When it came to innovation, Procter & Gamble (P&G) had a closed business model. The company joke was that P &G invented the phrase ‘not invented here’. As the world’s largest consumer brands company, it filed thousands of patents, yet used only 10 per cent of them.

Analysts complained that P&G’s research and development (R&D) expenses were higher as a percentage of sales than those of its rivals. In 2000, P&G’s share price began to plummet, losing more than half its value between January and May 2000.

After a careful analysis of the situation, P&G realised its poor performance was because it was not developing enough new brands, and the only way to develop new brands was to be more open.

In 2001, P&G underwent a dramatic business transformation, adopting open innovation and an open business model. It called the programme Connect and Develop, or C+D. The main objective is to look outside of P&G’s corporate walls to find new products, technology, packaging, design, processes, and business models.

P&G has a network of technology entrepreneurs who scour the globe for good ideas. ‘It is one thing to say that we will look externally, it is another to know specifically what you are looking for and where to find it,’ says Jeff LeRoy, an external relations manager at P&G.

P&G focuses on certain countries for specific solutions. ‘For example, it is well known that Europe is the birthplace of the chemical industry,’ says LeRoy. ‘Additionally, we often find technology that is from one industrial domain and learn that we can apply it to another category we compete in.’

LeRoy says C+D is enabling faster, more cost-efficient, consumer-driven innovation on core brands. Under the new business model, anyone with a good idea can approach P&G to take their innovation to market.

Some of the products that have emerged from the C+D initiative include: Olay Regenerist (from a company called Sederma in France); The Swiffer Duster (found in Japan) and Mr Clean Magic Eraser (also found in Japan).

And instead of protectively sitting on the 90 per cent of patents that went unused, P&G looks to find partners to license and develop them. While C+D is primarily concerned with bringing things in to P&G, the new open innovation business model is about inbound and outbound ideas.

P&G has 36,000 patents and more than 60,000 trademarks globally. It has a vast technology portfolio in chemistry, materials and biosciences, as well as know-how in IT, manufacturing and consumer research. ‘All of these are opportunities for other firms,’ says LeRoy. For example, P&G licensed a manufacturing algorithm to the consultancy BearingPoint.

BearingPoint made the technology more reproducible and in 2002 began to market it under PowerFactor. P&G also formed a joint venture with one of its key competitors, Clorox – a previously unthinkable idea. Clorox’s Glad Press ‘n Seal and Glad Forceflex trash bags use P&G technology.

‘We will talk with anyone,’ says LeRoy, ‘even competitors, and have agreed partnerships and deals with hundreds of different companies.’

Collaboration is a key element of P&G’s growth strategy and a key element of an open business model.