Starting as an R&D-led Project with a Long Incubation Phase

In 2012 Nespresso was a fast-growing global business, with sales exceeding $3.8 billion, 8300 employees and a high margin level. It also enjoyed a premium profile image and a wide degree of brand recognition. Yet, most people do not know that it took 16 years – from 1980 to 1996 – for the project to break even. During this time, Nestlé's top management kept supporting and funding the project, despite many internal critics and marketing uncertainties.

Nestlé had bought the high-pressure coffee extraction technology that led to the Nespresso system from Geneva's Battelle Institute in 1974, but no one worked on it for several years. Then, the coffee R&D center in Orbe, Switzerland, decided to design a new espresso system using this proprietary technology. The idea was to add value to a commodity like coffee and create a unique taste experience by packing coffee in hermetically sealed aluminum capsules and extracting the flavor in specially designed high-pressure steam machines. Spurred on by their strong belief in the concept, a number of champions in R&D worked for several years to solve all the main technical problems. They ultimately developed a full system – comprising a patented machine and proprietary capsules – with a premium taste and, importantly in an espresso, an appealing crema, the visually distinctive creamy foam on the coffee's surface. The Swiss manufacturer Turmix produced the first machines for Nestlé, which maintained complete control over machine design and the intellectual property of the system.

Nestlé's food service division saw an opportunity for the new system in the Swiss restaurant market. But a market test performed in 1982 proved disappointing. The system was too slow and could not accommodate several cups at the same time, a typical restaurant requirement. Besides, the cost per cup was too expensive, at least compared with large institutional Italian espresso machines. So, the idea was abandoned in favor of the office coffee sector. A distributor of appliances present in the Swiss office coffee market was approached to distribute the Nespresso system (machines and capsules) in the institutional market.

Championing the Project at Top Level and Protecting It

Nestlé's top management had followed the project with a combination of skepticism on the part of some members and interest on the part of others – like Camillo Pagano, executive vice president in charge of several worldwide strategic product divisions and business units.

Conscious of the unique nature of the Nespresso system within the group, in June 1986 management decided to create a separate company and appointed one of its members at its head to market the new system. At first the company was called Nestlé Coffee Specialties (NCS) before the Nespresso name was adopted. This move, it was felt, would allow the new business to be independent of the powerful coffee business unit and its competing Nescafé brand. It would also allow Nespresso to develop its unique identity. From that moment, the business stayed under top management scrutiny.

The system was tested in several markets for office coffee machines in Switzerland, Italy, and Japan, but with disappointing results. This, combined with quality problems with the machine, led some members of the top management team to suggest dropping the project. But a number of champions in the same team defended the system. Camillo Pagano was among the most enthusiastic Nespresso advocates, arguing convincingly that the quality of a cup of Nespresso was beyond all comparisons – and as a true Italian, he obviously knew a lot about espresso. He was strongly backed by several other members of the top management team, including Peter Brabeck-Letmathe, who was senior vice president in charge of a large worldwide division and who became Nestlé's CEO in June 1997. Another leading advocate was Rupert Gasser, executive vice president in charge of technology, production, environment, and R&D. All three strongly believed in the concept while recognizing that the office market might not be the right one. So in 1988, management hired an “outsider,” i.e. an entrepreneur with a strong commercial and marketing track record, to help market Nespresso.

Backing an Entrepreneur with Marketing Flair

The new Nespresso team was convinced that Nespresso could have strong potential in the household market provided it targeted affluent consumers with discerning taste. The growing market for expensive espresso machines and the trend for gourmet and specialty coffee chains indicated that espresso coffee was becoming an appealing drink with the social elite. They therefore proposed a change in strategy and obtained management's green light to target the Swiss premium household market. Despite grim market research data, which the Nespresso team embellished somewhat, Nestlé's management backed the new team and its strategy.

Since the outlook for selling Nespresso in supermarkets appeared uncertain and unattractive, the Nespresso team conceived a direct marketing approach by creating a Nespresso Club, with customers ordering via the phone or web. This direct channel approach is what ultimately made Nespresso extremely successful. The external entrepreneur became the CEO of Nespresso and additional machine manufacturers were licensed, sales boomed, and the company extended operations progressively in all European markets. Breakeven was achieved in 1996 and Nespresso became the fastest-growing business unit in the Nestlé organization. By 1998, it had paid back its entire investment and the company was starting to develop a version of the system for professional applications, for example in offices.

