Has P&G Proven That Open Innovation is a Failed Experiment

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Img via Bloomberg BusinessWeek.com

Has the performance of P&G (Procter and Gambel) shown that open innovation is a failed experiment?  This week, two articles (from BusinessWeek.com and Bloomberg.com) have investigated how P&G, at one time the innovation leader, has lost it’s lead against companies that use traditional innovation methodologies (such as internal R&D and 3dIP) including Unilever, Henkel, Colgate, Kimberly-Clark and others.

P&G’s adoption of Open Innovation and decentralization, championed by former CEO AG Lafley in the early 2000’s provided nearly immediate improvements in terms of research and development spending as a share of total sales.  Because Open Innovation is inherently less expensive than traditional, and proven, methodologies, P&G was realized a short-term financial benefit.  In recent years, however, the company’s reliance on Open Innovation has refocused their new product pipeline with negative consequences.  Instead of being able to generate breakthrough product that redefine entire categories, such as disposable diapers, the Swifter, Crest Whitestrips, and Febreze odor fresheners.  The company’s product pipeline is now mainly focused on “reformulating, not inventing, products,” says Victoria Collin, an analyst at Atlantic Equities in London. Among these are new scents of Tide for Eastern European markets and Secret deodorant’s Natural Mineral line. As a result, analysts say P&G has lost customers in the U.S. and other developed countries, who’ve switched to cheaper products made by such rivals as Unilever, as well as store brands.

Many R&D, new product development (NPD) and innovation professionals view P&G’s recent performance as validation of traditional, and proven, innovation methodologies.  “There are no shortcuts to success, innovation continues to require the right people, culture, challenges, and processes.” says Marc Drucker, President of Newlogic in Boston.  P&G is only the latest in a long history of US companies ‘re-inventing’ centralized R&D for short-term financial performance.  Other innovation leaders whose re-engineering eventually resulted in their demise include AT&T’s Bell Labs, Xerox, and Rubbermaid.

P&G’s experience highlights a few of the structural weakness and criticisms of Open Innovation; 1) Customers have significant limitations to their ability to innovate, 2) Open Innovation fails to capture out-of-category technology opportunities, 3) Open Innovation cannot be targeted at a company’s most pressing opportunities and 4) Patent reform is going to have a significant effect on Open Innovation initiatives (link, link, link).

Read more at: BusinessWeek.com, Bloomberg.com and McKinsey Quarterly

 

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