Larry Huston was vice president of knowledge and innovation for many years at Procter & Gamble. During that time, he was the architect of its Connect Develop program, the creator of P&G's Brand Bootcamp operation, and innovation leader for the company's global fabric and homecare business, among other initiatives. He is now managing partner of 4INNO, and recently joined Wharton's Mack Center for Technological Innovation as a senior fellow. Knowledge@Wharton asked Huston to talk about innovation and its role in the global economy. 

Knowledge@Wharton:  I'd like to start out by asking you, what is the Connect Develop approach to innovation and why is it innovative?

Huston: Terrific question. You've got to start with: What is innovation in most companies today? For most companies, it's all about inventing everything yourself. Yes, some companies do joint ventures. They mostly do that out of trying to fill in a weakness or a capability gap. But most companies invent everything. Procter & Gamble invented 90% of its innovations. Everything came from basically within the four walls of P&G. We had 9,000 R&D people at Procter & Gamble, but the world has about 1.8 million people who are equal in education and have access to first-class lab facilities, [like] P&G people.

So basically, Connect Develop is all about redefining our organization as 1,809,000 people – that  1.8 million plus our 9,000 people – and then leveraging the intellectual assets and capabilities of the world in a connected model to bring big innovations to our consumers. So it's about connecting, not just inventing. You can think about it as: You want to continue to invent, but you want to connect. It's what you know plus who you know on the outside, so that you can really create a lot of value for your customers or consumers.

Knowledge@Wharton: What are some of the challenges that come up when you use that kind of model? 

Huston:  Well, the biggest challenge of making a company into a connected innovation company is number one: It's got to be a strategic capability. This is a strategic platform for a corporation. This is not something that a department within a pharma company or a car company or a consumer products company can do. This has to be something where the CEO and the management team says, we're going to make a fundamental shift. We believe that our current invented model is not sustainable to create the needed levels of top line growth we need, and that we've got to find a new way to create shareholder value and value for our consumers or customers.

So that's why I say the senior management has to be involved. It's really incumbent upon the CEO and the top management to say, we really don't think our current innovation model can create the needed levels of growth. If you take a company like Procter & Gamble, we have to create 7% growth per year from innovation. This is a $72 billion company. That means we have to create $5 billion a year. Imagine if you're GE, which is well over a $100 billion company, what you have got to do.

Is our organization capable of embracing all the new science that's coming at us? Bioscience? Nanotechnology? You can't. There's not enough money to embrace the new technology and build all the capacity you need for all the stuff that's coming at you, yet create all these needed levels of growth. So we fundamentally decided that the current R&D model or innovation model that we are following and most companies are following, is a broken model. It's not sustainable. So when the top officers of the company reach that conclusion, it's time to change.

Knowledge@Wharton: I think you're quite right that a number of companies are starting to hear the wake-up call. They want to be innovative, but very often they don't know how. What do you find are some of the main barriers to innovation within companies that want to be innovative? 

Huston:  Well, I think, other than really having the will and walking the talk. Other than that, and assuming those things are in place, what's the next thing that you need to do? One of the things that you need to do is to be very clear on a very basic model, which is how do you combine what's needed with what's possible. At its core, at its essence, innovation is bringing together a really deep understanding of what's needed from the customer with what is possible technically. When those two things come together, there's a sweet spot that happens and you can create products that delight your customers.

Often, a major issue is that companies just simply do not know the needs of their consumers or customers. They know obvious needs or top line needs, but often the reason the products fail in the marketplace is because the concept is wrong.

Getting very clear on the consumer need and really understanding that at a deep level, at a price consumers are willing to pay, is what I mean by the market concept and often many, many failures. I've looked at hundreds of products. Probably 60% to 70% of the time, the source of the failure is that they didn't understand the consumer. So just think of your product, things that have failed for you. Just go down your list and say, was this a technology failure or a concept failure? Often they are concept failures.

Knowledge@Wharton:  How can companies fail to understand what the consumer wants or needs when they spend millions of dollars in market research?

Huston:  Well that's the problem. You tend to ask questions, number one, with pre-conceived notions, so you don't have a good discovery process. Consumers in focus groups often tell you what you want to hear. Focus groups are like the movie "Groundhog Day." I've been involved with developing new products. On average, you have eight consumers in a focus group and each consumer gets 12 minutes of airtime and you proceed to do focus groups from city to city. It's like the movie "Groundhog Day" -- over and over again. Consumers are very slick in either grandstanding with other consumers or telling you what you want to hear. They're very confusing.

Look how Budweiser owns, and really owns, the relationship with men. Budweiser isn't about beer; it's about guy-to-guy relationships. What you really want to understand is one consumer in terms of mind, body, soul and task. Map a holistic experience and spend 12 hours with one consumer spent over a one-month period [instead of] running 50 focus groups.

Knowledge@Wharton: We were talking sometime ago in this very room to senior consultants from the Boston Consulting Group. They had written a book called Payback about innovation and their argument was that the problem that companies face is not so much that they lack for ideas. In fact, there are too many ideas. Their real challenge is taking those ideas and getting and implementing them in a way that you can make innovation pay for itself. Do you think that's right and how do you manage that in your process?

Huston:  Well, number one, I disagree with BCG. The question is: Let's assume that you have a good idea. How do you get a good return on it? Well, the major thing that I think is important early on is to do financial modeling and good pro-forma work and identify killer issues along with the ideation process.

To really have the concept process and the innovation process, [you should] be very informed by the financials on an innovation. Most companies go and invent things, and then at the end figure out, "How am I going to price it?" They find that it's priced too high; the consumers aren't going to pay for it. And so what you've really got to do is move way upfront the whole financial modeling and identification of killer issues so that you can be successful. That's one very important thing.

Knowledge@Wharton:  What are some of the challenges of launching new products in global markets? How would you sum up your innovation philosophy?

Huston:  In global markets, I think probably the biggest challenge for most companies is that they take an idea from a western geography, let's say the U.S. or Europe, and just basically try to take the cost out -- to get the price down in order to sell it in India or China or Indonesia, or wherever it might be. That mentality has been proven to lead to a lot of failure.

You have to start with a clean sheet of paper and say, "What are the needs of these consumers?" You have to respect the needs of these consumers as unique. You have to design a product at a price point that meets their needs under their local conditions. That is the biggest challenge that the companies face. They have to develop the local consumer research, technology and sourcing strategies in each region in order to create terrific products at a price that consumers find delightful.

Knowledge@Wharton:  How would you sum up your philosophy about innovation?

Huston:  I would say my innovation philosophy is that it's all about superior insights and intellect. It's not all about money and scale. It's knowledge driven and connections driven. To me, creativity is about connecting things. People sometimes confuse creativity and innovation. It's really about having deep insights and connecting them: the consumer, the technology.

The first question should be, do we already have it solved some place in our organization? Secondly, if not, has the world solved it? Most often, the world has solved it. Finally, if it's not inside, and the world hasn't solved it, then go invent it yourself.

For the full text of this article, or to listen to the Podcast of this interview, go to http://knowledge.wharton.upenn.edu.