Outsourcing, Innovation

Outsourcing innovation

07 Jul 2004 | (Case Study)

If you want to find the best new ideas, follow Procter & Gamble's lead and enter the nexus.

I recently overheard two guys on the subway talking about The Matrix Reloaded. One said to the other, "They should call it The Nexus, because that's what it really is." Then it hit me -- they're right. A matrix is a network, but a nexus is a set of overlapping networks. Keanu Reaves's Neo and the other characters are trapped in a nexus of overlapping programs, even when they're not in the Matrix per se. The concept of the nexus, though, also helps in understanding a cutting-edge management technique taking root at companies that want to tap into pools of expertise outside their walls.

Think of these pools as networks of intellectual capital. One network could consist of inventors, another could be made up of entrepreneurs, a third of scientists, a fourth of retired executives. Imagine trying to manage this nexus of networks and get them to help dream up your company's next killer product. At Procter & Gamble (PG), where the goal is to have at least half its new products originate from ideas generated outside the ranks of its employees, this concept is being taken seriously. And the man charged with overseeing P&G's so-called Connect and Develop program is Larry Huston, whose title is "R&D manager, innovation and knowledge leadership."

Companies need more new ideas than ever before, Huston says, but the traditional source of those ideas -- research and development -- is broken. "A lot of R&D in America is not sustainable," he argues. "The rate of increase of R&D spending is going up faster than the rate of increase in sales." If Huston succeeds, though, P&G's spending could actually drop, even as it harvests an expanding crop of new marketable ideas. Huston is trying to tap into networks of the smartest scientists and business folks around, putting out challenges for ideas and solutions, and paying for exclusive rights to use the best offerings.

Huston's goal is to replicate an earlier success P&G had with the SpinBrush, a $5 throwaway electric toothbrush. That idea came from an outside entrepreneur named John Osher, who had earlier invented the Spin Pop -- a spinning stick with a lollipop on top. The SpinBrush is now the leading electric toothbrush on the market and represents a $200 million business for P&G.

Bain management consultant Darrell Rigby calls the nexus approach "open-market" innovation. "Companies getting the most bang for their buck on innovation are not trying to do it all themselves," he says. "They're opening their borders to free trade." Procter & Gamble employs 7,000 people in its R&D division, but there are 1.5 million scientists throughout the world, mostly chemists, with expertise in the company's areas of interest. "It doesn't take a genius to figure out that if you can engage the brains of your 7,000, plus the key ones from that 1.5 million, you can build better products," Huston says.

The trick is jacking into the right brains. Huston does this by trying to pick established network nodes. A node can be a group of suppliers, a venture capital network, government labs, P&G alums, innovation fairs, or Web-based markets for intellectual capital like Yet2.com, Innocentive, or NineSigma. Those last two are like eBays (EBAY) for scientists. For instance, Huston has put out chemistry challenges on the Innocentive website and gotten back solutions from a patent lawyer in Georgia, a grad student in Spain, and a chemist in Bangalore, India. In the past two years, he's paid out as much as $5,000 for an individual idea, but he'd be willing to go as high as $100,000, depending on the solution.

Huston's advice to other would-be nexus-wanderers is to pick "high-leverage nodes" where a lot of smart people congregate and that already have contract mechanisms in place. "You don't want to pick so many nodes that you overpower your absorptive capacity," he warns. That's where the Internet and electronic markets can help. Only when you find the right ideas, regardless of whether they come from inside or outside your company, will the nexus be truly working for you.

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