Procter & Gamble has reconfigured itself from an inward-facing company to an outward-facing one that is open to collaboration. It has achieved a target for 50 per cent of its innovation output to come from outside the company.

P&G is a global branded consumer goods company, whose brands include Ariel, Braun, Crest, Duracell, Gillette, Olay, Oral B, Pampers, Pringles, Tide and Wella. Over its 170 year history, the company has achieved an annual organic growth rate of 4-6 per cent and that must be sustained for investors.

“Now we are a $68bn company, we have to grow new business at about $4bn a year,” says Mike Addison, section head for research and development. “In our industry a lot of it comes from innovation, but we just could not achieve that pace by trying to do that all in-house. There has never been more knowledge around and it has never been easier to access, but assimilating it is extremely difficult. Our 9,000 scientists and engineers cannot do it all, so they must tap into what is going on in the external world to find sources of value from symbiotic relationships.”

In a business climate where organisations must concentrate on their core competencies, the company has some of the best consumer research and understanding in the world. It can rapidly establish the consumer relevance of something, produce it at scale and market and distribute it globally. Inventors can best exploit their ideas by partnering with P&G to benefit from these strengths.

The move to actively seek outside collaboration was led by A G Lafley, the company’s chief executive. “He was hugely important in galvanising people,” says Mr Addison. “He set the process rolling with a big visionary statement, but was also highly involved in modelling the behaviour and publicising early success stories. It helped everybody to understand that he really wanted to change the way we do business.”

An example was some revolutionary food wrapping technology. In the old days the company would have launched its own brand and done everything itself. Mr Lafley decided that this would not maximise value for the company, so he entered into a joint venture with a key competitor, who had a very strong brand, sales, distribution and marketing operation.

To help change the culture, measures of success in looking outside the company were developed and goals set in senior management development plans. Numerous different groups were set up to share ways of finding and managing opportunities.

The company has found that it is crucial to invest significant time at the outset to get to know each other, to build personal trust and chemistry at different levels. Each learns how the other organisation works, how it makes decisions and what resources they have.

“At that point we are establishing whether or not collaborative value exists,” says Mr Addison.

“Many deals fall at that stage, because they don’t feel right or we cannot generate a value proposition.”

The company seeks to isolate the measures of success for the collaboration and achieve some clarity on what the alliance covers, who is going to do what, the boundaries, sharing financial rewards, managing intellectual property, governance processes, how long it is likely to last and how it is likely to end. This creates a common understanding and common expectations for the future.

“If we have that and if we understand our respective decision-making processes, then as we work through the detail things get easier and easier,” Mr Addison says. “You then get much more collaboration directly between the functions of the two organisations, rather than through the specialists who set it up. People in both organisations have to ‘live’ the collaboration.”

P&G is working with the National Endowment for Science, Technology and the Arts (Nesta) to tap into an early stage innovation ecosystem. The company is “seeding” the UK invention community with areas it thinks are valuable and societal problems it would like to address. Nesta is helping to publicise it and is providing a competition environment.

This fills a gap in the period before the inventors have registered their intellectual property. “It defines what the inventor owns and what we don’t own but would like to gain access to,” says Mr Addison. “Once we acquire rights to it, it becomes a space that we can operate in and makes it hard for our competition to copy us.”

The 50 per cent target is a simple measure that is taken from the company’s new project pipeline. It represents hundreds of collaborations, from developing new molecules to improve a soap powder, licensing agreements and full joint ventures.

“It was a finger in the air and now we are about there – there is no reason why it shouldn’t be 75 per cent or 90 per cent,” says Mr Addison.

“There is an industrial revolution taking place, which is all about symbiosis. It is a transition from organisations doing everything themselves to seeking where they are unique and can add greatest value and then partner with other unique organisations.

“That is a sea change in the world and it is going to grow and grow.”