Innovation at PNG

Larry Huston and Nabil Sakkab talk about PnG’s innovation model in HBR's latest article. Procter and Gamble company grew to a $70 billion enterprise, the global innovation model it devised in the 1980s was not up to the task. CEO A. G. Lafley decided to broaden the horizon by looking at external sources for innovation. P&G's new strategy, connect and develop, uses technology and networks to seek out new ideas for future products. "Connect and develop will become the dominant innovation model in the twenty-first century," according to the authors, both P&G executives. "For most companies, the alternative invent-it-ourselves model is a sure path to diminishing returns."

Some of the excerpts of the article are ;

We knew that most of P&G's best innovations had come from connecting ideas across internal businesses. And after studying the performance of a small number of products we'd acquired beyond our own labs, we knew that external connections could produce highly profitable innovations, too. Betting that these connections were the key to future growth, Lafley made it our goal to acquire 50 percent of our innovations outside the company. The strategy wasn't to replace the capabilities of our 7,500 researchers and support staff, but to better leverage them. Half of our new products, Lafley said, would come from our own labs, and half would come through them.

As we studied outside sources of innovation, we estimated that for every P&G researcher there were 200 scientists or engineers elsewhere in the world who were just as good—a total of perhaps 1.5 million people whose talents we could potentially use. But tapping into the creative thinking of inventors and others on the outside would require massive operational changes. We needed to move the company's attitude from resistance to innovations "not invented here" to enthusiasm for those "proudly found elsewhere." And we needed to change how we defined, and perceived, our R&D organization—from 7,500 people inside to 7,500 plus 1.5 million outside, with a permeable boundary between them.

It was against this backdrop that we created our connect and develop innovation model. With a clear sense of consumers' needs, we could identify promising ideas throughout the world and apply our own R&D, manufacturing, marketing, and purchasing capabilities to them to create better and cheaper products, faster.

The model works. Today, more than 35 percent of our new products in market have elements that originated from outside P&G, up from about 15 percent in 2000. And 45 percent of the initiatives in our product development portfolio have key elements that were discovered externally.