Step 1: Identifying and Addressing Deficient Processes

In 1996, the small innovation committee hired an external consultancy to conduct an innovation audit of the company through an extensive round of interviews with key managers. This audit was then presented to a larger group of 30 or so leaders, representing most functions, in the course of a two-day off-site workshop at the beginning of 1997. Gad Rausing – the company owner – and Gunnar Brock, the CEO, were present together with 25 other senior leaders.

The consultants' diagnosis pointed to a number of deficiencies in most of the processes leading to the definition, development, and launch of new products. They proposed a high-level process map to clearly identify and recognize the interdependencies of these processes. Their recommendations were validated and, in small work groups, the participants quickly agreed on the principle of appointing dedicated managers to start working on the deficient processes. Five experienced process owners were subsequently appointed to propose changes to the following processes:

• business intelligence;
• idea management;
• technology and resource development;
• product and technology strategy and planning; and
• project management.

The process owners were to be freed from their current work responsibilities to focus on their new mission, and they were asked to report regularly on their work to the innovation committee.

Step 2: Benchmarking against Innovative Companies to Fill Functional Gaps

Since the initial diagnostic had identified deficiencies in the strategic management of technology and products, in 1997 Bo Wirsén, the chairman of the innovation committee, decided to personally visit a number of innovative companies to understand how they had structured their innovation governance mechanisms. The companies visited included 3M, Canon, BMW, and Ericsson, among others. These visits, in which other members of management participated, highlighted two high-level functions that seemed to play a major role in the governance of innovation at these companies, namely a chief technology officer (CTO) and a strategic marketing officer (SMO).

Neither of these functions existed at Tetra Pak. The head of R&D, a very experienced manager, did not have the strategic breadth or depth to qualify as a CTO with the mission to help top management make strategic choices regarding technology. And all commercial resources at Tetra Pak were in market companies. These companies – at least the larger ones – generally had strong and competent organizations, but they were exclusively focused on their local market situation. No one in the company seemed to be managing the corporate product portfolio from a strategic perspective.

Following the benchmarking trip, two highly experienced senior leaders were appointed to these two headquarters functions in 1998. Göran Harrysson, a former director of R&D who headed Tetra Pak's emerging plastic business, was named CTO, and Paul Bousser, the head of marketing in France – a leading market company for Tetra Pak – was appointed as SMO. Both were to play a significant role in the further governance of innovation at Tetra Pak.

Step 3: Setting up an Innovation Process Board to Steer Innovation

The appointment of Nick Shreiber, who headed Region Americas, as Tetra Pak's new CEO in 2000 marked an acceleration of the company's emphasis on innovation process improvements. Shreiber was convinced that a disciplined process was the best way to increase the company's innovation output. He was strongly supported by the head of the Tetra Pak Carton Ambient business unit, Dennis Jönsson, who joined the top management team in 2001, which was then called the Group Leadership Team (GLT).

As the first work groups on process development started to recommend changes, the idea dawned on the members of the innovation committee that they ought to enlarge their small steering group to include other relevant functions and gain visibility for their actions. The purpose of this enlargement was to convey the message that innovation was no longer a functional activity of R&D, it was everyone's responsibility. The marketing people, notably in market companies, accepted the message and appreciated it. The concept of an innovation board emerged, but right from the start, the word process was added to its name to signal its specific emphasis on improving the innovation process. Top management felt that decisions regarding the content of innovation, i.e. project portfolio decisions, ought to stay in the hands of the various line managers, namely the business divisions and product line managers.

The original innovation committee was disbanded and its chairman, Bo Wirsén, became the chairman of the new innovation process board; he was soon replaced by Göran Harrysson, the CTO. A number of additional senior and mid-level managers joined the board, representing R&D, marketing, and business management functions.

