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Int. J. Entrepreneurship and Innovation Management, Vol. 18, Nos.

5/6, 2014

World class sustainable product innovation:


a case study
Raveesh Agarwal
Department of Business Administration,
Rajshree Institute of Management & Technology,
Bareilly (U.P.) India
E-mail: drraveesh15@gmail.com

Monica Thiel*
School of Social and Behavioural Sciences,
Tilburg University,
Warandelaan 2, 5037 AB Tilburg, Netherlands
E-mail: mthiel@uvt.nl
*Corresponding author
Abstract: Frequent searching for a great solution implies taking a risk on a
start-up company, an entrepreneur, an inventor or a smaller partner. Knowing
how to achieve sustainable innovation can create huge results. This teaching
case addresses differing innovative growth strategies in a fiercely competitive
environment adopted by Mondelz International, formerly known as
Kraft Foods, Incorporated. Overall, Mondelz International aggressively seeks
win-win partnerships and alliances for solutions that create mutual value and
sustainable product innovation.
Keywords: innovation; products; sustainability; competitive advantage.
Reference to this paper should be made as follows: Agarwal, R. and Thiel, M.
(2014) World class sustainable product innovation: a case study, Int. J.
Entrepreneurship and Innovation Management, Vol. 18, Nos. 5/6, pp.397408.
Biographical notes: Raveesh Agarwal is with RIMT, Bareilly, India. His
research interests include marketing research, organisational behaviour and
breakthrough management.
Monica Thiel is a PhD candidate in Social Sciences at Tilburg University,
Netherlands. Her research interests include sustainability, corporate social
responsibility, and competitiveness.
This paper is a revised and expanded version of a paper entitled Mondelz
international: world class sustainable product innovation in fierce competition
presented at the International Conference on Management Cases (ICMC) 2013,
BIMTech Campus, Uttar Pradesh, India, 56 December 2013.

Copyright 2014 Inderscience Enterprises Ltd.

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Introduction

Kraft Foods Inc. changed its name to Mondelz International, Inc. in October 2012
resulting in two independent public companies: Mondelz International, Inc. and Kraft
Foods Group, Inc. (NASDAQ: MDLZ). Monde is a French word meaning world and
delez an alternative to delicious (Kraft Foods, 2013a). Mondelz International, Inc. is a
global leader in gum, biscuits, candy, powdered beverages, chocolate and coffee. The
company is a member of the Standard and Poors 500, NASDAQ 100 and Dow Jones
Sustainability Index with headquarters in Chicago, Illinois, USA and originates from a
combination of three large snack companies beginning with Kraft Foods, Inc., Cadbury in
2010 and Nabisco in 2000.
Mondelz International began its business operations in ice cream, and further
expanded its business operations to several dairy products, resulting in fast expansion
through a large number of acquisitions.

Kraft foods incorporated beginnings

The founders of Mondelz International created beverages, biscuits and chocolates


through hard work and the best methods. James L. Kraft from Stevensville, Ontario,
Canada began a cheese wholesale door-to-door business in Chicago during the early
1900s. At first, Mr. Kraft was not successful. However, persistence to pave a way for
innovative solutions created success. In 1912, the expansion of its business within
international markets resulted in establishment of New York headquarters. J.L. Kraft and
Bros Company focused on product development and new marketing strategies that
resulted in approximately 31 varieties of cheese throughout the USA.
The company invented pasteurised processed cheese in 1915 that did not require
refrigeration. In 1961, the pasteurised cheese was patented and sold in large quantities to
the US Army as military rations during World War I. The company changed its name to
Kraft Cheese Company in 1924 and was listed on the New York Stock Exchange,
resulting in the establishment of sales offices across different locations worldwide. After
acquiring Phenix Cheese Company, Kraft Cheese Company changed its name in 1928 to
Kraft-Phenix Cheese Company. The largest dairy company in the USA, the National
Dairy Products Corporation, acquired Kraft-Phenix in 1930. The National Dairy
expanded its dairy business operations through acquisitions of Kraft-Phenix. In 1976, the
company changed its name to Kraft, Inc. emphasising its trademark known to households
worldwide.
Philip Morris companies purchased Kraft in 1988 and in 1989, Kraft merged with
Philip Morris general foods unit, resulting in Philip Morris changing its name to Kraft
Foods, Inc. in 1995. Both companies separated in 2007 because Philip Morris sold its
share in Kraft Foods. In order to enhance Kraft Foods presence in snack food and in
emerging markets, the company integrated the Cadbury portfolio in 2010. Kraft Foods
now has the advantage of Cadburys marketing and distribution networks in emerging
markets to launch new products in China, Brazil and India. In October 2012, Kraft Foods
separated from Cadbury creating two independently listed companies. Subsequently,
Kraft Foods Inc. changed its North American grocery business under the name of
Kraft Foods Group, Inc. while on the same date it changed its name to Mondelz
International, Inc.

