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University of St. Gallen Graduate School of Business, Economics, Law and Social Sciences (HSG) Master of Arts in Strategy and International Management Integrating open innovation in the strategic planning process January, 27 th 2009 Submitted by Ligia Folea Referee: Prof. Dr. Günter Müller‐Stewens Master Thesis
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Page 1: Integrating open innovation in the strategic planning process

UniversityofSt.Gallen

GraduateSchoolofBusiness,Economics,LawandSocialSciences(HSG)

MasterofArtsinStrategyandInternationalManagement

Integrating open innovation inthestrategicplanningprocess

January,27th2009

Submittedby

LigiaFoleaReferee:Prof.Dr.GünterMüller‐Stewens

MasterThesis

Page 2: Integrating open innovation in the strategic planning process

‘No problem can be solved from the same consciousness that

created it.’

—Albert Einstein

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Tableofcontents

i

Tableofcontents

TABLEOFCONTENTS ......................................................................................................................I

LISTOFFIGURES ............................................................................................................................III

LISTOFABBREVIATIONS............................................................................................................ IV

ABSTRACT......................................................................................................................................... V

1 INTRODUCTION ........................................................................................................................11.1 RELEVANCEOFTHEPHENOMENON.................................................................................................... 11.2 ORGANIZATIONOFTHETHESIS ........................................................................................................... 21.3 RESEARCHGAPANDRESEARCHQUESTION ....................................................................................... 21.4 KEYTERMDEFINITION ......................................................................................................................... 41.4.1 Openinnovation.............................................................................................................................41.4.2 Strategicplanningprocess........................................................................................................5

2 THEORETICALFOUNDATIONS .............................................................................................72.1 STRATEGYPROCESSRESEARCH........................................................................................................... 72.1.1 Historicaloverviewonthemaindebatesinstrategyprocessresearch ................72.1.2 Makingstrategicplanningmoreinnovative–ideasfromliterature .................. 10

2.2 OPENINNOVATIONRESEARCH ..........................................................................................................112.3 INTERMEDIATECONCLUSIONANDDISCUSSION..............................................................................13

3 METHODOLOGY ..................................................................................................................... 143.1 RESEARCHAPPROACH–MULTIPLECASESTUDY ...........................................................................143.2 CASESELECTION ..................................................................................................................................153.2.1 Thefastmovingconsuminggoodsindustry ................................................................... 153.2.2 Twomajorcompaniesinthefastmovingconsumergoodsindustry .................. 16

3.3 THEPROCESSOFDATACOLLECTIONANDDATAANALYSIS ..........................................................173.3.1 Datacollection............................................................................................................................. 173.3.2 Dataanalysis ................................................................................................................................ 18

4 ACASESTUDYOFTWOMNCINTHEFMCGINDUSTRY............................................. 194.1 CASE1:PROCTER&GAMBLE ...........................................................................................................194.1.1 FactsandFigures ....................................................................................................................... 194.1.2 Strategicplanningsystem ...................................................................................................... 214.1.3 Howtomakestrategicplanningmoreinnovative ...................................................... 22

4.2 CASE2:UNILEVER...............................................................................................................................294.2.1 FactsandFigures ....................................................................................................................... 29

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4.2.2 Strategicplanningsystem ...................................................................................................... 314.2.3 Innovatingstrategicplanning .............................................................................................. 33

4.3 ATHEORYOFHOWSTRATEGICPLANNINGPROCESSCANBEMADEMOREINNOVATIVE.........394.3.1 Innovatingtheplanningprocessitself .............................................................................. 404.3.2 Innovatingstrategyformulation......................................................................................... 424.3.3 Innovatingstrategyimplementationandcontrol ....................................................... 454.3.4 Innovatingthecompany’sculture ...................................................................................... 48

4.4 HOWOPENINNOVATIONMAKESTHESTRATEGICPLANNINGPROCESSMOREINNOVATIVE ..494.4.1 Addressingthe“Who”............................................................................................................... 514.4.2 Addressingthe“What” ............................................................................................................. 534.4.3 Addressingthe“How” ............................................................................................................... 55

5 DISCUSSION ............................................................................................................................. 585.1 CONTRIBUTIONSTOTHETHEORY.....................................................................................................585.2 LIMITATIONSANDRECOMMENDATIONSFORFUTURERESEARCH ..............................................595.3 RELEVANCEFORTHEPRACTITIONERS.............................................................................................60

ACKNOWLEDGEMENTS............................................................................................................... 61

APPENDIX1:INTERVIEWLIST................................................................................................. 62

APPENDIX2:INTERVIEWGUIDELINES ................................................................................. 63APPENDIX2.1.QUESTIONSABOUTTHESTRATEGICPLANNINGPROCESS(EXAMPLE).......................63APPENDIX2.2.QUESTIONSABOUTOPENINNOVATION(EXAMPLE) .....................................................64

APPENDIX3:LISTOFPROPOSITIONSANDCROSS­CASEANALYSISTABLE .............. 65

REFERENCES................................................................................................................................... 69

PRESSANDINTERNETRESOURCES ........................................................................................ 78

DECLARATION ............................................................................................................................... 81

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Listoffigures

iii

Listoffigures

FIGURE1ORGANIZATIONOFTHETHESIS ..............................................................................................................................2FIGURE2RELATIONBETWEENSTRATEGYANDPROCESS ...................................................................................................6FIGURE3:DELIBERATEVS.EMERGINGSTRATEGY ...............................................................................................................8FIGURE4TOP3COMPANIESINWORLDMARKETSHAREINPERSONALCAREANDHOUSEHOLDCARE ................... 16FIGURE5FACTSHEET:PROCTER&GAMBLEIN2008 ................................................................................................... 20FIGURE6P&GORGANIZATIONALSTRUCTUREIN2008.................................................................................................. 21FIGURE7STRATEGYPROCESSCYCLEATP&G ................................................................................................................... 21FIGURE8OVERVIEWPLAN–INNOVATINGSTRATEGICPLANNINGWITHINP&G ........................................................ 23FIGURE9INNOVATIONFUNNELATP&G............................................................................................................................ 25FIGURE10P&G’SSPECIALSTRUCTURESTOCAPTUREIDEAS ......................................................................................... 26FIGURE11P&G’SOPENARCHITECTURESTRUCTURE ...................................................................................................... 27FIGURE12FACTSHEET:UNILEVERGROUPIN2008...................................................................................................... 29FIGURE13UNILEVERORGANIZATIONALSTRUCTUREIN2008...................................................................................... 30FIGURE14STRATEGYPROCESSCYCLEATUNILEVER ....................................................................................................... 33FIGURE15STEP‐UPININNOVATIONPROCESS................................................................................................................. 34FIGURE16RESOURCEALLOCATIONFORR&DONLEVELSOFORGANIZATION............................................................. 35FIGURE17INNOVATIONFUNNELATUNILEVER ............................................................................................................... 35FIGURE18OVERVIEWPLAN–MAKINGSTRATEGICPLANNINGPROCESSMOREINNOVATIVE .................................... 40FIGURE19OVERVIEW‐INNOVATINGTHEPLANNINGPROCESSITSELF......................................................................... 40FIGURE20OVERVIEW–INNOVATINGSTRATEGYFORMULATION .................................................................................. 42FIGURE21OVERVIEW–INNOVATINGSTRATEGYIMPLEMENTATIONANDCONTROL.................................................. 45FIGURE22INNOVATIONFRAMEWORK................................................................................................................................ 46FIGURE23OVERVIEW–INNOVATINGTHECOMPANY’SCULTURE.................................................................................. 48FIGURE24OVERVIEW–INNOVATINGSPPTHROUGHOPENINNOVATION................................................................... 50

