Unless you frequent the personal hygiene shelves at the supermarket, you’re unlikely to have heard of Procter & Gamble’s Crest Spinbrush. Yet the product is something of a milestone in the development of fast-moving consumer goods.
Battery-powered, the product is advertised to move bristles 20 times faster than a manually-powered brush, but probably its most interesting feature is that, unlike most of the goods developed by P&G over the years, it was the result of collaboration with individual inventors.
Intelligent digital ‘networks of networks’ are fundamentally changing the way commerce can be managed, optimised, shared, and deployed
Suddenly, just after the turn of the millennium, P&G had a change of heart. At that time less than 10 percent of the company’s new products were the result of external collaboration. But few, if any, markets move faster than FMCG (fast-moving consumer goods) and the company was concerned it wasn’t innovating rapidly enough. The management, fearing competitors might launch new products that could disrupt its markets, embarked on a daring experiment. Instead of trying to create everything in-house, as would a vertically integrated company, P&G set a target of increasing the percentage of products delivered in partnership with others to over half. In short, by five times.
New thinking, new products
The results of what amounts to a reversal of a long-held strategy have been spectacular. Within a few years the Crest Spinbrush was followed by Olay Regenerist creams in collaboration with chemical suppliers, by a line of probiotic supplements (with university spinouts), and in a particularly dramatic wrench with the past, by Glad’s Press’n Seal plastic wrap that was developed with competitors such as The Clorox Company.
Dubbed ‘Connect and Develop’, this collaboration – or external partnering – took the consumer giant even further than it had planned. By 2008, more than half of its products were being worked up with the help of what would once have been described as outsiders and collaboration is now a fundamental part of its business.
In one sense, P&G’s turnaround was the result of a certain humility. The company recognised that it didn’t know everything and couldn’t do everything. There were a lot of smart – and perhaps smarter – people out there and the conclusion was it should engage with them. Now that P&G is bringing to market products that were once beyond its areas of expertise, the collaborative network has reduced risk. New products are hitting the market faster, quality has improved, and potential competitors have become partners.
Today P&G has built up a network of outside collaborators that, between them, aim to add $3bn a year to the company’s annual sales growth. In short, even such a cutthroat business as FMCG doesn’t have to be war.
P&G was ahead of its time. Few were comfortable with ‘open-sourced’ strategies, even though advances in networking, cloud computing, social media and mobile technologies made them possible. Between them, these transformation technologies have given companies the opportunity to connect, communicate, and collaborate with important external elements of their value chains in ways that were simply not possible before.
Thus, we’re witnessing the era of electronic trading networks that facilitate much richer collaboration with all stakeholders – customers, suppliers, banks, other trading partners, even rivals. As McKinsey’s David Edelman, Principal at the firm’s Boston office and co-leader of the global digital marketing strategy group, explained: “Those companies that partner effectively and securely can bring innovative products to market more quickly, boost efficiency, improve visibility, increase agility, and reduce risk.”
Barriers to success
Companies face two main barriers though, as SAP explained. One is psychological, the other technological. The psychological barrier comes from the fact that corporate cultures have to be dismantled. People may hesitate to share information and resources outside the company for fear of losing status and control. And some of these concerns are justified.
When the business network extends beyond a company’s four walls, explained SAP, the potential security risks multiply. But solutions are emerging all the time, such as the so-called ‘zero trust’ model; a data-centric approach that would still enable an ecosystem of partners, contractors, suppliers, and customers to connect creatively with each other.
And then there’s the problem of conflicting technologies. Highly customised legacy systems and the wide variety of technology providers, each with their own carefully protected intellectual property, have always made it difficult to share even standard data. But just as companies have lately shown a willingness to forgo customisation and control in exchange for the convenience of ‘software as a service’ and cloud technologies, they’ll be more willing to embrace the standardised offerings that will enable increased data and intelligence sharing through business networks.
Nobody’s underrating the importance of cyber security either. By implication, collaborative networks increase the volume of sensitive commercial data that is collected, while procurement decisions can create the risk that vendors will treat sensitive intellectual property with less care than required. But as nations, albeit belatedly, begin to cooperate on the menace of cyber attacks, the risks of such attacks are likely to be reduced.
Collaborative networks – or digital supply chains, if you like – are also based on one obvious fact: you can’t keep banging your head against a wall for too long. Explained Bill He, Vice President of Global Strategic Sourcing for paper giant Kimberly-Clark: “The low-hanging fruit [in supply chains] is gone. You can only reduce procurement costs by 10 percent a year for so long.” And ultimately that tactic will rebound on the procurer, warn management consultants, because suppliers will start cutting corners to maintain their margins.
Worse, it also prevents the development of mutually rewarding relationships because it prevents companies and suppliers from establishing a more mutually beneficial relationship. As McKinsey said, in standard procurement deals, one company sends out a request for proposal, gets the proposals, picks a winner, and negotiates a deal. But, explained He, this process only reveals a small fraction of what the purchasing company really needs and about the same amount of what the supplier could actually provide. Thus, both purchaser and supplier miss out on a lot of knowledge they could both use.
However, the technology must first be up to the task, with networks allowing companies to transact quickly, collaborate in real time, and access information from their network of partners when and where they need it. As this starts to happen, we’re entering an era of ‘knowledge- based sourcing’, a collaborative approach that allows suppliers and customers to share much more information up front to jointly identify opportunities that will deliver benefits for both parties, whether it’s three months from today or five years from now. “Knowledge-based sourcing is the future of the business network”, concluded he.
Part of the series: Our Digital Planet: Data-Driven Business Frameworks Are the Future. In a Hyperconnected World, the Collaborator Is King
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