Of all the firms on the 2007 ranking of the World's Most Innovative Companies, few are more closely associated with today's innovation zeitgeist than our No. 6 company, Procter & Gamble (PG). Once seen as insular, the consumer-products giant is now famous for its open approach to innovation, in which it scours the globe for new products, chemicals, or technologies that can be brought in-house and developed.
As research and development becomes an increasingly global affair, many leaders have rushed to co-opt P&G's strategy, which it calls "Connect & Develop," for importing outside ideas. "Everyone's saying we want to have a Connect & Develop program," says Jeneanne Rae, president of innovation consulting firm Peer Insight. "They're beating a path to [P&G's] doorstep."
P&G's imitators better be in it for the long haul. The maker of Pampers and Crest has been working on its outside-in approach to innovation for more than seven years. It has revamped employee reward systems, created new positions for people to lead its creative efforts, and helped establish networks of outside scientists and inventors it can tap on its global innovation hunts.
Scouting the World
Chief Executive Officer A.G. Lafley's pronouncements that 50% of P&G's new products should come from outside the company's walls are backed by the time he devotes to the company's innovation efforts. "P&G is the company, more than any other that I've interacted with, that's really making systematic investments in innovation," says Scott Anthony, the president of Innosight, a consulting firm founded by Harvard Business School innovation guru Clayton Christensen.
Despite all those years of honing its innovation strategy, Procter & Gamble is not resting on its laurels. Rather, it continues to fine tune its approach. Recently, Lafley has been pushing to ramp up the number of truly breakthrough ideas. The company also has been extending its open innovation model to areas of the company far beyond research and development.
And after years of hunting the world for new ideas, P&G's "technology entrepreneurs"—the more than 75 innovation scouts it has stationed in far corners of the globe—are now able to map out the world's innovation strengths. For instance, P&G has figured out that Brazil is the place to go for natural extracts that it might use in its personal-care products. Venezuela, meanwhile, thanks to its oil industry, is strong in research on "surfactants." These are chemicals that are used in both heavy crude oil extraction and laundry detergent (who knew?).
Russia, meanwhile, is ground zero for solving scientific problems, thanks to Russian chemists' decades of toiling away in these fields. Such innovation cartography enables P&G to target outside ideas faster and more efficiently. "We're not looking everywhere for everything," says Ed Getty, who leads the company's network of technology entrepreneurs. "The term we use inside is focused prospecting."
While P&G's open-innovation strategy has traditionally focused on research and development, the model is increasingly being applied to a much broader base. In the past couple of years, P&G's R&D leaders have been training employees outside product development on the Connect & Develop approach. The idea is to encourage employees to look outside P&G for innovative ways of working smarter, faster, and cheaper.
"When A.G. [Lafley] says he wants half of innovation coming from outside, he doesn't just mean product technologies," says Jack Ridge, one of P&G's directors of external business development. "He also means processes, ideas on how we structure the organization—whatever innovation looks like."
To help find those more process-oriented ideas, the company set up a program similar to Connect & Develop for P&G's corporate functions, such as marketing, manufacturing, and information technology. The program, called "Know How," started as a way for P&G to commercialize, or export, the processes it had mastered, such as "reliability engineering," a set of technologies that improve manufacturing efficiency.
More recently, however, the "Know How" program has been focused on importing ideas for its corporate functions instead. Case in point: P&G has licensed technology from two companies that developed "layered voice analysis," which examines the emotional tone of people's reactions. P&G believes the technology could be a treasure trove for its market researchers when gauging customer feedback on new products or pricing. In other cases, the company might provide upfront development cash to another firm in order to influence how its technology develops or limit the competitors that have access to it.
While such technologies could give P&G a boost in understanding its customers, the company has also been ramping up its focus on much more disruptive innovations. Through recent work with Clayton Christensen and his consulting firm, Innosight, P&G is looking to improve its ratio of true breakthroughs to more incremental ideas, such as product line extensions to about one in every four or five.
"The Swiffer had nine innovations off of it," says David J.K. Goulait, an R&D associate director who's leading the initiative. CEO Lafley "is very conscious of the fact that it's awfully easy to fall prey to what you're really good at, and keep doing the same thing over and over again," he adds.
As part of this new mandate, P&G has established a network of guides who help shepherd the teams attempting breakthrough projects. They've also set up different yardsticks to measure their success. One of these, says Goulait, is "Does the idea make a difference in somebody's life? Could a consumer now do something they couldn't do before that was really meaningful? If you can't put that together, than it's probably not a big idea."