Analysis of Procter & Gamble’s Open Innovation Strategy

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Procter and Gamble came up with the connect and develop technique to innovation. In this approach the company connects with external sources of new ideas through universities and government labs, web based talent markets, suppliers and even competitors. These ideas are then developed into profitable new products using the company’s research and development, manufacturing and marketing abilities.

Using this technique, the company performs the following tasks:

- Identify consumer needs – P&G unit managers identified a need for laundry detergent that cleans in cold water and searched for relevant chemistries

- Identify adjacencies (product types related to company’s current types) - P&G expanded its Crest toothpaste product line to Crest Whitening Strips

- Leverage networks – P&G created a secure IT platform where its top fifteen suppliers and their 50,000 R&D staff could share briefs and ideas.

- Distribute and Screen ideas – At P&G product ideas are logged in a system and passed on to relevant managers who gauge their potential

- Promote opening and external ideas – P&G reward employees for the speed of product development which was known to be quicker for outside ideas.

Proctor and Gamble’s strategy of open innovation produces more than 35% of the company’s innovations and billions of dollars in revenue. Some significant developments by P&G using this technique is as follows:

Pringle Prints – a line of potato crisps printed with entertaining pictures and words in record time and with minimal costs

Mr. Clean Magic Eraser - P&G’s technology entrepreneurs discovered a stain removing sponge in the market in Japan and sent to the company for evaluation resulting in the successful product now known as the Magic Eraser.

Structures that support a successful Open Innovation Strategy

For a company to be successful using open innovation, it must be captured in the company’s business strategy and organisation structure. Companies that wish to use open innovation practices in their organisation need an understanding of why it essential for the company and the elements of the strategy that require their focus. These elements as shown in Figure 3 below which provide the basis of an organisation’s successful development of open innovation policy.

Figure 3 - Open Innovation Elements

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Source: (Golightly 2012)

- Strategy - Linking open innovation to the company’s strategy is key to success. This success is seen in Procter & Gamble’s goal of 50% innovation must contain substantial external relationships. Other similar targets exist for Fast Moving Consumer Goods and Unilever.

- Organisation – There are several approaches ranging from a centralised function to a more distributed mechanism spread over several functions. The most common structure is the centralised function where benefits was seen from centralised training and mentoring, technology etc. This is supported by Unilever a company that has a successful open innovation strategy.

- Leadership – Clear leadership driving open innovation from the top is important to ensure effective change management across the company is initiated. P&G’s effective mandate from its CEO was part of its success.

- Culture – This a major challenge that has to be overcome when implementing this initiative. The feeling that the product was not invented locally is one of the most significant barriers and requires a substantial change in mindset.

- Tools / Processes – Appropriate tools and processes must be developed to support the adoption of the policy. Unilever and GSK Healthcare adopted the Want, Find, Get, Manage (WFGM) process and P&G used IT tools by creating a secure IT platform to support the process.

- Metrics – Defining metrics for innovation is a significant challenge and there is little published on this area. Measuring the impact of innovation integrated into larger complex products or transparency in sharing risk and reward with partners is difficult. Scope for more work in this area is definitely required.

- Ecosystems interactions – Success depends on the company’s interactions with a single other party or networks, SMEs, academic institutions, financiers and government organisations. There are substantial challenges with respect to the interaction between varying types of entities.

- Skills – This initiative requires varying skills and knowledge to be successful, however it is difficult to find all requirements in one person. One main requirement of this professional is the knowledge of where to source internal and external ideas as well as having combined skills of specialisation and business. As a result, training as mentioned above is key to enhancing the skill set of the team implementing the initiative.

- Business Models / Intellectual Property – Fair and equitable models need to be established by companies to ensure there is trust with partnerships with the aim of sharing risk and reward. While there has been a shift for companies to be more flexible to attract potential partners, the company’s legal team needs to place significant effort on agreements and not use standard terms and conditions.

Challenges of the new Open Innovation Strategy

There are several challenges that a company can face in attempting to implement an open innovation strategy. Some of these are encapsulated in the maintenance of an effective structure as discussed before. We can distinguish these challenges between those emanating at a firm level and those at an individual level.

Firm Level Challenges - Firm level challenges mainly emanate from the company’s relationships with outside firms for which they collaborate. These challenges include the following.

- Managing collaboration – differences in culture, capabilities, pace and goals between a company and its partners could encumber project development alliances. Building team work with partners is essential for managing the collaboration however the timing may be a challenge since this has to be done concurrently with managing daily tasks. Also assigning tasks to project members may be difficult due to lack of knowledge of the member’s skill set. Constant and effective communication with partners is important to ensure this challenge is addressed.

- Capturing external ideas – finding the right partners