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399

Product failures

Kraft continually focused on innovation as a part of its growth strategy, which is


considered as one of its most dominant strengths. Nevertheless, innovation decreased and
became a significant weakness in 2008. Consequently, the company plummeted in new
product successes and placed next to last in its peer group for successful new products.
The company was not going to continue in this path. The company had to face the brutal
facts and determine what created product failures. Kraft required new processes for
successful innovation. The company found the reasons for decreasing product innovation.
An overarching reason was related to lack of focus, where the quantity of new launches
was emphasised over quality.

Improvement steps

Kraft revised its innovation processes in 2009. The company decided in 2010 to focus on
ideas that had sustainable potential. A second step required the company to create a
culture shift. Kraft decided to celebrate its innovators making them the heroes and rock
stars of the company. The new mantra became Positive discontent. It encouraged
employees to get angry and motivated enough to make necessary and sustainable change
rather than disengagement. Employees sparked the positive culture shifts that were
previously not adequately engaged in productive activities of the company. Now the
employees are committed to continuous learning for innovation and consistent in
execution and growth. These forms of employee innovation help to foster and create new
product platforms, improve product features and reinvent its iconic brands.

Kraft Foods, Inc. innovation processes

Innovation is successfully implementing an invention or creative idea that adds value to


its consumers at Kraft Foods, Inc. The company is seeking to implement innovation
across its company in everything it does from creating new innovative services and
products to creating innovative ideas for consumer needs and demands, as consumer
needs and demands are always changing, so the company must constantly adapt and
anticipate changing consumer demands and needs. Innovation gives Kraft Foods, Inc. the
ability to execute and deliver consumer expectations of consumers preferred brand. The
company sustains and nourishes its heritage brands, while watching, learning and
inputting new ideas to improve brand quality, convenience and taste. Values steer Kraft
Foods, Inc. behaviour and performance drives the companys work. As a result, the
company seeks to create collaboration and partnerships based on the following values:

tell it like it is

keep it simple

act like owners

discuss, decide, deliver

inspire trust

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lead from the head and heart

are open and inclusive (Mondelz International, 2013b).

