1 Open PepsiCo 2009 Ian Noble R&D Director Foods Innovation

PepsiCo is……

What is Open Innovation? Finding Innovators in and outside of PepsiCo –Beyond the traditional partners, often outside the Food Industry –Using multiple approaches including Open Innovation intermediaries Engaging Innovators –Sharing ideas, capabilities and expertise between PepsiCo personnel and outsiders to realize value from differentiated and meaningful innovation

Arrogance Ignorance Intolerance (NIH) Intolerance (NIH) Lack of Skills, Resources Knowledge to Measure OI Performance Organizational OI Maturity Challenges to Successful Open Innovation Implementation

Goal of Open Innovation at PepsiCo: Drive Revenue Growth…… Improve Innovation Quality Accelerate Innovation Increase Innovation Capacity Reduce Innovation Risk Number of innovations attempted = completions + discontinued projects in each innovation category Share of innovations attempted in each innovation category Number of man-days saved from each of the following activities: Find needed expertise faster Solve problems faster Product cycle acceleration by phase of development Best in class technologies Number of new key contacts found and used

Open Innovation Process/Framework Get Find Want Manage ANYTHING…innovative ingredient, product, process or technology solution needed to support mission. Mechanisms used to identify the external resources needed to accomplish the mission OI Scouts External networks and enablers Process needed to plan, structure and negotiate the agreements for obtaining the external resources Tools, metrics & management techniques to turn external partners into networks of “research partnerships” and measure OI value

Engagement Index is a key focus Trust ‘Openness’ of the Culture ‘Control’ Effectiveness with OI Framework (WFGM) Communication and collaboration technologies and tools Incentives and rewards Organizational Structure that enables timely idea evaluation

Our approach at PepsiCo Focus on an integrated innovation ecosystem focusing on 3 things: People Technologies Culture

Consultants Before: Some sharing and limited strategic partnerships with non-Core external innovators Tremendous opportunity to accelerate Breakthrough Innovation Employees Consumers Customers Suppliers Intermediaries Impact of Innovation External Innovators Retirees Team Universities Research Org Team

Currently: Building an Integrated Innovation Ecosystem New model for PepsiCo R&D and all of PepsiCo Impact of Innovation Team Consultants Employees Customers Suppliers Intermediaries Universities Research Org Consumers Finance External Innovators RetireesLegal Marketing

Innovation Teams: Highly-Connected Community of Internal and External Experts Immersive Technologies SharePoint with Community space Newsgator: Discussion threads, 1- to-many communication Web conferencing, IM RSS Technology Culture 2 Openness Trust Rewards & Recognition IP Ownership Flexibility Clear upfront expectations People 3 PepsiCo Associates PepsiCo Retirees External Innovators (Universities, Entrepreneurs, Suppliers, Intermediaries) Lots of Sharing. Solving Problems Faster 1

Setting Clear Upfront Expectations Reduces Ambiguity  Clear upfront expectations need to be set for each activity of each project  Without a framework, we have ambiguity  Ambiguity breeds uncertainty, scepticism, distrust and non- productive behaviours

Setting Clear Upfront Expectations Reduces Ambiguity  Clear upfront expectations need to be set for each activity of each project  Without a framework, we have ambiguity  Ambiguity breeds uncertainty, scepticism, distrust and non- productive behaviours

Open Innovation Performance & Metrics Open Innovation performance refers to key actions taken by partners as projects are executed and the result of those actions In an alliance partnership, it is important to first establish the Desired Project Outcomes: –Profit Potential –Consumer Value –R&D Efficiency and Effectiveness –Technical Probability of Success Performance Metrics quantify the efficiency and/or effectiveness of alliance partners’ actions at delivering the desired project outcomes

Keys to Good Performance Metrics Metrics should be selected based on desired project outcomes and stage of the OI model or innovation cycle Metrics should give you enough information to guide project direction and make informed decisions Metrics should help you assess the degree to which project outcomes are being achieved Measure only what is valued and important Reward the use of Metrics

Summary PepsiCo’s traditional model is of engagement with external sources of innovation Developments in the public domain Open Innovation space have provided us with an opportunity to improve our performance Technical differentiation is an important component of our innovation model We’re Proud to Partner and challenging ourselves to build our Open Innovation capability