Challenging Open Innovation
Open Innovation is an effective method for gaining ideas from outside an organization, but in order to achieve long term sustained Innovation, companies need to establish a structured repeatable process. Breakthrough innovations still have to come from within the company through hard work and consistent efforts.
A great example of this is Procter & Gamble Co., which successfully introduced its Open Innovation program to seek help from outside partners in everything from product design to packaging. Collaborating with outside partners increased P&G’s rate of product development, but at the same time it decentralized the company’s research and development (R&D) department. As a result, R&D spending became more closely tied to immediate profit concerns – meaning short term results and smaller, incremental inventions over market-changing breakthroughs. A focus of Concept to Launch.
P&G spent 2.4% of sales on R&D in fiscal year ending 2012 – the same as in the previous year and down from 3% of sales in 2006. Sales of new products also shrank by half between 2003 and 2008. Although high percentages of R&D spending is no guarantee for success in Innovation, P&G cut spending and hoped enough innovation would come from the outside in. The lesson learned? That while Open Innovation is a part of the formula to Innovation success, it cannot “be and tell all” in the process to sustained Innovation. BusinessWeek just covered the challenge on Sept 7, 2012 in “ P&G’s 1000 PhDs Not Enough to Crank Up New Blockbusters.” Companies need an internal structured repeatable innovation process. It’s the dedicated long term R&D efforts that create breakthrough innovations.
Today, P&G is attempting to centralize its R&D efforts to achieve new business creations and innovations – just as it had decades ago. After all, in the company’s 175-year history, it was blockbusters like the first fluoride toothpaste and the first synthetic detergent that made P&G the consumer product giant it is today.
Companies should be weary of the hype and over-reliance on Open Innovation. By creating a structured repeatable process as described in “Robert’s Rules of Innovation,” an organization’s short term results will not overshadow its long term development. The deficiency of Open Innovation is it is not the “be and tell all” in Innovation…but rather one component of the whole.