Innovation can apply to ingredients, packaging, processes, products, processes,


packaging, and ingredients. It can develop within Kraft corporate R&D, consumer
insights, consumer relations, business units, and many other sources elsewhere. The
research, development and quality team at Kraft Foods seeks to find new ways to create
superior products, entice consumers, and succeed in a fiercely competitive marketplace.
Consumers are at the beginning and end of all business operations. It is an imperative that
the company listen to consumers, imagine, and create. The company is always looking to
identify new and emerging ideas and trends that can improve its products and processes,
despite Kraft Foods, Inc. large team of scientists and food technologists. These ideas and
trends may drive new and innovative methods to develop products for quality, taste
improvement, lower costs, enhance consumer value and simplify food preparation
resulting in better shelf life, packaging for product safety and freshness, and food
preservation.
Consumer interests are at the forefront of Kraft Foods, Inc. innovation strategies. The
company continually looks for opportunities through consumer interests to drive
innovation resulting in new categories. Bagel-fuls is one example of the first nationally
available all-in-one Philadelphia cream cheese and bagel. It is an innovative product
solution for consumers that offer portability and convenience, while sustaining its
Philadelphia cream cheese quality and heritage. It came as an unsolicited idea from a
third generation bagel maker with a niche market. This is a winning strategy for the bagel
maker because it became an opportunity to expand a niche market more broadly, and it
was a success for Kraft because it helped to address previous technical challenges the
company encountered within the delivery of both bagel and the cream cheese together.
Chuck Davis: Executive Vice President, Research, Development, Quality and
Innovation proposes, at Kraft Foods Inc., innovation is the essence and lifeline of our
company. Open innovation is the catalyst for how we want all employees to innovate at
Kraft Foods. Some innovative products recently launched in Krafts grocery division are
all out squeeze, miracle whip and mayo. Open innovation led to license a partners
packaging technology and apply it to the products of the company. Now, the all-out
squeeze container of Kraft mayo makes on average four more sandwiches than the other
mayonnaise brands. Kraft continually adds improvements to run product lines at high
speed. Today, were strengthening our open innovation efforts to improve collaboration
with external partners, create winning relationships for mutual value and bring new ideas
to the marketplace (Kraft Foods, 2013b). Although innovation is embedded internally
within the company, Kraft acknowledged there is a large amount of external innovation
occurring outside Kraft Foods, Inc. open innovation is about connecting with external
innovators to expand the companys innovation capability and capacity. Moreover, open
innovation has been providing a framework for many companies to tap into a vast
network of experts, customers, and other organisations. Furthermore, open innovation is a
powerful tool for companies seeking to expand innovation efforts. Kraft Foods, Inc.
established a hub-and-spokes model where a centrally led team focuses on
comprehensive systems, enabling tools, strategies, metrics and networks. The team
highlights scouting and driving open innovation activities for each of the companys
business units.

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The company launched a new portal to move from a single private innovation
submission form where the public can volunteer to submit any idea on any type of project
to innovate with Kraft (IWK). The Kraft Foods Collaboration Kitchen (KFCK) is a
significant change in their open innovation strategy. The new portal manages innovative
ideas from the public on solutions, new products, and technologies with particular topics
in mind that are predetermined internally (Figure 1).
Figure 1

The idea submission process at Kraft (see online version for colours)

Source: Kraft Foods (2013a)

Anyone with an innovative idea such as tech savvy individuals, university or college
students, entrepreneurs or someone with great ideas can bring enhanced flavour to the
products they love and bring their ideas to Kraft. The public can review the collaboration
Kitchen guidelines on how to get submit innovative ideas and suggestions. Consequently,
Kraft realised many benefits from open innovation, which are depicted in Figure 2.
Figure 2

Open innovation benefit (see online version for colours)

Source: Bright Idea, The Power of Innovation (2012)

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The initiatives of open innovation address delivering external solutions for the companys
strategic consumer needs and demands as a catalyst to accelerate growth. It is clear that
innovation is one of the primary and key goals of Kraft Foods. Innovation is what makes
the company one of the best and well-established food companies worldwide. In addition,
the companys merger with other companies has also helped Kraft Foods grow their icon
brands. Kraft is also committed to fighting hunger and promoting active and healthy
lifestyles. For these reasons, Kraft is taking a collaborative approach by working with
consumers, companies, governments and leading non-governmental organisations. Any
meaningful and successful change from innovation takes time and requires huge
investment. Therefore, Kraft Foods is increasing the companys innovation investments
for several years, thereby driving business momentum.
A brief overview of Kraft innovation investment established in various countries
around the world is listed below:

USA: Newly created product categories are developed by Kraft Foods R&D teams
in New Jersey, New York, Wisconsin and Illinois.

Singapore: Consumer sensory analytics are tested at Kraft Foods R&D Centre in
Singapore to create new indulgent confections in Asia and abroad.

