“IT’S VERY RISKY TO BET ONLY ON BLOCKBUSTERS”

Sanjay Khosla spent more than 30 years as an executive at Unilever and Kraft, and now, as a senior adviser at Boston Consulting Group and a professor at Northwestern’s Kellogg School, he helps companies find ways to increase organic growth and improve the

What’s the main takeaway from this research?

That companies that are successful at innovation build on what’s working. They look for what I call the 3Ms: areas with good profit margins, momentum, and the potential to make a material financial impact. They try to find a balance between quick wins and medium- and long-term projects. It can’t be just about blockbusters, because it’s very risky to bet only on blockbusters.

When you ran Kraft’s developing markets businesses, what kind of innovations were most successful at driving growth?

Tang is an example. By 2007, its sales outside the United States had plateaued at about $500 million and begun to slide. So, we created a cross-functional team on which R&D and marketing and supply chain experts worked together and asked it to push sales to $700 million within five years. We gave it a blank check – lots of resources and autonomy, and encouragement to experiment and fail fast. It came up with new flavours, such as mango in the Philippines and pineapple in West Asia . It became entrepreneurial and nimble and looked not only at product innovations but also at design and packaging innovations, supply chain innovations, and business model innovations. Within five years sales were above $1 billion. Following a similar approach, Oreo went from sales of $200 million to sales of $1 billion outside North America in six years.

How much are returns from innovation limited by the culture inside large CPG firms?

The biggest issue is not how much firms spend or how they spend it; it’s about the connections between functions. At too many companies, R&D is looking in the mirror at itself instead of looking out the window at consumers. The scientists are doing their own thing, without a focus on achieving commercial value. That’s one reason small companies are winning market share. Big companies can still grow, but they need to focus on categories where they can win, create cross-functional, entrepreneurial teams, and become far more agile in their execution.

How is innovation changing inside big CPG firms that, like Kraft Heinz, have been bought by private equity firms?

In the case of Kraft Heinz, the buyer, 3G Capital, has a very different philosophy and culture than most companies, so there are a lot of changes. Many PE firms are highly successful at buying companies, cutting costs, and improving profitability. I think the jury is still out as to whether they can drive organic growth.