How to Select Promising Project Ideas in Converging Industries

CONVERGENCE
How to Select Promising Project
Ideas in Converging Industries
Since the early 1990s, the
nutraceutical and functional food
(NFF) sector has been emerging as a
separate entity at the boundaries of the
pharmaceutical and food industries.1
This up-and-coming segment offers
room for a variety of products derived
from different industries that can be
positioned between food and drugs
(Figure 1). The chances of successful
market introduction of New Product
Developments (NPDs) are high, but
also require a specific skill set of
competencies from both industries.
Companies aiming at the hybrid
sector between food and drugs face
competency gaps.2 The owners of
particular competencies, thus different
industries, need to share their abilities
and knowledge to develop promising
products. Already at the front end of
innovation (FEI), these companies
need to look for partners with
complementary competencies.
Owing to a lack of competencies
in either market or the disciplines of
technology development, the entire
22 P H A R M A / N B T S U P P L E M E N T | 2 0 1 3
NPD process in these converging
industries becomes risky and
requires input from different players.
Pharmaceutical producers tend to
build their innovation strategy based
on technology oriented innovations
in the absence of any experience in
retail and the distribution of Fast
Moving Consumer Goods (FMCGs). By
contrast, food companies have a huge
competency in generating consumer
insights and, as such, act in a much
more market-oriented way. Currently,
they face a knowledge gap regarding
how to run gold standard clinical trials
conducted with healthy patients, as
required by EFSA (Table I).2,4
Given these challenges, which
are specific to pharmaceutical/
NFF industry convergence, a careful
evaluation of innovation projects
becomes especially important and
crucial for new product success.
Manufacturers of health-promoting
consumer goods need to examine the
requirements for product positioning
and market approval for such
The precondition
for market
success in hybrid
innovations
lies within the
capability to
combine critical
knowledge
areas, from
consumer
insights to gold
standard clinical
trials.
CONVERGENCE
Table I: The different competencies of players in the NFF sector.5
Industry
Food
Strategy
Feasibility
Pharmaceutical
R&D Intensity
Low (<1% of sales)
High (>14%)
R&D Cycles
Short (1–3 years)
Long (10–20 years)
IP Strategies
Trademarks, consumer brands
Patents (preferably on the
product/compound)
New Technologies
Traditionally external sourcing, no
own development skills
Foster internal development of
technologies
Market Insights
Consumer market (B2C)
Industrial clients (B2B)
Access to Distribution
Channels
Mass-market distribution via retail
chains
B2B wholesalers, pharmacies,
nutritional specialty stores
Communication
End-consumer-oriented
Science, industrial partneroriented
Regulatory Approval
Processes
Little or no skills
Own regulatory approval and
business functions
Familiarity with Safety
and Efficacy Testing
No experience in clinical product
evaluation
Long-term experience with
clinical trials via CROs or own
facilities
innovations positioned in the emerging
NFF sector. When talking about
functional food (FF) ingredients, these
not only have to fit into the food matrix,
but also into the overall brand and
positioning needs of the product.
This paper aims to identify the
most important selection criteria,
which could help to screen project
ideas regarding their organizational
and environmental feasibility and
identify any lack of competencies.
This will then enable companies to
preselect project ideas regarding their
requirements.
Managing the Innovation Challenge
Successful NPD in converging
24 P H A R M A / N B T S U P P L E M E N T | 2 0 1 3
industries requires the companies
involved to adapt industry specific
innovation systems and evaluate
criteria to identify and account for
competency gaps. The precondition
for the market success of these
hybrid innovations lies within
the capability to combine critical
knowledge areas, from consumer
insights to gold standard clinical
trials in the case of an innovation
project involving a health claim
application under EC 1924/2006.6
There are different approaches
to innovation among the different
players, all of which have distinctive
competence profiles.
Evaluating Project Ideas in
the NFF Sector
In the following section, we
summarize the most important
criteria to evaluate the likelihood of
market success of projects in the
hybrid sector between food and drugs.
