ermeWhen it came to innovation, Procter & Gamble (P&G) had a closed business model. The company joke was that P&G invented ‘not invented here.’ As the world’s largest consumer brands company, they 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 their rivals. In 2000, P&G’s share
price began to plummet, losing more than half it's value between January and
May 2000.

After a careful analysis of the situation, P&G realised their poor performance was because they were 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 transformation. They adopted open innovation and an open business model. They called the programme Connect and Develop, or C+D. The goal is to look outside 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’s one thing to say we will look externally, it’s another to know specifically what you are looking for and where,’ says Jeff LeRoy, an external relations manager at P&G.

P&G focus on certain countries for specific solutions. ‘For example, it’s 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 over 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 companies,’ 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 their 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 companies.’

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