Nestlé's top management members followed the progress of Nespresso with interest. They challenged the CEO regularly but abstained from interfering in operations. They all accepted that the new company needed a maximum amount of freedom to continue experimenting with the new channel strategy and brand building efforts. To some extent, Nestlé's top management accepted the fact that Nespresso would not be run in the traditional Nestlé way.

Pagano and Gasser kept in close contact with Nespresso's management team, which they coached regularly. Up to his retirement at the end of 1991, Pagano held what he called “monthly confessionals” with his protégé. These were coaching sessions during which Pagano tried to contain the ebullient dynamism of his entrepreneur while attempting to alleviate some of his relationship problems up and down the organization. The personality of the entrepreneur-manager was indeed quite controversial, both inside and outside Nespresso. He accepted structure when it served his purpose and “helped people to do a good job.” He rejected it when “it stopped people from doing crazy things!” But he fought constantly to keep the Nespresso concept alive, sometimes doing things on the edges of Nestlé's organization. Keeping him at the helm of Nespresso for much longer would be an issue now that the company was on a fast growth track.

Changing Management to Build a Professional Organization

Nestlé's top management team was convinced that the time had come to change management at Nespresso. Late in 1997, the company had reached a critical stage in its evolution and needed to build a structure and industrial scale operations that its current entrepreneur-manager could not easily lead. So, after the entrepreneur left, he was replaced by an experienced Nestlé leader, Henk Kwakman, with the mission to spearhead this transformation and build the brand's prestige. By that time, all the skeptics within Nestlé's top management had been converted to Nespresso's business model. Brabeck, who was then Nestlé's new CEO, rapidly saw the corporate benefits of leveraging Nespresso's premium image. He also liked the direct distribution model, which allowed Nespresso to become independent of the trade and hence to generate healthy margins that could be reinvested in brand building. He set an ambitious target for the new management team: Take the business from CHF150 million, where it stood in 1997, to CHF1 billion within the next 10 years. That target was largely exceeded thanks in part to additional major innovations in other key business dimensions (distribution, client management, machine design, leveraging of digital technology, etc.) that Kwakman and his successors introduced. They contributed significantly to transforming the business in successive phases.

Drawing Management Lessons

The Nespresso story may have irrevocably changed the way managers at Nestlé look at innovation. First, it demonstrated the market power and consumer appeal of branded beverage systems, consisting of a purpose-designed, proprietary machine and exclusive consumables in the form of patented capsules and pods. Second, it made management realize that sustainable competitive advantages often result from multiple or combined innovations. Food manufacturers have traditionally considered that innovation is purely a matter of new products, in terms of concept, dietary profile, organoleptic qualities, and packaging convenience, combined with smart marketing positioning. Certainly, Nespresso's success can clearly be ascribed to unique product and taste attributes and clever consumer targeting, but it is also due to the innovative business model and novel channel strategy. The concept of mutually reinforcing innovations has been extended by the various Nespresso CEOs who have run the business since Kwakman. In the past decade, besides growing fast, Nespresso has embarked on a series of additional innovations across the value chain, namely in:

• sustainable coffee farming policies;
• coffee quality and choice, with the selection of ever more specialties;
• new machine designs and machine features, including for the institutional market;
• home delivery and client services;
• distribution channels and service, with the opening of over 300 Nespresso boutiques;
• brand communications, with the hiring of George Clooney as main spokesperson;
• information technology tools and processes for e-business and call center management.

Thanks to this continuous flow of innovations, management hopes to maintain Nespresso's capsule volume and margins against the combined attacks of generic producers following the expiration of the system's patent protection.

Reflecting on the managerial aspects of this new innovation philosophy, Brabeck commented:

Promoting Innovation-oriented Values

Paul Bulcke, Brabeck's successor as Nestlé's CEO, shares the same interest in innovation but with a different management style. He promotes a global inspiration–local execution philosophy. One of his primary management objectives is to align energies within his huge global organization – 339,000 employees in more than 150 countries – on a one-page roadmap that puts innovation in a broad strategic perspective. This roadmap details, in Bulcke's own words:

