For large firms, which often have different divisions with their own agendas, it can be difficult to innovate effectively and keep the company moving in a unified direction. In this episode of Mastering Innovation on SiriusXM Channel 132, Business Radio Powered by The Wharton School, Rui Barbas, Chief Strategy Officer at Nestlé USA, describes how the food and beverage giant addresses this challenge through what he calls a hybrid growth model.
To stay ahead of changing consumer tastes, Nestlé’s growth model focuses on two goals: optimizing the products and resources that they have currently, while at the same time investing in new ventures and acquisitions that allow for new revenue streams and capabilities. While external innovation used to be stigmatized within the industry, it’s now become a valuable strategy for Nestlé. Barbas discusses the rapidly changing landscape of the food industry, as well as the challenge of achieving a balance between nutrition, taste, and profitability.
An excerpt of the interview is transcribed below. Listen to more episodes here.
Harbir Singh: You’re doing some really interesting stuff. A survey that Accenture recently published shows that only one in seven companies report positive returns on innovation in terms of new products and markets of all the innovation projects. (This is obviously internal information gathered from a survey, and some of the attributes of the successful units have to do with adaptability, having flexible organizational structures, and talent that’s redeployable.) My question is, how do you manage to make innovation so successful in Nestlé?
Rui Barbas: It’s a great question, Harbir. There is a lot of evolution going on in my specific industry, in food and beverage. When you look at everything that’s happening in the industry, from how consumers eat, shop, engage with brands, new expectations they have from brands, it is a perfect ecosystem to rethink the way we do innovation. For us here at Nestlé USA, it’s about driving what we call a hybrid growth innovation model that constantly tries to evolve the way we innovate. It used to be that traditional industries like consumer packaged goods (CPG) were called fast-moving consumer goods, but they were a little bit slow because of the bureaucracy and the complexities of big organizations. The world is changing, and we are trying to be at the forefront of that change in the way we innovate.
I listened a little bit to the last part of your conversation with your prior guest; you were talking about this notion of innovating faster and even failing faster. That’s exactly one of the core things we are doing here at Nestlé USA. To give you a few examples, we have this notion here at Nestlé where we create our own startups within the B corporation that are incentivized and have the ecosystem and conditions around them to innovate almost like startups do. They innovate in a fast way that doesn’t take months or years to get to the marketplace, but rather only a few months or even weeks.
Singh: How do you do that? Large corporations tend to have divisions that are separate from each other and have their own agendas. A new product might actually be something that one division doesn’t particularly like. How do you build agility into a large corporation?
“When you look at everything that’s happening in the industry, from how consumers eat, shop, and engage with brands, it is a perfect ecosystem to rethink the way we do innovation.” – Rui Barbas
Barbas: That’s one of the biggest challenges we have. It’s a little bit like the short-term financial pressures versus long-term growth and innovation roadmap. The way we approach it here at Nestlé starts with asking what our growth strategy is going forward. What are the areas where we want to focus as a company? It’s the notion of managing a portfolio of growth and innovation where you continue to drive relevance of your base business and also embark in new growth and innovation ventures. That’s a way for us to, for lack of a better expression, try to create a dual growth engine where on one hand, you continue to optimize what you currently have, but on the other hand, you invest in future seeds of growth through innovation. Acquisitions are also a great way to seed the innovation machine of B corporations. For Nestlé here in the U.S., all of our acquisitions over the last 18 months bring new revenue streams and capabilities from an innovation standpoint.
Singh: I saw your article in LinkedIn around innovation in a larger corporation. It’s very nice article, and you talk about innovating with a base brand and the use of the new offerings (vanilla almond milk and caramel almond milk, etc.). Tell us more about innovating with the new base brands. One of the other interesting issues in the food business — and I’m thinking about companies like Pepsi — was where the former CEO of Pepsi, Indra Nooyi, was challenged by a couple of things. She was very successful, but the challenge was that many people thought that these sugary drinks were unhealthy, so she was trying to add healthy products. However, the analysts wanted the growth for Pepsi to continue. You have this issue in the food-based business: how do you provide healthy and profitable offerings?
Barbas: I would add maybe a third dimension here. When you think about the food and beverage business, nutrition, health and wellness are thought of a fair amount for a company like Nestlé. It’s very core to our purpose and who we are, but we’re also in a business where 84% of the consumers still pick food based on taste profile. How do you balance nutrition, taste, and profitability?
Singh: I like the point you had about leveraging external partnerships, the partnering with Rabobank and RocketSpace. Tell us more about that.
“There’s a lot of innovation going around the whole ecosystem that surrounds a company like Nestlé, and startups are a great vehicle for us to partner with.” – Rui Barbas
Barbas: It’s part of our hybrid growth model. We have three drivers there: how you drive the base business to drive consumer relevance, how you acquire for growth in terms of revenue streams and capabilities, and how you bring new innovation models. We talked a little bit about this concept of internal startups at the onset of our conversation. For big CPG companies 10, 20 years ago, if innovation was not made internally, it was not good, right?
Barbas: There was this stigma in the industry. There’s a lot of innovation going around the whole ecosystem that surrounds a company like Nestlé, and startups are a great vehicle for us to partner with. We get a lot of learnings in terms of how they are structured, how they innovate, how they go to market, and how they activate quickly on new trends. In turn, what they get from a company like Nestlé is access and learnings when it comes to capabilities and how you scale up a brand. That engagement model with external startups is one of the core elements of our new innovation model. It’s not just what is done internally, but also how we can partner with other stakeholders in the industry. Startups, academia, and technology are all great examples. Suppliers of key ingredients are tremendously important when it comes to our innovation cycle as well.
About Our Guest
In this role, Rui is responsible for driving corporate business strategies and leading enterprise transformation programs to accelerate new growth platforms, build new capabilities and improve ROIC and organizational structure. He has helped the company modernize and adapt to changing consumer behaviors and the needs of emerging consumer segments.
Rui’s career has taken him to over nine countries with challenging roles in Strategy, General Management, Sales, Innovation and Operations in four different industries. This experience has afforded him a broad perspective on leadership, business, innovation, change management and value creation in different contexts. It has also tested and proven his ability to conceptualize and implement business strategies that drive profitable sustainable growth, and to inspire large teams to embrace these strategies and drive successful execution.
Mastering Innovation is live on Thursdays at 4:00 p.m. ET. Listen to more episodes here.