Orchestrating Effective Platform Innovation in CPG and Retail
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Orchestrating Effective Platform Innovation in CPG and Retail

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Consumer product companies and retailers must become skilled orchestrators in designing and developing convergent, high-tech innovations to engage today’s connected consumer.

Consumer product companies and retailers must become skilled orchestrators in designing and developing convergent, high-tech innovations to engage today’s connected consumer.

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Orchestrating Effective Platform Innovation in CPG and Retail Orchestrating Effective Platform Innovation in CPG and Retail Presentation Transcript

  • Orchestrating Platform Innovation Success in CPG and Retail The next frontier in building competitive advantage for growth
  • Shifting consumer trends are challenging retailers and CPGs to innovate against unmet needs Focus on self-fulfillment Channel Needs Product NeedsConsumer Trends Ubiquitous online and mobility access Continue drive for value Increase demand for variety On-the go convenience • Experiential • Authentic • Thematic • Mobile, Social • Interactive • Inexpensive • Increased value / utility • Endless shelf • Customized • Be where the consumer is • Portable Unmet Needs
  • Delivering effective innovation requires the power of Convergence Emerging Convergent Platforms Coca-Cola Freestyle© Tesco HomePlus Nestle BabyNes Clinique Smart BarTM ProductsChannels Consumer Needs Targeted • On the go convenience • “Endless shelf” assortment • Customized content (i.e. mixing different flavors) • Interactive experience • Interactive exploration (expert recommendation) • Single dose convenience and speed • Customized variety (temperature, concentration) Convergent Technology and Capability Enablers • Digital LCD display • Mobile shopping • Integrated last mile delivery • Micro-dosing • Wireless CRM data management • Social media interactivity • High resolution image recognition • Genius recommendation analytics • Micro-electronics • Ultra-concentrate powered food formulation
  • Convergent platforms are increasingly cross-disciplinary, complex, and externally sourced Current Future “Convergent” Platforms Unchartered Territory for CPG and Retailers • Design / engineering complexity • New, diverse supply base • Numerous component technologies • Complex assembly • Shorter product lifecycles • Focus on new experience and functionality • Multi-function and disciplinary technologies • Increased variety Increasing Complexity in Convergent Innovation • Focus on consistency • Anchored on one primary technology • Limited variety
  • A shift from traditional outsourcing to network orchestration is required for Convergent platform success Effective orchestration and partnerships will be the next battleground for competitive advantage Traditional Outsourcing Platform Orchestration Strategic capability / activity Non-core activity Scope of Firm (in- house vs. outsource boundary) Increased “cross- boundaries” coordination (i.e. more firms and functions) Increased Complexity Higher risk and stakes in sourcing strategic competencies Increased need to balance collaboration with competition
  • 3 building blocks for effective innovation orchestration Platform Orchestration Create the Right Orchestration Organization Build & Evolve the Right Partnerships Understand and Check Ecosystem Entropy 1 2 3 Breakthrough Impact • 25%-50% faster develop to market launch • 20%-40% cost advantage • Improved bottoms-up innovation • Sustainable platform and next generation introduction 1 2 3
  • Installing the right organization and management team1 Critical Requirements Unlocked … • Speed and agility • Autonomy • Culture of risk taking and experimentation • Outside the box thinking “Incubator” organization for effective orchestration Incubator “Company” Dedicated and autonomous Mandate & Objectives Mgmt. Team Resources and personnel Decision Rights across FunctionsFunctional Units Shared incentives Senior Leadership Parent Company Champion Resources and Personnel Shared Incentives • Empower and compensate to secure true “boundary” spanning talent  Value chain function “boundaries”  Technology “boundaries” • Significant % of personal compensation tied to incubator objectives, not divisional profit • Executives evaluated by total external span of control, not just direct FTE report count