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Listofabbreviations

iv

Listofabbreviations

BU BusinessUnit

e.g. exempligratia(forexample)

ed. Edition

Ed. Editor

etal. etalii(andothers)

etc. etcetera(andsoon)

FMCG FastMovingConsumerGoods

GBU GlobalBusinessUnit

HPC HealthandPersonalCare

IP IntellectualProperty

MDO MarketDevelopmentOrganization

MNC MultinationalCompanies

OI OpenInnovation

p.a. perannum

PGS PathtoGrowthStrategy

R&D Research&Development

SPP StrategicPlanningProcess

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Abstract

v

Abstract

A recent McKinsey Global Survey (2006) highlights a high discontent with the

strategic planning processwithin practitioners. Although the existing literature on

strategyresearchpointsthatstrategicplanningcontinuestoplayanimportantrole

inacompany,veryfewattempttoinvestigatehowtheprocesscanberedesignedto

supportreal‐timestrategymakingandtoencourage“creativeaccidents”.

This thesis aims at providing researchers and practitioners with an integrated

analysis of how growth ideas can be fostered within each phase of the strategic

planningprocess.Inparticular,itinvestigateshowopeninnovationcanbeusedasa

tool to account for more innovative strategy making. The thesis is based on a

multiplecasestudyoftwoleadingcompaniesfromthefastmovingconsumergoods

industry:ProcterandGambleandUnilever.

Theobservationsfromthecases,theinsightsfromthecompanydocuments,articles

and reports andexisting theory are analyzed andpropositions aredeveloped. The

author’s perspective of how strategy making can be made more innovative is

developed along the following structure: strategy process itself, strategy

formulation, strategy implementation and control and innovation of the company

culture.A special chapter isdedicated tohowopen innovation, ifmadecentral to

the businessmodel, can foster new strategic options. In this chapter, the analysis

starts from how open innovation affects the company positioning, customer

segments and geographies, then looks at how open innovation impacts the

company’s portfolio of products and services offered and finally shows how open

innovation affects company capabilities. It thus attempts to offer an integrative

perspectiveofthedifferentareaswhereopeninnovationallowsforthegeneration

offuturecompanygrowth.

The study concludes with the implications for research and practice, including

recommendationsforfutureresearch.

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Introduction

1

1 Introduction

1.1 Relevanceofthephenomenon

According to a McKinsey Quarterly Global Survey (2006), fewer than half of the

participating executives are satisfied with their company’s approach to strategy

planning. Furthermore, executives raise significant concerns about the way their

companyexecutes the strategy, communicates it, aligns theorganization to it and

measuresperformanceagainstit.

Ontheacademicsside,manyresearchersincludingHamelandPrahalad(1994)have

pointedoutthattraditionalstrategicplanningfailstotakeintoaccountthecreative

processesanddiscoveriesthatgeneratebreakthroughsandpromptgenuineshiftsin

strategicdirection.Furthermore,planninghasbeenaccusedofstiflingcreativityby

eliminatingtruevisionandsynthesisfromtheprocessofchange(Mintzberg,1994b;

Hamel,1996;Grant,2003).Hence,bothacademics(Bower,1970;Burgelman,1991)

and practitioners (McKinsey Global Survey, 2006; Lovallo and Mendoca, 2007;

Stephenson, Pandit, 2008), agree thatmany companies get little value from their

annualstrategic‐planningprocess.

Despitethesenumerouscriticstostrategicplanning,itremainsapervasivemethod,

influentialacrosstheworld,perhapsnowadaysmorethanever.Since1996,Bain&

Company’ssurveyofmanagementtoolshasregularlyreportedstrategicplanningto

beusedbyaround80percentofitsrespondingcompanies,andin2007itwasfound

to be the most popular tool of all, with an eleven‐year record of 88 per cent of

companies using it (Rigby and Bilodeau, 2007). Another consultancy company,

Accenture, describes the rising appointment of ‘the Chief Strategy Officer’, with

supporting departments, in large multinational companies around the world

(Breene,NunesandShill,2007).

Thus,bothresearchers(HamelandPrahalad,1994;Wilson,1998)andpractitioners

(Beinhocker and Kaplan, 2002; Foster and Kaplan, 2001) agree that the strategic

planningprocessshouldberedesignedtosupportreal‐timestrategymakingandto

encourage “creative accidents”. Despite its high relevance, this issue remained

unsolved.Aresolutionishighlyneeded.Managersneedguidanceondoingitbetter,

whileacademianeedstounderstandwhyitisstilllargelyusedafteralltheseyearsof

criticism.

Basedonanextensiveliteraturereviewandtwocasestudiesfromthefastmoving

consumergoodsindustry,thisthesisaimsatdefiningmethodstomakethestrategic

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Introduction

2

planningprocessmoreinnovative,withaparticularfocusonexaminingthepotential

roleopeninnovationcanplayintheprocess.

1.2 Organizationofthethesis

Thisthesisconsistsoffivechapters(seeFigure1).Thefirstchapterelaboratesonthe

relevanceofthephenomenonandtheresearchgapdiscovered.Buildingonthis,the

purpose of the thesis is precisely defined and a research question is derived. This

chaptermainlydrawsonthereviewedliterature.

The second chapter first identifies relevant literatureon strategyprocess research

and on open innovation, and then introduces the main strategy process models

described across academic literature. The third chapter discusses the key

methodologicalissues,includingmethodsusedfordatacollectionanddataanalysis.

Thefourthchapterrepresentstheempiricalpartofthisstudy.Inthissectionthetwo

chosencasestudiesareanalyzedandpropositionsaredeveloped.

The final chapter draws mainly on the interim conclusions found at the end of

Chapter2and4andreflectsthequestioninitiallyoutlined.Itsummarizesthethesis’

contribution to the research field, the implications it brings for practitioners and

outlinesfurtherresearchopportunities.

Figure1Organizationofthethesis

Source:ownillustration

1.3 Researchgapandresearchquestion

Atitspeakinthe1970sand80s,planningwasthecentralactivityofmodernfirms,

which was thought to enable them to achieve a competitive advantage. On the

academics’ side, influential literature stems during this period, shaping the way

managersthoughtaboutstrategicplans(Bower,1970;Burgelman,1983;Mintzberg,

1978).However,inthelastcoupleofyears,researchonthissubjectlostmomentum.

AsWhittingtonandCailluet(2008)argue,researchonstrategicplanninghasnotkept

upwiththeimplicationsbroughtaboutbynewdecentralizedandnetworkedforms

of organization. Meanwhile, planning remains a pervasive practice in today’s

organizations, one that is taking on new forms far removed from the academic

stereotypesoftwodecadesago.