• What we want to be and do as a company (Nestlé's mission):
  To be the leader in nutrition, health and wellness, and the industry reference for financial performance, trusted by all stakeholders.
• How we are going to measure our success (the Nestlé model):
  Through four dynamic drivers: top line (organic growth); bottom line (trading operating profit margin in constant currency); underlying earnings per share in constant currency; and capital efficiency.
• What we are going to leverage (Nestlé's competitive advantages):
  Unmatched product and brand portfolio; unmatched research and development capability; unmatched geographic presence; people, culture, values, and attitude.
• Where we want to focus (Nestlé's growth drivers):
  A nutrition, health and wellness agenda; emerging markets and popularly positioned products; out-of-home consumption; “premiumization” (value creation).
• How we are going to do it effectively and efficiently (Nestlé's operational pillars):
  Consumer engagement (consumers in the middle); bringing products to where consumers are (wherever, whenever, however); operational efficiency; and today's most important pillar: innovation and renovation.³

Bulcke spares no effort in ensuring that his roadmap is understood and accepted by the new generation of leaders. He uses the company's management development center near its Vevey headquarters for this purpose. The center trains 2500 future company leaders each year, and Bulcke goes there many times per year to talk to them, emphasize his roadmap, and share his personal philosophy on what he calls “meaningful innovation.” In all sessions, he exhorts staff to adopt a long-term approach and to be open minded in order to cope with a rapidly changing world.

Continued success in innovation, according to Bulcke, will come from a mindset change. People at Nestlé, he claims, have to understand how they can create value for consumers across the value chain and how they can take waste out of their processes to free up time to enhance that value. To promote this mindset change, he established the Nestlé Continuous Excellence (NCE) program, which is a set of continuous improvement initiatives. So far, the program has reached 220,000 people and helped identify best practices everywhere. It has been credited with unlocking creativity in all functions.

Supporting Innovation Concretely

Bulcke contributes to the company's innovation efforts at three levels: (1) at the board of directors level, (2) at the executive board level, and (3) at the operational level with SBUs, globally managed businesses, geographic zones, and individual markets.

With the support of Brabeck, Bulcke likes to keep innovation on the agenda at board meetings. For example, he has devoted a session to new ideas and new platforms such as the Nestlé Institute of Health Sciences. Once a year the board travels to a foreign country that is important for Nestlé, and he takes directors into the local R&D center to discuss innovation issues.

Innovation is also a regular agenda item for Nestlé's executive board. At each monthly meeting, Bulcke introduces a review of the top 10 or 20 most important corporate innovation projects and launches. And one executive board meeting a year is entirely dedicated to innovation issues, for example a focus on the STC, Nestlé's development unit for beverage systems.

At the operational level, Bulcke plays an active innovation support role in the course of his one-to-one contacts with the head of SBUs, Patrice Bula; the heads of Nestlé's globally managed businesses; and the CTO and innovation chief, Werner Bauer. With them, he emphasizes the importance of taking a broad view on technology platforms (for example, on extrusion technology), on consumer benefit platforms (for example, on obesity or aging), and on geographical needs.

Bulcke also supports the company's innovation agenda during his numerous market visits. He makes a point of reminding all the market heads of the importance of showing a five-generation product pipeline, hence being long-term oriented (an aspect that has become a key innovation performance indicator at Nestlé).

In addition, every six months he gathers the heads of Nestlé's 10 to 15 key markets – typically accounting for around 80% of the company's sales – and discusses new ways to face the world with them. And every two years, in the presence of all market heads, he stresses the values he promotes: “Have an open mind; encourage creativity; be part of the solution; promote entrepreneurship!” He also encourages geographic zone and market managers to organize innovation days.

Finally, as CEO, Bulcke has set a number of innovation-oriented priorities for the corporation:

• Evolving Nestlé's product emphasis from mass-produced products to personalized products, systems, and services.
• Making choices, which means being able to cancel projects, since he feels that Nestlé has not always been good at saying no in the past.
• Seeing the opportunity, i.e. challenging people to come up with solutions to consumers' problems.
• Valuing what consumers value, which is linked to the Nestlé Continuous Excellence program.
• Connecting with the wider society by creating shared value, for example through nutrition.
• Developing people and talent (hence his regular participation in Nestlé's management development programs).
• Embracing digital, by creating a digital acceleration team with young managers from the markets who pioneer new ideas and leverage social networks.

Sponsoring Radical Innovation at the Top Management Level

Since the creation of Nespresso and Nestlé Nutrition, the company's top management has become deeply involved in developing radical innovations and disruptive technologies. These innovations are often sponsored by lead markets. Nestlé claims to be a consumer benefit-oriented company, and this means that everyone in the organization, including R&D, places the consumer at the heart of the innovation process. However, being consumer oriented does not mean being consumer driven. In fact, Bulcke very much follows the same approach as his predecessor, Brabeck, who personally pushed for the creation of Nestlé Pure Life, the company's global bottled water brand.

