Natura: An Innovative Company Leader in the Brazilian Market of Cosmetics, Fragrances and Toiletries

Authors

Gilson Paulo ManfioGilson Paulo Manfio

Science Manager

– Network Intelligence

gilsonmanfio@natura.net

 

 

Leonardo GarnicaLeonardo Garnica

Coordinator – Networks,

Partnerships and Funding Management

leonardogarnica@natura.net

 

 

 

Daniela Diogenes Daniela Diogenes

Coordinator – Networks,

Partnerships and Funding Management

danieladiogenes@natura.net

 

 

Natura Inovação e Tecnologia de Produtos Ltda., Brazil

INNOVATION IN A COMPETITIVE MARKET

Natura is a leading cosmetics, fragrance, and toiletries company that sells through a network of 1.4 million consultants (sales representatives) in Brazil and abroad. Outside of its core Brazilian market, Natura has a presence in Argentina, Bolivia, Chile, Colombia, France, Mexico and Peru. Established in 1969 from the fruit of two passions: cosmetics and relationships, for over fortyfour years it has sought to create value for society as a whole, generating integrated triple-bottom-line (TBL) results – economic, social and environmental

Natura´s TBL strategy and efforts are successfully recognized by international institutions. As an example, in 2011 and 2012, it was the second most sustainable company in the ranking of 100 Most Sustainable Corporations in the World by the Canadian Corporate Knights Research Institute. It was also placed as the eighth most innovative company in the world by Forbes Magazine in 2011.

In the international arena, Brazil ranked third in 2011 as one of the largest markets for cosmetics, after the United States and Japan, with an 18.9% growth (ABIHPEC, 2012). This attracted the world´s attention to the Brazilian market, and anticipated a surge for differentiation amongst companies that intended to remain competitive in this market

In view of this highly competitive context, Natura redefined its corporate strategy emphasizing innovation as one of its core capabilities and main drivers of development. Today, innovation is strongly encouraged thanks to the incorporation as one of Natura´s culture drivers – “Innovation – be entrepreneurial, taking the lead, doing what has never been done and assuming the risks. Continuously scrutinize the way things are done and striving to find new ways to do them” (Natura, 2012). Innovation is understood as a process that should permeate all activities and is at the core of the company´s value creation. It is expressed in Natura’s products, commercial model, management system, and the relations it establishes with its stakeholders and society as a whole.

INNOVATING INNOVATION

To promote this corporate culture, a range of initiatives have been put in place over recent years with the objective of refocusing and leveraging innovation throughout the company. A turning point towards reshaping innovation at Natura was the movement named “Innovating Innovation”, in 2011. It derived from an analysis of the company´s position in the global cosmetics industry, its differentiating factors, innovation processes, and governance, conducted in partnership with an international consultancy group. The results spurred the introduction of a range of initiatives, mainly impacting the Innovation Vice-Presidency, such as:

  • a revised long-term innovation strategy;
  • structural changes in the R&D areas;
  • the evolution of the product innovation process;
  • a revised portfolio management process and governance;
  • a broader and significantly revamped open innovation strategy, integrating different actors from the Brazilian innovation system, and a growing number of international partnerships in the USA, UK and France.

One of these transforming changes was the redefinition of Natura´s “innovation differentiators”. These can be understood as strategic guidelines that include and define new competencies as well as the classical ones, necessary for carrying out innovative research and product development at Natura, using an integrated approach. Traditional methods and state-of-the-artscience and technology are integrated in order to help create new products and services that provide an ongoing flow of Well-Being-Well Experiences for consumers, while promoting positive socioenvironmental impacts and reducing negative impacts. In alignment with strategic planning, the innovation differentiators guide the creative process and underpin research in science, technology, and open innovation. Natura´s differentiators include five fields of play, comprising: Life Sciences; Sustainability; Well-Being-Well Experiences; Wellness, Senses and Design of Interactions; and, Relationships and Networks. These support the company´s vision for long-term innovation, and the work of its five innovation teams: Science and Technology, Product Development, Consumer Safety, Portfolio Management and Innovation Networks, and the Innovation Core. The latter was recently established with the objective of accelerating the creation of novel concepts, brands, and business opportunities for Natura.

The product development process was revised in 2011, focusing process maturity of the classical product development stage-gate, with updated requisites, process specifications, and employee training, amongst others. This was coupled with the adoption of a new infrastructure for managing project information, using a Sharepoint internet-based platform, with information for project management that accompanied Natura’s stage-gate process

In addition to these evolutions, Natura´s innovation team implemented a new portfolio management process, which focused on the analysis of the intangible value of new products, as well as direct estimates of individual product financial contribution (Hashiba-Horta et al., 2012). To realize the importance of a robust new product development (NPD) pipeline for the company´s survival, one needed to understand the high demand for new products that the Natura´s direct sales model requires. Natura publishes a new product catalogue every three weeks (one cycle), and consultants rely on these to engage with consumers and generate sales opportunities. In our current sales model, there are eighteen cycles per year, with an average of fifteen new products per cycle, and, thus, a strong demand for a high throughput of new product launches.

Following pressure from competitors, Natura´s NPD portfolio started to become overloaded, with a very significant resource allocation to a large number of low impact projects. This realization triggered a revision of the drivers for developing new products in order to better select the products that would help maintain competitive advantage. The solution came in the integration of a portfolio management strategy that combined tangible (financial, estimates of the first-year gross revenue generated by the project), and intangible values (strategic). The latter comprised a combination of three important aspects of Natura´s strategy: Environmental value – the higher the carbon emission reduction, the higher the score; Consumer perception – measuring the potential impact of the new product from a consumer perspective; and Brand Differentiation – providing an overall evaluation of the project based on the additional brand value that the new product could bring. The initial analysis indicated that the top 10% of projects represented 50% of the overall portfolio value, an analogy with Anderson´s long tail (Anderson, 2004). This triggered a strong action to eliminate lowvalue projects that lead to the elimination of unproductive SKUs, and increased overall productivity (value/project) by 20%; yielding a better allocation of human resources, and an improvement of the financial tools at the start of the project in the pipeline.