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Introduction

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Intermsof focus,empiricalstudiesareconcentratedontwobroadareas.Thefirst

area is the impact strategic planning has company performance and the role

strategicplanningtakesinstrategicdecision‐making,whilethesecondareaexplores

theorganizationalprocessesofstrategyformulation(Grant,2003).Whilewritingsin

the two areas are extensive, research has been “limited by the lack of empirical

investigationofthephenomenon[strategicplanning]itself“(Grant,2003).Thislack

ofempiricalevidencetogetherwithchangingenvironmentalconditions,suchasthe

Internetboom,andincreasingdifficultytomaintaincompetitiveness,ledtoarevival

of the strategic planning topic. Authors such asGrant (2003) state that there is a

knowledge gap concerning the formal strategic planning systems. Furthermore,

ratherthanspeakingaboutadeclineofstrategicplanninginthelate1990s,theways

companiesconductthisprocesshasfundamentallychanged.Thus,Whittingtonand

Cailluet(2008)callforanewperspectiveonstrategicplanning,seenasacraft.This

involves going beyond the performance implications of the stereotypical strategic

planning process and examining intimately the kind ofwork that is actually being

done.

Thefocusontheintegrationofinnovationunderitsmanyformswaschosenbecause

studies (Hagel and Brown, 2006; McKinsey Global Survey, 2008; Sousa, 2007)

concludethatthis isamongthemostsignificantdriversofacompany’ssustainable

growth. Moreover, companies have realized that they could come up with even

more innovative ideas to enhance growth and limit risks by involving external

partners.Thatiswhyopeninnovationisbeingincreasinglyusedasatooltotapnot

only in the knowledge within the company, but also outside it in order to reach

beyond the existing core competencies and achieve higher growth (Chesbrough,

2007;ChesbroughandSchwartz,2007;Chiaromonte,2006).Moreover,thetopicof

openinnovationisstillanoveloneandtheexistingliteratureinthisfieldisupuntil

now limited (Fredberg, Elmquist and Ollila, 2008), in terms of the amount of

publications and authors that havewritten about the subject. In addition, a large

part of the existing literature is practitioner focused,which valuable nevertheless,

doesnotprovidemuchtheoreticaldevelopment.

Assuch,thisthesisaimstocoverthisresearchgapandadvancestowardslinkingthe

strategyprocessresearch literaturewiththefieldofopen innovation.Thepurpose

of this endeavor is to create a deeper understanding of how to achieve a more

innovative strategic planning process by making use of open innovation. Thus, it

addressesthefollowingresearchquestion:

Howdoestheintegrationofopeninnovationmakethestrategicplanningprocess

moreinnovative?

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Introduction

4

1.4 Keytermdefinition

Beforegoingintoabriefdescriptionoftheacademicstreamsrelevantforthisthesis,

a common understanding over the terms under analysis needs to be established:

openinnovationandstrategicplanningprocess.

1.4.1 Openinnovation

The concept of open innovation represents an extension to the term innovation.

Both in the theory and in the practice of innovation management, a generally

accepted notion of the term innovation is found to bemissing. As such, different

criteria have been used to describe innovation (Hauschildt and Salomo, 2007;

Lecker,2005).

According to Hauschildt and Salomo (2007), existing definitions of the term

innovation share the following underlying particularities: innovations are

“qualitativelynewproductsorprocesseswhichmarkedlydifferfromthepreceding

status”.Inthisthesisinnovationisusedfromaneconomicperspectiveasdefinedby

Schumpeter(1934),whoconsiderstobeinnovationanintroductionofnewgoods,a

newqualityofgoods,anewmethodofproduction,anewmarket,anewsourceof

supplyoreventhechangingofruleswithinanindustry.

Innovation is different than invention, as the latter becomes an innovation only

when it is commercially exploited (Hauschildt and Salomo, 2007; Roberts, 2007).

Drucker (1985, p. 67) supports this view and highlights the importance of added

valuebydefininginnovationas“themeansbywhichtheentrepreneureithercreates

new wealth‐producing resources or endows existing resources with enhanced

potentialforcreatingwealth”.

Chesbroughintroducedtheconceptofopeninnovationin2003asaresponsetothe

changingprinciplesof innovation.Thetermrefersto“theuseofpurposive inflows

and outflows of knowledge to accelerate internal innovation, and expand the

markets for external use of innovation” (Chesbrough, 2003, p. 43). Although

Chesbrough’stermhasbecomeestablishedintheacademicandpracticeliterature,

there are synonyms for this model: “the convergence of like‐minded parties”,

“distributed co‐creation” (Burghin, Chui and Johnson, 2008), “collaborative

innovation”(RigbyandBilodeau,2007).

Open innovation isaparadigm,whichassumesthatcompaniescanandshoulduse

externalaswellasinternalideasandpathstomarket,astheylooktoadvancetheir

technologies(Chesbrough,2006). Inthisregard,theopeninnovationmodelcanbe

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Introduction

5

compared toapokergame,whereeachplayermustbeup todatewith the latest

informationandwherealthoughtheplayerknowshis/herresources, theirvalues

are uncertain. During the game, as new information emerges, the player has to

decidewhetherto investadditionalmoneytostay inthegameinordertoseethe

nextcard.Thus,optionsforfuturebusinessfieldsneedtobecreatedandbusiness

modelsneedtobeexpanded(Chesbrough,2003).

1.4.2 Strategicplanningprocess

Thetermstrategyhasreceivedvariousdefinitionsintheacademicliterature,aswell

as in practice. In some cases, the words “strategies”, “plans”, “policies” and

“objectives”areinterchangeablyused.Porter(1996)usesthetermstrategyforthe

processthroughwhichacompanydefinesitspositiononthemarketbychoosinga

specificsetofactivitiestodeliveranuniquemixofvalue,tomaketrade‐offs,andto

forgefitamongactivities.Mintzberg(1987)definesstrategyintermsofthefiveP’s:

plan,ploy,pattern,position,andperspective. Hearguesthatnotasingleviewcancapture the totality ofwhat strategy is, but that they are all equally valuable and

usefultocreateacomprehensiveviewonthecomplexityofthisphenomenon.

Inpractice,strategyiscommonlyunderstoodas“apathfromthepresenttoafuture

desirable goal. As this path is expressed in language, strategy becomes “a plan of

how a firm intends to move from one position to another” (Lechner, 2005). In

research,ontheotherhand,strategy“doesnotconcentrateonwhatsomeonesays

orwantstodo,butlooksattheactualeventsgoingoninfirms”(Lechner,2005).

In this thesis, we reconcile these different definitions and describe strategies as

managerial guidelinesor statements,which servedecision‐makingand subsequent

actionbyprovidingpointsofreference.Theyareintendedtoensurecoordinationin

asituationwhereanumberofmanagersareactingatdifferentplacesandmoments.

Furthermore,inordertounderstandwhatprocessmeans,wechooseVandeVen’s

(1992,p.162)understandingofthisconceptas“asequenceofeventsandactivities

thatdescribehowphenomenachangeovertime”.

Strategicplanningprocessisnotprimarilyconcernedwithoptimizingsuccessduring

the planning period itself (Grünig and Kühn, 2006). Instead, the strategic planning

processfocusesontheinvestmentsthatwillberequiredtoensurethepreservation

ofexistingsuccesspotentialsandtobuildnewones.Therelationbetweenstrategy

andprocessisillustratedinthegraphbelow.

