by Peter Lytle
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"Food companies are at the crossroads of change. This change will impact each and every one of us more profoundly than any single recent industry event."

THE THEORY
If you are a history buff or read current economic theory of business management, then you are aware most businesses go through a fundamental business cycle. This cycle can be used as a model to track change in any business from cars to food. Every industry marches happily along until most competitors are on an equal playing field with respect to their technologies. Brand control becomes the only distinguishing aspect for most of the players. At some point, a technological leap occurs, giving one company a distinct advantage over the rest. A few companies become giants, the rest become dinosaurs.

Companies that have leapfrogged using technology through the years are the likes of IBM, Edison Electric, Ford, AT&T, Apple Computers, Heinz, etc.

Today's food companies find themselves at a point where virtually all competitors are using the same basic technologies. Brand awareness is becoming more difficult and expensive to maintain and the field of players is narrowing.

A few very select companies will shortly out-distance the pack by taking advantage of their research prowess and the window of opportunity will close for the rest. This will happen because the available technical knowledge food companies can access today is so significant. That understanding and taking advantage of this knowledge can dramatically improve the quality of food in the marketplace, its functionality and economics. There is no time in the past, in which our industry has been exposed to such advanced knowledge, with such significant ability to create change; and as with any industry, there is likely a company or two that will have a vision of how to use this information to their advantage.

THE EXPANSION OF KNOWLEDGE
Did you know in the last two weeks you were exposed to more new information than the average individual living in 19th century America was exposed to in a lifetime? In the last year you were exposed to more new information than the average individual was exposed to during the two decade of the 50's and 60's. Current estimates show knowledge is doubling on a yearly basis. If information is power, then the ability to harness it is profit. The question begging to be answered is how is the corporation managing this wealth of knowledge?

DOING IT THE OLD FASHIONED WAY
With all this knowledge available, why are food companies still doing research much the same way it was done after World War II? Food companies are reluctant to put increased budgets behind R&D due to low profit margins, higher risk product launches in face of greater consumer buying segmentation, steeper marketing costs and greater controls by regulatory agencies like the FDA, USDA and EPA.

In order to maintain a reasonable research program today, food companies require three times the amount of money they did less than twenty years ago. The unfortunate fact is, most companies in the food industry have looked at R&D as an unnecessary expense, reduced their staff and facility size, lost their willingness to take risks and have also lost their vision of the future. The high cost and risk associated with R&D and the expanded time factor for developing new technologies and innovations has created a group of competitive companies all on the same playing field, all sharing similar technologies and research expertise.

THE NEW KIDS ON THE BLOCK
If you have been looking, you will notice a group of pharmaceutical companies, chemical companies and start-up companies now entering the food industry. They are putting substantial investments into R&D and are entering the business with an attitude and sense of risk normally used in more profitable industries. Although new technologies may require greater investments and longer periods of time to develop, once they mature, they can provide tremendous technical leverage for the owner. The hurdle or barrier a new technology establishes is generally so significant, competition cannot catch up. The development of Aspertame sweetener is an example of technical superiority leading to long-term profits. Sugar producers, and more recent sweetener substitute producers, have yet to overcome many years of dominance by the NutraSweet Company in this category. Although the patent has now expired, NutraSweet has gained brand dominance, user approval, FDA acceptance and a scale of operating economics that will help them hold the dominant market share and profitable sales for years.

BREAKING OUT OF THE CURRENT PARADIGM
Traditional technologies, and the products they generate, are lost in a period called the "compression era". Changes in the market place are increasing at an ever-rapid rate. The food industry has had shorter and shorter cycles of product brand dominance over the last one hundred years. One of the original purposes of brand development and management was to starve off the demise of profits when a product became a commodity. When a brand can provide the consumer with little or no significant difference from any other product, the cost to maintain it increases. By creating superior products and advancing a brand through new technologies from R&D, the brand maintenance cost drops and the ability to hold onto market share increases.

Food companies need to acknowledge that technological innovation has importance equal to brand management in holding and developing market share and profitability.

ANOTHER DILEMMA
Food companies are also faced with another dilemma. The average new product will hold significant market share for less than two and a half years and remain without competition for an average of less than six months. The time it takes to develop and test a traditional new product also averages two and one-half years. The time line is now the same; the only thing still shrinking is the period a traditional product from traditional technology can hold significant market share. New technologies appear to be one of the only solutions to holding longer market share periods by increasing the competitors' barriers of entry.

FACING FACTS
Food researchers and marketers have a responsibility to their company's stockholders; to survive for the future. We need to acknowledge that the environment has changed and reinvest in R&D or be willing to buy up companies that already have. Research centers, in order to support future markets, will need to increase their speed of delivery, expand their flexibility and be more receptive to share information with others in order to spread the risk. The "not invented here theory" needs to be tossed out the door. Patents and licensing, not well favored by the food industry, will have more importance for new technologies in the future in order to help hold market share longer. Joint ventures will thrive along with strategic alliances, to hold down costs and speed up development times.

According to a McKinsey study, increasing R&D spending by 50% only reduced pretax profits by 3-1/2% while delivery of a product to market six months late can cost a company up to 33% of its pretax profit. To drive a car faster requires a bigger engine. To compete with future food companies, it will require building a bigger R&D engine, not taking it apart or putting a small one in its place.

LOOKING BACKWARD
To really understand the changes that will be occurring over the next two decades, you need to look at the changes that have occurred since the 70's. Diets and lifestyles have undergone significant changes. Perhaps caused by the doubling of information, it seems all changes are increasing in speed based on more knowledge.

LOOKING FORWARD
The next ten years will likely offer us more change than the last twenty did. The five years after that will offer a speed of change like that of the previous ten and so on until twenty years from now the paradigm shift will be extremely significant; you will not believe how limited your diet was, how poorly your food was packaged, where you purchased it from or who the major brands were.

THE SOLUTION
In the very near future, food product development will be impacted by: biotechnology and genetic decoding, advanced computer modeling on screens and through virtual reality, advancement in analytical methods and equipment, advances in packaging and processing, changes in distribution, significant changes in farming methods and practices, climate predictions, greater environmental regulations, greater government controls, a maturing of total quality management practices, the development of technology managers, and greater risk taking in science and marketing practices.

Food producers need to begin the process of change rapidly if they are going to survive. They need to acknowledge the importance of new technologies and the threat of ignoring it. Companies also need to create challenges and champions in their organization and work toward creating a "first-rate" research program closely integrated into marketing and operations utilizing third generation R&D.

Only when we understand that the food industry business cycle is no different than that of other industries and learn from others' failures and successes, will we be able to break away and create unstoppable organizations.

The issue need not be what is more important, is it technology or is it marketing? The issue should be how do we manage the opportunities technology offers us before our competition does?