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STRATEGY CAPSULE 9.5 Procter & Gamble's Open Innovation Initiative

In 2000, it became clear that P&G's internally focused approach to innovation and new product develop-ment was incapable of delivering the growth targets that the company had set itself. Despite a research staff numbering 7500, P&G estimated that for every one of its own research scientists there were probably 200 outside the company with the potential to contribute to P&G's development eff orts. When CEO A. G. Laff ey challenged the company to obtain 50% of its innova-tions from outside the company, the quest for a new innovation model began. P&G's Connect and Develop innovation model seeks

to "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 starting point is to identify what P&G is look-ing for. The approach was to avoid "blue sky" innova-tion and seek ideas that had already been successfully embodied in a product, a prototype or a technology. To focus the search each business was asked to iden-tify its top ten customer needs. These included: "reduce wrinkles, improve skin texture and tone. . .softer paper products with higher wet strength." These needs were then translated into specific technical requirements: for example biotechnology solutions that permit deter-gents to perform well at low temperatures. Priorities are then reordered by identifying initiatives which fit with existing areas of brand strength ("adjacen-cies") and those which have permitted strengthening of P&G's strategically important areas of technology ("technology game boards"). P&G's innovation network comprises a number of organizations:

• Within P&G, 70 technology entrepreneurs are respon-sible for developing external contacts and exploring for innovation in particular localities and with a focus around particular product or technology areas.
• Suppliers . P&G has an IT platform that allows it to share technology briefs with its suppliers. This is complemented by regular meetings between senior P&G executives and senior executives at individual suppliers which explore mutual devel-opment opportunities.
• Technology brokers . P&G is a member (in some cases a founder member) of several prominent technology brokering networks. These include NineSigma which links companies with universities, private labs, government bodies, consultants and other potential solutions providers; Innocentive , which brokers solutions to science-based prob-lems; YourEncore , a network of retired scientists and engineers; and Yet2.com, an online marketplace for intellectual capital.

These networks generate an enormous flow of sug-gestions and proposals that are initially screened and disseminated through P&G's Eureka online catalog. It is then up to executives within the business groups to identify interesting proposals, to pursue these with the external provider through P&G's External Business Development group, and to then move the initiative into their own product development process. By 2005, 35% of P&G's new product launches had

their origins outside the company. Some of P&G's most successful new products-including Swiff er cleaning cloths, Olay Regeneration, and Crest Spinbrush-had been initiated by outsiders.

Source: Reprinted by permission of Harvard Business Review. From "Connect and Develop: Inside Procter & Gamble's New Model for Innovation," L. Huston and N. Sakkab, March 2006, pp. 58-66, Copyright © 2006 by the Harvard Business School Publishing Corporation; all rights reserved.

IBM uses Innovation Jam-a massive online brain-storming process-to generate, select, and develop new business ideas. The 2006 Jam was based upon an initial identification of 25 technology clusters grouped into six broad categories. Web sites were built for each technology cluster and, for a 72-hour period, IBM employees, their families and friends, and suppliers and customers from all around the world were invited to contribute ideas for innovations based on these tech-nologies. The 150,000 participants generated vast and diverse sets of suggestions that were subject to text mining software and review by 50 senior executives and technical specialists who worked in nine separate teams to identify promising ideas. The next phase of the Jam subjected the selected innovation ideas to comments and review by the online community. This was followed by a further review process in which the 10 best proposals were selected and a budget of $100 million was allocated to their development. The selected business ideas included a real-time foreign language translation service, smart healthcare pay-ment systems, IT applications to environmental proj-ects, and 3-D internet. The new businesses were begun as incubator projects and were then transferred to one

or other of IBM's business groups. As well as divisional links, the new ventures were also subject to monthly review by IBM's corporate top management. Cisco Systems created its Emerging Technology

Business Group with the goal of creating 20 new ventures by 2012. Within 18 months, 400 ideas for new businesses had been posted on the Cisco wiki and the Emerging Technology Business Group had begun developing several of these suggestions, including TelePresence , a video surveillance security system and an IP interoperability and collaboration systems server for emergency services. By 2008, TelePresence was established as a regular business group. Like IBM's Innovation Jam a key feature of Cisco's incubator model is its close linkage with the rest of the company: the Emerging Technology Group is part of Cisco's R & D organization and is sub-ject to close involvement by Cisco's senior manage-ment, including CEO John Chambers.

Sources: O. M. Bjelland and R. C. Wood, "An Inside View of IBM's Innovation Jam," MIT Sloan Management Review (Fall 2008): 32-43; T. Sanders, "Cisco Reinvents the Corporate Incubator," (July 27, 2007): https://www.vnunet.com/vnunet/news/2194961/ cisco-reinvents-corporate, accessed 6 July, 2009.

QUESTION:

Research and reflect on your own organisation's inter-firm relationships. What collaborative arrangements exist and how do they operate - are they effective, can they be improved, could they be extended?

In addition to innovation are there other activities in your value chain where you collaborate with other firms either providing an input to their value creation or, conversely, where the partner provides an input to your value creation? Note partnerships imply an on-going relationship which is qualitatively different from a set of individual transactions. Draw a diagram of the inter-firm relationships developed by your organisation and annotate briefly the purpose of each relationship.