  • Establishing and sustaining the right partnership structure critical for coordination and performance 2 How to ensure effective integration activity outsourcing in innovation? “Activity Integration” ... Failures in “Activity Integration” Can be Costly … "The [launch delay] news is negative. Even without the technological problems, the issues regarding the console's profitability remain” Nomura Securities Analyst Boeing … aggressively farmed out big chunks of its new 787 and stumbled badly. … it has since … integrated more closely with its remaining contractors. WSJ, Jul 2012 Palomar’s partnership with J&J to mass market a home-use wrinkle device was terminated in Oct, 2009 due to economic conditions and extensive earlier FDA approval delays Platform development consists of a series of interconnected Activity Integration efforts Plastic Shell Design Design Getting the scope right (who does what)? Getting the span right (how much does one entity do)? Getting the hand-off and coordination right Body Design Ribbon Lighting Design • Plastic shell • Metal chassis • GUI screen • Plastic Forming • Ribbon Lighting Design • …• LED lighting • Electronics
  • Defining the right partnership structure2 Degree of Competition SpanofControl Single Multiple Master Turn-Key Distributed Turn-Key Distributed Integration Controlled Integration LooseTight Internal Firm Competency • Does the orchestrating firm have the know-how to manage upstream value chain? • Can the underlying processes and sub-activities be easily decoupled and decomposed? Process Modularity • Is there need for highly specific asset or know-how Asset Specificity IP Appropriation / Business Risk • Is there significant IP risk by delegating control to partner? • Is there a risk of “undifferentiated” solution by delegating upstream value chain control? Key Considerations for Establishing Partnership Model e.g.) Sony PS3 console e.g.) Cisco Tele-presence e.g.) iPhone production e.g.) Automated kiosk design Informs Partnership Program Design Roles and Activities RACI Incentives & KPIs
  • Evolving partnership over time to sustain performance2 Change Existing Span of Control Single Multiple Master Turn-Key Distributed Turn-Key Distributed Integration Controlled Integration LooseTight 1 2 Firm Strategy Development Lifecycle Market Structure • Firm strategy shift vs. upstream competencies • Key activity more commoditized Development cycle/speed change • Regulatory / IP law changes • … • Increased in- house expertise • … • Increase in underlying process modularity • Activity risk and/or design complexity reduction • Alternative substitute technologies or solutions • … Market, Competition, Firm Trigger Events for Evolving Partnership Structure Change Existing Degree of Competition 1 2 Evolve Partnership Program Roles and RACI Processes Incentives
  • Complex innovation orchestration is vulnerable to run- away ecosystem entropy 3 Drivers of Ecosystem Entropy • Over focus on speed and convenience during the development process, leading to accumulation of redundant sub-suppliers and contractors • Tendency for key partners (designers, integrators, suppliers) to use their own up-stream value chain partners without holistic view of total eco-system requirements • Lack of centralized coordinator and shared incentives to encourage downstream value chain complexity reduction Orchestrator is best positioned to manage network wide entropy
  • 3 Understanding and containing ecosystem entropy throughput the innovation process Metal chassis Micro-electronics User interface 3 4 5 6 7 8 9 10 11 12 Sub- Integrator / Partner A Sub- Integrator/ Partner B Prime Integrator Touchscreen Metal chassis Micro-electronics User interface and Touchscreens Sub-Integrator / Partner Prime Integrator 14 13 15 1 2 Complex eco-system of 15 parties Common Technology Consolidation Propagate System Wide Adoption Guiding Principles Upstream Designer / Supplier Cross-Technology Consolidation 1 2 Simplified eco-system = reduced coordination and risk complexity 3 4 65 7 8 Common Technology Consolidation: Find multiple uses for common underlying technologies Cross Technology Consolidation: All else equal, leverage fewer designers and suppliers working on the same set of underlying capabilities Propagate Ecosystem Adoption: Encourage key partners to mirror your approach to reduce their upstream entropy
  • Thank you. Please reach out to continue the dialog mark.van.weegen@atkearney.com michael.hu@atkearney.com Sean Monahan Partner sean.monahan@atkearney.com Mark van Weegen Partner Michael Hu Principal