The Innovator's Prescription: The Art of Scale - Strategy+Business

In October 2003, in a statement issued after the company’s annual meeting, Procter & Gamble Chairman and Chief Executive Alan G. Lafley said, “Our vision is that 50
percent of all P&G discovery and invention could come from outside the company.” The target was ambitious: In 2002, only one-fifth of new ideas put into development by P&G came from the outside. But the company hoped that if it worked with public companies, startups, and universities, outside innovation would ultimately comprise half its portfolio.
Procter & Gamble’s goal is part of the newest wave in management thinking. Thought leaders from academia and inside companies have argued repeatedly in recent years that opening the firm to outside innovation is an important path to sustained growth. Berkeley’s Henry Chesbrough calls this model “open innovation.” C.K. Prahalad and Venkatram Ramaswamy of the University of Michigan argue that companies and their customers should innovate together, to “co-create value.”