For generations, Procter & Gamble generated most of its phenomenal growth by innovating from within-building global research facilities and hiring the best talent in the world. Back when companies were smaller and the world was less competitive, that model worked just fine.
But in 2000, newly appointed CEO A.G. Lafley saw that P&G couldn’t meet its growth objectives by spending greater and greater amounts on R&D for smaller and smaller payoffs.
So he dispensed with the company’s age-old „invent it ourselves“ approach to innovation and instead embraced a „connect and develop“ model. By identifying promising ideas throughout the world and applying its own capabilities to them, P&G realized it could create better and cheaper products, faster. Now, the company collaborates with suppliers, competitors, scientists, entrepreneurs, and others (that’s the connect part), systematically scouring the world for proven technologies, packages, and products that P&G can improve, scale up, and market (in other words, develop), either on its own or in partnership with other companies. Thanks partly to this connect-and-develop approach, R&D productivity at Procter & Gamble has increased by nearly 60%. In the past two years, P&G launched more than 100 new products for which some aspect of development came from outside the company. () Most companies are still clinging to a bricks-and-mortar R&D infrastructure and to the idea that their innovation must principally reside within their own four walls. Until they realize that the innovation landscape has changed and acknowledge that their current model is unsustainable, top-line growth will elude them.
[Harvard Business Review, Publication date: 1st March 2006 by Larry Huston, Nabil Sakkab]