To support its work on processes, management asked the IT department to create an online, intranet-based innovation management system. The architecture of the system mirrored Tetra Pak's high-level innovation map and its process organization. Thus, process owners now had a portal and platform to explain and outline their process, propose tools to users, and manage their processes on line. For example, for the first time, all project information was available on the intranet. Project teams no longer had to spend precious time informing management of their progress. Authorized managers had all data at their disposal within a few clicks on the project portal.

The first task of Tetra Pak's innovation process board consisted of intensifying the process improvement tasks that had started earlier. This proved to be a long and complicated task as no one had done it before, and some of the changes initially attempted were perceived negatively by some functions.

Some of the earlier process owners were replaced and new ones were brought in, for example to handle technology intelligence and product strategy and planning. Process design proposals were regularly reviewed and process owners were encouraged to develop online tools and organize company-wide process sharing and training efforts. This emphasis continued for a couple of years and the company gradually built and documented its new processes.

Step 4: Extending the Mission of the Innovation Process Board

The initial work of the innovation process board led to a certain amount of skepticism in several parts of the organization. The larger market companies, which were not yet seeing concrete results in terms of product availability and speed of new product introductions, were concerned by what they saw as central attempts to manage product priorities. It meant that they would no longer be able to dictate what would be developed. R&D engineers were also worried to see their traditional freedom being curbed. For many, the sudden emphasis on process was perceived as a dysfunctional threat.

To overcome the skepticism and create shared awareness of the benefits of a focus on process, Tetra Pak's management enlisted the company's internal management development organization, the Tetra Pak Academy. It asked them to organize, with the advice of the innovation process board, a series of seminars on the innovation process for the top 350 leaders of the company who had some involvement in innovation. These one-week seminars, run at IMD business school in Lausanne, presented the innovation process management philosophy and allowed process owners to describe the new processes they had developed. In an “action-learning” spirit, each participant committed to a process implementation project of his/her choice. These seminars proved effective in developing and sharing a common understanding and vocabulary of the process.

In 2003, having completed most of its initial work on processes, management started focusing on product and technology strategy and planning, a critical issue since it determined which products and technologies would be developed. A cross-functional project was launched by R&D and marketing, under the name Link, to ensure that long-term product and technology strategies would be closely aligned. This project led to the development of a very detailed methodology for iden­tifying, classifying, and ranking desirable product attributes and connecting them with specific technologies to be developed.

Step 5: Intensifying the Company's Process Orientation

Over the years, top management's level of interest in processes increased. The innovation process was well established and had begun to deliver results. But senior leaders, starting with Dennis Jönsson, the head of the Tetra Pak Carton Ambient business unit – by far the biggest part of Tetra Pak – thought that other global processes would benefit from a more systematic approach.

Jönsson invited American process management guru, Michael Hammer, for a conference on process redesign and management at headquarters, and this led to the start of a major new focus on managing global corporate processes.

A process map was developed to identify Tetra Pak's core operational processes – not just innovation processes. These global operational processes included:

• customer management;
• product creation (the front end of innovation);
• product life cycle (the back end of innovation);
• order fulfillment of capital equipment;
• order fulfillment of packaging materials;
• order fulfillment of service products; and
• supplier management.

Other corporate processes were added so that each main corporate activity was handled as a process. From that point onward, Tetra Pak's top management team became directly and deeply involved in the overall global process governance task.

Broadening the Scope of Tetra Pak's Governance Mission beyond Innovation

In 2005, Tetra Pak went through a significant change as a new top management team came to the fore. Dennis Jönsson, who had run Tetra Pak Carton Ambient, was appointed as the new CEO of the whole company, replacing Nick Shreiber. He brought with him his head of development, Michael Grosse, an experienced development engineer whom he appointed as the corporate head of development to replace the CTO, Göran Harrysson, who transferred back to the Swedish organization.

Unlike Harrysson, who was not directly involved in operations, Grosse was responsible for all product development operations and all related processes. He was later put in charge of all technical service operations, a very important function within Tetra Pak and a major profit contributor.

