Procter & Gamble is multi-national consumer goods company headquartered in Cincinnati, Ohio, USA. The company originated in 1837 in a partnership between candle- maker, William Procter, and soap-maker, James Gamble, and boosts a long history of innovation and adaptation. In 1930, P&G expanded into international markets through the acquisition of Thomas Hedley Co. in Newcastle upon Tyne, UK. This acquisition allowed the company to diversify into Tide and Crest brands. Current operations span into 80 countries in matrix structure with innovation centres located in Brussels, Italy, China, Germany, US, Singapore, and the UK. Today, they have 26 billion dollar brands, a product portfolio mix that touches 4.6 billion consumers daily, and global brand recognition. Global business units are aggregated in to five reportable segments, fabric and homecare, beauty, baby and family care, healthcare and grooming. Each of these different business units are responsible for local market knowledge and innovation plans for the brands (Marketline, 2013) The annual investment size
134 of $2 billion dollars into R&D, as well as another $400 million into fundamental consumer understanding.
Like many other businesses, the turn of the millennium presented the company with challenges, such as stagnant growth, and lack of internal innovation showed. Product launch success staggered at 35% and R&D costs exceeded 5%. Only 15% of the initiatives were successful (Brown & Anderson, 2010). The innovation portfolio was not delivering enough to make the growth goals of the company. The company needed a new philosophy to rejuvenate the expectations of their investors and to retain their competitive edge, as Wall Street commands a $4-5 billion in incremental /organic sales growth each year. They needed to identify ways to increase the size of success, as stagnant growth was causing the stock to decline and there was a loss of investor confidence.
4.3.1.1 Connect + Develop
At the turn of the millennium, and under the leadership of A. G. Lafley, the company refocused their R&D philosophy to an open innovation business model, Connect and Develop (C+D) to acknowledge the potential efficiency gains that might be achieved by accessing externally held knowledge stocks. This new model acknowledges the potential for growth through assimilating external ideas and tapping into the knowledge economy. This move was celebrated by business scholars and inspired, with Chesbrough (2003) pioneering the research and developing the field of open innovation. The logic behind this was that the R&D costs soared, they had considerable success with external and previous partners and an open innovation philosophy looked promising to delivering more efficient. Lafley set an ambitious target of sourcing 50% of innovations from beyond the walls of the business. Also, an aggressive M&A which focused on high growth areas for investment and the reduction of manpower through. They employ a variety of formats that they are crowd sourcing and developing strategic partners. For P&G, open innovation means a systematic approach to collaborating with the external world for ideas. They acknowledge that the prevalence of the knowledge economy. For each one of their 8,000 R&D scientists there 200 that each one can collaborate with. It’s about leveraging internal capabilities.
Although this philosophy was highly lauded by scholars and practitioners, by 2006 this innovation model stopped delivering ‘blockbusters’ and most growth was attributed to line extensions and acquisitions. External pressures, such as consumer price sensitivities and the activities of rivals, resulted in the loss market share in 2/3 of its markets and loss of confidence among investors and employees. Only 2% of the crowd sourcing were proving to deliver value
135 and required a lot internal resources to sort. The company realised that they were approaching innovation from a reactive position. They were also overwhelmed with a large volume of unsolicited inquiries through their open innovation philosophy. The one-off deals were too small for such a big company. The company needed a method to ensure steady incremental improvements to generating growth in the short term, while planning for the uncertain future. Short term goals were designed for quick wins but they needed a way to focus on the future.
The leadership changed hands to Bob MacDonald in 2009, and the company faced a period driven by intense control mechanisms and efforts to standardise. There was development in rigid processes and handbooks that had the potential to undermine their innovation prowess. In 2013, activist investor called for leadership change after faltering performance and slow growth. That year MacDonald resigned and Lafley was placed at the helm again. In August 2014, the company announced that it will be cutting 100 brands to focus on 80 high growth products that represent 95% of the company’s profits and to realign their strategic fit (Cincinnati News, 2014).
4.3.1.2 P&G’s Systematic Approach to Innovation Processes
While P&G recognize the value of openness in the innovation process, the size of the organization requires some formal mechanisms to ensure that innovation is achieved in a systematic and strategic way. P&G’s growth factory is one of the methods in which they systemize this process. The growth factory dash board provides common and well understood data displays to senior managers across the globe. It aims to reduce the amount of time focused on how to display the data correctly across the various organizational units, and to what extent are the various categories performing well in terms of consumer acceptance. Rather than focusing on the complexities of analysing growth patterns and trends it allows the decision makers to spend more time devising ways to address issues with stagnant growth and problems, it frees time for creativity to emerge. (Davneport, 2013).
The internal R&D process develops projects through collecting the support of an idea. The project is then funded through the ‘idea’ being internally promoted and supported to the various business units. The idea will receive internal support if the project has the potential to address challenges defined within the departmental objectives. However, once a project is defined it is the PI’s responsibility to find internal and external partners. This specified business model and provides a budget allowance for uncertain science. During the recession, the focus of most R&D departments was on the incremental/safe and immediate innovations that would result in profit now. However, P&G recognized that it needed a long-term focus. The R&D
136 scientists define technological challenges that have the potential to provide the business with substantial benefit if those particularly uncertain challenges were solved. This provided the impetus to receive seed corn funding for the uncertain science.
Every technical scientist has five long term goals that they are working on. These long- term goals are often backed by extensive consumer research and hard financials that allow the company to calculate ‘the size of the prize’ if they are to solve these technical challenges. However, some projects offer the opportunity to solve unique or challenging issues. Whenever a new project forms each internal PI is required to consider a university partner as part of the procedure for ‘research proposals. As reported by a participant to this study: The answer doesn’t have to be that they will use a university partner, but it is part of the standard process to consider them. Through allowing universities to focus on the fundamental sciences, the internal R&D person can focus on the internal/incremental needs that are more certain.
4.3.1.3 P&G’s Connections with Universities
Historically, P&G has worked with over 200 universities & research institutes, on several hundred projects. However, almost 70% of university collaborations have been “one shot deals” and most work has been characterized as opportunistic and tactical. Connecting with universities has always surrounded the fundamental knowledge science. However, the academic landscape is different across the globe. There are also different approaches to ‘knowledge ownership’ and often new collaboration require lengthy negotiation process to initiate a project. For instance, several interview participants discussed the difference between the US and the UK approaches to this negotiation process. In the US, the underlying philosophy is that if the University creates the technology they own the licensing rights to access, it doesn’t matter who commissioned the research. After the research has been completed, the company still needs to pay for license to access the IP. This exploitation expectation makes finding partners in the US more difficult at the broader University level. These negotiations must be done on the individual level and has implications for the potential to scale a collaborative effort.
When asked about the differences between the US and the UK philosophies one participant replied:
One of the things that struck me is the desire to collaborate and to collaborate on very applied science. So, that was the very first thing. In North America, I would say that we are very big, very big country with lots of diverse ways of operating and very diverse opinions about what universities should be about. Whether they should be about applying the science for commercializing technology or whether they should be all about the fundamental understanding of the science.
137 The ability to capitalize on the UK government innovation initiatives helped to de-risk the investment into these areas of uncertain outcomes, as well. The underlying cultural receptiveness to industrial linkages and the institutional facilitation of research conducted in the UK is also different. There are more flexible approaches to IP ownership issues.