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Introduction

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Figure2Relationbetweenstrategyandprocess

Source:ownillustrationbasedonGrünig&Kühn,2006

Thus,thisthesisinvestigateswaystomakethestrategicplanningmoreinnovativein

termsof coming upwithmore ideas for growth, or even changing the company’s

business model. It does so by analyzing two companies from the fast moving

consumer goods industry. From several instruments capable of fostering a more

innovative strategic planning process, the focus will be on placed on open

innovation. The reason for doing so lies in the fact that open innovation allows a

companytogobeyonditscorecompetenciesandachievesustainablegrowth,while

bettermanagingtherisksthatcomealongwiththeinnovationprocess(Chapter4.4).

The choice of the industry, aswell that of the two companies, is explained in the

methodologysectionofthisthesis.

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Theoreticalfoundations

7

2 Theoreticalfoundations

This chapter establishes the research context and theoretical background of the

topic.Tothispurpose,themaintheoreticaldebatesintheresearchfieldsofstrategy

processandopeninnovationarediscussed.

This chapter begins with (2.1) with the main debates in the strategy process

research,whicharereviewedinchronologicalorder(2.1.1).Section2.1.2bringsinto

discussionideasfromliteratureonhowtomakethestrategicplanningprocessmore

innovative,ingeneral.

The chapter proceeds in Section 2.2 with a presentation of the relevant research

streams in theopen innovation literature.After this literature review, Section2.3.

draws on the implications raised by literature findings for this thesis and,

consequently,theresearchquestionisrefined.

2.1 StrategyprocessresearchWithinstrategyresearch,strategicplanningremainsoneofthecoreareasofstudyin

academicliterature.Inpractice,itisoneofthemaintoolsinstrategicmanagement

(Rigby,1999).Planningisimportantbecauseithelpscompaniesadaptbettertothe

changingenvironmentalconditions.Furthermore,strategicplanning isveryspecific

tothecompany.Thus,itcannotbeoutsourcedorconceivedentirelybyexternals.In

otherwords,strategicplanningisdependentonthecompany’sculture, leadership,

externalenvironmentcomplexityandorganizationalstructure.

2.1.1 Historicaloverviewonthemaindebatesinstrategyprocessresearch

The origins of the concept date back to Chandler (1962), who shows how the

challengesofdiversity,implicitinagrowthstrategy,callforimaginativesolutionsto

be used in the administration of a company. Chandler’s work initiates a heated

debateon‘topdown’vs.‘bottomup’planning(Bower,1970;Mintzberg,1978;Noda

& Bower, 1996; Quinn, 1980). Ansoff (1965) builds upon Chandler’s ideas and

introduces the concept of strategic planning, which means strategy seen as a

conscious plan to align the firm with the opportunities and threats posed by its

environment. Andrews (1987) adds to this the difference between corporate and

business strategy and argues that a company’s current businesses influence its

choice of likely future businesses as well, which is an important insight for

understandingcorporateinnovation.

Inthe1980sand1990s,conventionalideasaboutstrategicplanningarechallenged

for the first time.Forecastsand futureplanningarebecoming increasinglydifficult

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Theoreticalfoundations

8

due to changes and uncertainty in the business environment. Global competition

and innovative entrepreneurs make conventional strategic planning look like an

artifact from the past. During this time, the famous debate between Mintzberg

(Mintzberg1987;Mintzberg1991)andAnsoff (Ansoff1991;Ansoff1994)emerges,

outliningthedifferencetheLearningSchoolvs.thePlanningSchool.

In their research,Mintzberg together withWaters (1985) consider strategy to be

“formedasapatterninastreamofactions”.Suchrealizedstrategyisthoughttobe

acombinationoftheintended(resultingfromtheplannedordeliberateintentionsof

seniormanagers) and theemergent (resulting fromongoing decisions and actions

throughouttheorganization)strategies.

Figure3:Deliberatevs.emergingstrategy

Source:ownillustrationbasedonMintzbergandWaters(1998)

In this approach, senior management continuously focuses on the organization’s

development,thereforelearningaboutprocessesthatworkandthosethatfailover

time.Itiswiththislearningexperiencethatstrategyshouldbederivedandstrategic

planningpracticesinternalized.Inaddition,thelearningapproachallowsstrategists

todealwithcomplexandturbulentenvironments–aprocesswhichtheauthorscall

‘logical incrementalism’. Consequently, the strategy process can be seen as a

“complex interactive process, in which politics, values, organizational culture and

management styles determine or constrain” strategic decisions and actions

(MintzbergandQuinn,1991).

Contrary to Mintzberg, Ansoff (1991; 1994) supports the prescriptive views of

strategymaking,inparticularthe‘planningschool’.Hebelievesthatformalplanning

isbeneficial inboth stableandunstableenvironments.Ansoff argues that rational

decision‐making is less time‐consuming thanMintzberg’s ‘experimental approach’.

Formalization helps produce appropriate alternatives in times of rapidly changing

environments, therefore preparing the organization for different scenarios. This

thinkingmakesstrategicplanningfocusonstrategiccontrol.

Meanwhile, in the business world, General Electric appears to be dismantling its

strategicplanningsystemunderitscharismaticCEOJackWelch.Likewise,McKinsey

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Theoreticalfoundations

9

& Co. consultant Richard Pascale (1984) attributes the success of many Japanese

companies to theirdistrustofbureaucraticand inflexible strategicplanningand to

theirreadinesstolearnincrementallyfromexperienceontheground.

The peak ofMintzberg and Ansoff’s debate is reached in the early 1990s, a time

when long‐termstrategicplanningwas concernedwith short‐termdownsizingand

restructuring activities. During this timeMintzberg (1991, 1994) writes about the

pitfalls of strategic planning and its decay. In his 1990 paper, Mintzberg (1990b)

fundamentally criticizes the prescriptive approaches to strategy formulation.

Essentially, he refers to them as unable to adapt to changing environmental

conditions.Anothercriticalpoint inhisview is that theseschoolsof thoughtmake

false assumptions such as: “the role of conscious thought […]must not only take

precedence over action but must precede it in time and correspondingly the

organizationmust separate theworkof thinkers from thatofdoers”. In addition,

Hamel and Prahalad (1994) claim that companies are responding to a more

competitive and fast‐moving environment by dismantling and downsizing their

strategicplanningdepartmentsandconcludethat“Strategicplanning iswellsuited

to the challenge of extending leadership. It is not well suited to the challenge of

regeneratingnewleadershipandbuildingnewfoundations”.

To sum up,when looking back at the evolution of strategic planning, one notices

howthetopicbuiltupinthe1960and1970s,peakedinthe1980sandearly1990s

and lost attention in the mid to late 1990s. The focus shifted as well, from

conductingstrategicplanning,toformulatingstrategy,tocriticizingitseffectiveness

andimpactoncompanyperformance.

Furthermore, the theme of people involved in the planning process receives

attention.Muchlikethe‘top‐down’vs.‘bottom‐up’debateinthe1960sand1970s,

planning is seen to be restricted to top management or, conversely, divisional

planning is remarked similar to planning that comes from the top level (Wilson,

1998). The learning school concludes that planning is an emergent process,which

should originate from a complex interaction between high‐level individuals

(Mintzberg,1991).

