February 15, 2012

Open Innovation in Latin America (II)

For the past five years or so, some of California’s leading OI scholars have been spreading the message of open innovation to Latin America. This includes the father of OI making frequent speeches in Brazil as well as a lesser known SJSU faculty member bringing OI to Chile.

Today at CoDev 2012 — the PDMA-sponsored “Conference on Open Innovation & Co-Development” — a vice president from Kraft Foods summarized how this consumer products giant has been leveraging open innovation to meet local needs in Latin America. The presentation was by given Ivette Bassa, vice president of Research, Development & Quality for Kraft Latin America, which serves Mexico, Central and South America.

While OI was originally demonstrated by Chesbrough in IT firms such as IBM, Intel and Xerox, the interest in OI at Kraft is an example (beyond the iconic P&G) of the growing interest of open innovation in a broader class of mature consumer goods. (Other speakers at CoDev included executives from Unilever, Clorox and International Flavors & Fragrances).

Kraft is certainly a large mature company, with $49 billion in revenues — #2 in the world (after Nestle) in the food category — with sales in 170 countries and operations in 75 countries. Of its brands, 40 are more than 100 years old, 70 have more than $100 million in revenue and 12 have more than $1 billion in revenue.

The Latin America division accounts for $5 billion of those revenues, combining PMI Food and Nabisco Latin America. It includes the familiar Kraft and Nabisco brands (Ritz, Oreo, Philadelphia, Trident) as well as local brands (Trakinas, Bubbaloo). The RD&Q organization within the LA division has 300 employees in Miami and its three major markets (Mexico, Brazil, Venezuela). Six of these are assigned to work on open innovation, knowledge management and IP.

The company scouts outside the firm for possible inputs for the technology development that will enable it to solve specific problems. The Latin America-specific search seemed to be oriented towards products that meet local tastes (e.g. the Sonho de Valsa bonbon) and leverage local supply (sourcing wheat for Club Social from Brazil rather than the US).

Its "Inventing Delicious” framework is organized around three high-level questions
  1. What do we know?
  2. What do others know?
  3. What is our IP strategy?
One of the key insights for Kraft is that in Latin America, the most likely source for external innovation partners are outside firms (something I also heard during my 2008 visit to Chile). Bassa estimated that 80% of innovation capabilities are in government agencies, public or private universities.

Bassa presented a number of examples of ideas submitted or developed with suppliers, including ideas that arose out of the parent company’s October 2011 “Kraft Foods Supplier Innovation Summit.” One of her examples was a product idea that was test marketed by releasing it as a promotional item (that became a permanent product). Two examples were co-development efforts with equipment suppliers to improve the production process — in both cases where Kraft itself applied for a patent from the joint efforts.

In Latin America, the company uses a range of methods to search for external ideas. It has innovation scouts, participates in local forums and trade associations, has a group that works with each national government, and leverages the university ties developed through recruiting.

When searching for outside ideas, a key concern for Kraft was how to search broadly for information while minimizing the disclosure of proprietary information. (This also seemed to be a key concern of attendees, and part of the value added provided by exhibitors such as Nine Sigma and InnoCentive). Part of the solution is to train people how to frame questions to focus on a technical need that can be sourced externally, part is to gain IP in certain areas, and part is to calibrate the risks to the degree of trust and familiarity with external partners.

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