China: The Suzhou R&D Centre team at Kraft Foods has established over 60 new
products since it is installation in the spring of 2009. Recently, a new brand category,
stride gum was launched in China (Seeking Alpha, 2013).

Brazil: The Company has invested approximately USD15 million in its R&D centre
that includes approximately 100 employees across the companys portfolio.
Employee teams devote efforts towards the companys global categories to
accommodate local tastes. In addition, the employees collaborate with their R&D
colleagues in Bourneville, UK to meet the growing demand for the countrys top
popular chocolate brand, Lacta.

Czech Republic: Recently, approximately USD1 million was invested by Kraft


Foods for a new bakery pilot plant at the companys Opava manufacturing facility
for fast-growing biscuit brands, including Oreo, belVita, Milka, Barni and TUC.

France: The European Biscuits R&D Centre in Saclay received about USD 20
million from Kraft Foods that opened in April 2011 and focuses on sustainability,
product quality, and food nutrition.

Switzerland: New technologies drive innovation from developers in product and


packaging at Kraft Foods Gum and Candy R&D Centre in Eysins.

Mexico: In order to promote greater marketplace efficiency, Kraft Foods completed


multi-year, USD50 million investments in 2012 for its Mexico City innovation
centre.

Alliances/partnerships: Unique capabilities from innovators at other companies can


be implemented to foster innovation at Kraft Foods. Each company may enter into an
alliance or partnership to drive value for both companies.

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External collaborative partnerships for fostering innovation: Kraft Foods


continuously promotes and organises external collaboration and partnerships to
increase open innovation activities.

Joint development agreements: Kraft Foods may enter into joint development
agreements or other collaborative agreements with innovators that have unique and
potentially protectable ideas for its exclusive use or jointly owned development
agreements with Kraft Foods underwriting the efforts of the patent protection.

Patent or trademark licensing or purchase: Kraft Foods may enter into licensing
agreements or outright purchases from Innovators with existing patent or trademark
protection.

Business innovation through sustainability

Sustainability is an idea implemented by many companies to foster value in products,


services, business operations and collaboration with stakeholders. Mondelz
International, Inc. is incorporating sustainability as a reoccurring process to increase
innovation and profits (Kiron et al., 2013). The company views sustainability as
Conducting business in a way that is environmentally, socially and economically
responsible (Kraft Foods, 2010). The company is continually seeking opportunities to
change the way it does business and become more sustainable. For example, as a food
company, Mondelz is dependent upon the earth for raw materials to make its products
and increase its sustainable practices. In order to adequately address complex issues and
challenges to increase its sustainable practices, the company is seeking innovative and
scalable solutions through collaboration and partnerships with farmers, NGOs, suppliers,
peer companies, governments and consumers.
Mondelz International exerts efforts to evaluate sustainable impact through
partnerships and collaboration with experts in environmental management, ISO 14001
certification and third-party feedback. In addition, the company evaluates environmental
progress by cost reduction and protection of the environment with material metrics and
smarter packaging for trading partners, governments and consumers. Health and nutrition
for consumers well-being impacts the social dimensions of sustainable innovation
combined with philanthropy and corporate community investment. Overall, Mondelz
International makes efforts to target areas that can create the largest impact to its
business.
Kraft Foods uses a sustainability wheel to display the companys focus areas and
serve as a framework for promoting sustainability into its daily business routines.
The wheel helps the company to measure and reward improvement. The sustainability
wheel consists of six focus areas that include transportation, distribution, packaging,
agricultural commodities, energy, water, and waste. Kraft Foods sustainability goals
for 20102015 target agricultural environmental impacts and continuous improvement
of six focus areas (Kraft Foods, 2010). Key objectives of the goals are listed below and
include:

reduce 80.5 million km (50 million miles) from transportation network

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reduce waste at manufacturing plants by 15%

reduce energy use in manufacturing plants by 15%

increase sustainable sourcing of agricultural commodities by 25%

reduce water consumption in manufacturing plants by 15%

eliminate 50,000 metric tons (100 million lbs.) of packaging material

source 100% of European coffee brands sustainably

reduce energy-related CO2 emissions in manufacturing plants by 15%.

