There has also been a lot of talk about looking outside the corporation, to universities and the government, for new ideas and sources of innovation — in part because of CPG companies’ lack of fundamental research. That kind of open innovation can work, too, but it has to be handled properly. Too many companies run their open innovation efforts the same way they run innovation in their own departments. It’s really a “push” strategy: They create a network of outside scientists, then use those scientists to respond to the same consumer needs their own departments are responding to, and to develop the same kinds of consumer-oriented, incremental ideas.
Open innovation should be thought of the other way around. Rather than paying outside researchers to perform their own work, companies should make it attractive for anyone in the world to come to them with their innovations and ideas. Then, all of a sudden, they increase leverage a thousand times. Procter & Gamble Company is particularly good at this. If a researcher in the Philippines or Australia or Japan comes up with a breakthrough product that relates to oral care, for instance, the best way for him or her to monetize the innovation is to call P&G. Once that happens, a company’s innovation leverage increases dramatically. After all, companies still have to have the ability to tell the difference between good ideas and bad ones.
Edward Baker, former editor of CIO Insight magazine, is a contributing editor at strategy+business.