Henry W. Chesbrough uses this exact notion of "permeable boundary," when he gives his definition of open innovation: "In the open innovation model a company commercialises both its own ideas as well as innovations from other firms and seeks ways to bring its in house ideas to market by deploying pathways outside its current business. Note that the boundary between the company and its surrounding environment is porous, enabling innovations to move more easily between the two." (MIT Sloan Management Review: The era of open innovation, Henry W. Chesbrough) Having this in mind Procter and Gamble created their "Connect and Develop" innovation model.
In order for "Connect and Develop" to become what Procter and Gamble envisioned the company realized it was of the outmost important not to use time and valuable resources on ideas that may be interesting at first but later on prove to have no concrete, specific application. And it is what all companies should do when in search of a partnership or a collaboration, they must make sure the idea they agree to develop is a viable one and shall lead to the creation of a product that will meet the needs of a certain target market. Procter and Gamble had to decide early on what their target areas would be, for applying the "Connect and develop" concept. They have decide that the these closed innovation approaches: "If we are the first to commercialise an innovation we will win" and "If we create the most and best ideas in the industry we will win" are obsolete in comparison to "Building a better business model is better than getting to market first" and "If we make the best use of internal and external ideas we will win." (MIT Sloan Management Review: The era of open innovation, Henry W. Chesbrough). They thus took the decision not to limit themselves and their innovation within the company and within a certain industry. That is why even though Procter and Gamble was best known for its house-hold cleaning products and products used for personal hygiene they got involved in other industries too and currently produce more than 300 brands that include snacks and beverages, pet nutrition, prescription drugs, fragrances, cosmetics and various other categories. (Harvard Business Review: Connect and Develop, Larry Huston and Nabil Sakkab) This represents another important challenge for any company that aspires to become an open innovator, not to limit themselves to a single industry, to the area they had started with, but do their best to expand in order to include a large number of brands and products. In addition to that they should not be at all reluctant to "profit from other's use of our intellectual property and we should buy other's intellectual property whenever it advances our own business model." As that is the way, open innovators evolve and improve their quality products, in contrast with "We should control our intellectual property so that our competitors do not profit from our ideas.," representing the closed innovation model." (MIT Sloan Management Review: The era of open innovation, Henry W. Chesbrough).
Making all the necessary changes for a company to transform itself by deciding to use the six principles Open Innovation instead of the principles specific for Closed Innovation is the toughest challenge for organizations. It does not only imply a change in the actual way their business is led, but also a change in mentality. The latter is often difficult to achieve as not many CEO's and companies are willing to so easily discard the way they have done business for generations. Unfortunately there seem to be less and less opportunities for individualist companies to keep their leading positions as top players in today's and especially tomorrow's economic environment. To succeed in the new economy a company faces the difficult task of having to create a large and valuable network to insure that they are in constant connection with the best innovators around the world.
At Procter and Gamble widespread networking is highly valued: "Our global networks are the platform for the activities that, together constitute the connect -and -develop strategy." (Harvard Business Review: Connect and Develop, Larry Huston and Nabil Sakkab). Here are some examples of the networks that have proved to be most useful for Procter and Gamble. They have a network of 70 technology entrepreneurs around the world. These technology entrepreneurs work in six connect- and- develop hubs in China, India, Japan, Western Europe, Latin America and the United States.
Another type of networks they have implemented is Open networks. They include four types of networks. NineSigma mainly deals with connecting companies that have science and technology problems with companies, universities, government and private labs and consultants that can develop solutions to various problems.
The second type of Open Network is InnoCentive and quite similar to NineSigma, but for the fact that it deals with more narrowly defined technological problems.
YourEncore is the third type of Open Network that is responsible for connecting 800 high-performing retired scientists and engineers from 150 companies with client businesses. YourEncore enables companies to use the deep experience of these scientists in fields of activity.
The last Open Network is Yet2.com, which is basically an online marketplace for intellectual property exchange. (Harvard Business Review: Connect and Develop, Larry Huston and Nabil Sakkab).
Though networking is indeed an important aspect that should be considered for all companies that wish to become open innovators there is also an internal aspect to be considered. Companies that are now "deeply centralized and internally focused," as Procter and Gamble used to be, have to understand that the existence of an internal connection system is also equally valuable. At Procter and Gamble the research and development department knows that they should first find out if any of the other departments are faced with the same problem and if they have found a feasible solution, they should next see if an external source has been faced with a similar problem and only after having done those two inquires should they start and develop a product from scratch. As it can be understood companies should do their best to encourage efficient communication within their own departments.
Last but not least perhaps the most important element needed for connect and develop to be properly applied is the appropriate leader or CEO. He is the one who supervises and organizes the way connect -- and - develop is implemented in the company and understood and adopted by the employees. Each company should ensure itself of having a highly competent CEO, somewhat of a visionary, able to turn the open innovation process into a profitable company strategy, both for the company itself and also for the ones whom it "connects" with. The CEO is the one who establishes the amount of innovation the company should try to get from external sources. He is a key element, so companies should choose him wisely. In the case of Procter and Gamble, Lafley set the high goal of 50% and the company is not far from reach that amount of external innovation.
Whether connect and develop shall be a successful open innovation strategy, only time will tell, but it is my belief that Larry Huston and Nabil Sakkab were quite right when saying "We believe that connect and develop will become the dominant innovation model in the 21st century" (Harvard Business Review: Connect and Develop, Larry Huston and Nabil Sakkab).
Even though it has become more than obvious to everyone that the innovation landscape has significantly changed and that the same obsolete ways of managing and creating innovation are not nearly enough for gaining a competitive advantage in the business world today, there still are many companies reluctant and unwilling to change and transform themselves from closed innovators into adepts of open innovation. If such companies shall fail to understand the vital role that open innovation has nowadays, there future shall be a grim one, as they will find themselves unable to compete with companies such as Procter and Gamble.
To conclude, I emphasize once again what the proper way of thinking in the new economy, with regard to innovation and its implementation should be: "I want P&G to be a magnet for the best-in-class. The company you most want to work with because you know a partnership with P&G will be more rewarding than any other option available to you." (Lafley, P&G Connect+Develop Homepage).
MIT Sloan Management Review: The era of open innovation, Author: Henry W. Chesbrough (undated) Available. Online. HTTP://sloanreview.mit.edu/wsj/insight/pdfs/4435.pdf (accessed 6th May 2007)
Harvard Business Review: Connect and Develop, Authors: Larry Huston and Nabil Sakkab (undated) Available Online HTTP: http://custom.hbsp.com/custom/INNOCR0603C2006032833.pdf;jsessionid=YVENOB4MC1EKCAKRGWDSELQBKE0YIISW (accessed 6th May 2007)
P&G Connect+Develop Homepage Available Online HTTP:
http://pg.t2h.yet2.com/t2h/page/homepage (accessed 6th of May 2007)
Technology Management Journal: "What's mine is mine...What if yours could be mine too?" (December 2004) Available Online HTTP: http://www.tiaxllc.com/aboutus/pdfs/ip_management_tmj_120104.pdf (accessed 6th May 2007)
Connect and develop: Bricks and mortar R&D cracks under pressure (updated 13th August 2006) Available Online…