Business Insights: Open Innovation in Nutraceuticals & Functional Foods: Part 2

In Part 1 of our “Open Innovation in Nutraceuticals & Functional Foods” series (January/February issue) we explored what open innovation (OI) means, its evolution and shared a few examples of partnerships along with some of the advantages of adopting OI as a business model. For Part 2, we delve into the actual practices of OI; we recently spoke with industry peers involved in OI initiatives and asked them to share their experiences. Through these examples we can learn more about the challenges and opportunities they’ve encountered.

Dr. Rob Sinnott, CEO and CSO of Mannatech, a network marketing company, shared what he has found useful and not so useful when it comes to his company’s approach to OI.

Business Insights (BI): How do you see open innovation (OI) as a business model taking hold today within your specific industry and the industries of your external partners?
Dr. Rob Sinnott (RS): We are approached frequently by our manufacturing partners and ingredient vendors when new  ‘validated’ technology becomes available. Because we are a global company with significant business in Canada, Australia and the EU, which have significantly higher barriers to market entry than the U.S., our standards of what constitutes a validated supplement product are very high. So we haven’t found this type of open innovation very useful for us. However, we have found that an OI approach to development of new product concepts employing our network of independent distributors has been very useful in developing products that truly resonate with our customers.

BI: How do you envision OI practices evolving over time within your industry? Is this vision aligned with how OI should evolve?
RS: I think that OI approaches will be increasingly used in the nutrition industry because it gives greater certainty on having products that are truly useful for customers. However, the style of OI will vary depending on whether the sales channel is MLM (multi-level marketing), retail stores, Internet sales, etc., because the ways of getting meaningful customer feedback will vary.

BI: It’s not uncommon in OI initiatives for the process to derail due to one partner feeling like its organization is bringing the majority of the value to the table and that it may not be appropriately compensated. To create an optimal working relationship with external partners, what advice would you offer others?
RS: We have encountered the scenario that you describe, particularly with novel ingredient vendors who tend to overvalue their technology and have unrealistic expectations of market size, customer’s price tolerance, royalty rates, etc. The worst are novices to the dietary supplement industry who ‘discover’ and ‘extensively test’ a proprietary new ingredient for which they envision huge, untapped markets. In almost all cases, they tremendously overstate their (provisional) patent applications and limited product testing as a market-ready ‘turn key’ product, which it certainly is not.

BI: What is one challenge unique to OI initiatives that your organization is particularly adept at moving beyond?
RS: Unique to all OI initiatives is the challenge of ensuring that everyone has a place at the table, everyone has a voice and everyone’s ideas are fairly and effectively vetted. For MLM companies that want to harness the power of their independent distributors’ field experience and brainpower, that’s a hugely complicated undertaking requiring a very large table. At Mannatech, we have always had enormous respect for the collective wisdom of our sales force—about 500,000 independent distributors in more than 20 countries—but the question for us was how to employ OI on a grand scale so they could be meaningfully and constructively engaged in our product ideation and development process.

While attending a product development class at The University of Pennsylvania’s Wharton School of Business a few years ago, I had an ‘Aha Moment’ when I learned about software Wharton had developed to run academic tournaments. It struck me that this software was exactly what we were looking for. When adapted for our purposes, I could see that it could provide an anonymous, user-friendly, controlled platform for our associates to share their product ideas and vote on others’ ideas. Importantly, this software was smart enough to normalize data generated from individuals who tend to be consistently hyper- or hypo-critical. So, we obtained exclusive license for the software and put it to work. Over the past few years, we’ve found that product ideas are typically reviewed a few thousand times before the better ones rise to the top. We then skim off the best, put some serious thought into what we think consumers are actually asking for, and then begin the intensive process of developing innovative products that are both technically feasible and acceptable to regulatory agencies in as many countries as possible. We’ve used this process to create some of our most successful products.

The proof of the success of our innovative application of OI is, of course, reflected in the bottom line. We believe that our associates can sell these products with passion because they were created with their input and are thus fundamentally aligned with their beliefs and their needs. 

BI: What, in your experience, are three critical OI Best Practices to optimize effective project execution?
RS: Ensure that 1) everyone is invited to the table, 2) open discussion is encouraged and 3) unbiased methods are used to choose the best path forward.

Heather Biehl, associate director, H.I.T.S., WILD Flavors, Inc., a natural ingredients company servicing the global food and beverage industry, shared her definition of OI and a success story.

BI: Open innovation (OI) can be interpreted in many ways. How do you define OI?

Ms. Biehl (HB): Open innovation is the process of working outside the four walls of your own organization with strategic partnerships to bring new ingredients, technology and/or innovation to the market.

BI: Please share a personal open innovation success story—this is an experience you would consider a high point in your career, or a time when you knew you were successfully executing on an OI initiative.
HB: A success story that I’ve been involved with is WILD Flavors’ partnership with Sterling Technology, the leader in bovine colostrum research. WILD Flavors, Inc. is the leading privately-owned manufacturer of natural ingredients for the food and beverage industry. WILD provides specific flavors, colors and ingredients as well as innovative and great tasting concepts through application and technological expertise.

