How P&G opened its doors to innovation

For generations, Procter & Gamble innovated from within. The giant consumer products company that makes Tide detergent and Crest toothpaste conducted research-and-development veiled in secrecy.

Under A.J. Lafley, P&G’s now-retired CEO, the company’s closed innovation process began to open up. The firm began to partner with universities, suppliers and other companies with the goal of joining forces to create new products.

Lafley initiated this shift in 2000 when he concluded that P&G’s internal labs could not keep pace with fast-changing consumer trends. The company’s huge size also meant its innovation teams needed to keep producing hit after hit just to maintain organic growth targets. This pressure became unsustainable.

As a result, Lafley embarked on a new path. He devised the “Connect + Develop” initiative in which P&G abandoned its long-standing tradition of relying solely on its own in-house breakthroughs. For the first time, it looked outside for new ideas.

To facilitate such a dramatic turnaround in P&G’s entrenched culture, ­Lafley encouraged employees to look for inventive ideas wherever they could find them. He welcomed key outsiders, from scientists at Los Alamos National Laboratories to entre­­preneurs and inventors, to participate in P&G’s once-secretive research discussions. The company even staged online contests in which outside experts could compete to solve technical problems.

In another startling move, P&G and Google exchanged employees for a few weeks in 2008. Lafley’s team gained insight into online marketing while Google learned about building a brand.

Thanks to this new approach, P&G has doubled its innovation success rate while reducing its research-and-development costs. Examples of new products include the highly profitable Swiffer duster (adapted from a product invented in Japan) and Mr. Clean Magic Eraser (licensed from German chemical firm BASF).

— Adapted from Need, Speed, and Greed, Vijay Vaitheeswaran, HarperBusiness.