Bulcke encourages the creation of new technology-based and market-oriented ventures, and he makes sure that these projects are personally coached by members of the executive board, himself included. He pushes everyone in the organization to steer consumers into new areas, and provided R&D is linked to the business, it is viewed as the main instrument for creating new value for consumers. The setting up of Nestlé Health Science, which builds on science-based personalized nutrition solutions for chronic diseases at the interface of nutrition and pharmaceuticals, is a good example of science- and technology-based new business creation.

The three new beverage system ventures initiated by Yoakim and the STC and launched starting in 2006 – Nescafé Dolce Gusto, Special T, and BabyNes – illustrate the personal involvement of top management. All three were developed by a special venturing team before being turned into self-standing units. Given their complexity and need for resources, they were – and some continue to be – personally coached by mem­bers of the top management team.

As mentioned earlier, Nescafé was interested in Dolce Gusto, but since it could not devote enough time and resources to developing it, it was quickly put under the overall responsibility of the CTO, who personally supervised the development team. The executive board first considered it as an experimental project. But its favorable outlook – it is one of Nestlé's fastest-growing businesses – justified creating a special unit within the beverage SBU. Internal observers consider that, without the strong involvement of the executive board – it was one of the 10 key projects regularly reviewed by them – Dolce Gusto would not have made it to the market.

The BabyNes infant formula system has followed the same pattern. Despite the interest expressed by Nestlé Nutrition and given the resource requirements and different business model, this project was entrusted to the CTO who coached it personally, as he did Dolce Gusto. The project is now reaching its roll-out phase and the project leader will become the head of the new BabyNes business within Nestlé Nutrition.

Since its inception in 2008, Special T is supervised by the beverages SBU and reports to the head of SBUs. It is now being rolled out as a full internet-based business.

Nestlé's Innovation/Renovation Governance Model

In a $98 billion food and beverage company, even one in which technology plays a critical role, a top level CTO cannot govern innovation by himself. He has to work in close partnership with his business colleagues, namely the head of all the company's SBUs, Patrice Bula, and the heads of the globally managed businesses and joint ventures. They operate as the company's most senior innovation leaders and are part of the company's executive board.

Bula is a key driver of innovation at Nestlé, in full partnership with the CTO and the R&D community. The SBUs that he oversees, including Nespresso, account for about 73% of the company's global sales. SBUs are responsible for globally managed brands, all product categories, and the strategic and marketing staff they employ. They also drive the renovation/innovation process in their categories. In Nestlé terminology, renovation deals with incremental product development in existing categories, while innovation describes more radical attempts to create new categories, either within the business boundaries or through the creation of new ventures like Nespresso, Dolce Gusto, Special T, and BabyNes.

The heads of the globally managed businesses – Nestlé Nutrition; Nestlé Health Science; Nestlé Waters; Nestlé Professional – play the same role as the head of SBUs for their businesses. They drive all renovation/innovation activities within their businesses with the support of R&D.

The bulk of Nestlé's new product development projects proceed through the combined efforts of three complementary parties: SBUs, PTCs, and zone and market management. The Nestlé Research Center is a fourth element that comes into play when totally new technology or new ingredients need to be developed for the new product.

Being responsible for the product strategy in their category – and innovation is a chapter of every business strategy – SBUs work with the various zone and market managers concerned to define their new product concepts and their specifications.

Two types of annual conferences allow all the market players to share strategic information on innovation and establish the framework within which renovation/innovation activities will take place. These are the global business strategy conferences (GBS) and the market business strategy conferences (MBS).

In the past, Nestlé's market organizations were unevenly involved in specifying the nature and characteristics of new products. This is changing and most are now increasingly active in identifying new product opportunities and helping define product specifications. In fact, the largest market companies have appointed senior business executives by category, and these managers work with the SBU staff, PTCs, and even the NRC on innovation/renovation projects. Some of the larger ones, such as Germany, France, Spain, the USA, and China, have even set up their own innovation board with key local market leaders and high-level corporate members representing the SBUs, R&D, and technical operations involved in innovation projects.

But the key forums in which renovation/innovation projects are discussed and financing decisions are made are the annual R&D conferences mentioned earlier. These one-day events are organized at the level of the SBU or globally managed business. For very large or diverse SBUs, they are held at the level of a large product category. These conferences bring together:

• the CTO and his key staff, including the head of the NRC;
• the executive vice president SBUs, marketing and sales and his staff, or the heads of the globally managed businesses concerned;
• representatives from the operational side, including man­ufacturing;
• key members of the management team of the SBU or globally managed business concerned;
• representatives from key markets, like Japan, France, China, and the USA.

