Analysis of Procter & Gamble’s Open Innovation Strategy

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Table of Contents

Introduction        2

Innovation Strategies        3

Figure 1- Closed Innovation Model        4

Figure 2 – Open Innovation Model        5

Table 1 – Characteristics of Closed and Open Innovation        6

        7

Structures that support a successful Open Innovation Strategy        9

Figure 3 - Open Innovation Elements        9

Challenges of the new Open Innovation Strategy        12

Figure 4 – Organisational Open Innovation (OI) Practices Emerging from Individual-Level Challenges and Coping Strategies        13

Conclusion        15

Figure 5 – Business models, from closed to open        16

References        17

Introduction

There has been growing interest in innovation in the recent past.  Innovation is defined as significant positive change(Berkun 2013). Innovation is also defined as a new method, idea, product etc. and innovation is crucial to the success of any organization  (Oxford Dictionaires n.d.).

To remain competitive and achieve growth in today’s market, companies have to be able to differentiate itself and its products and services from the competition.  This is effected by driving growth and becoming more efficient thereby reducing costs. Innovation strategies is one way of achieving this goal.  This include strategies for innovation of new products and services, improving processes, technologies, management practices, ideas/concepts, strategies, business models and competence building.

This paper will deliberate on innovation and ponder on different innovation strategies. It will present a critical analysis of the Open Innovation Strategy with specific reference to the Procter & Gamble’s Connect and Develop Strategy including required structure requirements and implications for future analysis.

Innovation Strategies

Companies can take several different innovation strategies, however according to one of the leaders in innovation there are two main strategies, open and closed innovation strategies (Chesbrough 2006).  The difference between these two approaches is the resources that are employed.  The best choice of strategy for a company depends on the company’s profile and objective as this influences its innovation results.

Closed Innovation Model

In the longstanding closed innovation model, research and development depends on resources internal to the company and any new concepts and technologies are put forward by internal resources.  This model judges control of the innovation process as imperative since external party quality, competence and availability is uncertain. Companies must produce their own concepts, build, advance, market, distribute, service and support them.  

This model worked well for most of the twentieth century where many big firms dominated the knowledge and internal Research and Development (R&D). This became these firms’ strongest asset and resulted in expanded innovation where several breakthroughs were made.  These include the German Chemical industry which identified and commercialized several new products and the US government research laboratory which led to the development of the atomic bomb (Chesbrough 2006).

This is represented on Figure 1 which shows the flow of ideas originate from within the organisation.  Internal ideas lead to development in the current market but is limited to company’s targeted market.  Some ideas that are out of the bounds of the company may be lost.

Figure 1- Closed Innovation Model

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Source: http://www.designorate.com/open-innovation-to-drive-creativity/

Open Innovation Model

Unlike the closed model that focuses on internal control of the innovation process, the open innovation model uses both internal and external ideas and knowledges to accumulate a bigger pool of ideas to the research and development table. ‘Open innovation means valuable ideas can come from inside or outside the company and can go to market from inside and outside the company as well’ (Chesbrough 2006).

With changing times, the knowledge landscape changed the way knowledge could be accessed and the availability of knowledge sources resulting in an increase in the certainty in external sources of ideas and technology.

Since the last decade companies have endeavored to ensure short term financial goals are tied in to its long term innovation requirements. Open innovation can be viewed as a method for the company to profit from external ideas and knowledge and also reduce its reliance on heavy investment in internal long term research costs (Wit 2007).

Figure 2 shows the open innovation model where creative ideas are drawn from both inside and outside the company’s boundaries resulting in development of the company’s current market as well introductions to new markets for the company.  In addition, it leads to development in other company’s markets.

Figure 2 – Open Innovation Model

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Source: http://www.designorate.com/open-innovation-to-drive-creativity/

Contrasting open and closed innovation

Chesbrough, 2006 examined instances of effective implementation of innovation strategies by big firms as well as a comparison of problem solving elements executed based on the choice of strategy and the philosophy of open or closed innovation strategies.  The following table shows the variations between both models.

Table 1 – Characteristics of Closed and Open Innovation

Source: (Chesbrough 2006)

Description of Procter & Gamble’s Open Innovation Strategy

Procter & Gamble is a company that provides branded consumer packaged goods of superior quality and value to improve the lives of its consumers. The company was incorporated in 1905 and built on a business founded in 1837 by William Procter and James Gamble.  The company’s products are sold in more than 180 countries and territories(2016).