Starting from the observation that strategy is the result of strategic planning

(Mintzberg, 1993, 1994a, 1994b), the concept has considerably evolved. More

recentstudies(Grant,2003)showthatstrategicdecisionsaremadeoutsidetheplan

in response to upcoming opportunities and threats, being thereafter incorporated

into the strategic plans. Thus, asWhittington and Cailluet (2008) argue, strategic

planning scope shouldbe seenmorebroadly. TheStrategyasPractice perspective

advanced by Whittington and Jarzabkowski can help in this regard (Whittington,

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Theoreticalfoundations

10

1996; Jarzabkowski, 2005). Traditionally, strategy research has been concerned

mainlywithstrategyasanorganizationalproperty:abusinesshasastrategyprocess.

StrategyasPracticeaddsthat,aswellasanattributeofanorganization,strategyis

also something that people do. Strategy is a kind of work, a craft (Whittington,

Cailluet,2008).Thus,theAnsoff‐Mintzbergdebateoverperformanceoutcomesand

strategicdirectionsassumestoomuchby looking for thedirect impactofstrategic

planning process on performance. As Robert Merton (1968) points out, an

anthropologistunderstandsthatNativeAmericanrain‐dancersareimportanttotheir

communitiesregardlessoftheamountofrainfalltheyproduce.Thesameisvalidfor

strategicplanning:itisnoteasilyunderstoodfromtheoutside,butitcertainlyhasto

bedancedwell.

2.1.2 Makingstrategicplanningmoreinnovative–ideasfromliterature

Whileplanningprocessesmayvaryamong industriesandcompanies, anumberof

recommendationsastohowstrategicplanningshouldbedonecanbeformulated.

Mintzberg (1994c,1994d)promotesthe ideathatplannersshouldnotbetheones

who create strategies. Instead, planning is concerned with supplying data and

collecting necessary information to create a vision. Behind this thought lies

Mintzberg’sbeliefthatstrategicplanningandstrategicthinkingarenotoneandthe

same activity. Planning is an analytical activity while strategic thinking involves

intuitionandcreativity.Mintzbergpointsoutthe‘fallacies’ofplanning.Thefirstone

isthefallacyofprediction,whichreferstotheassumptionthattheworldstandsstill

while implementation plans are in progress. The organizational environment,

including the competition, does notwait for formalmeetings to take place or for

planstobeapproved.Anotherfallacyliesindetachment.Plannersareplanners,and

managersaremanagers.Bothexisttodotheirjob,butinrealitytheyareeitherboth

thesameorrelyoneachothertodevelopanefficientstrategicplan.Thefinalfallacy

stands in formalization, namely in the assumption that formal systems, especially

mechanical ones, work just as well as human beings. In fact, formal systems can

neverinternalizeorcomprehendinformation;itisthepeoplewithinthesystemwho

synthesizeinformation.

Ifthisistrue,thenhowshouldplanningbeconducted?

In their study, Mintzberg and Waters’ (1985) point to the role of the strategic

planning process as a step‐by‐step effort that shows how to achieve a strategic

vision.Plans,ontheotherhandaretoolstocommunicateandcontrol,tointernalize

anewprogram,budgetorculture. In linewiththisreasoning,plannersareseenas

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catalysts for new, creative strategic ideas that might arise when conventional

assumptionsarechallenged.

On the practitioners’ side, Mankins (2004a, 2004b) claims that most companies

nowadays run strategic planning as a kind of ‘batch’ process, according to a

predeterminedcalendar,andBUdriven.Hisadviceistomovetoamorecontinuous

model of strategic planning,whereby outputs do not take the form of aplanning

document but rather a set direction for the company, issued together with an

accompanying agenda. In addition, he encourages clearer accountabilities: each

itemonthestrategyagendashouldbeassignedtoan individual responsible for it.

While Mankins’ work is very practically oriented, it lacks a certain theoretical

grounding and thus his contributions remain of limited value for the purpose of

academicbackground.

Finally, inaMcKinseyQuarterlystudy,BeinhockerandKaplan(2002)statethatthe

purposeofstrategicplanningistobuild“preparedminds”,thatistomakesurethat

decisionmakers have a solid understanding of the business, its strategy, and the

assumptions behind the strategy, therefore making it possible for executives to

respond swiftly to challenges and opportunities as they occur in real time. The

authors give a practical guide to creatingpreparedmindsby looking at the actors

involved,thedegreeofinvolvementfromthecorporatecenter,theneedforfollow‐

upandthealignmentofrewardsgrantedforachievingstrategicgoals.

As mentioned earlier in the thesis, one tool to make strategic planning more

innovative isopen innovation.Thus, theevolutionof thestrategicplanningdebate

as well as recommendations for a more innovative strategic planning process is

followedbyanopeninnovationliteratureexamination.

2.2 OpeninnovationresearchThereviewof theexisting literatureonopen innovation revealsaveryyoung field

focusedon thedefining the termas such (Chesbrough,2003a,2003b,2004,2006;

Chiaromonte, 2006; Gaule, 2006;West and Gallagher, 2006;West, Vanhaverbeke

and Chesbrough, 2006). The research streams relevant for this thesis investigate

howopeninnovationchangesvaluecreationandstructuresinanorganization,and

whatkindoftoolsandtechnologies,aswellasleadershipstyle,supporttheadoption

ofopeninnovationwithintheorganization.

The first research field on value creation (Chesbrough, 2007; Chesbrough and

Schwarz, 2007; Chiaromonte, 2006) looks at how companies can create value and

capture a portion of that value by engaging in relations with external partners.

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Chesbrough(2003)researchonhightech industriesshowsthatcompaniesneedto

adapt theirbusinessmodels tomakeuseofopen innovationasawaytogenerate

value from their IP. Furthermore, Chesbrough (2007) argues that, by using open

innovation,acompanycanattackthecostsidethough leveragingonexternalR&D

resources, thus saving time and money, and also approach the revenue side by

licensingoutinternaltechnologies.Thesameauthorrevealsthatcompaniesneedto

develop capabilities to experiment with their business models, which requires

commitmentandsupportfromthetopmanagement(Chesbrough,2007).According

to Chesbrough and Schwartz (2007), co‐development partnerships are increasingly

importantintheopeninnovationmodel,whichisinlinewithChiaromonte’s(2006)

argument that outsidepartners are seenaspeers, andnot as suppliers.However,

researchon this topicdoesn’tgoany furtheras toshowhowthebusinessmodels

shouldlooklike.

This is where the second research stream comes into attention investigating the

organizationaldesignofthecompaniesthatareinvolvedinpartnerships.Depending

on who the other party is, studies discuss about vertical architecture integrating

suppliersandcustomers(JacobidesandBillinger,2006;DittrichandDuysters,2007)

oraboutcreationnets (BrownandHagel,2006),whereamultitudeofparticipants

collaborate to create new knowledge. Dittrich and Duysters’ (2007) analysis of

Nokia’s outside contacts shows that for the third generation telephony, Nokia

openedup itsprocessesandengaged inexplorationwithoutside firms.Thissetof

“weakties” impliesamoreorganicwayofworkingthantheprevious“strongties”

exploitationagreementsthatwerebuiltonstablestructures.

Lichtenthaler and Ernst (2006) further discuss the management of boundaries by

introducingnewnotionsfororganizationalattitudes. Inopeninnovation,managers

need to organize the knowledge transactions with the environment. Their major

tasksinknowledgemanagementare:knowledgeacquisition(make/buy),knowledge

integration(integrate/relate)andknowledgeexploitation(keep/sell).