REVAMPING OPEN INNOVATION

 

In the open innovation front, Natura has established a comprehensive model for fostering collaborative networks for innovation. This design has four main pillars, as described below (Varrichio et al., 2012; Garnica et al, 2012):

a)      Policies and process: focus on the internal organization to support the open innovation strategy considering the diversity of partners and types of agreements. This pillar exists for compliance with legal procurement procedures, and to generate corporate procedures that maintain consistency in the relationship with external partners. It includes the design and monitoring of key success indicators, as well as guidelines for partnerships and intellectual property (IP) protection. The mainstream process begins with the selection of partners passing through negotiation, formalizing partnerships, and ends with the evaluation of partners.

b)      External funding: one objective is to bring the government close to the company´s innovation process. The main activities are devoted to monitoring new funding opportunities aligned to internal demands, grants management structure, evaluation and the use of tax incentives in Brazil and in France. As a result of funding management, we received more than US$11 million in tax incentives for innovation in the form of grants and funds from different partner institutions (public funding agencies in Brazil) such as FINEP, BNDES, CNPq and FAP in 2011.

c)       Promotion of open innovation networks in a highly collaborative fashion: Natura believes strongly that research institutions are recognized sources of knowledge and technology for companies. The significance of these concepts reside in the perception that long-term relationships are able to add value in more phases of the innovation cycle, and are more valuable than specific interventions or ideas captured in the early innovation stage. As a result of this, a new program was constructed aiming at establishing an active relationship with research institutions, promoting network connections, engaging Natura´s internal R&D staff in the diffusion of the company´s scientific research results, enhancing its research topics, and building a learning space that encourages collaboration, and multiple forms of interaction (calls for proposals, innovation challenges, scientific blogs, and interactive workshops)

d)      Relationship management focused on innovation partners: this pillar involved the management of a relationship agenda for different innovation partners, such as funding agencies, universities, and corporate partners, aiming to align expectations and maintain a constant flow of communication that would lead to the identification of new opportunities. This approaches the adoption of specific activities that promote the sharing of innovation strategies, and stimulates new-comers into the network, to join forces in the pursuit of initiatives that provide benefits for all involved.

In parallel, investments in innovation also increased – from R$103.0 million in 2008, to R$146.6 million in 2011, representing approximately 3% of net revenue invested in innovation and 164 new products in 2011, with an innovation rate of 64,8% (percentage of revenue coming from new products launched in the two previous years). In order to maximize and focus on investments, substantial changes were incorporated in the R&D funding process, including the definition of a strategy to integrate public funding opportunities offered by the Brazilian Government, and analyses of R&D activities profiles performed by the company in order to clearly identify financing and incentive opportunities directly related to these (Jorge and Hashiba, 2009). Results helped define a strategy for R&D funding that balanced financing sources covering basic activities, such as headcount costs, services, training and equipment, in contrast with high-risk projects, that focused on the acquisition of know-how and technology trends. The former were preferentially served by funds arising from subsidized loans (low taxes), tax incentives for R&D from the Brazilian Government, and internal capital, and the latter by non-refundable governmental programs, such as research grants and special funding for enterprise-university cooperation projects. These actions promoted a four point increase in the percentage of external capital on total R&D investment, from 38% in 2006, to 42% in 2008, and almost doubled the amount returned from income tax and social contribution deductions derived from R&D activities.

As concluding remarks, our understanding of the evolution of Natura´s innovation approach in recent years corroborates the value of adopting a systemic view that considers innovation as a complex process permeating all of the company, strongly influenced by internal processes and corporate culture. In our experience, integrating different approaches in an orchestrated way in order to promote innovation at Natura is perceived as a key element for success.

REFERENCES

 

ABIHPEC (2012). Panorama do setor, 2011. http://www.abihpec.org.br/wp-content/uploads/2012/04/Panorama-dosetor-2011-2012-17-abr-2012.pdf (access 04/jan/2013).

Anderson, Chris (2004) The long tail. Wired, 12.10 (October).

Garnica, L, Jorge, A, Pereira Junior, J and Hashiba, L. (2012) Fostering innovation networks: the case of a Brazilian company. Proc. XXIII ISPIM Conference 2012 Barcelona, Spain. 17-20 June 2012.

Hashiba-Horta, L, Zamberlan, R, Dias, L and Dellanoce, M. (2012) Intangible value in portfolio management. Proc. XXIII ISPIM Conference 2012, Barcelona, Spain. 17-20 June 2012

Jorge, A and Hashiba, L. (2009) Financing research and development in Brazil: a cosmetic company experience. Proc. 2nd ISPIM Innovation Symposium, New York City, USA. 6-9 December 2009.

Natura (2012) Natura Report #11- full GRI version. http://scf.natura.net/relatorios/2011/abertura_ra_site/arquivos/ra_2011_completo_gri_ingl.pdf (access 04/jan/2013)

Varrichio, P, Diogenes, D, Jorge, A and Garnica, L (2012) Collaborative networks and sustainable business: a case study in the Brazilian System of Innovation. Procedia – Soc. Behav Sci, 52: 90-99.