Report: Collaborative Innovation Between Manufacturers & Retailers Can Drive 15-20% Profit Increase

November 09, 2009

Both parties benefit by aligning goals to identify opportunities for win-win product offerings

BEACHWOOD, OHIO - Collaborative innovation, a strategy in which manufacturers and retailers partner to create compelling consumer product offerings, can help increase sales and profitability by 15 to 20 percent. However, a limited ability to execute and slow industry adoption have many companies failing to capitalize on the opportunity to work together to grow profitable sales. The findings are from a new consumer packaged goods (CPG) industry survey, which is being published in a Kalypso white paper this week.

The Kalypso white paper titled, "Best Practices in Collaborative Innovation: How CPG Manufacturers and Retailers Can Profit from Collaborative Innovation," is based on findings from a survey of 40 vice president and C-level executives representing consumer products manufacturers, retailers, and brokers. The study was conducted to better understand how manufacturers are working together with retailers, who are often both customers and competitors.

Only 12 Percent Incorporate Strategic Partners' Needs

Almost unanimously, the executives interviewed stated that collaborative innovation was very important to achieving their business objectives. In fact, 81 percent stated that they currently use some form of collaborative business planning. At the same time, only 12 percent reported that they have incorporated the needs of strategic partners into innovation planning-suggesting that the vast majority have had moderate to no consideration for the innovation needs of their strategic customers.

"In today's competitive marketplace, the need for consumer goods manufacturers and retailers to develop systemic, sustainable collaborative innovation is more urgent than ever," said Mike Friedman, a partner at Kalypso. "Unfortunately we've found that many of the companies claiming to practice collaborative innovation don't have the right initiatives in place and are missing a tremendous opportunity to increase their profitability as a result."

The study demonstrated that those manufacturers and retailers engaging in a true collaborative innovation approach are achieving benefits such as improved idea generation, enhanced shoppability for their products, reduced rework, and better alignment with market demand. The ability of these manufacturers and retailers to mutually achieve higher revenues, coupled with reduced costs, has translated into profitable business growth. The study revealed that one consumer goods company grew revenues by $85 million out of one collaboration session with a major retailer. Another manufacturer helped a retailer increase "big brand" impulse purchases by 30 percent as a result of one program.

Study Reveals Four Best Practices

The study resulted in Kalypso identifying four best practices for successful collaborative innovation:

• Develop a strategy for collaborative innovation that focuses on a win-win scenario for manufacturers and retailers. Identify the categories or brands best suited for collaborative planning processes, and work with those. Develop a tiered approach that prioritizes resources on the best partner candidates and biggest innovation opportunities, with a go-to-market plan for all retailers/manufacturers.

• Conduct joint business planning to align goals and objectives around a number of categories or brands that can be jointly grown in profitability. Center the framework around consumer and shopper insights. Align the manufacturer's and retailer's rewards and recognition systems to support joint efforts.

• Align the organization internally before attempting external alignment with partners or customers. Address management, organizational and business process challenges, and then optimize the company's innovation and growth strategy, resource planning, product development process, and portfolio management.

• Choose partners wisely, and build trusted relationships. Develop an approach to sharing information that protects intellectual property for both parties. Identify opportunities to work with retailers that have their own brands rather than against them. Though relationships are difficult in categories where there is competition, the benefits can outweigh the difficulties.

"The value of collaboration is clear," said Friedman. "By employing proven best practices, manufacturers and retailers alike can develop an action plan to deploy-or extend-systemic, sustainable collaborative innovation that they can jointly leverage to build their brand recognition, customer demand, and profits."

To access the complete research findings, download Kalypso's white paper at http://www.kalypso.com/landing/best-practices-in-collaborative-innovation/.

About Kalypso

Kalypso is the world's premier innovation consulting firm, helping clients improve profitability by delivering on the promise of innovation. Kalypso offers clients full service capabilities including Business and Innovation Strategy, Front End of Innovation, Portfolio and Pipeline Management, Development and New Product Introduction, Value Management, PLM Technology, Leadership and Learning, and Intellectual Property Services. For more information, visit http://www.kalypso.com.

Media Contact

Rebecca Hurst
Kinetic.PR, LLC
650.679.9282
rebecca@kineticprllc.com