In the early 2000s, Procter & Gamble (P&G) made a surprising move. The company admitted its internal innovation model was failing. It decided to source most of its innovations externally and shifted to open innovation.
This led to Connect and Develop. A programme that became one of the most studied corporate innovation initiatives in the last two decades. It highlighted both the potential and challenges of open innovation.
The Problem It Was Solving
By the early 2000s, P&G had over 7,500 scientists and engineers, making it one of the largest R&D operations worldwide. The company spent nearly $2 billion a year on R&D, yet its innovation productivity was declining.
CEO A.G. Lafley pointed out that P&G's R&D was strong but isolated. The company missed valuable external knowledge, for example, in universities and small firms. The belief that the best ideas came from P&G's labs was proven wrong.
Lafley set a bold goal: 50% of P&G's innovations should come from outside the company. The aim was to reshape R&D. It focused on connecting external ideas with internal resources rather than cutting budgets.
How Connect and Develop Worked
The programme was based on a simple idea: for nearly every innovation challenge, someone likely had a solution. The goal was to find that person or organisation and bring their knowledge into P&G's business.
P&G built a network of Technology Entrepreneurs. These experienced professionals, often with scientific backgrounds, were based in major innovation hubs. Their job was to connect with universities, research institutes, and inventors. They aimed to identify opportunities that matched P&G's needs. The company also shared its technology needs online, inviting proposals.
Internal processes needed to change, too. A connection with an external innovator was only useful if P&G could act on it quickly. This required new skills, governance structures, and cultural shifts.
The Results: What Connect and Develop Produced
The Swiffer is a standout success of Connect and Develop. Its core technology is a dry-cleaning cloth that traps dirt using electrostatic attraction. They sourced it from a Japanese company. P&G licensed it and launched one of its most successful products of the decade. The Swiffer didn't originate in P&G's labs, but the company's marketing and distribution led to its global success.
Another example is the Pringles printing technology. When P&G wanted to print on Pringles crisps, it faced a tough challenge with food-safe inkjet printing. Instead of developing it in-house, P&G found a small bakery in Bologna, Italy. They struck a licensing deal in months, while internal development would have taken years.
Mr Clean Magic Eraser, Oil of Olay Regenerist range, and many fragrances also use externally sourced technologies. By the mid-2000s, over 35% of new products included external elements, up from 15% at the programme's start. R&D productivity increased by nearly 60%.
The Harder Lessons
While Connect and Develop is seen as a success, the full story reveals deeper insights.
Cultural resistance within P&G was significant. Many scientists and engineers struggled to embrace external ideas. The not-invented-here syndrome persisted despite new policies. It needed changes in incentives and leadership over time.
Identifying promising external ideas was easier than integrating them into P&G's processes. Many connections that seemed promising early on didn't meet P&G's rigorous standards.
Managing intellectual property became more complex. With multiple external technologies involved, questions of ownership became critical. This required careful legal planning.
Building trust with external inventors and smaller firms was vital. P&G had to learn to manage these relationships, which was challenging for an organisation used to internal collaboration.
What It Changed
The lasting impact of Connect and Develop goes beyond the products it created. It shifted the way P&G and many other organisations viewed the boundaries of innovation.
Traditionally, companies believed innovation belonged within their walls. They hired talent, built labs, and protected outputs. Connect and Develop demonstrated that this view was limiting. The real unit for innovation is the network and connections to a broader knowledge ecosystem.
This change affected P&G's approach to partnerships, acquisitions, suppliers, and customers. It changed how internal R&D works. Now, it doesn’t just create innovation; it also finds and incorporates ideas from outside.
Lessons
The fifty per cent target mattered. A vague goal wouldn’t have changed behaviour. A specific, measurable target from the CEO drove necessary changes.
Internal capability enables external innovation. P&G's success in Connect and Develop relied on its strong commercial, scientific, and manufacturing abilities. Without these, external ideas lead to interesting projects rather than successful businesses.
Culture change requires structural change. Simply stating that external ideas are valued isn’t enough. If incentives favour internal invention, real change won’t happen. Structural changes - new roles, processes, and governance were crucial too.
Open innovation changes R&D's role, not its importance. P&G didn’t cut its internal R&D spending. Instead, it redirected funds to the capabilities needed to be effective partners.
Summary
Connect and Develop showed that open innovation is more than a theory or strategy. It's a genuine organisational capability that needs careful development and strong leadership. When done well, as P&G demonstrated, the rewards are significant. When done poorly, it fails to deliver the benefits of both open and closed models.