Q-Bits: Articles

Innovative Innovation - P&G's Approach to Corporate Innovation

A majority of senior executives know that fostering innovation is a key strategy in building and sustaining competitive advantage. While most organizations are committed to nurturing innovation and instilling innovative practices, only a small number of them have been successful in building new innovation models that significantly improves the effectiveness and efficiency of R&D and product commercialization. One of them, Procter & Gamble, is worthy of study because of its cutting-edge approach to reigniting its innovation engine.

Over the past 100 years, P&G has led the way in consistently developing innovative products and creating new product categories. Much of this success has been attributed to market-leading R&D expertise and spending, based on a rich understanding of consumer and customer needs.

Stalled Innovation

Despite a strong track record, P&G began experiencing problems with their R&D engine in the 1990s. Like many of its peers, P&G began experiencing a number of problems including diminishing returns on R&D spending and a difficulty in generating breakthrough innovation. Moreover, the Company began to notice that consumer products innovation was increasingly occurring in small to medium sized centers in a variety of geographies, out of sight of most large scale R&D efforts.

Search and Reapply

During the early part of this decade, P&G management looked at how R&D was impacting the top and bottom lines. From a revenue perspective, a $60 billion top line business that competes in mature categories needs to generate $1.5 billion in new revenue each year just to achieve 2.5% GDP growth. Price increases and acquisitions were risky strategies, leaving product innovation as the major lever. However, the ability to launch blockbuster products like Tide or Pampers was a thing of the past Furthermore, at almost 5% of total sales, R&D expenditures of approximately of $3 billion had become a significant cost center. Fundamentally, a new approach to innovation was called for.

The result was the Connect & Develop initiative. Connect & Develop is a collaborative and global innovation network and process that dramatically expands the search and reapplication of new product innovations to P&G's product portfolio and customer relationships. Leveraging a large global network makes a lot of sense by: delivering global scale; enabling access to non consumer goods best practices and; more tightly aligning internal R&D to the industry ecosystem.

Connect & Develop radically retooled how P&G fostered innovation and implemented its fruits through launching new products and creating new categories. Basically, Connect and Develop is about finding good ideas in universities, start-ups, independent labs and suppliers, vetting them against business requirements and consumer needs and then leveraging them back through internal core capabilities of purchasing, marketing and R&D.
Reigniting Growth

The results have been compelling. Between 2004 and 2006, Connect and Develop delivered over 100 new products, created new categories (e.g., Mr. Clean Magic Eraser) and accelerated the commercialization of a host of other innovations. According to a 2006 Harvard Business Review article, Connect & Develop delivered 35% of all successful innovations, up from 15% pre-rollout. As well, there have been significant efficiency gains around commercialization. R&D productivity rose by 60% while spending as a percentage of sales had fallen by 30%.

Making it Work

How did P&G recast and implement Connect and Develop? Simply put, P&G-
  1. Raised innovation to a key corporate priority, with a senior leadership mandate (VP Innovation and Knowledge) and ambitious metrics. P&G targeted 50% of innovations to come via Connect & Develop.
  2. Empowered "technology entrepreneurs" to find and investigate global innovations (third-party companies, patent databases, academia, trade fairs, suppliers etc) and then leverage the most suitable ones back through the organization
  3. Pushed the culture from mere acceptance to active championing of the new approach, including the development of collaboration and reward systems that supported the change required
  4. Focused on continuous improvement while retaining a sense of pragmatism in implementation
Lessons for Others

The Connect and Develop model provides many lessons for other companies. Beneficiaries could include:
  • Organizations in fast moving and knowledge-intensive industries
  • Companies that sell globally but have centralized R&D
  • Firms that do not have direct and consistent access to end users and buyers
  • Enterprises that have a high degree of vertical integration

Copyright 2009 Quanta Consulting Inc.

For additional strategic planning insights and a discussion of our relevant client experience, please contact us-

Mitchell Osak
Managing Director
Quanta Consulting Inc.
99 Bideford Ave
Toronto, ON
M3H 1K5
(416) 937 2106