Business Networks: The Platforms for Future Innovation

At that time, less than 10% of the company’s new products involved external innovation partners. Concerned that it might miss out on products that could disrupt its markets, the company set a goal to increase the percentage of products delivered through collaborative innovation to more than 50%. By 2008, it had exceeded that goal, and […]

Procter & Gamble (P&G) was founded in 1837, but it wasn’t until 2001 that it really threw open its doors.

At that time, less than 10% of the company’s new products involved external innovation partners. Concerned that it might miss out on products that could disrupt its markets, the company set a goal to increase the percentage of products delivered through collaborative innovation to more than 50%. By 2008, it had exceeded that goal, and its external partnering strategy – dubbed Connect and Develop – had become a fundamental part of its business.

Part of the reason the strategy worked so well was that P&G was open to any kind of partnership. For example, it worked with individual inventors to launch the Crest Spinbrush, with chemical suppliers to develop Olay Regenerist creams, with university spinouts on a line of probiotic supplements, and even with competitors such as The Clorox Company on the Glad Press’n Seal plastic wrap. Today, P&G aims to deliver US$3 billion toward the company’s annual sales growth by working in conjunction with its network of outside collaborators.1

It was an open-source strategy that few companies were comfortable with at the time. But P&G credits its expanded innovation network with enabling it to bring to market products that had traditionally been beyond the company’s areas of expertise, thereby broadening its sources  of revenue. The network also reduced risk. New products began hitting the market faster, quality improved, and potential competitors became partners instead.

With advances in networking, cloud computing, social media, and mobile technologies, more companies have the opportunity to connect, communicate, and collaborate with important external elements of their value chains. Building on the early days of electronic trading networks, richer collaboration networks will enable companies to engage more deeply with customers, suppliers, banks, and other trading partners. Those that partner effectively and securely can bring innovative products to market more quickly, boost efficiency, improve visibility, increase agility, and reduce risk.

A McKinsey & Company study of more than 3,000 company executives found that networked enterprises – companies that use collaborative technology to connect internal processes to customers, suppliers, and partners – outpace their peers in nearly every category of business performance, from market leadership to increased sales and profitability.2

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About the author:

James Marland is vice president of network strategy at Ariba.

Rachel Spasser is senior vice president and chief marketing officer at Ariba.

Irfan Khan is senior vice president and general manager of SAP Big Data.

Stephanie Overby is an independent writer and editor.

Tags:

Topic In Focus, Future of the Business Network