P&G and Open Innovation - Spring2 Innovation

P&G and Open Innovation

December 7, 2011

Working on a product or service where both parties walk away with better businesses and business models? Sounds like I have been getting into the holiday spirit too early? This model has been working for a number of companies. Most notably recognized is Procter and Gamble.

Procter and Gamble with Open InnovationWorking briefly at P&G in the mid 90’s I couldn’t believe the amount attention that was paid to security at the time. There were definitely silos that existed internally as well as externally. Nothing could be left on top of our desks at the end of the day.  I worked in sales and part of my job entailed ensuring stores had P&G products prominently displayed on their shelving and to note their pricing of our products. Most retailers weren’t too happy if they saw you writing down the prices of their products but if they found out you were from P&G they were nicer about it. At some level P&G did work with retailers to help them with product placement diagrams for all the brands the retailer carried but that to ensure P&G received greater the shelf space, based on market share. It was only after a few months on the job that I was encouraged to check out a Walmart. They did not like anyone doing price checks. In fact I was told to try to avoid telling them where I worked. Compare that to now where P&G works so closely with partners that there are P&G employees with offices on site at some Walmart locations.

How did a company that is a market leader in so many products go from a siloed and secretive company to one that is an example of open innovation? One key was where the direction came from – the top!  A.G. Lafley did that partly through the “Connect & Develop” strategy.  Pursue more externally developed innovation. Before introducing this strategy they were spending over $200M annually on technology skunk works.

Another reason that I haven’t seen sighted as frequently is the age of the employees at P&G. When working there the average age was rather low since they preferred to hire employees right out of school and train them on the job.  Lafley, has been at P&G since graduating with an MBA. The younger generation understand open innovation better,  the power of using technology to share ideas and develop ideas, and are better at adapting.  While past CEO, A.G. Lafley,  has said innovation does not mean technology, it has played a huge role in increasing interaction and connection with at customers and partners. Open innovation is a tougher sell in companies that have not been renewing their employee source as frequently.

Risk: My favorite quote from Mr. Lafley is “ The more deeply you understand something, the more willing you are to take risks and the more intelligent those risks are.”  He had been with P&G since 1977 and understood many aspects of the business quite well. If there was a better understanding of business by CEOs would they take on more risk?