analyzes its portfolio and checks whether the product will fit with its current product portfolio. The portfolio review leads to the idea being pitched in the cluster meeting, where the feasibility of the product is discussed. This phase brings in a lot of experience from all parts of the region, which helps information flow and further improves the product. Due to the large product portfolio and long-life production line, Nestlé Thailand develops Innovation & Renovation pipeline as an innovation framework to enhance existing product performance and leverage new radical technology. This pipeline is a continuous process of generating, developing and marketing ideas in order to improve its current products and simultaneously creating new products for the future. It develops fresh and relevant innovation to replace existing innovation. The pipeline is also a decision making tool that helps Nestlé in deciding which product to prioritize based on impact and urgency (consumer impact, category relevance and consumer segment size). The I&R pipeline undergoes five generations, which may sometimes overlap: -
Generation 1: Product already launched in the market Generation 2: Ready for launch (R&D, PTC finished) Generation 3: In development at PTCs, translating R&D into projects Generation 4: Early stages of PTC Generation 5: Research at NRC
Nestlé works on different levels of research and application center across 86 countries. They have three science research centers (NRC, CDU and NIHS), 12 PTC, and 18 R&D centers and application group centers. R&D centers are more local and they work with the application groups. They also work with other partners like universities,
Opportunities
Strategy
Strategy
Ideation
Concept
Exploration
Develop ment
Industrial ize
Execution
Launch
Post Launch
Optimize
Assessment
Figure 4 New Product Development Process
industry and with different experts in the field.
New Product Development Process The NPD process is a process flow from opportunities to insights to ensure ideas include a benefit for the consumer (think consumer, think shopper). The NPD process applies the stage gate process in which a decision whether to go or not to go has to be made before it proceeds to the next stage. In case an idea was unable to a stage, the team who conceptualized it has the opportunity to go back and rework it from the beginning. The NPD process follows four major steps, namely: Step 1: Strategy formulation. This step defines opportunities based on customer insights, environment and ing research. Then strategy is defined to ensure focusing on new product concepts can achieve customer needs by existing researches. Step 2: Exploration phase to seek for an idea that is consistent with the defined strategy. The ideas are gathered, screened and refined by many aspect, for example fulfilling customer needs, financial feasibility,
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Nestle Thailand Field Trip
overlapping with products from other companies. After the idea is refined with clear concept and evaluated as a good idea, it is sent to the execution process where it will be developed as a product. Step 3: Execution phase is to develop the idea into a product. It does not focus only on creating real product to market. The execution phase includes fulfilling the market concept to products to ensure that the final product is usable for target customer behaviour, industrializing the product to make sure it is manufactured effectively in Nestlé factories and testing the product to market to further refine the product details. Then the product is finally launched to market. Step 4: Assessment is a post-product evaluation and development process. Even though the product is already launched, consumers and shoppers response and buying behaviour is gathered and analyzed to further enhance the product in the future.
Recommendation
R&D performance evaluation and benchmarking – Nestlé uses sales revenue as a main criteria for performance evaluation. Even though sales revenue directly reflects the product performance, it is not the only factor. Nestlé should further include other aspects of product development, such as brand promoting, market coverage expanding, knowledge exploration etc. in order to enable the innovation team to have a wider picture on new ideas. Moreover, a product with radical change needs time to get accepted by the market. Therefore, basing the evaluation only on sales revenue may obstruct highpotential products with slow market respond.
Empowerment of employees in the new product development process – Profit sharing and employee empowerment is not significantly adopted at Nestlé. Lower level employees should be given opportunities to share their ideas for new product or enhancing existing process performance. The incentive to share ideas should be attractive enough so that employees feel motivated to create new innovations and enhance risk taking even if the project might fail in the end. Moreover, Nestlé has ‘cluster meetings’ which are arranged annually. A formal meeting to gather ideas and define the strategy is necessary, but the frequency should be increased. Instead of arranging one global meeting, Nestlé should promote smaller groups to refine their ideas prior to the global meeting, such as regional level and country level meetings.
Open to local research partnerships – Nestlé products need rich knowledge of local environment and culture. Seeking more local partnerships, such as universities or research centres might shorten the product development and localize the process through existing local knowledge or discovering knowledge specific to the target countries.
Giving opportunities to non-strategy-fit ideas – Many ideas are useful, but they do not fit the corporate strategy of the firm. Discarding those ideas are like throwing away good resources. Nestlé should promote more ways of ing those ideas such as spinning off or collaborating with its partnerships to develop ideas that have indirect benefit to the firm.
Customer insights are essential for products with high-connection to people lifestyle, but it is not the only factor. Aligning products with customer needs is a safe way. However, radical technology, which may lead customer demand, should be included in the R&D portfolio to diversify product concepts as well as seeking new opportunities of the firm.
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