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 / Autumn 2009 / Issue 56(originally published by Booz & Company)


The Promise (and Perils) of Open Collaboration

The best CEOs articulate a leadership message that is both universal and of immediate relevance to a company’s strategic needs. In 2000, A.G. Lafley, CEO of P&G, established “Connect + Develop,” the company’s open collaboration strategy that deliberately fostered information sharing and joint project relationships with external innovators, even including some competitors. With the “50 percent rule,” P&G decreed that half of new product development should come from outside the company. Lafley has described P&G’s efforts in detail, both in The Game-Changer: How You Can Drive Revenue and Profit Growth with Innovation, coauthored with Ram Charan (Crown Business, 2008), and in interviews and articles. (See “P&G’s Innovation Culture,” s+b, Autumn 2008.) Every account of the project makes it clear that the senior executives at P&G are closely involved.

To Lafley, open collaboration is a social process that extends far beyond R&D and entails encouraging collaborative behavior and risk taking, spreading the message, and rewarding early adopters. Driving culture change, as Lafley writes in his book, also involves changing the “hard stuff”; thus, he has pushed open innovation via P&G’s organizational structures, work systems, and performance metrics.

2. Collaborate with your customers. The idea that quality is defined by the customer became a mantra of the quality movement. In response, companies beefed up consumer research, service options, and customer-service hotlines. Those strategies worked for a while. But keeping abreast of the changing needs of consumers in a global marketplace is a tall order, and too few companies kept continuously improving their approaches to gaining customer insights.

One of the hallmarks of open collaboration is that it provides new ways to incorporate customers’ ideas into new product development. MIT’s Eric von Hippel has observed that in specialized industries as varied as scientific and surgical instruments and sporting equipment, so-called lead users generate more than half of all innovations. Today companies like the Lego Group and Pitney Bowes Inc. are putting that lesson to work, using social networking and open collaboration models to redefine what it means to be close to their customers.

After Lego’s patents expired in 1988, the legendary Danish toymaker fought off copycat products, as well as the onslaught of electronic games, by allowing consumers to download software from Lego’s Web site in order to design their own toys. Lego stages competitions for the best designs. Today, Lego aficionados around the world use the Web site to custom design 3-D toys using virtual elements manufactured by the company, to purchase those toys online, and to chat with other Lego fans and share design ideas. (See “The Promise of Private-label Media,” by Matthew Egol, Leslie H. Moeller, and Christopher Vollmer, s+b, Summer 2009.)

3. Build a culture of trust and open communication. In the past, as now, one of the biggest challenges facing companies committed to quality improvement was restoring trust — among customers who were fed up with shoddy goods, suppliers who were being relentlessly squeezed, and employees who often were blamed for management’s mistakes. Trust is needed to win the participation of employees and suppliers in collaborative improvement efforts.

John O. Whitney, professor emeritus of management and former executive director of the W. Edwards Deming Center for Quality, Productivity, and Competitiveness at Columbia Business School, has estimated that more than half of a traditional organization’s activities, including use of the time clocks that monitor workers and marketing campaigns designed to win back disappointed customers, are needed  only because of mistrust.

Yet the success of open source software is predicated on an unprecedented degree of trust — or at least a widespread willingness to suspend mistrust. As IBM plunged into the open source world, for example, it had to redefine both its mind-set and its workflows. The traditional development process, which was costly and time-consuming, involved laboring in secret on a prototype before getting feedback from a customer and then returning to the lab to labor some more. “It used to be very rigid at the engineering level,” says Rod Smith, vice president of emerging technology at IBM Software Group. “You were allowed to talk only to engineers at [your] level. You had to earn the right to speak to engineers above you. Each product had its own little closet, and if you stepped out of the closet a ruler smacked your hand.”

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