Open innovation: the KM dimension

For a company famed for its ability to continuously offer products that match customers’ most current needs, Procter & Gamble takes pride in the success of its innovation processes. Mike Addison describes the essential role knowledge management plays in P&G’s Open Innovation strategy that looks internally and externally for new ideas and opportunities.

Procter & Gamble began business in 1837 when two immigrants to the US, William Procter, an English candle maker and James Gamble, an Irish soap maker, became related through marriage. Today the Procter & Gamble business provides fast-moving consumer products for beauty care, feminine care, fabric care, home care, healthcare, snacks, beverages, and pet health and nutrition. We are renowned across the world for producing trusted, quality brands that in 2002-03 generated sales figures of over $43bn. P&G’s growth from its humble beginnings to the company it is today is the result of a constant stream of innovation facilitated by knowledge management.

The conundrum facing large companies today is that while innovation remains the only unbounded route to growth, it is difficult to scale with the size of the company. We believe that the answer lies outside the firm and understand the importance of a collaborative or open strategy.

Concurrent with the growth of the large organisation over the past 20–30 years, there has been what many have called the ‘democratisation of innovation’. When compared to the recent past, more patents are now owned by individuals or smaller companies. The explosion of knowledge on the internet has fuelled this growth, and although access to this information has never been easier, its assimilation by any one organisation has never been more difficult.

Collaboration enhances the likelihood that companies will create value from this democratisation. We believe that in the 21st century, the formation of a more symbiotic environment will facilitate innovation. More organisations will combine forces to focus on what each does best so that the combined outcome exceeds what either could have accomplished alone.

Traditional rigid innovation pipelines need to be replaced with flexible, porous channels that allow ideas, technologies, products and business models to flow in and out of organisations. Creating and extracting value from open innovation requires an organisational culture that is open to considering external ideas and using KM systems to ensure ideas reach the right people at the right time.

P&G has been known for its secrecy rather than openness. Changing this culture to one that welcomes and encourages a more open approach to innovation and doing business is a significant challenge that we are addressing in a number of ways. Steps we have taken include:

Establishing clear leadership from the very top of the organisation;
Creating a vanguard of people charged with kick-starting activities that bring new opportunities into the organisation from outside P&G;
Developing training courses to help disseminate the necessary skills across increasing numbers within the organisation;
Acquiring and developing KM tools by appointing staff to increase the effectiveness of this effort.

This article will focus on how we are addressing some of the knowledge-management challenges we face with the Open Innovation venture.

Challenge 1: Knowing who does what

Internally – When Procter & Gamble was a small company, all that was required to facilitate communication were coffee machines and canteens. In a business that now features offices around the globe we have had to modernise and scale these efforts. With the help of the internet we have created a virtual lunch table through the Innovation Net website for our global technical community of researchers to trade information and make connections across the company.

Innovation Net has a mammoth target audience of 18,000 innovators across our R&D, Engineering, Market Research, Purchasing and Patent divisions. Sixty per cent of users visit the website several times a week, with over 1m pages accessed each month. The site hosts one system that I believe deserves closer attention.

Each member of R&D within Procter & Gamble produces a one-page monthly Smart Learning Report that documents their progress. Individuals load their reports into a central repository making them fully accessible and searchable by everybody in the R&D function. It is also possible for individuals to keep abreast of developments in their fields of interest by subscribing to certain knowledge areas. Any new reports on their chosen subjects are automatically pushed to the subscriber’s desk. To support this we trialled technology that made it possible to rate the relevance of content to readers’ needs as a way of helping the computer profile readers’ interests and independently recommend content to them. However, this functionality was not successful and has been discontinued, which is a good example of the need to continually respond to user feedback if new knowledge systems are to be most productive.

Externally – The subscription-based feature described above is also available to those searching the internet via certain meta-search engines. People with a need or interest in keeping aware of external developments have access to the search engines on request. We are also developing in-house solutions and experimenting with commercially available software to help manage these large quantities of information where necessary.

Talent Finder is a separate system under internal development. Like the Smart Learning Report system, Talent Finder places the onus for maintenance on the individual user. We will soon expect all R&D employees to log and rate all the contacts (internal and external) that they solicit help from when solving particular problems. If successful, this system will provide the company with a huge, global electronic address book of useful contact information that is fully searchable by required expertise.

Challenge 2: Soliciting help

Internally – We seek to bring together technical expertise (regardless of business unit) through the formation of communities of practice (CoPs). We have 20 such CoPs with membership ranging from 60–2,500 people. Each CoP represents a shared technical expertise across P&G, and has a budget and effective leadership to promote cross-fertilisation and diffusion of knowledge. The activities CoPs undertake include active problem solving via e-mail-based conferences, knowledge sharing via live seminars and websites, and providing recognition for expert practitioners. Each community of practice has a budget funded in part by the CTO to cover basic operational needs, which is supplemented as necessary by the R&D manager or sponsor, or by attendance fees at CoPs training events and symposia.

A recent survey of CoPs members indicated that these communities are adding value. Almost 80 per cent of members say that their participation in communities has helped to increase their efficiency and effectiveness. If accurate, this conservatively translates to $120m in productivity gains. However there is some way to go if similar gains are to be felt across the organisation as only 69 per cent of employees are aware of the CoPs network and only 38 per cent are members.

Ask Me is a tool providing access to CoPs members. It enables any researcher to post questions, which are steered to the appropriate problem solvers from across the communities for advice. Researchers then form a searching knowledge base.

Externally – P&G is pioneering the use of managed electronic gateways to find possible solution providers that are external to the company.

Ninesigma was founded three years ago to match problem owners with possible solution providers. Ninesigma charges a fee for defining, listing and pushing a problem to relevant solution providers within its network of over 40,000 members. If a potential solver believes they have a solution they can provide a summary of the recommended approach. If accepted by the company looking for the solution, they are paid for demonstrating ‘proof of principle’ and any subsequent work agreed between the two parties.

Innocentive is a spin-off from Eli Lilly and provides a similar service to Ninesigma but currently focuses on chemical synthesis issues. Problems are posted and rewards provided for paper and/or practical demonstration of solutions.

The success rate from using these gateways to solve problems has been positive with P&G following-up on 40 per cent of the suggested solutions.

Challenge 3: New opportunities

I have described our activities in accessing technology, and products and business models from outside the company. These initiatives raise a number of specific challenges associated with finding, introducing and evaluating ideas that KM can help address.

Finding product opportunities – We look for products that are ideally already in the marketplace, have a strong strategic fit with our current areas of business interest and demonstrate the ability to grow into major profit contributors. We look for these opportunities in local markets, small to medium-sized enterprises (SMEs), incubators and from individual inventors. Electronic networks have been very helpful in this endeavour. Ideally, the networks allow us to post our interests and reach a significant number of possible solution providers.

We have enjoyed some success in reaching European SMEs through the EU-sponsored Innovation Relay Network. The network was set up in 1995 to stimulate trans-national technology transfer and promote innovation services across Europe. It is the world’s largest technology-transfer network with 71 centres across 33 European countries. Around 70,000–100,000 SMEs use the network to find technology transfers to help their businesses.

Access to individual inventors and start-up businesses, for the time being at least, tends to be labour intensive, but is becoming more organised as associations and self-help clubs are established, which we help and encourage.

P&G also maintains a close eye on local markets through on-the-ground intelligence and marketed products, such as Mintel’s Global New Product Database.

Introducing and evaluating opportunities – We encourage individuals to enter all interesting discoveries into an internal electronic catalogue. We expect new-business development managers to routinely access the database as they seek to maintain and develop their innovation pipelines. To communicate opportunities we use a range of vehicles across the company.

Similar to the venture-capital world, our ability to get the suggested ideas off the ground is heavily influenced by the quality of the pitch. Having access to appropriate knowledge when developing the pitch is important to ensure the process runs smoothly. KM systems enable us to rapidly interrogate and make sense of patent databases and the market data relevant to these new propositions, reinforcing our reasons to accept or reject opportunities.

Finally, we have experimented with electronic scoring systems for the evaluation of incoming opportunities. Such formal systems may at some point in the future prove of value when selecting ideas. However today, where much of the discussion surrounding these ideas is conducted face to face, this somewhat formal system has not been particularly helpful. A well managed, electronically enabled stage-gate process currently controls the progression of promising and accepted opportunities to in-market evaluation and commercialisation.

We believe knowledge-management processes are hugely important to the success of our Open Innovation strategy at Procter & Gamble. Knowledge management holds the potential to increase the efficiency and effectiveness of our operations. However, preceding the development of KM processes we need to create and nurture an organisational culture that is always looking externally for solutions and is proudly championing the adoption of ideas found elsewhere. We have not yet reached our goal with respect to either, however, the journey is well under way and we are already witnessing significant progress.

Mike Addison is a new business development specialist at Procter & Gamble. He can be contacted at addison.mc@pg.com