Connect & Develop

Inside Procter&Gamble’s New Model for Innovation

Article Summary:

In this article by Larry Huston and Nabil Sakkab, P&G’s models for
inovation are discussed. In 2004, P&G launched a new line of Pringles
potato crisps, which in the old days have taken them two years to bring it
to market. But by applying a new approach to inovation, they were able
to accelerate Pringles from concept to launch in less than a year and at
the same cost. So when the idea came, they created a technology brief
and circulated it throughout their global network. And from their
European network, they found a small bakery in Italy and adapted their
way of solution. This inovation helped North America business achieve
double digit growth over two years.
Many companies are still centered on a bricks-and-mortar R&D
infrastructure and the idea to keep their inovation within their own four
walls. But this model was reliable when the companies were smaller and
the world was less competitive. Nowadays, it is clear that invent-it-
ourselves model is not sustainable for high levels of top line growth.
There is more pressure on inovation budgets than the products
revenues. So in 2000, P&G’s CEO, A.G. Lafley challenged his employees to
reinvent the company’s inovation business model. So after studying the
performance of a small number of products acquired beyond their own
labs, they found that external connections could produce highly
profitable inovations,too. So Lafley made it their goal to acquire 50% of
their inovations outside the company, which was and is a radical idea.
Therefore, with a clear sense of consumer’s needs, they could identify
promising ideas throughout the world and apply their own R&D,
manufacturing, marketing, and purchasing capabilities to them to create
better and cheaper products, faster. And today, more than 35% of their
products include elements originated from outside. ANd 45% of the
initiatives in their product development portfolio have key elements that
were discovered externally. Along with other improvement factors, C&D
has increased the productivity of their R&D by nearly 60%.
Mostly, when people hear about C&D, they think it the same as
outsourcing inovation, but in contrast, it is about finding good ideas and
bringing them in to enhance and capitalize on internal capabilities. To do
this, they collaborate with organizations and individuals around the
world, searching for proven technologies, packages, and products that
they can improve, scale up and market, either on their own or in
partnership with other companies. The most successful products of C&D
of P&G include Olay Regenerist, Swiffer Dusters, and the Crest SpinBrush.
To focus on their idea search, P&G directed their surveillance to three
environments: Top Ten Consumer Needs(of each of their brands and
eventually of the company as a whole), Adjacencies(new products or
concepts that can help take advantage of existing brand equity), and
Technology Game Boards(that how technology acquisition moves in one
area might affect products in other categories).
But to seek out ideas, you need some network. So the networks being
used by P&G include: Proprietary networks which include (I) Technology
entrepreneurs and (ii) Suppliers. Second is Open networks like
NineSigma, YourEncore, Yet2.com, etc.
After identifying ideas and products by your networks around the world,
you need to screen them internally. There comes the Where to play?
Criteria. So after testing the products’ potential, both for business and
for fulfilling consumer needs, it is then moved to EBD, which is then
responsible for contacting product’s manufacturer and begin negotiating
licensing, collaboration, or other deal structures.
But no idea will pay you off until internally the organization is not behind
it In P&G, for any product development program, the R&D staff is all
behind the process for checking relevant work and development.
To succeed in business in present era, C&D must be driven by the top
leaders in the organisation. It is destined to fail until the CEO of any
organisation not ,make it an explicit company strategy and priority to
capture a significant amount of inovations externally.
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