Innovation and Commercialization: A Nestle Case Study

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INNOVATION AND
COMMERCIALIZATION

Contents
INTRODUCTION...........................................................................................................................................3
LO1. DIFFERENCE BETWEEN INNOVATION AND INVENTION.......................................................................4
LO2: DIFFERENT TYPES OF INNOVATION.....................................................................................................8
LO3: PROCESS REQUIRED TO COMMERCIALISE INNOVATION...................................................................12
LO4: RANGE OF METHODS FOR PROTECTING IDEAS AND THEIR ADVANTAGES AND DISADVANTAGES. . .15
CONCLUSION.............................................................................................................................................16
REFERENCE LIST.........................................................................................................................................16

INTRODUCTION
Innovation is the process of converting thoughts or ideas into the products or services so as to
create more value for the customers. But the idea must be economical and must satisfy the
particular need of customers. In business, innovation is when the innovative ideas are applied
by the company to satisfy the needs, wants and expectations of customers. The risk is majorly
involved when the company creates new product or service because the company introduces
the product in the new market and may result into success or failure of the idea (Carr et al.,
2016).
According to Peter Drucker, "Innovation is a particular instrument of business, the act that uses
resources for creating wealth with new capacity."
Therefore it cannot be just an idea or thought for introducing the new product with the new
ideas or methods but it is the process that consists of several activities to discover new ways of
satisfying the need of customers. The innovation is not about creating or producing something,
but it is producing with creativity. Innovators must think outside the box to bring incremental
enhancements.
The businesses get a lot of opportunities in the era when the technology is advancing and
increasing the globalization. The result of globalization is increasing competition and even the
customer demands extra to satisfy their needs.
Innovation brings greater opportunity for the company and it is necessary for its survival,
economic growth and for the success of the company.
Nestle is one of the biggest player FMCG sector engaged in the food business. The company
was founded in 1866 by Henri Nestle and is serving the customers for more than 140 years. The
mission of the company is "Good Food, Good Life". There are more than 800 brands of
products. Its headquarters is in Switzerland. The product portfolio of Nestle includes coffee,
breakfast cereals, instant food, pet foods, bottled water, soups and sauces and many others

LO1. DIFFERENCE BETWEEN INNOVATION AND INVENTION
Meaning of innovation
Innovation is the application of new ideas or thoughts of doing something or in a unique way.
The businesses focus on innovation to satisfy the emerging needs of the customers. Nestle is a
multinational company and thus get lots of opportunities to satisfy different needs of
customers by introducing, producing and developing innovative products (Blank and Newell,
2017).
Difference between innovation and invention
Innovation is the idea or thought that add value to the products or services as well as satisfy
the needs of the customers. Innovation is not an introduction or discovery of the new product
but it only improves or adds value to an existing product.
The invention is the creation of the product or service for the very first time. It is the idea of the
product that never being introduced before. It is an activity for discovering the product with the
new idea (Park, 2017).
No. Basis Innovation Invention
1. Effect on product It adds value to the existing
product.
It is the creation of a new
product.
2. Skills General marketing, strategic and
technical skills required.
Additional scientific skills
required.
3. Time of occurrence It has occurred when the need
for improvement in the product
is required.
It has occurred when the idea
in the mind of scientist
strikes.
4. Concerned with It is concerned with a
combination of different
products.
It is concerned with a single
product.
5. Activities The activities on innovation are
spread across the whole
organization/
The activities of the invention
are limited to R&D.
Importance of innovation to Nestle
For every organization or Nestle, innovation and change have become an important part of the
dynamic environment. The company brings innovation for its economic growth and survival but
on the other hand, it is also needed by its customers, employees and community. Following are
the importance of innovation to Nestle:

1. To meet the changing needs of customers. Innovators forecast the need for the product
in advance and try to bring a solution before they realize its needs.
2. Talented and competent employees are attracted by the innovative company. If the
community watches the Nestle as innovative then it will attract the resume of most
talented people of the world.
3. The innovative or unique products will make the Nestle stand out from the competitors.
Also, innovative products allow the company to offer something unique to their
customers.
4. An innovative product cannot find success without the careful management of
commercialization of the product. The success of innovative products also depends on
marketing activities. Thus these both are dependent on each other (Miozzo et al., 2016).
Organizational vision, leadership, culture and teamwork shape innovation and
commercialization
The diversity of the culture brings innovative ideas together but on the other hand, if the
culture is not an open culture then it is of no use of a diversity of the culture. The employees of
Nestle must be able to freely express their view for bringing innovation and commercialization.
It is because of efforts of leader and teamwork that can convert the innovative ideas into the
products of Nestle. And clear vision helps the employees and all the members of the
organization to keep the noise away from achieving the vision of the company.
A different source of innovation
 Unexpected: Unexpected innovation occurs unexpectedly. There is a certain situation
such as fire or dynamite that brings a new idea or even the product.
 Incongruity: It is a unique way of finding a solution to a particular problem. It does not
only include thinking differently from the competitors but from society as well.
 Industry and market structure: The change in industry or market forces the companies
to bring innovation in order to survive in the competition.
 Process need: It is identifying the company’s weakness in terms of process and finds
innovative ways to correct it or redesign it.
 Demographics: the company pays attention to any change in need, education level,
income level, age and other demographic characteristics for bringing innovation.
 Changing perception and mood: People often change their lifestyle, mood and
perception towards the product or a brand. The companies should forecast and bring
innovation matching to their perception or mood.
 New Knowledge: The continuous introduction of new technology creates ample
opportunities for the Nestle to bring innovation in their business (Khajeheian, 2016).

