Procter and Gamble relies on collaboration to drive innovation
At the start of 2000 the world largest consumer-goods company, Procter and Gamble was at a crossroads. Between January and March the companies shares fell by almost 50% from $116 to $60 per share and the company lost $85 billion in market capitalisation. Faced with spiralling research and development costs, stagnant research and development productivity, a need to deliver organic growth rates of between 4% and 6% every year, and the fact that only 35% of the company's new products were meeting their financial objectives, P&G's newly appointed chief executive officer, AG Lafley, announced the company would move away from a model based on in-house innovation towards sourcing more of its innovation from outside. Mr Lafley's stated goal was that P&G would become known as the company that 'collaborates, inside and out, better than any other company in the world.'
His target was to source 50% of the company's innovation from external companies. At the time only 15% of P&G's innovation came from outside.
Seven years on 50% of P&G's innovations now have a significant component that originate from outside the company, ranging from packaging, formulation, devices to concepts. In 2001 the company set up a system for collaboration through a Connect and Develop strategy. This programme looks to outsource a large proportion of the company's R&D capability and internally searches for good ideas to strengthen and capitalise on P&G's own capabilities. It sources new products, ideas and technologies for P&G through a network of 70 senior experts scattered around the world who make contacts within industry and academia, and with suppliers and local markets. Todate the programme has brought over 10,000 new products, ideas and technologies to the attention of P&G.
Connect and Develop connects the company's network of thousands of people internally and externally involved in the company's R&D, Engineering, Market Research, Purchasing and Patent divisions. P&G has also established 20 communities of practice to help the cross-fertilisation and circulation of knowledge. Each community is run by a specific leader and has a budget and membership of between 60 and 2,500 people with shared technical expertise. The communities encourage problem solving and knowledge sharing through email, video conferences and websites. In addition P&G has developed electronic gateways to find possible solution providers that are external to the company. Since 2000 the number of joint projects involving staff from suppliers and P&G has increased by 30% as result of the closer networks and information sharing strategies put into place by the company.
P&G Pharmaceuticals has made the strategic choice to source 100% of its new drug development initiatives from outside. In the last couple of years it has signed collaborative alliances with the Ablynx for the development of nanobodies for musculoskeletal diseases, ARYx Therapeutics to develop a serotonin type 4 agonist (ATI-7505) for the treatment of gastrointestinal disorders, Nastech Company to develop an intranasal parathyroid hormone (PTH1-34), as a bone building treatment for osteoporosis, Novartis Pharmaceuticals Corporation to co-promote and co-develop Enablex (darifenacin) extended release tablets for the treatment of overactive bladder in the United States, Sanofi-Aventis to develop and commercialise Actonel (risedronate sodium tablets), a treatment for osteoporosis, and Watson Laboratories, a subsidiary of Watson Pharmaceuticals Inc, to develop transdermal testosterone products for women.
P&G alliance strategy is aimed not only at creating new products but to find products that have already proved themselves on the market that can then be transformed for the mass market through P&G's supply chain and branding. This strategy is already having some success. For example, P&G currently earns $300 million in revenue per year through its licensing agreement with AstraZeneca which led to the transformation of Prisolec from a prescription into an over-the-counter heartburn drug.
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