WILD’s partnership with Sterling Technology gives us exclusive distribution rights for two ingredients in the food and beverage industry: Immunel and Tegricel. The strategy for our Health Ingredient Technology and Solutions (H.I.T.S.) group is to partner with companies that can provide WILD with scientific support—clinical studies on ingredients and regulatory support—for GRAS (Generally Recognized As Safe) ingredients. The exclusive agreement gives us a competitive advantage in the marketplace. In return WILD is able to provide Sterling Technology a much broader market reach for its ingredients. WILD’s food and beverage product development expertise, our extensive sales team and marketing capabilities takes these products to the next level.

When I started working with Sterling Technology I knew I was executing open innovation. Their company values fit with WILD Flavors. Both companies were willing to share their business models and best practices in order to form a successful partnership.

To add another layer of insight to the WILD Flavors and Sterling Technology OI story, Sterling Technology’s Dilip Patel, director, R&D and Quality, and Angela Walter, business development manager, Bioactives, shared their experiences and perspectives.

Dilip Patel (DP): We are very good in one area, WILD is very good in formulations. It’s a meeting of the minds. We don’t have WILD’s 20 year’s of experience in the functional food and beverage business, but we have a critical science background. It’s not easy to put products into food and beverages. There are hurdles—regulation, marketing. It’s really developing the bond, respect for each other, like a good marriage. In marketing and sales and research, you have to work together.

BI: Were all parties brought together right away?
Angela Walter (AW): Yes, with brainstorming sessions, but it comes from proper planning as well.
DP: When two companies are involved, it’s initially on fairly simple projects—everybody assisting everybody, people bring different expertise, and the team evolves.

BI: How do you envision OI practices evolving over time within your industry?
AW: I don’t think the big players have open innovation.
DP: They would be so much better off if they could manage collaborations. More of the fears come in the way.

BI: What advice would you give other organizations in your industry to overcome the fear?
DP: Run through risk assessment analysis. If it can’t be rationalized, then it’s just fear. But it doesn’t mean everyone can collaborate. It comes down to people; we try to develop the bond, to appreciate openly and have a little fun.

BI: It’s not uncommon in OI initiatives for the process to derail due to one partner feeling like its organization is bringing the majority of the value to the table and that it may not be appropriately compensated. To create an optimal working relationship with external partners, what advice would you offer others?
DP: Project managers are very smart to modulate and to help bring it under control if there are issues. At the end of the day, honest disagreement and conflict may come, but it’s based on principles. The project manager can figure out if it’s something childish or critical.

BI: What is one challenge unique to OI initiatives that your organization is particularly adept at moving beyond?
DP: One of the unique aspects of Sterling is that they let you own their project. You take responsibilities, even though something goes wrong, there’s never anyone who says to me, ‘You screwed up.’ Innovation can’t be a hobby, but time, money and resources should be justifiable.

BI: When it’s a hobby, how is that a challenge or a problem?
DP: You have to be mindful. Is it worth more time and money? Is it commercially viable?

BI: What, in your experience, are three critical OI Best Practices to optimize effective project execution?
AW: Find the right team that shares a common passion or objective, and the right company that shares the same values. Do a SWOT analysis (Strengths, Weaknesses, Opportunities and Threats). Where do you think you have a shot? If you look at the market, you can see certain gaps you have and advantages they have. Professional relations become social innovations; it’s trust. In OI, you have to trust your business partner that they will communicate your product.

BI: Some people and organizations don’t involve sales early in the process.
AW: In sales and marketing, you have to know the product inside-out. It’s that part of OI; you need to get sales involved from the ground up.

Arthur Fox is founder and chief innovation leader of the Innovation Global Network, an organization dedicated to helping innovation providers and supporting experts to network and partner to achieve sales growth, innovation pipeline and career objectives. Mr. Fox offered some advice when it comes to understanding how companies execute OI.

Mr. Fox: One of the largest barriers to open innovation is that it is executed differently in each company. Each one has different processes and entry points for reviewing technology submitted from the outside. This makes it confusing for technology providers to understand how to gain entry and work with them. Many of the larger companies have posted their submission processes on their websites. For most companies, it would be best to make contact with someone on the inside of the company who can point you in the right direction or work with consultants familiar with those organizations, who have the ability to gain entry, and who can advise you as to what information you will need to provide to be considered and to protect your intellectual property.

We close with a succinct definition of OI from Miles Eddowes, Innovation Accelerators at Mondelez International, which comprises the global snacking and food brands of the former Kraft Foods Inc.: “Mutually beneficial partnerships commercializing the ideas that neither partner could take to market alone.”  

A special thanks to all who contributed. Your unique insights into the challenges and opportunities you’ve encountered while participating in OI initiatives serve as helpful guideposts for others in the functional food, dietary supplements and nutrition industries.