The top management team was now streamlined into four major operational areas and four corporate staff functions. The former included commercial operations; development and service operations; supply chain operations; and processing systems. The latter covered human resources; legal; finance and business transformation; and corporate communications.

The arrival of Jönsson at the top of the company brought changes in at least three areas:

• Commercial operations were reorganized into market company clusters. Together with the head of commercial operations, Jönsson changed Tetra Pak's regional organization into 10 geographic market clusters, each run by a cluster head.
• There was a renewed focus on product introduction and roll-out, a process that had previously been neglected. The major change in this area was the nomination of a product management head, under the head of commercial operations, and the appointment of product managers.
• The company's process orientation was accelerated. This renewed focus on global processes meant that innovation was no longer singled out. All the global processes listed earlier were put on the same level and attracted top management attention. Success, management believed, would come from full integration and high-level management of all these corporate processes. The company invested heavily in tools and competences to support its processes.

Establishing a New Process Management Structure

On the process side, each of the company's seven global operational processes was split into its different constituents or levels, from high-level global processes to sub-processes, down to individual task levels – and this applied to product creation and product life cycle, the two innovation processes. Each level was officially assigned to one or several managers as indicated in Figure 11.1. At the highest level, each global process was assigned to a member of the GLT who acted as global process leader.

Figure 11.1: Governance for Process Changes

To guide and support these process leaders in their work, management established a number of forums composed of teams responsible for discussing and addressing process management issues. These forums were staffed and formally structured to make process improvement recommendations to the various owners or drivers who had the decision power.

The company thus became very professional in managing its innovation process, and also in all the business processes that support and leverage its innovation capabilities, like product management, a new function created in 2006. Today, Tetra Pak has a well-developed product management architecture with a senior leader and product managers assigned by platforms, materials, closures, and packages. They drive the assessment of product needs, advise on product prioritization and complexity reduction, and handle product introductions.

Governing All Processes Collectively through Focused Councils

To break the functional silos that still existed within the company, Jönsson set up a number of high-level councils as illustrated in Figure 11.2. These councils constitute the framework for decisions on all corporate processes and issues. Each council has a clear charter defining its mission, a specific and well-defined cross-functional membership, and an established meeting frequency. Each council is chaired by a member of the GLT and includes other selected members of the GLT as well as leaders from the second line of command. These councils are executive, i.e. they make decisions on the various issues that are within their remit.

Figure 11.2: Tetra Pak Council and Forum Structure

The decisions of these councils are prepared and documented by a second group of forums. These are small, dedicated groups of specialists with their own mission and charter, an official membership and chair, and a set of meetings aligned with the meetings of the councils they are supposed to support.

Establishing Two New Innovation Governance Mechanisms

In the course of this change toward a more collective and comprehensive management system, Tetra Pak's previous innovation process board, the company's first real innovation governance mechanism during the period from 2000 to 2005, disappeared as such. It was replaced by the Transformation & Capability Council, under the chairmanship of the executive vice president for supply chain operations. This council maintained its strong emphasis on the how of innovation – i.e. on process management initiatives including product creation – but also broadened its coverage to all corporate processes. It expanded its scope to deal with IT-related investments and company restructuring involving changes in IT and processes. Finally, it was empowered to address softer issues like leadership and capability development.

The newly created Product & Technology Council, chaired by Michael Grosse, the executive vice president for development and service operations, became the high-level “control tower” of innovation at Tetra Pak. Today, this council oversees all major product and technology development programs from start to finish, including decisions on resources and project execution. It has set up a project tollgate review system for each platform for which it is directly responsible, but is also charged with approving the tollgates of all critical projects, formerly called pace plus projects and now referred to as Level 1 projects. This important council meets six times a year and its charter specifies that it should be involved in the following types of decisions (quoting from a company document):

Reaping the Benefits of Tetra Pak's Process Orientation

Today, the general feeling within Tetra Pak is that its process orientation, so strongly promoted by Jönsson and his top management colleagues, has delivered great results. The company had a tremendous backlog of new product introductions which has now been addressed. Its product portfolio is impressive and covers almost all of the basic needs of its 170 markets worldwide.