Thethirdresearchfieldanalyzesthetechnologicalinterfacethatenablesthefirmto

collaboratewitha large setof customers.AsarguedbyDodgson,GannandSalter

(2006)thechangeoftheinterfacedemandsachangeintheorganizationalabilityto

absorb,orassesstheoutside influences. Furthermore,theeffectsoftechnologies,

tools, and processes used by open innovation can largely be described as:

coordinating/aggregatingideasandsolutions(Dogdsonetal.,2006);liberatingideas

ascustomershave“stickyknowledge”,which theydonot reveal throughstandard

market research (Piller and Walcher, 2006); and allowing/including ideas and

solutions,whichmeansthattheimplementationofanewworkingsystemneedsto

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bealignedwiththeleadershipoftheorganizationandwiththeroles,responsibilities

andrelationshipsofthepeopleandprocessesinplace(HustonandSakkab,2006).

Finally,thefourthresearchstream,whichinvestigatesleadershipandcultureinthe

openinnovationcontext,statesthatleadershipneedstosupportpeoplestrivingto

beinnovative.Yet,veryfewarticlesactuallyanalyzeleadershipinopeninnovation.

In their research, Witzeman et al. (2006) find that powerful forces inside the

organizationworktoharnesscurrenttechnologyratherthansearchfornewoutside

technologies. Thus, they conclude that the more the firm sources external

innovation, themore it alsoneeds to transform its systems,processes, valuesand

culture.ThisisinlinewithDodgson,GannandSalter(2006)whorecognizethatopen

innovationmakesbothculturalchanges,andnewskillshighlynecessary.

2.3 Intermediateconclusionanddiscussion

The literature on strategy process advises to take a broader view on strategic

planning and see it as a craft. This approach does not discount the traditional

concernwithplanning’simpactonorganizationalperformanceordirection.Infact,it

proposes an extra step: to start with strategic planning process as ‘performance’

(Whittington and Cailluet, 2008), rather than going straight to the economic and

organizationalconsequencesofthisplanningeffort.

Theliteratureonopeninnovationisstillquiteyounganditstheoreticaldepthisyet

to be developed. So far, researchers havemainly explored issues related to open

innovation in general termsandhave concluded that somethingmust change,but

howthischangeshouldlooklikeissofarlessclear.

Hence, this thesis attempts to go deeper into the strategic planning process, by

discussing how strategic planning can be made more innovative and argues in

Chapter4.4thatopeninnovationcanbeusedasatooltoachievethisend.

Therefore, the research question for this thesis presented in Chapter 1.3 can be

refined,bydividingitintwosubsequentinterrogations:

1) What changes in the company’s processes, structure and culture are needed in

ordertomakestrategicplanningmoreinnovative?

2) Howdoestheembracementofopeninnovationmakestrategicplanningprocess

moreinnovative?

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3 Methodology

To answer the considered research question, this thesis follows Punch’s (2005)

methodological approach in qualitative studies. According to Punch (2005), the

research design in a qualitative study should give the answer to three questions:

“Followingwhatstrategy?,Fromwhom?andHow?”

Thefirstsectionofthischapter(3.1)describestheresearchapproachandmotivates

thechoiceofamultiplecasestudy.Section3.2explainstheselectionoftheindustry

andthatofthecases,whereasSection3.3goesintodatacollectionanddataanalysis

processes.Assuch,thischapterprovidesanswerstoallrelevantquestionsregarding

themethodologicalapproachinaqualitativeresearch.

3.1 Researchapproach–multiplecasestudy

A multiple case study methodology is used to answer the two specific research

questions. Firstly, this study attempts to answer a “How” question, which can be

best tackled by using a qualitative research design. Both the general research

question,aswellasoneof the twospecific researchquestionsconcern the“how”

aspect. The second specific question comes as an extension to the first one, to

analyzehowthecompanyadaptsasaresultofembracingopeninnovation.

Secondly,thechoiceforthisresearchdesignismotivatedbythefactthatacomplex

socialphenomenonisaddressed“withinitsreal‐lifecontextinwhichtheboundaries

between phenomenon and context are not clearly evident” (Yin, 2003). As

Ramanujamet.al.(1986)observe,“planningsystemsaremultifacetedmanagement

systemsthatarecontextembedded”.Hence,theycannotbeadequatelydescribed

through quantitative analysis, as the latter are overly “thin” and lack consistency

(BoydandReuning‐Elliot,1998). In sucha case,Yin (2003) suggests theuseof the

casestudymethod,which“allowsinvestigatorstoretaintheholisticandmeaningful

characteristicsofreal‐lifeevents”.

Thirdly, thisparticular topic representsa contemporaryphenomenon (Whittington

and Cailluet, 2008;McKinsey Quarterly, 2006), which has hardly been researched

(Chesbrough andAppleyard, 2007).Moreover, the thesis does not limit itself to a

certaintypeofopeninnovationactivityortoacertainlocationinorfunctionofan

organization.Rather, it looksatall theopen innovationactivitiesbeingpursuedby

the companies under review and how these make the strategic planning process

moreinnovative.Thisholisticandexploratoryresearchapproachisnecessaryasthis

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studyexploresanunaddressed issueand isendeavoring,also for the first time, to

give an overview of the process of integrating open innovation, in general terms.

Thus,asYin(2003)andPunch(2005)pointoutintheirresearchonmethodologyin

social sciences, a collective case study research matches such an exploratory

purpose.

Fourthly,asthestrategicplanningprocessisinternaltothecompany(Rigby,1999),

theresearcherhasnocontroloverhowtheprocesstakesplace.Insuchcaseswhere

theresearcherlackscontroloverevents,Yin(2003)suggeststheuseofacasestudy

method.Lastbutnotleast,thestrengthofthecasestudyapproachliesinitsability

todealwithafullvarietyofevidenceintheformof:documents,artifacts,interviews

andobservations(Yin,2003).Thisconcentrationondatadepthandqualityfacilitates

accesstothemeaningsandinterpretationsofmanagers(Barnes,2002).Thismakes

thecasestudyverystrongintermsofbothconstructandinternalvalidity.

However,externalvalidity is inevitablycompromisedduetothe limitednumberof

companies that can be studied. As Yin (2003) points out, “case studies are

generalizable to theoretical propositions and not populations”. Thus, in order to

makeamorecompellingcase,thisstudyutilizesmultiplecases.

Next,theunitofanalysiswillbedefined.FollowingYin(2003)inthisendeavor,one

lookswhethertheresearchquestionsfavorsoneunitofanalysisoveranother.The

research question is explorative and takes an overall look at ways in which open

innovation can make the strategic planning process within a corporation more

innovative.Thus,theappropriateunitofanalysisisthecorporation.Havingdefined

theunitofanalysis,thecaseselectionprocesswillbedescribed.

3.2 Caseselection

3.2.1 Thefastmovingconsuminggoodsindustry

This study takes two cases from the fast moving consuming goods industry. The

industry choice ismotivated by three reasons. First, as Rigby and Bilodeau (2007)

and Innovaro (2008) indicate, the fastmovingconsumergoods industryusesopen

innovationas a tool to improve their top‐line, aswell as theirbottom‐line results,

moreoftenthanotherindustriesdo.