Mondelz International strives to address the companys energy use within its control by
monitoring the supply chain, agricultural commodity purchases, and manufacturing and
transportation fleet operations (Kraft Foods, 2010). As a result, the company reduced
CO2 emissions in 20052010 by 18%. Mondelz International proposes, By changing
our operations, improving facilities and training employees to modify their behaviour
that will result in an additional 15% reduction of CO2 emissions by 2015 (Ibid).
Incorporating cost and sustainability to foster innovative business strategies, Mondelz
International understood that treating whey replaces approximately 30% of the natural
gas used annually, thereby omitting waste disposal, and fuel and CO2 emissions.
Furthermore, Mondelz International is focusing on reinvesting its supply chain network
by upgrading production lines with leading technologies (Seeking Alpha, 2013). Overall,
the company is committed to finding innovative and sustainable methods to decrease
energy and water needs, wastewater discharge, consumption, and net and solid waste
while increasing profits.

Agricultural supply chain

Mondelz International is one of the worlds largest purchasers of cocoa, coffee and
cashews. Consequently, a central point of focus is on sustainable agriculture and local
farming communities. Sustainable farming creates opportunities for education and
protects the environment while promoting The social and economic conditions of local
communities (Mondelz International, 2013a). Robust collaborative partnerships in the
companys supply chain and key partnerships within governments, non-governmental
organisations (NGOs) and industry promote understanding of how Mondelz
International can compete and innovate to develop new consumer sections. The company
welcomes challenges for improving relations with local communities from developing
countries to Increase awareness of responsible farming practices, improve living and
working conditions, have more educational opportunities and respect and protect the
environment (Kraft, 2011). Consequently, the products of Mondelz Internationals are
certified Fair Trade, Rainforest Alliance and 4C Association. Recently, the company
developed a Cocoa Life pilot programme with the Ivorian Government to increase
sustainable cocoa supply production in Cote dIvoire, Africa. This pilot programme
promotes sustainable farming, economic development and gender equality, for farmers in
local communities.

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Innovation strategy purpose and challenges

Mondelz International makes vigorous efforts to sustain growth and competitive


advantage through innovations strategies and platforms such as open innovation because
98 of international patents (IP) in food products is external to Kraft (Goers, 2009). For
this reason, open innovation requires:

enabler to increase both innovation capacity and capability

complementary and extending internal innovation horsepower

core competency integrated into how everyone innovates

mindset, belief and approach to how we innovate (Goers, 2009).

Implementing open innovation strategies for developing a value chain in a company


creates challenges to promote innovation internally and externally. Alignment of
management, suppliers, consumer interests, and corporate cultures, within the merge of
Kraft Foods, Inc. and Mondelz International, Inc. necessitates a continual attention to
leverage increasing sustainable growth and continual value creation. Sustainability can
perfect business growth strategies, create value and increase profits by highlighting waste
reduction while increasing the well-being of the natural environment and consumers.
Notwithstanding, there are challenges to business innovation strategies that may result in
temporary competitive advantage and growth and not sustainable growth and competitive
advantage. For example, a primary principle of sustainable growth requires critical
comprehension of the patterns of push and pull in the demand for products. Wright
(2013) proposes, Executives should begin by asking: what is the paradigm that is
leading my company? Risk-averse companies do not lead and they do so because they
do not understand the paradigm that is driving the demand for their products or
someone elses products.

