The Challenge
By 2000, Procter & Gamble's innovation pipeline was drying up despite spending $2 billion annually on R&D. New product success rates were declining, development cycles were lengthening, and the company's 7,500 researchers couldn't keep pace with market demands across hundreds of product categories.
The traditional R&D model — invent everything internally — was hitting diminishing returns. P&G had brilliant scientists, but they represented a tiny fraction of the world's brainpower. How do you access the other 99.9% of innovation happening outside your walls?
The Approach — Tools in Action
Lafley applied Connection Circles to map P&G's innovation ecosystem:
- Internal: 7,500 R&D employees generating ideas
- External (unmapped): 1.5 million+ scientists and engineers worldwide with relevant expertise, universities, startups, suppliers, competitors in other geographies, retired scientists, independent inventors
The circle mapping revealed that P&G was trying to be a self-contained innovation island in an ocean of potential collaborators.
Balancing Feedback Loop explained why internal R&D was stalling: more internal investment → higher expectations → more pressure on each project → risk aversion → fewer breakthrough ideas → demand for more investment. The system was self-defeating. Goodhart's Law was at work: internal metrics like "number of patents filed" and "R&D spending as % of revenue" had become the targets. But patents ≠ innovation, and spending ≠ results. The metrics had become the goal rather than the measure.Lafley launched "Connect + Develop" — a systematic program to source 50% of innovation from outside P&G. Not outsourcing R&D, but connecting internal needs with external solutions.
The Outcome
Connect + Develop transformed P&G's innovation engine:
- External innovation sourcing went from 15% to 50%+ of new products
- R&D productivity increased 60% while spending as a percentage of sales actually decreased
- Produced hits like Swiffer (licensed from a Japanese inventor), Crest Whitestrips (adapted from a 3M technology), and Olay Regenerist (external partnership)
- The model was adopted by dozens of Fortune 500 companies
- Proved that open innovation could systematically outperform closed R&D
Lafley's insight: the best ideas aren't always inside your building. Build the connections to find them wherever they exist.
Key Takeaway
Beware of Goodhart's Law in innovation: when R&D spending becomes the goal instead of the measure, innovation suffers. Map your connections to find ideas wherever they exist — not just inside your walls.
Tools Used in This Story
Connection Circles
Systems ThinkingUnderstand relationships and identify feedback loops within systems
Balancing Feedback Loop
Systems ThinkingMechanism that pushes back against a change to create stability
Goodhart's Law
Systems ThinkingUnderstand why metrics stop working when they become targets