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(originally published by Booz & Company)


Survival-of-the-Fittest Innovation

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.

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Edward Baker, former editor of CIO Insight magazine, is a contributing editor at strategy+business.
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  1. J. Baldwin, “The Case for Long Shots,” s+b, Autumn 2006: Why the innovations that seem like the biggest gambles are those that have the biggest payoffs.
  2. Barry Jaruzelski and Kevin Dehoff, “The Customer Connection: The Global Innovation 1000,” s+b, Winter 2007: The third annual overview of the world’s high-leverage innovators reveals that innovation strategy is as important as customer insight.
  3. Alexander Kandybin and Martin Kihn, “The Innovator’s Prescription: Raising Your Return on Innovation Investment,” s+b, Summer 2004: Describes how to increase the effectiveness of a company’s innovation spending.
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