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P&G: How open innovation is done

April 14, 2009 Open Innovation 5 Comments

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.

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Currently there are "5 comments" on this Article:

  1. david french says:

    What a laugh riot P&G is about as innovative as a company that deals in sand. They are nobodies poster boy for innovation anywhere in the consumer products world.

    • INTRAP says:

      Hi David,

      That is your point of view. I disagree. There is too much evidence that P&G is a pioneer on open innovation which rightfully said is still in its very early stages. Just google open innovation and P&G. I also disagree that they are not a poster boy for other companies. I meet with many innovation leaders throughout the world and the most-used example of a company being good at open innovation is P&G. It would be great if you could elaborate a bit more on your comment.

      Stefan

  2. Graham Hill says:

    Hi Stefan

    I agree with you entirely when you say that P&G are an innovative company that we can all learn from. But P&G are not only active with their network of suppliers and industrial customers through their Connect & Develop open innovation programme. They are also active with their customers through their Vocalpoint programme for mothers – http://site.vocalpoint.com/guest/index.html – their Tremor programme for adolescents – http://tremor.com/index.html – and their Living It programme for lead-customers. And P&G are of course long standing users of open innovation platforms like Innocentive and Nine Sigma.

    Of all these, potentially the most interesting is the Living It programme. Rather than just use suppliers or customers as sources of ideas, or as testers of new products, Living It allows P&G ethnographers to live with lead-customer, to observe how they live and to identify customers’ needs first hand. In other words, Living it allows P&G to understand the everyday jobs lead-customers are trying to do, the outcomes they are looking to achieve by doing them, and to use this to identify potential new products that would make customers everyday lives easier. This focus on understanding customers’ needs through jobs and desired outcomes is a missing link in much of what passes for innovation today (and of which far too much is costly invention rather than valuable innovation).

    It is refreshing to see that even with the enormous resources of one of the biggest companies in the world at its disposal, P&G recognises that it cannot do all its innovation in-house. And that it needs to understand customers’ needs much better than it did in the past to drive successful innovation in the future.

    P&G’s innovating of innovation contains many lessons for all of us involved in the risky business of innovation.

    Graham Hill
    Customer-driven Innovator

  3. William says:

    Hi in a world of open collaboration, social networking and opensource software development, organisations can no longer look within their own borders to take their business forward.
    What's important is how close you want to get to your customers and the insight needed to convert ideas into shared business value. This calls for a new approach to IPR, removing the barriers of early protectionism. creating trust and promoting open collaboration.
    We need to monetise our most valuable assets…… our employees, key suppliers, partners, innovators, knowing what your customers want in the future in taking your business forward. It's those companies who can manage the jigsaw 1st will exploit the opportunities via Open Innovation.
    On the ground Innovation implementer….
    William

  4. Tarun says:

    I Agree that P&G is one of the active palyers in Innovation Aqusitions. One of the probable reasons for this also that they are a consumer goods company where there is lot of portential in traditionla knowledge and SME's. If we turn big sophisticated business models it becomes somewhat difficult to find innovations like a hanging fruit. However, Volvo also have open innovation model which is quite appreciable and active.

    I am into services of supporting organizations find low lyng innovations or hel them find innovative research groups to tie up for future research. During my experience , I have observed that the companies which are using open innovation and crowd sourcing have reaped tremendous benefits. The reults look dim intially so they hesitate in investing into these intitiatives, but final outcome has been rewarding in 80% cases as noticed by me during my assignments for those groups.
    Tarun

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