Sustainable competitive advantage in emerging markets

Mondelz International creates sustainable investments in emerging markets by


eliminating waste and promoting health and nutrition in consumer products. Many
companies are creating and expanding business operations in emerging markets because
it is vital for increasing competitive advantage combined with the increasing number of
competitors, consumer preferred snack brands, the companys geographic advantage,
global innovative platforms, and efficient transportation systems. The company creates
aggressive growth through categories and key products to increase profits and
reinvestment in emerging markets.
Product innovation is vital for sustainable growth and sustainable competitive
advantage in emerging markets. Mondelz International implements sustainability within
its business innovation strategies to accomplish more than incremental growth through
product innovation. However, achieving sustainable product innovation is a challenge
that requires careful reflection and discussion because investments in energy efficiency
and decreasing product waste and costs may create a rebound effect (Berkhout et al.,
2000) thereby increasing waste and product consumption among consumers.
Furthermore, rebound effects can occur through sociological or psychological

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mechanisms (Wrsdorfer, 2010). Consequently, companies should consider various


motives influencing human behaviour and intentions within internal and external
partnerships because single intentions are embedded by differing motives, lifestyles and
purposes (Peters et al., 2012).

10

Future innovation challenges

Kraft Foods, Inc. announced the division of its business operations into two
independently listed companies, Mondelz International and Kraft Foods Group, Inc.,
inviting streamlined portfolios of both companies to concentrate their resources on key
brands, categories, innovation and marketing. Mondelz International covers a large
geographic market, thereby creating a good position to drive volume growth in emerging
focus markets such as Brazil, India and Russia, where volume growth prospects in snack
food categories are positive. In juxtaposition, Kraft Foods Group Inc. will have to focus
more on value driven growth, through continuous innovation in the mature North
American market environment. Despite these innovative business strategies, there are
challenges to establish future success. One key challenge of both companies is to master
fierce competition and multinational control in growth categories and markets. For
example, Mondelz International has 1% value share in China for confectionery brands,
while the market leader, Mars Inc. holds an 18% share. Fierce competition from
international companies in key markets can result in considerably higher competitive
barriers for further business development and expansion. Nonetheless, Kraft Foods
entire operations in China will be reestablished under Mondelz International, and the
reorganisation will not decrease the it is competitive position.
The current scale of Kraft Foods Inc. in North America will be divided by a 40:60
ratio between Mondelz International and Kraft Foods Group, Inc. Prior to the structural
split, Kraft Foods Inc. was the largest North American food company with 2012 retail
value sales of USD29 billion. However, after the structural split, the company ranks third,
behind PepsiCo and Nestl. The structural split in scale of infrastructure in North
America negatively impacts manufacturing and distribution competitive advantage,
thereby raising logistical challenges, and complex conditions and processes to the
management and development of brands under shared ownership, such as Philadelphia or
Maxwell House. The unstable macroeconomic environment in Western Europe and North
America, coupled with highly volatile commodity prices, significantly contributes to a
challenging and competitive innovative operating environment for the two new launched
companies (EuroMonitor Blog, 2013).

11

Conclusions

There are benefits to open innovation such as developing new categories, increasing
profits while enhancing the well-being of consumers and the natural environment.
Nevertheless, the benefits may not sustain growth and competitive advantage due to
continually changing volatile markets in advanced and emerging economies. What works
in the present time may quickly fade necessitating robust and changing innovative
strategies. A company cannot constantly change the company structure and alignment
effectively in temporary frameworks. Moreover, consumer and customer behaviour, and

World class sustainable product innovation

407

decision-making are complex and cannot be managed solely by food nutrition, quality,
product cost and sustainability. Therefore, innovative change for greater competitive
advantage within the present proper paradigm may keep a company aligned sustainably
to ensure the well-being of consumers and the natural environment while increasing
profits. For example, Mondelz International must invest in key strengths of its portfolio
to sustain growth in fierce competition and master numerous challenges both in focus
categories and operating environments, and in central developed markets for long-term
success.

Disclaimer
This case has been written solely for class discussion, for educational and development
purposes and is not intended to illustrate either effective or ineffective handling of an
administrative situation or to represent successful or unsuccessful managerial decision
making or endorse the management views. The authors may have disguised or
camouflaged some of the names, events, financial and other recognisable information to
protect the identity of individuals and confidentiality. The case uses both primary and
secondary sources of information.

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