Secondly, studies on open innovation have been generally focused on high

technologyindustries,whicharecharacterizedbyrapid,unexpectedenvironmental

changesintermsofindustryvelocity.Thus,thisstudytakesanexploratoryapproach

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andextendstheobjectofstudytomiddlevelocity industries,withthefastmoving

consuminggoodsindustrybeingagoodexampleinthisregard.

Thirdly,thenumberofcompanieswhichapplyopeninnovationatalargescaleisstill

limited. The two chosen companiesmentionedby several authors as belonging to

thisselectgroup(Fredberg,Elmquist,Ollila,2008;Innovaro,2008;Pryor,2008).

3.2.2 Twomajorcompaniesinthefastmovingconsumergoodsindustry

This study takes as case studies Procter&Gamble andUnilever, two of themain

playersinthefastmovingconsumergoodsindustry. Inselectingthecompaniesfor

thecasestudy,fourselectioncriteriahavebeenapplied.

The first selection criterion is the use of open innovation as management tool.

AccordingtoRigbyandBilodeau(2007)NorthAmericaandEuropehavethehighest

percentage use of open innovation. Thus, the next step is looking at companies

originatinginthesetwocontinents.

Thesecondselectioncriterioniscompanysize,measuredintermsofworldmarket

share. As companies in the fast moving consumer goods sector usually play in

severalmarketsatthesametime,thepresentstudytakesthePersonalCareandthe

Household Care segments as reference markets for comparison. This choice is

determined by the fact that these two categories have the highest growth and

added value potential according to Euromonitor studies (2007, 2008). As such,

Procter&GambleandUnileverfeatureamongthetopthreecompaniesinthesetwo

categories, ranked by global market share, according to both classifications

(Euromonitor, 2007). While the former has US as country of origin, the latter

originatesintwoEuropeancountries:GreatBritainandTheNetherlands.Thus,these

twocompaniesfulfillthefirsttwoselectioncriteria.

Figure4Top3companiesinworldmarketshareinPersonalCareandHouseholdCare

Source:ownillustrationbasedondatafromEuromonitor(2007)

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The third reason for choosing these two cases is the fact that one of the studied

companiesisknownasabestpracticecaseforimplementationofopeninnovation.

As this study attempts to find an answer to the question of how the strategic

planningprocesscanbemademoreinnovativethroughopeninnovation,selectinga

best practice case is a reasonable approach. Furthermore, in order to ensure the

literalreplication(Yin,2003)ofthefindings,thesecondcompanywaschosenonthe

groundsofsimilarity.

Finally,thefourthcriterionusedisdataavailabilityandaccessibility,wherethetwo

companiesstandoffintermsofopennesstocollaborationforresearchpurposes.

Toconclude,thesefourreasons(1)useofopeninnovation,(2)size,(3)bestpractice

case and literal replication and (4) data availability, recommended the two

companiestobeselectedforthecasestudy.

3.3 Theprocessofdatacollectionanddataanalysis

Thischapterdescribesthemethodsusedfordatacollectionanddataanalysisforthe

twocasestudies.AstheconstructshavealreadybeendescribedinChapter1.4,the

process of data collection is first described (3.3.1); a presentation of the data

analysisprocedurefollowsshortlyafter(3.3.2).

3.3.1 Datacollection

Datacollectionwasdoneinthreesteps:(1)preparationofacasestudyprotocol,(2)

secondary research on the case studies and (3) primary research through semi‐

structuredinterviews.

Inordertoensureforreliabilityofthefindings(Yin,2003),acasestudyprotocolwas

usedandthe findings fromthecaseswerecollected inadatabase.Thecasestudy

protocol comprises of an overview in which the objectives of the cases are

enumerated, followed by a list of questions,which ensures that the researcher is

focused on the type of information needed to be collected. Furthermore, in this

protocoladraftoutlineforthecasestudyreportisincludedtolimittheanalysisto

relevantinformationexclusively.Asasecondstepinthedatacollection,secondary

research on the two companies was done based on internal (company annual

reports,presentations,minutesofmeetings)andexternaldocumentation(articlesin

thepress,casestudies,companyreports).

Thedatacollectionprocesscontinuedwithcontactingknowledgeablepeopleonthe

topicsofopeninnovationandstrategicplanningprocesswithineachcompany.Alist

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of interviews is included in Appendix 1 of this thesis. Personal and phone semi‐

structuredonehourinterviewswerearranged,dependingonthetimeavailabilityof

thecontactperson.Theaimoftheinterviewswastogaindeeperknowledgeabout

the studied phenomenon and to collect unexpected suggestions about the topic.

Notes were taken during the interviews and full reports of the interviews were

writtenupimmediatelyaftereachinterview.Tokeepaclosefocusontheresearch

question,theinterviewscoveredthefollowingareas:

- The planning process, including the annual planning cycle, individuals involved,

methodologiesemployed,contentandroleofmeetingsanddocuments;changes

oftheplanningprocessinthelasttwoplanningtimeframes(1999‐2008).

- General suggestions on how to make the strategic planning process more

innovative.

- Opinions on how open innovation makes the strategic planning process more

innovative.

To sum up, for each case three sources of evidence were triangulated:

documentationprovidedbythecompanyonitswebsite,articlesinthemassmedia

andinterviews.

3.3.2 Dataanalysis

The interviewdatawereanalyzedusingEisenhardt’s (1989) technique formultiple

case study analysis, which is comprised of five steps: (1) within case analysis, (2)

crosscaseanalysis, (3)shapinghypothesis, (4)enfolding literatureand(5)reaching

closure.

Acasestudydescribingeachcompany’sstrategicplanningprocess,theapproachto

open innovation and the changes in processes, goals, organizational changes and

cultural changes that followed,wasprepared.Wheregapsor inconsistencieswere

apparent, the interviewees were contacted to request clarification or additional

information.Thisprocesscorroboratedwiththeuseofmultiplesourcesofanalysis

from internal and external documentation to ensure for construct validity (Yin,

2003). The amount and quality of the data varied depending on the degree of

cooperation and the contact persons’ concerns over disclosing proprietary

information.

According to Eisenhardt’s recommendations (1989) the within case analysis was

followedbyacross‐caseanalysis,inwhichcommonpatternswereobserved.Closure

is reached when the cross case patterns lead to the formulation of propositions,

which were then grounded in the literature in order to strengthen them.

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4 AcasestudyoftwoMNCintheFMCGindustry

Thefastmovingconsumergoodsindustrycanbeconsideredamatureindustry,who

faces one major threat: product commoditization, which leads to deteriorating

profitability for thecompanies (Grant,2007).Thus, thechallenge forallplayerson

this market is to find ways to differentiate against competitors and to keep the

growthmomentuminanindustrywhichregisteredanaverageyearlyincreaseoffive

percent during the last four years, and has been geographically driven by Eastern

Europe and Asia‐Pacific regions (Euromonitor, 2009). Moreover, according to a

Business Insight report (2007), in the fast moving consumer goods industry,

innovationisthekeydriverforgrowthandpositivebusinessperformance.Addedto

this, competitive pressure and limited opportunities to foster technology‐based

advantages create impetus for innovation areas other than product and process

innovation(Dodgson,GannandSalter,2006).Allthesefactorsleadtoathirdphase

of innovation, known as strategic innovation, which refers to new ways of doing

business, “new game strategies” (Grant, 2007; Meziane, 2007), “a process of

exploringtheemergingfuture,understandingthechangingneedsofcustomers,and

usingtheinsightstoidentifynewbusinessopportunities”(JohnstonandBate,2003,

p.ix).Consequently,thereisanever‐increasingneedforthecompaniesactiveinthis

industrytointegrateinnovationintheirstrategies.Thatiswhythisthesisfocuseson

openinnovationasameanstomakethestrategicplanningprocessmoreinnovative.

