Implementing Open Innovation
RTM interviews Larry Huston and Nabil Sakkab about Procter & Gamble's experience with its "Connect and Develop" innovation model.
OVERVIEW: In "Connect & Develop Complements Research & Develop at P&G" (RTM, March-April 2002), Nabil Sakkab described the company's then new strategy of using corporate intranet and "smart " reporting systems to create what was essentially "a global lunchroom." Since then, P&G has advanced its "connect and develop" strategy for open innovation to a point where a little over 50 percent of its pipeline and products in the market have an external technology or an external C&D connection. This has not been achieved by outsourcing R&D but, its developers say, by "insourcing creativity" and by fostering co-invention-based interaction with outside resources, as opposed to the conventional transaction-based orientation. Moreover, they see no reason why smaller companies cannot emulate P&G's experience in developing an R&D-building innovation capability based upon this new connections model.
KEY CONCEPTS: connect and develop, open innovation, Procter & Gamble, collaboration, networks.
RTM: Procter & Gamble ranks 81st in the Fortune Global 500. Given what you've written about the large cultural and technological changes P&G underwent in implementing Connect and Develop, and your warning that the strategy cannot be introduced incrementally, how does an organization without the resources of a multinational giant emulate P&G? How would it get started?
Huston: You don't need to be a $70 billion dollar giant to do Connect and Develop. Most companies leverage other people's ideas and assets, and the smallest companies are probably among the best at doing C&D. Small companies can get started like we did, namely with one person having the idea and the vision and beginning to conduct some experiments. In the early days, it was Nabil and I who had the idea, and we had only one or two people running proof-of-concept experiments.
Another point is that we tried to use assets and infrastructure on the outside-networks like NineSigma, YourEncore and InnoCentive, along with a variety of tools and infrastructure enablers. We're building our own infrastructure now that we're much farther along, but I believe it's easy to get started without a big staff or spending lots of money.
Sakkab: A big company is a locomotive and very hard to move. With C&D, you can start on a small scale, with one person and an idea, and take the time that's necessary to prove you can develop a successful model from which people can learn. I believe the success of C&D, at least at the beginning, is inversely proportional to the size of the company. The big company has its own set ways of doing things, while the small company must find ways to leverage other people's assets and money. Look at Burt Rhutan, for example. He won the X-Prize by putting a spaceship in space twice. His small organization created this unbelievable technological achievement, leveraging several external resources and networks.
RTM: What exactly do you mean by proof of concept?
Huston: It's basically creating experiments that demonstrate results, for instance, that we can identify a top technological need for the company and then cost-effectively leverage people outside to solve this need. In essence, you identify a need, create the brief, find a way to distribute it to, say, 5,000 people, get proposals back, and then determine whether or not it was successful.
Everything we have done has been done on the basis of, what's the proof of concept? What's the proof of value? We created all of these tools, including companies like YourEncore.
We ran the experiments to see whether or not retirees would indeed create value and whether we could create a pricing model and manage the restrictions around intellectual property. We proved that it would work, that retirees did indeed create a high value. …