Practicing Innovation, Preaching Cost Competitiveness

In January, Tetra Pak North America hosted a CEO summit on “Redefining Reality: For Sustainable Profit Growth” in Washington, D.C., for top executives in the food, beverage, and packaging industries. Attendees included over 70 business leaders, who are pioneers in their respective segments.

Using hard-hitting facts and case studies, a “Who’s Who” of the business speaker circuit discussed the importance of American corporations’ need to regain their competitive edge, seek sustainable growth, and support solid innovation strategies within their organizations. Among the conference’s “takeaways” were tips about creating an innovation culture and the importance of achieving and maintaining cost competitiveness.

In the increasingly competitive food industry, opportunities to grow, or even hold market share, require businesses to constantly innovate. Their onus is to create something new that will be valuable to their customers or improve and streamline internal processes. Carrying this message was Global Advisory Council on Innovation Chairman John Kao and INSEAD Professor and Co-Director of the Blue Ocean Strategy Institute Renée Mauborgne.

Kao, author of Innovation Nation, defined innovation as “creativity applied to some purpose to realize value.” He stressed that innovation is not something that happens by chance. Instead, it is a skill that needs to be practiced and honed and, like any core competency, requires investment and infrastructure. “Become an innovation expert; identify your capabilities, invest in them, and hone your skills,” Kao said. “Allocate sufficient resources to innovation to balance the needs of tomorrow with today.”

Mauborgne spelled out lessons from the bestselling book she co-wrote, Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant. Using the remarkable tale of growth by Yellow Tail wines, Mauborgne described how a tiny Australian company avoided competing in the blood-red shark-infested waters of the wine industry by creating a “blue ocean” space where they had no competition. After touring America—not its lush upscale wineries, but its bars and retailers—Casella Wines decided to target beer drinkers as its audience. It created a wine that was extremely  accessible, reducing complexity and eschewing the prestige that so appealed to wine snobs. Sailing in a blue ocean, Yellow Tail became the fastest wine brand to hit a million cases in the U.S. and is now the country’s best selling imported wine.

“Don’t look to existing customers to get insight,” Mauborgne said, “look to non-customers; people who refuse your industry and who will give you a very good sense of what your industry is doing to limit its size and how you can convert them into it.”

At the summit, manufacturers were also urged to look at their cost structures through the eyes of a private equity company to ensure world-class supply chains. Willett Advisors Chairman Steven Rattner used the restructuring of the auto industry as a cautionary tale about benchmarking costs.

One of the most daunting challenges going into the General Motors (GM) bailout, Rattner said, was how high the U.S. auto industry’s labor costs had grown in relation to their competition. Prior to the bailout, GM was paying about $62 per hour for labor, while its competitors were averaging between $44 and $56 per hour. Reducing that disparity was an absolute requirement to keep GM competitive—and profitable. Another was reducing the sprawling product line to a smaller group of cars where the automaker could devote its focus. “We needed to create a culture of change combined with a sense of urgency,” Rattner said. “In the end, if you don’t produce the best product, none of the rest matters.”

Other lessons on the absolute importance of cost competitiveness came from Hilco Trading’s Senior Advisor Arnold Dratt and CFO John Chen, who challenged these executives to look at their businesses as a private equity firm would if asked to turn them around or take them apart. Among the companies that Hilco has helped to liquidate in the past few years are Borders, Hostess, Circuit City, and Sharper Image.

Among their recommendations for avoiding the fate of those companies are:

• Cost competitiveness is a continuous process that must be ingrained into your culture.
• Make sure second tier management is better than you are.
• Eliminate capacity before you have to.

“You have to make these decisions in a timely manner rather than enabling a culture of denial, hoping that the market will come back,” Chen said. “And you need to move quickly.”

From advice on improving performance to the importance of building an innovation infrastructure, the summit was enlightening for our own team as well as our invited guests. For more conference takeaways, including other topics, photos and videos, please visit the Tetra Pak CEO summit website at http://198.58.103.222/summit-intro.html.

Suley Muratoglu is Vice President, Marketing &
Product Management, Tetra Pak Inc.,
Vernon Hills, IL 60061
([email protected]).