2nd Annual Innovation SummitWorkshop I

Dealing with Organizational AspectsCase Study

Deborah Mills-Scofield (Mills-Scofield LLC)Jackie Hutter (The Hutter Group LLC)Mike Riegsecker (Menasha Packaging)

The Business Situation

You are Director of Innovation, Container Category for CPG, Inc.

Your product line is plastic food storage containers. Although branded proprietary differentiations exist in the category, for most consumers, price drives purchasing decisions, making this primarily a commodity business.

Given the fact that the consumer is uninterested in paying more for the product, you have been tasked with identifying ownable innovations that will allow CPG, Inc. to make the containers at a lower cost than your competitors, thus allowing your company to achieve higher profit margins and/or sell the containers at a lower cost.

The Technical Solution

You have identified a chemical additive that can improve the speed of manufacturing and reduce the number of product defects.

The technology has been proven out for other similar plastic products, and the probability of success in containers is very high. However, R&D and Manufacturing will still need to commit resources to demonstrate its viability in your container products.

The chemical manufacturer has several patents on the additive and is willing to provide CPG, Inc. with exclusive rights to use the material in plastic containers for 3 years.

The Open Innovation Situation

Can you convince those people in CPG with the ability to say “no” that it makes sense to invest the time and resources needed to acquire the rights to the chemical additive and to use it in your plastic containers?

The Players with Decision RightsYou: Director of Innovation, Container

Category

Robert Harris, Ph.D: VP of R&D

Dick Carr: VP of Manufacturing

Jeffery J. Pennywise, CPA: Director of Finance, Container Category

Karen Stopper, JD: Chief IP Counsel

The R & D SituationR & D has lost 30 % of its staff to layoffs and attrition, and its budget has been cut 25 % in the last 4 years.

The R & D team working on the container category has been developing a new plastic formulation for 2 years that is patentable and will work like the chemical additive. This work looks promising but it will be 3 more years until this new plastic material will be ready for introduction into the market, and the probability of success is 50-60%.

Dr. Carr believes that the consumer will respond favorably whenever they are presented with a technical innovation that has a “cool factor.”

The Ph.D. scientist leading the container category has 15 patents to her name, and expects to be named VP of R&D when Dr. Carr retires in 2 years.

Although the additive is fully expected to work in CPG’s containers, R & D efforts are required to ensure the results.

The Manufacturing SituationCPG, Inc. has 4 plants where the plastic containers are made. Each are located in different parts of the U.S., and each is running at almost full capacity to meet current order levels.

All plants will require retrofitting and shutdown to implement introduction of additive for at least 2 weeks per facility. Total cost of , retrofitting, shutdown and overtime to meet current orders is $1MM per plant. There will also need to be considerable retraining of staff, many of whom comprise temporary workers at a cost of $500K.

Plant managers report into the VP Manufacturing, and all are evaluated individually on costs of goods and production levels.

Manufacturing is populated by engineers and hourly staff, and they tend to be distrustful of new chemistries that might result in technical challenges to their existing processes.

The Financial Situation

The additive is cost neutral in the final product.

Introduction of additive throughout CPG plants will require $15 MM investment, which will put container category in the red for the next 18 months.

Payback on the investment is 3 years from introduction at all 4 CPG plants.

Upon full implementation of the additive, margins obtained by CPG for containers in which the additive is used will immediately increase by 20 %.

The Legal Situation

The chemical company that supplies the additive is owned by CPG’s biggest competitor.

CPG has just settled a multi-year trade secret misappropriation lawsuit that resulted from a failed collaboration, and the chemical company selling the additive has a reputation for litigiousness.

Ms. Stopper has been told to reduce her outside counsel budget by 30 % this year, and she has no attorney on staff qualified to review whether the additive can be used as intended by CPG.

How Do You Get Them to Buy into Open Innovation?