These criteria are grouped together
in five categories: strategy, market,
technology, regulatory and finance
(see Table II). The criteria give an
overview of the necessary evaluation
fields for both pharmaceutical and/or
consumer goods companies as they
help to identify competency gaps in
the early stages of innovation. As a
result of this analysis, the company
Table II: Selection criteria to evaluate innovation projects in converging industries.5
Strategy
Feasibility
1
Core Competencies
Does the project fit the business’ strategy and
competencies?
2
Health Platforms
Does the project fit the targeted and predefined health
platforms?
3
Availability
a) Is the required technology available?
b) Is the required market available?
Market Need/
Consumer
a) Is the targeted health issue of relevance for the
consumer?
b) Is there an immediate need of action (because of pain
and/or constrictions)?
c) Is it possible to generate a need?
d) Does the consumer accept the health ingredient?
e) Does the consumer understand the health benefit?
2
Market Size
a) What is the size of the market for the targeted health
issue?
b) How many people are suffering from an issue that the
Ingredient targets?
3
Growth Rate
How do you evaluate the growth rate of the segment that
the ingredient targets?
4
Speed-to-Market
How much consumer education is necessary?
5
Market Access
a) How much experience with target markets, distribution
channels and target groups do you have?
b) How huge is the readiness of the retail to adopt and list
the product?
6
Differentiator
How would you evaluate the unique selling proposition
(USP)?
7
Rivalry
How powerful is the competition?
8
Pricing
How do you evaluate the pricing of the product in
comparison with competitve products?
9
Sustainability
Do we have access to a sustainable raw material supply?
10
Quality
Can the supplier offer a constant raw material quality?
11
Number of Suppliers
How many suppliers can offer the raw material?
1
Market
Attractiveness
Market
Competition
Sourcing
PHARMA/NBT SUPPLEMENT | 2013
25
CONVERGENCE
Table II: Selection criteria to evaluate innovation projects in converging industries.5
Alignment With Existing
Resources
a) How do you evaluate the probability of success in
relation to existing technical know-how and project
complexity?
b) How big is the need to integrate external technological
knowledge?
c) How good does the project fit with existing human
resource skills?
d) Is the intention to develop x) in-house or xi) in
partnerships?
if x) Do we have technology and know how?
if xi) Do we have experience with the partners or do we
need new ones?
2
Speed-To-Market
a) How complex is the transformation of the concept into
a useful product?
b) How long is the development time until proof of
principles and scale-up?
3
Flexibility
1
Feasibility in
Manufacturing
Technology
Technical
Attractiveness
a) Versatility of the ingredient?
b) Possibilities to enter other markets?
4
IP-Protection
a) Is the use, species, application or process novel?
b) Is there an opportunity to achieve protection from any
type?
c) Do we have a competitive advantage because of the
technique?
1
Speed-To-Market
How do you evaluate the time until the product gets
regulatory approved?
2
Market Approval
Does the product pass all challenges for a necessary
market approval?
3
Health Claims
Does a Claim already exist?
If yes: does it offer a USP?
If no: possibility of regulatory approval of health
claims?
4
Clinical Trials
Availability of published clinical data?
If yes, do the studies comply to gold standard? Do they
show efficacy?
5
Competitors
Do competitors have claims for this indication in
place?
1
Time-To-Market
2
Break-Even-Point
3
NPV
4
ROI
5
Development Costs
Market-ability
Regulatory
Claims
Finance
26 P H A R M A / N B T S U P P L E M E N T | 2 0 1 3
CONVERGENCE
Figure 1: The emerging NFF-sector between foods and drugs.3
can work on “closing the gaps.” Thus,
the identified criteria may serve as
a basis for the development of a
company specific scorecard, which
enables the company to rank possible
innovation projects based on how well
the project fits within the relevant
categories.
