Building Open Innovation at P&G

Abstract

AG: Lafley chronicled the development of Procter & Gamble's landmark open innovation program in his 2008 book, Game Changer. Gil Cloyd, P&G's Chief Technology Officer at the time, worked closely with Lafley to reshape the company's innovation culture. Gil spoke with Jim Euchner about the challenges and lessons of his experience at P&G. JAMES EUCHNER [JE]: P&G has been the poster child for open innovation, and its success was well documented in A. G. Lafley and Ram Charan's book, Game Changer. Lafley dedicates the book to you and cites his collaboration with you, as CTO, in changing the innovation model at P&G. He says it was very lonely. What brought you to the belief that you really needed to make a significant change in the way you were managing innovation and the connection with the external world? GIL CLOYD [GC]: A. G. came in as CEO in early 2000 after P&G had just missed two earnings projections. The company lost about half of its market capitalization. I had been leading the R&D organization in Asia for P&G and had just moved into the Chief Technology Officer position. We knew we had a real crisis on our hands, and we quickly concluded that one of the core reasons that we were not doing as well as we wanted was because we were not consistently winning on the innovation front. As we looked around the world, we were not growing our volume share the way we wanted to. In fact, we were beginning to lose volume share. We felt that we were overpriced in several markets, and as we looked at key competitive challenges we had, we recognized the growing challenge of store brands in developed geographies and our need to have different approaches to innovation to really capitalize on the growing markets in the developing world. We recognized that we needed to make significant changes in our approach to innovation. We recognized, first of all, that we had to get a lot more productive in our R&D investment, where productivity was measured in terms of winning marketplace results. We were not happy. We were investing a significant amount in research and development and in our innovation capabilities overall, but that investment was not delivering the marketplace results that we wanted. The second factor was that we really needed to speed up the pace of our innovation. We did a quick assessment during that period, looking across all of our businesses. How long did an innovation really drive winning marketplace results? While you can appreciate that it was somewhat of a rough approximation, as we looked across all of our categories over the last decade, we saw that we were getting a reduced marketplace benefit of our innovation: the benefit was only about half as long as what it had been in the previous period. As a company that prided itself on innovation, a company that had a tremendous research and development organization, and a company that was investing significantly in research and development, we saw that we needed to make major changes. Change is always difficult, and I think that's what A. G. was referencing in his forward in the book, that it was a little bit lonely as we set out down that path. JE: What led you to say that a solution to the productivity issue and the need for an increased pace of innovation was going to be open innovation, or sourcing ideas from outside P&G? GC: There were two factors that were involved in that realization. First, we took a very, very hard look at our approaches to innovation, and we saw that we needed to become much more holistic as we viewed innovation, that it went well beyond the performance of the product. Performance was certainly important, but we focused on the idea that we wanted to create experiences for our consumers, and the experience includes performance, but it also includes things such as the design elements, the sensorial elements, the product concept, the communication with the consumer, both in the store and outside the store when they use the products in their own homes. …