1

Open Innovation @ PepsiCo 2009

Ian NobleR&D Director Foods Innovation

PepsiCo is……

What is Open Innovation?

• Finding Innovators in and outside of PepsiCo

– Beyond the traditional partners, often outside the Food Industry

– Using multiple approaches including Open Innovation intermediaries

• Engaging Innovators

– Sharing ideas, capabilities and expertise between PepsiCo personnel and outsiders to realize value from differentiated and meaningful innovation

ArroganceArrogance

IgnoranceIgnorance

Intolerance(NIH)

Intolerance(NIH)

Lack of Skills, Resources

Lack of Skills, Resources

Knowledge to Measure OI Performance

Knowledge to Measure OI Performance

Organizational OI Maturity

Challenges to Successful Open Innovation Implementation

Goal of Open Innovation at PepsiCo:Drive Revenue Growth……

Improve Innovation QualityAccelerate Innovation

Increase Innovation Capacity

Reduce Innovation Risk

• Number of innovations attempted = completions + discontinued projects in each innovation category

• Share of innovations attempted in each innovation category

Number of man-days saved from each of the following activities:• Find needed expertise faster• Solve problems faster• Product cycle acceleration by phase of development

• Best in class technologies• Number of new key contacts found and used

Open Innovation Process/Framework

GetGet

FindFind

WantWant

ManageManage

ANYTHING…innovative ingredient, product, process or technology solution needed to support mission.

Mechanisms used to identify the external resources needed to accomplish the mission

• OI Scouts• External networks and enablers

Process needed to plan, structure and negotiate the agreements for obtaining the external resources

Tools, metrics & management techniques to turn external partners into networks of “research partnerships” and measure OI value

Engagement Index is a key focus

• Trust

• ‘Openness’ of the Culture

• ‘Control’

• Effectiveness with OI Framework (WFGM)

• Communication and collaboration technologies and tools

• Incentives and rewards

• Organizational Structure that enables timely idea evaluation

Our approach at PepsiCo

Focus on an integrated innovation ecosystem focusing on 3

things:

• People

• Technologies

• Culture

Consultants

Before: Some sharing and limited strategicpartnerships with non-Core external innovators

Tremendous opportunity to accelerate Breakthrough Innovation

Employees

Consumers

Customers

Suppliers

Intermediaries

Impact of Innovation

ExternalInnovators

Retirees

TeamUniversities

Research Org

Team

Currently: Building an Integrated InnovationEcosystem

New model for PepsiCo R&D and all of PepsiCo

Impact of Innovation

Team

Consultants

Employees

Customers

Suppliers

Intermediaries

UniversitiesResearch Org

ConsumersConsumers

ConsumersFinance

ExternalInnovators

Retirees

Legal

Marketing

Innovation Teams: Highly-Connected Communityof Internal and External Experts

• Immersive Technologies•SharePoint with Community space•Newsgator: Discussion threads, 1-to-many communication• Web conferencing, IM• RSS

Technology

Culture

2

• Openness• Trust• Rewards & Recognition• IP Ownership Flexibility • Clear upfront expectations

People

3

• PepsiCo Associates• PepsiCo Retirees• External Innovators (Universities,

Entrepreneurs, Suppliers, Intermediaries)

Lots of Sharing. Solving Problems Faster

1

Setting Clear Upfront Expectations Reduces Ambiguity

Clear upfront expectations need to be set for each activity of each project

Without a framework, we have ambiguity

Ambiguity breeds uncertainty, scepticism, distrust and non-productive behaviours

Setting Clear Upfront Expectations Reduces Ambiguity

Clear upfront expectations need to be set for each activity of each project

Without a framework, we have ambiguity

Ambiguity breeds uncertainty, scepticism, distrust and non-productive behaviours

Open Innovation Performance & Metrics

• Open Innovation performance refers to key actions taken by partners as projects are executed and the result of those actions

• In an alliance partnership, it is important to first establish the Desired Project Outcomes:

– Profit Potential

– Consumer Value

– R&D Efficiency and Effectiveness

– Technical Probability of Success• Performance Metrics quantify the efficiency and/or effectiveness of

alliance partners’ actions at delivering the desired project outcomes

Keys to Good Performance Metrics

• Metrics should be selected based on desired project outcomes and stage of the OI model or innovation cycle

• Metrics should give you enough information to guide project direction and make informed decisions

• Metrics should help you assess the degree to which project outcomes are being achieved

• Measure only what is valued and important

• Reward the use of Metrics

Summary

• PepsiCo’s traditional model is of engagement with external sources of innovation

• Developments in the public domain Open Innovation space have provided us with an opportunity to improve our performance

• Technical differentiation is an important component of our innovation model

• We’re Proud to Partner and challenging ourselves to build our Open Innovation capability