Discussions during these conferences relate to Nestlé's so-called five-generation pipeline.

Managing a Five-generation Pipeline

Nestlé uses the idea of a five-generation pipeline to map its renovation and innovation activities. Under this concept, SBUs and globally managed businesses are asked to propose, in a bottom-up mode, their plans for incremental renovation activities. These plans typically cover the first three years of the cycle. At the same time, they are encouraged to come up with visionary ideas to create new categories – real innovations in Nestlé's terminology – in years four and five. The role of R&D and the NRC is both to support and to challenge the proposed pipeline and, ultimately, to accept funding projects to test the new concepts proposed for years four and five.

The process followed is a very classical one. It addresses three questions:

• What is needed for the consumer? (Responses come from SBUs, the markets and R&D.)
• What is technically possible? (Responses come from R&D and technical operations.)
• What is economically achievable? (Responses come from SBUs, markets, R&D, and technical operations.)

Geographic zones and individual markets – the ultimate profit and loss centers of the company – have operational responsibility for their territory, including in innovation. This means that they launch the products defined by the SBUs and developed by the PTCs, and they commit to volumes and profits.

The structure of the five-generation pipeline and the various players is shown in Figure 9.1.

Figure 9.1: Innovation/Renovation: Building a Robust Pipeline

Nestlé has also established at least two processes that are applied globally for the entire company, for both renovation and innovation projects. The first is the Nestlé Product Development and Introduction (NPDI) process. It specifies the various tasks, responsibilities, and decision gates to be followed from product concept to launch. The second is the internally famous “60/40+ rule” process, which ensures that all new products meet rigorous standards for nutrition and consumer preference. Products are blind-tested with consumer panels, and at least 60% of the people must prefer the Nestlé product over the competitors'. Next to the sensory preference (60/40), each product under development is expected to deliver at least nutritional adequacy according to the “Nestlé Nutritional Profiling System” and “NF criteria” (Nutritional Foundation – determining the maximum content of public health-relevant ingredients such as sugar and salt, in line with international reference values). New products are developed to achieve NF and, where possible and meaningful, to achieve a “nutritional competitive advantage” – i.e. a nutritional superiority vis-à-vis competitors' products. Products having this characteristic in addition to a sensory 60/40 advantage, are given a 60/40+ rating.

Encouraging Innovation Partnerships

Given its unique technology resources, Nestlé has long been tempted to rely on its own forces for all of its technology and product development initiatives, and indeed many of its most successful innovations have been developed internally. But the rapid expansion of new scientific and technological developments in all areas – ingredients, processing, packaging, and the like – and the company's ambitious move into totally new fields like nutrition showed management the limitations of this traditional self-sufficiency. In the early 2000s, Brabeck in his role as CEO challenged this internally focused attitude and, like many companies, Nestlé began following the open innovation trend, which it refers to as innovation partnerships.

The new innovation partnership approach⁴ was launched in 2006 with upstream partners and it rapidly spread to other activities and downstream partners. At the same time, management launched and promoted its sharing is winning philosophy to change internal and external attitudes to partnership. As a result, not-invented-here reflexes have subsided.

Nestlé's CTO supervises all technology partnership activities and the vice president of innovation partnerships reports to him. Besides orchestrating partnership deals, he is responsible for a number of activities like intellectual property management and the development of new systems, which often involve machine suppliers. As for product development with the NPDI, partnership development is a structured process that now works quite smoothly.

Developing Competencies and Attitudes

Nestlé is convinced that management attitudes must support innovation and this is why the CTO is seen as a mentor to his direct reports. Attitudes within R&D must change to support ongoing innovation efforts. This, Nestlé believes, can be achieved at least in part through training. To this end, every marketing course offered by the company keeps two seats open for R&D members, typically senior product managers.

Nestlé also offers R&D staff three career management options. Over time, every member of the R&D community can decide to follow one of three possible career paths: (1) become an expert in his/her discipline; (2) follow the project management route; or (3) prepare for a general management job and learn to manage others. Each route leads to a similar level of compensation and recognition for the highest performers.

Building Innovation-supporting Organizational Mechanisms

The CTO is supported by three mechanisms within the R&D community: A network of R&D coordination managers, a network of experts, and an innovation acceleration team.