Organization foster and develop an environment and culture of innovation
The organization can foster and develop an environment and culture of innovation by adopting
the following ways:
1. Fostering and developing innovation begins with hiring talented people. And the second
stage is to build an effective team by bringing together the people of diversified culture.
2. Clearly define the innovation and what does this innovation mean to the Nestle. There
should be a strategic plan for collecting and building ideas and the tool that helps in
measuring the resulting success of the idea.
3. The Nestle should give the employees complete freedom and autonomy to think and
freely communicate with each other and also give leisure time, a flexible working
environment so that the employees will also contribute in bringing innovation to the
product.
4. The leader should support, guide and encourage the team members who propose the
idea. The innovation capabilities also depend on the leadership style.
5. The Nestle can foster and develop the environment and culture of innovation by
rewarding and recognizing the ideas of employees (Brettel et al., 2015).
Innovation is developed, embedded and measured in Nestle
The innovation is developed by the following sources described above such as unexpected,
process needs, market and industry structure and others. The innovation is measured by
following the steps:
Step I: Identification of goals
The company decides the goals and activities that are required to bring innovation to the
organization. It also defines the course of actions and the motivational factor that encourage
the entire innovation process. By deciding the goal of innovation, the innovator explores the
opportunities according to the goals.
Step II: Short term deliverables
In the next step, the steps are decided and implemented that is necessary for the success of the
innovation.
Step III: Near term deliverables
After taking the actions, the innovator moves into the third stage and measure the results and
outcomes of innovation. It can be done by comparing:

 Past and current performance due to innovation
 The effective or efficient capacity of innovation
 Future and expected potential of innovation

LO2: DIFFERENT TYPES OF INNOVATION
4P’s of innovation
The innovation mix or the 4P's of innovation is a tool to identify the process of innovation and
how it applied in the organization. The innovation mix includes:
Figure 1: 4P's of innovation
[Source: Semantic Scholar, 2019]
 Product
The product is the thing that is offered by the company. The Nestle brings innovation in
its product to make it more appealing than the other products available in the market.
The company finds ways to improve the product which is known as incremental change.
 Position
The position is related to perception about the brand or the product. The perception of
employees, customers, business partners or other related parties. For multinational
companies, perception plays a major role in positioning its image.
 Process
The process is the way in which the product is created and delivered to the customers. It
includes all the activities such as selling, producing, recruiting, distributing, accounting
and all other related activities.
 Paradigm
It is a unique way of operations of the business. Sometimes in bringing the innovation in
the company often leads to negative change. It is assumed that innovation brings
positive change for boosting the profit of the company (Asiedu, 2016).
Use of innovation funnel to examine and shape innovative ideas
1. The innovation funnel is used to build and manage the strategic plan of the company.

2. The innovation funnel is used to commercialize an idea to a product by effectively use
company’s R&D resources.
3. The top management uses the innovation funnel in making a well-informed decision.
Innovation funnel and Innovation funnel in Nestle
Innovation funnel is used to describe the process of innovation in developing a product or
service. The main purpose of innovation funnel is to meet the customer needs in manufacturing
or economic forms. The process of innovation includes all the activities that are necessary for
converting the idea of innovation to the concept of reality (Garas et al., 2017).
Innovation funnel in Nestle
The success of the innovation in the product depends on the process of filling and managing the
funnel. The innovation funnel involves three stages to bring innovation in the product of Nestle.
These steps are as follows:
Stage 1: Wide mouth of the funnel
In this stage, Nestle focuses on increasing its knowledge and collects information and ideas. The
more innovative idea the company has the more innovation it can bring with its product. The
information is collected from customers, partners, competitors, research, institutes and other
sources. But the information should be relevant to the objective of innovation or to solve the
particular problem.
Stage 2: Narrowing segment of the funnel
In this stage, the idea developed by the Nestle goes through screening to see whether these
ideas are related or not. The screening is done by assessing the risk and returns related to the
idea. Also, the innovative product or the company is tested by a sample of customers.
According to the result, the resources are allocated according to the opportunities (Barbieri and
Álvares, 2016).
Stage 3: Narrow segment of the funnel
The new product is finally introduced in the market. The Nestle ensures that the idea of the
product must be delivered to the customers. This model ensures the idea is safe and can be
applied in the real world.

Figure 2: Innovation funnel
[Source: Rao and Weintraub, 2019]
Developments in frugal innovation
Frugal innovation is a concept that is used by the business to respond to limitations such as
scarcity of financial, human, material or other sources for turning these limitations into the
innovative and creative products. By lowering the use of these resources in developing,
producing or even delivering frugal innovation lowers the cost of the product without sacrificing
the quality (Weyrauch and Herstatt, 2017).
For example, Nestle as a multi-national company finds two problems; one is poor purchasing
power and second is lack of infrastructural facilities such as poor infrastructure, pollution,
limited access to education and health and other related problems.
But to bring frugal innovation, the company takes the resources from well-developed countries
and can invest the funds in utilizing those funds in under-developed or developing countries.
Role of frugal innovation
Frugal innovation plays a significant role in the Nestle and these are as follows:
1. Through frugal innovation, the company is now able to enter the emerging markets. In
the developed markets, the people are ready to pay premium prices to the advanced
features of the product that can be utilized in the emerging market where people don’t
have financial resources to afford the premium products (Sharmelly and Ray, 2018).

2. Frugal innovation helps in identifying the target customers. The company can identify
the real conditions in which the people live and consume the product. By understanding
the target customer and their needs, Nestle can allocate their resources accordingly.