Law of Large Numbers

Saul Kaplan
May 4, 2009

Imagine needing to add $5-6 billion in new revenue this year just to meet corporate growth expectations.   That’s about $16 million in new revenue every day including weekends.  It is also Nestle’s 2009 corporate revenue growth target.  Accorded to Helmut Traitler, Vice President for Innovation Partnerships, Nestle has about $100 billion in current total revenue and a growth plan calling for a 5-6% revenue increase.  Just the incremental growth revenue in Nestle’s plan would land a company on the Fortune 500 list.  

I had the opportunity to spend time with Helmut at an Open Innovation forum in Cambridge hosted by the Swiss Consulate’s swissnex program this week and to learn about Nestle’s Innovation Partnerships initiative.   Nestle expects to get half of its growth revenue as a result of it’s innovation program so I was very interested in Helmut’s talk and the ideas he shared with me about how they plan to achieve their growth objectives.  

These are the core ideas that really resonated:  

Embracing open innovation and new business models  Nestle clearly recognizes that to achieve its growth objective it must extend its internal capabilities to establish a large number of strategic partnering relationships.  It has embraced open innovation and works aggressively with strategic partners to co-create significant new market and product opportunities.  Worldwide, Nestle employs approximate 5000 people in 24 R&D centers and over 250 application groups.  It extends its reach by tapping into the technologies and expertise of more than a million researchers around the world.

Importance of strategic focus within target benefit areas  Nestle has a very clear framework to screen new opportunities.  It has identified target benefit areas that relate to nutrition, compliance and quality, and taste.  In order for any idea to be pursued it must be strategically aligned with one of the identified target benefit areas.  

Building partnerships based on trust and goodwill  Nestle has developed an internal culture based on a “sharing is winning” philosophy and recognizes that big growth opportunities can only be co-created with partners if the relationship is based on a strong foundation of trust and goodwill.   

Upfront clarity on how IP is handled   Nestle recognizes that how IP is shared is often a key determinant in moving innovation partnership discussions forward.  The company makes its framework for sharing IP very clear early in the conversation so there is no expectations gap.   While there may be exceptional cases the norm is that every physical solution, such as ingredients or technologies, is owned by the competency providing organization.  In turn, the smart applications of a new solution are owned by Nestle for the period specified in the individual agreement.   Partners know Nestle’s expectations right up front which enables a more efficient partnership evaluation process.   

Importance of program management and discipline  Just the raw number of discussions at various stages in the partnership life cycle to drive the growth Nestle is trying to achieve is only possible with strong program management capabilities and rigorous discipline build into the decision making process.  

While each of these items may seem intuitive, to implement all of them at the necessary scale required for Nestle to be successful and to align an organization of its size to an open innovation platform and culture is impressive.   While it is hard for me to wrap my mind around needing $5-6 billion in annual revenue growth, after spending time with Helmut Traitler and learning about Nestle’s Innovation Partnership program I think that Nestle is well positioned to achieve it.   Nestle gives new meaning to the law of large numbers.