The network of R&D coordination managers consists of R&D managers embedded in each business unit. These managers, who are generally quite experienced business-wise, are supposed to facilitate innovation. They manage the interface between the commercial side of the business and the R&D community. They focus on a number of project aspects dealing with what issues, such as quality assurance, regulatory activities and the like, whereas the head of the PTC serving that particular business handles the how side of the development. These R&D coordination managers report to their SBU head with a dotted line to the CTO, with whom they spend a fair amount of time. This keeps the CTO fully informed of most project issues. The innovation management function offers senior R&D managers valuable business experience, so it is not surprising that some of them are ultimately chosen to manage a business or a PTC.

Besides R&D coordination managers, Nestlé has set up a network of experts, whose task is to develop and share knowledge on topics that are important for the corporation. These experts, numbering about 70, focus on the cutting edge of sciences and technologies that are relevant for Nestlé. They are part of and maintain their job in the R&D community but “meet” regularly in expertise team rooms. Alongside these technical experts, business heads have created their own network of business specialists – for example, people who know everything about a product like coffee. Generally, Nestlé's experts are motivated by the recognition they receive from management. Each year, a gala dinner brings all experts together, and awards are presented for exceptional performance in knowledge development and management.

Nestlé's innovation acceleration team consists of a relatively small number of young, generally high potential managers, who help business units go from concept to market with the objective of making most innovations transferable. Like many consumer goods companies, Nestlé needs to have a strong focus on local markets. This means that an innovation developed for a given market, if left on its own, may not be compatible with other markets, even though the concept could easily be transferable. It is therefore the role of the innovation acceleration team to intervene at the concept development stage to ensure that the needs and peculiarities of other relevant markets are taken into account. Members of that network act as internal innovation consultants. They operate according to a structured handbook that specifies how they should work.

The innovation acceleration team, which includes about 20 managers working on around 20 projects per year, has now reached its fourth generation of managers. Some of these internal consultants have been promoted to important management positions within Nestlé, including head of the NRC.

Challenges to the Current R&D Organization and Resource Allocation

To an outsider, Nestlé's R&D organization might appear highly decentralized, given that it is based on many labs, research centers, excellence centers, and product and technology development centers – the 32 PTCs scattered around the world. These centers mostly work on projects decided by the businesses – as noted earlier, businesses decide on the what. But R&D decides how these centers work and, to a large extent, allocates their resources. Indeed, it is the CTO's responsibility to propose an overall R&D budget to the executive board. In addition, Nestlé's R&D resource allocation rules specify that spending decisions are as follows:

• 50% of the overall R&D spending is decided by the business units;
• 25% is decided by geographic zones and key markets; and
• 25% is decided by R&D, i.e. by the CTO.

Nestlé has to some extent given its R&D organization a considerable amount of freedom on where and on what to spend its money. This freedom is, naturally, challenged by the business organization and Bauer is afraid that some Nestlé business managers might like to control a much bigger share of the company's R&D resources. But he defends the current system that allows top management to initiate strategic projects. The current system ensures that all businesses pay the same amount for R&D to the corporation, even though some of them, by their very nature, require a larger share of resources.

A second issue for the current R&D organization is that some of the fastest-growing markets would like to have exclusivity on their R&D labs' activities, which could lead to a fragmentation of R&D. For example, China might want to have 100% control over the R&D lab in Shanghai, a center that now serves all markets in Asia and Oceania. This, Bauer believes, would signal the end of the traditional role of PTCs as excellence centers serving multiple regions and markets.

Challenges to Keep on Introducing Disruptive Innovations

Given the conservative nature of their markets, food companies are not traditionally geared to introducing disruptive innovations. Nestlé is probably a notable exception in the industry considering the many firsts it has scored over the years, such as Nescafé instant coffee, based on revolutionary freeze-drying technology, and more recently Nespresso, which has become the ultimate premium coffee system.

The issue is how Nestlé can maintain its past rhythm of introducing radical innovations or – to use its own vocabulary – how to ensure that its current system leads to true innovations, as opposed to mere renovations. This challenge is on the mind of all executive board members, starting with the CEO, Bulcke. At Nestlé, people who need money to work on a revolutionary idea will probably not get it from the business side, which tends to be too busy with current product pipelines. They will have to find a new source of funding for risky undertakings and they are likely to find it from the CTO, or even from the CEO, who is financing the second generation of Nespresso systems.

In summary, Nestlé appears to have succeeded in implementing a well-functioning innovation governance model. The model works as a comprehensive system and its performance can be ascribed to at least five factors: