P&G's Connect + Develop opens R&D to the world — half its innovation now starts outside

For nearly 165 of its first 170 years, Procter & Gamble grew by inventing inside its own labs. By 2000 that model was failing: the success rate of new products was below 35%, innovation costs were climbing faster than revenue, and the share price had fallen from $118 to $52 as the market cap more than halved. New CEO A.G. Lafley concluded P&G could not invent its own way to the 4–6% organic growth it needed, and gave R&D leaders Larry Huston and Nabil Sakkab a radical assignment: find a new model.

The result, launched in 2002, was Connect + Develop. Each business unit published its top-ten consumer needs; technology entrepreneurs in six hubs worldwide plus supplier and open networks hunted for proven solutions, writing technology briefs like the one that found Pringles Prints' ink-jet printing at a small Bologna bakery run by a university professor. P&G licensed the process and launched the product in under a year, versus about two years internally, and rewards were reworked to favor finding innovations over inventing them.

The numbers followed the structure: by 2006 more than 35% of P&G's products on the market had a Connect + Develop component, versus 15% in 2000, and 45% of development projects drew on external partners. R&D productivity rose 60%, innovation success more than doubled, and innovation spending fell from 4.8% to 3.4% of sales. Products including Olay Regenerist, Swiffer Dusters, Crest SpinBrush and Mr. Clean Magic Eraser came through the model.

Managing IP, an independent publication, reported in 2015 that innovation from external sources had jumped from about 10% to more than 50% between 2001 and 2008 — the target Lafley had set had become the operating norm. P&G still runs Connect + Develop today as an open submission point and hands out annual Partner Excellence awards, making it one of the most durable management inventions of the 2000s.