Besides, management has access to roadmaps on technology and products that are entirely linked, and it has established a process for strategy that seems to work effectively. Management can now look to the company's innovation future from a broader perspective. Nobody seems to question management's emphasis on process any more.

Nevertheless, Jönsson still feels that the culture change towards a deeper process orientation needs to be constantly reinforced. He comments: “It's not easy to change a culture. We need to make everyone understand that the new way of working with process is here to stay; it's not a fad! We want people speaking about it, living it every day, in marketing and sales, not just in technical operations. We also need to show results and be consistent.”

Reflecting on Organizational and Cultural Issues

Jönsson is aware that he faces three challenges that, if not addressed, could limit Tetra Pak's innovation performance.

The first is linked to the complexity of the governance system he has put in place. Managers spend a lot of time in a variety of councils and in the many forums to prepare council decisions. No one seems to challenge, at least openly, the new organization since these councils have introduced an effective collective governance system. But the layered system and the many forums are to a certain extent cumbersome – something that Jönsson recognizes – and this slows decisions somewhat.

Innovation speed is a second issue in light of the growing challenge from emerging competitors, even though considerable progress has been achieved through disciplined processes. Jönsson is convinced, however, that quality should not be compromised to reduce time to market. Customers who, in the past, were eager to have new systems installed in their plant, even before they were working 100% reliably, would be much less tolerant of system failures today.

The third challenge facing Tetra Pak's management is common to most innovative companies – where should management draw the line between its demand for performance in all areas and its advocacy of a right to fail. Jönsson is convinced that Tetra Pak's owners accept innovation risk, today as in the past. They support innovation; but they do not want big surprises.

Mobilizing the Organization behind Strategic Threats

From a strategic perspective, Jönsson sees an increased threat coming from two ongoing market evolutions. Both require an even higher level of innovation.

The first threat is the risk of substitution of carton packages by PET bottles, mostly in the non-carbonated beverage area. This threat, which has been present for years, led Tetra Pak to develop an innovative “bottle look-alike” carton package – Tetra Evero Aseptic^™ – with a plastic top and a unique approach, for both production and package recycling. Thanks to innovations in its “carton-bottle” product and system platforms, Jönsson believes that Tetra Pak has stabilized its market position, but the threat remains.

The second threat is from copy-cats – referred to as “non-system suppliers” in the company's jargon. These are suppliers of carton materials, originally from China but potentially from other geographical areas, that offer cheaper carton rolls to Tetra Pak's system customers. They manage by cherry picking customers with high volumes and relatively simple product lines. Their lower unit margin is compensated for by their lower cost structure and high volumes. Some of these suppliers are now venturing into the European market. This threat is challenging Tetra Pak's traditional business model which consists of making its margin principally on packaging materials. To address this competition effectively, management knows that it has to drive costs down aggressively, through both technological innovation and a drastic reduction in unnecessary complexity in the company.

Rethinking Development Focus and Operations

From an R&D perspective, Grosse sees two additional challenges that will need to be addressed in the near future.

The first is to rebalance somewhat the company's development efforts in favor of new highly productive and cost-efficient architectures. In a way, Tetra Pak's strong customer orientation has meant that the company has always put commercial demands and considerations before rethinking its fundamental architectures. This – Grosse believes – has maintained systems that are not as efficient as they could be. Changing focus may require the support of marketing and sales people who often take the lead in product decisions. Their active participation in the Product & Technology Council is therefore critical.

The second challenge is to extend the company's global R&D position by shifting the traditional R&D focus on Europe to create new centers of excellence in emerging markets. This will require a significant mindset change in a company that has always counted on its European R&D centers.