The world’s largest consumer packaged goods giant, Procter & Gamble, operated one of the most widely admired and successful research and development operation in corporate history. But their closed innovation model was not up to the task of driving the corporate growth needed to sustain an enterprise of P&G’s size. So in 2000, under the leadership of then newly-appointed CEO A. G. Lafley, they began looking for a better global innovation model. Lafley’s stated objective was the radical idea that half of the company’s new products would be acquired from outside the company.
What set them off toward an open innovation model was the discovery that there were 200 researchers and scientists just as good or even better outside P&G for each of their own 7,500 researchers and scientists. That adds up to perhaps 1.5 million people whose talent the company could potentially tap into. P&G choose not to be arrogant and instead explored ways of working with these 1.5 million great minds. Eight years later, P&G had 9,000 scientists internally and estimated they had access to 2 million externally. Many of these outside scientist and engineers work at the small or midsized entrepreneurial firms that are increasingly the locus for important innovation.
Today, P&G uses an innovation model called C&D, which stands for Connect and Develop. They collaborate with individuals and companies, laboratories, research institutes, financial institutions, suppliers, academia and R&D networks. A team of over 50 people search for open innovation opportunities in engineering, technology, trademarks, packaging and more. The company has a Web site, www.pgconnectdevelop.com, to encourage open innovation initiatives. The site is not just for soliciting ideas; they are actively seeking who have already patented their ideas and need P&Gs help in bringing them to market.
As reported in a Harvard Business Review article authored by two P&G executives in 2006, the company’s innovation success rate has more than doubled while the cost of innovation has fallen.1 The company is close to reaching Lafley’s goal of having 50 percent of their innovation coming to some extent from external sources.
No wonder P&G is the poster boy of open innovation.