Degrees of Innovation
As projects differ in their degree
of innovation (radical versus
incremental), the process of decision
making cannot be standardized.3
Therefore, the selection process
should be flexible to account for
the individual type of project.
Any technological and/or market
uncertainty will certainly influence
the decision making. Innovations
are more risky in dynamic and
uncertain markets or in projects
that require new technologies. New
technologies and uncertain markets,
by contrast, offer the opportunity
to achieve technology or market
uniqueness.7 Both factors are of
particular importance in emerging
industries such as the NFF sector,
as these segments most notably face
competency gaps during innovation
management. This leads to the fact
28 P H A R M A / N B T S U P P L E M E N T | 2 0 1 3
that a distinction between high- and
low-risk projects should be made,
combined with a similar mindset
regarding long- and short-time
projects: whereas the short-term
projects solve existing needs, the
long-term projects are based upon
basic research.
Projects that are linked to more
time input and the build-up of
new technology platforms can be
characterized as projects with a high
degree of innovation.8 By contrast, the
anticipated time until these projects
generate revenues is much longer.9
The higher the degree of product
innovation in the emerging NFF sector,
the higher the likelihood that neither
the food nor the pharmaceutical
company will bring sufficient
competencies to face the challenge
of the innovation project. In this case,
consumer integration — through
open innovation, for example — might
help to specify end-user needs.10
Generally, an early competency gap
analysis helps to focus the search
for appropriate partners in either
technology intense or marketoriented companies, depending on
the industry background of the source
organization.
References
1. N.M. Childs, P. Lachance and L. Meagher,
“Advancing Nutraceuticals Opportunities:
Priorities for Research,” Journal of
Nutraceuticals, Functional & Medical Foods
2(3), 85–103 (2000).
2. H. Harmsen and B. Jensen, “Identifying
the Determinants of Value Creation in the
Market: A Competence-Based Approach,”
Journal of Business Research 57, 533–547
(2004).
3. S. Bröring, The Front End of Innovation
in Converging Industries. The Case of
Nutraceuticals and Functional Foods
(Deutscher Universitäts Verlag, Springer
Fachmedien, Wiesbaden, Germany, 2005).
4. F. Fai and N. von Tunzelmann, “IndustrySpecific Competencies and Converging
Technological Systems: Evidence from
Patents,” Structural Change and Economic
Dynamics 12(2), 141–170 (2001).
5. S. Bröring, “Innovation Strategies for
Functional Foods and Supplements —
Challenges of the Positioning Between
Foods and Drugs,” Food Science and
Technology Bulletin: Functional Foods 7(8),
111–123 (2010).
6. European Union (30.12.2006): Regulation
(EC) No. 1924/2006 of the European
Parliament and the Council. Available
online at http://eur-lex.europa.eu/
LexUriServ/LexUriServ.do?uri=OJ:L:20
06:404:0009:0025:EN:PDF, checked on
15.04.2013.
7. C. Mark-Herbert, “Innovation of a New
Product Category — Functional Foods,”
Technovation 24(9), 713–719 (2004).
8. C. Herstatt and B. Verworn, “The “Fuzzy
Front End” of Innovation,” Working Paper
No. 4: www.tuhh.de/tim/downloads/
arbeitspapiere/Arbeitspapier_4.pdf (2001).
9. D. Herath, et al., “Firm, Market and
Regulatory Factors Influencing Innovation
and Commercialization in Canada’s
Functional Food and Nutraceutical Sector,”
Agribusiness 24(2), 207–230 (2008).
10.M. Martinez Garcia, Ed., Open Innovation in
the Food and Beverage Industry (Woodhead
Publishing Ltd, Cambridge, UK, 2013).
For more information
Stefanie Bröring and Christina Mintgen
University of Applied Sciences
Osnabrück
Fakultät Agrarwissenschaften und
Landschaftsarchitektur
Oldenburger Landstr. 62
D-49090 Osnabrück, Germany
Tel. +49 541 969 5271
[email protected]
www.chainnovation.de