A Decade of Open Innovation: Lessons Learned from P&G’s Connect+Develop Journey

1. A Decade of Open Innovation: Lessons Learned from P&G’s Connect+Develop Journey Berkeley, April 16, 2011

2. Video

4. Ashish Chatterjee Ashish Chatterjee Director P&G Connect+Develop

5. A Decade of Open Innovation: Lessons Learned 1. What Is It? Why Do We Do It? 2. How We Got Started 3. Vision vs Reality: 4. Culture, Structure and Perception 5. Top Tips From Our Journey 6. Discussion

6. A Decade of Open Innovation: Lessons Learned 1. What Is IT? Why Do We Do It? 2. How We Got Started 3. Vision vs Reality: 4. Culture, Structure and Perception 5. Top Tips From Our Journey 6. Discussion

7. Open Innovation: What IS It?

9. Open Innovation: Why do we do it?

10. . . . Tomorrow, it won’t be the largest or fastest companies who will succeed, but the most collaborative...

11. A Decade of Open Innovation: Lessons Learned 1. What Is It? Why Do We Do It? 2. How We Got Started 3. Vision vs Reality: 4. Culture, Structure and Perception 5. Top Tips From Our Journey 6. Discussion

12. About P&G . . . • Operations > 80 global markets • Sales 180+ countries • 300+ brands • Serve 4.2 billion+ consumers • +$82 Billion in annual sales • Established: 1837 Dedicated to Touching and Improving Lives

13. Innovation has always been our Lifeblood

14. We invest in innovation . . . 2500 2000 Millions 1500 1000 500 0 P&G Competitors

15. We Hire Some of the Very Best Inventors • >8,000+ R&D Experts • +1,000 PhD’s • 40,000+ active patents globally • 20,000+ pending patent /design applications • ~330 Patent Attorneys • 24 Global Technical Centers • 20,000 consumer studies/year (Consumer is Boss)

16. Innovation is how we’ve grown . . . • List of Firsts: • 1879 IVORY white soap equal in quality to imported castiles • 1911 CRISCO all-vegetable shortening • 1933 DREFT synthetic household detergent • 1934 DRENE detergent shampoo • 1946 TIDE heavy-duty laundry detergent • 1955 CREST toothpaste to prevent tooth decay • 1956 COMET scouring cleanser • 1960 DOWNY rinse add fabric softener • 1961 HEAD & SHOULDERS anti dandruff shampoo • 1961 PAMPERS affordable, mass-marketed disposable diaper • And the list goes on…. • 2005 TIDE COLD WATER superior cleaning in cold water • 2008 ALWAYS INFINITY absorbs 10X its weight • 2012 TIDE PODS revolutionary new laundry packet

17. Innovation is how we’ve grown . . . • List of Firsts: • 1879 IVORY white soap equal in quality to imported castiles • 1911 CRISCOall-vegetable shortening • 1933 DREFT synthetic household detergent • 1934 DRENE detergent shampoo • 1946 TIDE heavy-duty laundry detergent • 1955CREST toothpaste to prevent tooth decay • 1956 COMET scouring cleanser • 1960 DOWNY rinse add fabric softener • 1961 HEAD & SHOULDERS anti dandruff shampoo • 1961 PAMPERS affordable, mass-marketed disposable diaper • And the list goes on…. • 2005 TIDE COLD WATER superior cleaning in cold water • 2008ALWAYSINFINITY absorbs 10X its weight • 2012 TIDE PODS revolutionary new laundry packet

18. Historically: Life was good, and life was simple when we did it all, or nearly all, ourselves. 90-85% of our innovation was done in house “If it had to be invented – it could be invented here!”

19. They called us the Kremlin on the Ohio . . . Nothing in, nothing shared outside.

20. Then, in 2000 . . . 31% drop in one day! • P&G’s growth had slowed • Product launch success rate was at ~35% • R&D costs soared • Stock declined • We needed a change . . . 2000

21. A.G. LafleyThen Chairman of the Board and Chief Executive Officer “We will acquire 50% of our innovations from outside P&G.”

22. A Decade of Open Innovation: Lessons Learned 1. Why We Got Started 2. Vision vs Reality 3. Culture, Structure and Perception 4. Top Tips From Our Journey 5. Discussion

23. Vision: Tap the innovative power of the world > 8,000 R&D 2 MILLION Scientists/Engineers

24. Reality: How will we get there? • WHERE do we look? • HOW do we search? What to do with what we find? • What if you can’t buy it? • IP Issues • Contamination / Confidentiality • Litigation potential • Etc, Etc, Etc . . .

25. A Decade of Open Innovation: Lessons Learned 1. Why We Got Started 2. Vision vs Reality 3. Culture, Structure and Perception 4. Top Tips From Our Journey 5. Discussion

26. Three-Prong Plan: 1. Culture:We only knew “Invented Here” • CEO’s 50% goal • High-ranking believers • People who just love innovation • Communication, communication, • communication • Did I mention Communication?

