05/08/2011

Corporate innovation is in our DNA

P&G — driving R&D into productivity through Open Innovation

By Modwenna Rees-Mogg, AngelNews

Innovation. It’s in the DNA at P&G, the world’s largest fast moving consumer goods (FMCG) company. Everything developed, made and sold is driven by a theme of continual innovation and improvement so that it can serve its customers better and keep ahead of the competition. A large part of the recent success of this top 5 most admired company in the world, is because it wholeheartedly adopted an Open Innovation philosophy under the leadership of A.G. Lafley, former Chairman and CEO. Thanks to Lafley’s initiatives the company has launched to great acclaim brands such as Febreze and Swiffer.

Open Innovation is the sister of Corporate Venturing. It works by bringing external innovation together with internal resources and when it works it works amazingly.

P&G because it has been developing its Open Innovation strategy for many years is much better placed than many to explain how the concept can be made to work in the 21st century.

FutureWorks is the part of P&G that is most well known to the outside world in the context of Open Innovation. P&G describes it as its “Entrepreneurial Engine” on the newly launched FutureWorks website futureworks.pg.com. The website is a delight by the way, using headings like “Entrepreneurs wanted” and phrases like “We continually strive to be a ‘Partner of Choice’” and “We are looking to change the world for consumers, with disruptive market innovations and groundbreaking ideas and experiences.” If you are anything like me, you want to know what people who put this sort of stuff up on their website are really thinking. So I caught up with Mike Addison who heads up P&G’s Open Innovation activities in the UK the other day. And it was no surprise to find that he had some interesting things to say.

Mike started off by explaining that P&G has sharpened its innovation strategy considerably compared with the early days. “We want to touch more people, in more parts of the world, more completely” he told me “and it will be through innovation, not only in our traditional businesses, but by finding new ways of doing things, that will enable us to achieve this. We look at the top and bottom of the pyramid. A good example is in Health and Wellbeing where we are involved in everything from improving performance in our major beauty brands to our partnership with eHealthpoint in Punjab, India.”

“We need to partner with entrepreneurs to win because they have the innovative ideas and strategies that we can’t think of for ourselves. And we particularly want to speak to people who have ideas about how we can adopt consumer services models, because the services sector is growing much faster globally than the consumer goods sector. We are focused on serving the consumer, so as they head towards wanting better services, we see it as an opportunity for us to serve them.”

P&G does not have a Corporate Venture Fund and is not the company to approach if you just want finance to fund your idea. “We don’t want a fund that we effectively outsource to someone else, but instead we keep our partners as close as possible to our operating businesses. This gives both parties a very close understanding of each other and means we can easily share our expertise. We may invest a bit, but it’s not the money that adds the most value; they too get access to our market knowledge and sales & marketing techniques and we get access to their new ideas and ways of doing business.”

Occasionally P&G does invest small sums for equity, but only if this is the right thing to do as part of a wider involvement. The focus is really on building partnerships that will be of intrinsic value to both sides immediately and in the medium to long term too. Mike told me how many entrepreneurs think that having a lot of cash in their back pockets will be what makes them successful, but suggests that they should think differently. He cites case studies like MDVIP, an innovative medical practice in the US that concentrates on keeping its patients from getting sick rather than treating them once they have fallen ill.

“What made the real difference to MDVIP was not the small amount of cash investment we made, it was P&G seconding a team of marketing experts to the company to teach the management how to organise, brand and market their service offering, using the world beating techniques we have learnt over the years as a FMCG company.”

FutureWorks is the link between P&G’s existing businesses and its Open Innovation partners. The global team is flat and reports straight into the highest level in Cincinnati, where P&G’s HQ is based. So decision-making is rapid and focused on operational results rather than a simple return on equity. Mike told me that there are no fixed rules at FutureWorks, other than trying to make sure that everything they do drives a proposition up the value curve for both P&G and its collaborator. Everything they get involved in is about doing something different. FutureWorks is not the place to target if you want to start supplying P&G, but it is the place to go if you have a new model in a sector where P&G already has a world beating business.

“Think of FutureWorks as being a driver of innovative R&D into productivity. If the innovation fits immediately into P&G’s existing brand portfolio — which ranges from Pampers to Duracell, Gillette, Ariel and more, so much the better. But if there is an innovation in FMCG and especially in consumer services it is still worth speaking to us.”

“We weren’t in the self diagnostics business originally, but thanks to our partnership with Inverness Diagnostics, we ended up selling pregnancy tests” Mike said. “I bet none of your readers would have guessed we would end up owning a medical practice business, but we have now bought 100% of MDVIP. And we are building a really interesting franchise business, creating everything from car washes to dry cleaners which are branded around our existing portfolio of consumer goods. A great example is Tide Dry Cleaners outlets business now rolling out across the US”

Chatter around coffee machine at FutureWorks at the moment, is also buzzing about the opportunities that the near and Far East are generating. “In the West, value added branded services are the buzz, but elsewhere the markets are very different,” said Mike. “Outside our mature markets we realise that success will not come from trying to replicate traditional sales & marketing models; and we have a social responsibility in countries where there is great poverty. We have to balance this with how our shareholders expect us to use the capital they entrust us, so we do things like paying for one vaccine in the Third World for every packet of Pampers bought.”

“Another way we can make a big difference is by working with NGOs to exploit innovative ideas that would not work for us commercially, but that do great good for the world if delivered at cost. A good example is the pure water sachets that we manufacture and distribute, via UNICEF to regions where water quality is a big challenge. This isn’t FutureWorks’ core activity, but there is a great sense of satisfaction when something we might otherwise have dismissed because we cannot make it commercial, heads off in this direction and ends up doing good.”

“India and China are very exciting markets for us, but we are also looking very deeply into Africa which we think is a land of great potential. If our role right now is to ensure that as many people as possible have access to clean water, that is great and it will help us build economies that should want our products and services in the future.”

“What’s on the agenda at FutureWorks at the moment,” I asked,

“How we are going to exploit digital media is BIG. This is good news for the UK as we have a strong ecosystem with loads of innovation. We are also interested in the power of clusters in driving high volumes of new ideas and business models. Outside the US, it’s the UK and Israel which get this strategy. Although we don’t engage in drug development, the cluster of biotech that has been built around Dundee University is a case in point. If you can get one company to emerge from a cluster, like Cycladel in Dundee, it generates enormous value in every direction and not least because it means more companies grow to service that company, as well as acting as a catalyst for the ambitions of other businesses nearby. We like to be well known in those clusters.”

Finally, I asked Mike what types of businesses should approach FutureWorks.

“It is those with ambitions to grow to £100m turnover or more, who will get there faster by collaborating with P&G. It goes without saying of course, that what they are doing should be relevant to what we are doing. Tell them to take a look at Futureworks.pg.com or keep an eye on angelnews-pg.co.uk and go from there.”

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