27. Three-Prong Plan: 2. Structure: We needed to be connected internally first! • Deep business knowledge • Technology scouts • C+D Experts IN R&D teams • Experts in transactions & compliance

28. Three-Prong Plan: 3. Perception: Crack the Kremlin; Open the Door • CEO goal • Celebrated Early Wins • Share ideas at pgconnectdevelop.com

29. Send us your suggestions! PGConnectDevelop.com

30. A Decade of Open Innovation: Lessons Learned 1. Why We Got Started 2. Vision vs Reality 3. Culture, Structure and Perception 4. Top Tips From Our Journey 5. Discussion

31. 1. Water Won’t Flow Through Broken Pipes It doesn’t matter how connected you are outside….if your internal networks are broken . . . • From the start, invest in your internal pipeline • Then NEVER stop building • And ensure your pipeline starts and ends with the business strategy (prevents “shiny new object” distractions, wasted effort and potential new partner burn out) “Our first ‘technology scouts’ were disconnected from business leadership and strategy. They were doing good work. But little took root. We wasted a lot of time.”

32. 2. Pick Your Partner with Care, then Trust Their Expertise If you could do as well yourself, you wouldn’t have partnered with them! • Look beyond the numbers before singing • Set clear expectations, timelines • Then give them room to deliver • Avoid incessant meddling • Do they really need your advice • Are your questions helping or hampering “We took it up to our CEO’s office and it leaked all over his desk. We had a few challenges.”

33. 3. Think Broadly . . . Think Broadly . . . VERY Broadly… ASAP When we stretched our own definition of “open innovation,” we delivered some great wins for us, our partners and consumers • Pampers Kandoo • • Business was in decline, as risk of dying • • Partnership grew +40% in first year; 60% to date • More innovation and investment coming • TradeMarkOutlicensing Agreement • Combined: R&D • P&G: Brand Equity, Product Concept • Their: Manufacturing, Marketing, Sales and Distribution

34. 3.

35. 4. Be Open to New Business Models (Service) Service is both a growing industry, and a open opportunity for us to touch and improve more consumers’ lives

36. 4. Be Open to New Business Models (Service) • Tide Dry Cleaners – Service • • Growing our brand through a new business model (franchise) • While meeting an identified consumer need • Brings P&G consumer understanding and quality to a new • business sector • • 6 locations; agreements for 100 more in 5 years • Franchising Agreement • Combined: Marketing • P&G: Brand Equity, Product Concept, R&D, Processes • Their: Sales, Staffing, Business Ownership

38. 4. Be Open to New Business Models (Service) • Art of Shaving – Service • • Grew a declining brand outside the Company • • Business grew +40% in first year; 60% to date • More innovation and investment coming • Equity Investor, turned Owner • Invested to learn more about the high-end male consumer • Partnership and business grew • We acquired the business in 2009 • 36 stores are now 60, with 17 more in the works

43. 5. Share What You Can’t Use, Then Focus on the Big Win When we were able to really let go and open up, the rewards were so much greater “Leaving on a shelf a technology that could potentially improve the diets and health of millions of people went against our core.”

44. 5. Share What You Can’t Use, Then Focus on the Big Win • • We had the technology • Tropicana had the reach • Technology Out Licensing Agreement • P&G: R&D • Their: Brand Equity, Sales, Marketing, Distribution

46. 5. Share What You Can’t Use, Then Focus on the Big Win • Glad ForceFlex • • We had the technology • Glad had the manufacturing and market share • Ongoing innovation and new products • For Clorox, Glad sales doubled; making it • Clorox’s second billion-dollar-brand. • Joint Venture • Access to pipeline of innovation • P&G resources work on Glad R&D • Combined: Product concept • P&G: R&D and technology • Their: Manufacturing, Brand Equity, Sales, Marketing, Distribution

47. 6. Pick Your People, then Place them with Care They may be your brightest innovation star, but that doesn’t mean they will be helpful at the negotiation table! • Open Innovation calls for a special skill set • Multi-functional, experienced internally, comfortable externally • Must have “Stroke” • 25% continuity; 75% rotational “Our best and brightest scientists haven’t always been the best at building partnerships! This calls for a special skill set.”

48. 7. Sometimes More is Better The past was one:one /// The present is one:many The future is likely many:many “We have several projects that involved multiple partners all working in collaboration on one end result. It’s powerful work.”

49. 8. Sometimes More is NOT Better . . . Our list of networks is now focused, honed and regularly weeded • We began by building a really robust, global network • But maintenance takes time • We now hone those that have the greatest likely hood, track record of results • Technology cannot replace personal connections “You can’t do Open Innovation in Cyberspace. In the end, this really is about relationships and trust.”

50. 9. Invest in your Partnership. . . Helping them, often at some point, also helps you. “In unexpected ways, it comes back as a benefit.”