Thischapterisorganizedasfollowing.InSections4.1and4.2,eachcaseisanalyzed

independently. Each case is organized around the same structure: Section 4.X.1

makes a short presentation of the key facts about the company; Section 4.X.2

presents the strategic planning process; Section 4.X.3 discusses the changes that

havemadestrategicplanningprocessmoreinnovative.Thisisfollowed(Section4.3)

by a cross case analysis in which common patterns evolve around how to make

strategicplanningmoreinnovativeandpropositionsaredeveloped.

4.1 Case1:Procter&Gamble4.1.1 FactsandFigures

Procter&Gambleistheworld'sleadingcompanyinhouseholdcare,cosmeticsand

toiletries, having gained the number one position following the US$57 billion

acquisition of The Gillette Company in 2005 (Euromonitor, 2007). P&G’s business

model is directed towards building a relatively few very big brands and then

leveraging them around the world. It currently has 24 “billion dollar” brands,

including very strong names such as Ariel, Pantene, Crest, Gillette, Duracell,

Pampers,Pringles,whicharesupportedthroughthebrand‐buildingethosembedded

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in itsorganization. Inaddition, thecompanyhasa trulyglobal reach, including12

"billiondollarcountries",withaleadingortop‐tworankingineveryregionalmarket.

Also,itinvests2.7%ofrevenueinR&D(P&G,2008a).

Figure5FactSheet:Procter&Gamblein2008

Source:ownillustrationbasedoncompanywebsite

Organizationalstructure

One of the measures used to foster company growth has been a shift in the

organizationstructure.Followingtherestructuringactivitiesof“Organization2005”,

thecompany’sstructurehaschangedtobetterleverageeconomiesofscale,toshare

best practices and ideas between geographies and to cut costs and inefficiencies

acrosssectorsandregions.Thepresentstructureisbuiltontheorganizationalchart

in Figure 6,which comprises threeGlobal BusinessUnits and aGlobalOperations

Group. The primary responsibility of the Global Business Units is to develop the

overallstrategyforthebrands,whichimpliesidentifyingcommonconsumerneeds,

developing new product innovations and building brands through commercial

innovation,marketingandsales.

TheGlobalOperationsGroupismadeupoftwodivisions:theMarketDevelopment

Organization andGlobal Business Services. TheMarket DevelopmentOrganization

(MDO) is responsible for developing local “go to market plans”, the marketing

strategy,variouscustomerdevelopmentprograms,externalrelationsandrecruiting

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activities.TheGlobalBusinessServicesdivision’sroleistosupporttheactivityofthe

MDOs by using minimal capital investment to provide technological, process

standarddatatools.

Figure6P&Gorganizationalstructurein2008

Source:ownillustration,basedoncompanywebsite.

4.1.2 Strategicplanningsystem

Figure7StrategyprocesscycleatP&G

Source:ownillustration

Strategic planning takes place on three levels: executive committee level, global

businessunitslevelandregionallevel.Strategicplanningisanongoingprocess;and

althoughitisdividedintophases,thesephasesoftenruninparallel.Hence,strategic

planningisaniterativeprocessandnotanone‐wayprocedure.

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ExecutiveCommitteeLevel

Followinganinternalandexternalanalysisoforganizationcapabilitiesandindustry

trends,theGroupChiefExecutivesetsupthestrategicdirectionofthecompanyfor

five‐yeartimeframe.SinceLafley’sappointmentasaCEOin2000,thegoalhasbeen

togrowbydelightingconsumersattwo“momentsoftruth: first,whentheybuya

productandsecond,whentheyuseit”(LafleyandCharan,2008).Since2006,when

theinnovationprogram“ConnectandDevelop”wasintroduced,“consumercentric

innovation”hasbeenput in the centerof thebusinessmodel as themaingrowth

lever.Thestrategicdirectioniscomplementedbyasetofclearperformancetargets

to be achieved yearly. In order to reach these performance targets, three growth

strategieshavebeenconstantlypursued:(1)Growfromthecore:leadingbrands,big

markets, top customers; (2) Develop faster‐growing, higher‐margin, more asset‐

efficient businesses and (3) Accelerate growth in developing markets and among

low‐incomeconsumers.

GlobalBusinessUnitLevel

Duringthefirstquarteroftheyear,eachbusinessunitsrenewsitsvision,setsgoals

forafive‐yeartimeframeanddecidesonthemainstrategiestodeliverthosegoals.

In the second quarter, global business units (GBUs) deploy goals to the market

development organizations, which take the form of financial commitments.

Furthermore, the GBUs negotiate the goals with the regional units. However, no

conclusionisreached.

Marketdevelopmentorganizations

The regionalunits (marketdevelopmentorganizations)design specificactionplans

and set the building blocks in order to follow the progress of those plans. This

processusually takesplace in thethirdquarter. In the fourthyearquarter,market

development organizations implement those actionplans and continuously review

theprogresstowardstheagreedgoalswiththeGBUs.

4.1.3 Howtomakestrategicplanningmoreinnovative

Thekeyturningpointforthecompanyisrepresentedbytheappointmentofanew

CEO,AlanLafley inAugust2000.Facingclimbing innovationcostsandmatureR&D

productivity,heinstigatedare‐inventionofthecompany’sbusinessmodelalongthe

followingaspects,whichtriggeredchangeinthefollowingareas:companymission,

strategy formulation and implementation, R&D strategy, organizational structure,

corporatecultureandleadership(Figure8).

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Figure8Overviewplan–InnovatingstrategicplanningwithinP&G

Source:ownillustration

Changesinthecompany’smission

ThekeydriverbehindP&G’sbusinessmodelredesignhasbeentheacknowledgment

thatinamaturemarketsuchasthefastmovingconsumergoods,theonlypossibility

toachievegrowthisthroughinnovation.Additionally,theinnovationlandscapehas

changed and innovation was increasingly being done by small and medium‐size

entrepreneurial companies, university laboratories and even by private individuals

looking to monetize their ideas. Following a re‐evaluation of the company’s

innovationprocess,P&Ghastakenamoreoutwardlookingmodelbestsummarized

intheobjectivesetbytheCEO:toacquire50%ofthecompany’s innovations from

outsidesources.Nevertheless,changingthecultureandattitudefromresistanceto

innovations “Not Invented Here” to enthusiasm for those “Proudly Found

Elsewhere” represents a significant challenge. The change process began with

purposeandvalues.

Changesinstrategyformulationandimplementation

MakingstrategicplanningprocessmoreinnovativeimpliesthatP&Ghastobeclear

aboutitsstrategy,whichreducescomplexityandconfusionandbringsfocustothe

entireorganization.P&Ghasmadethreestrategicchoicesatthebeginningof2000:

focusongrowingP&G’score,namelyfabriccare,haircare,babycareandfeminine

care; migrate P&G’s portfolio toward faster‐growing, higher‐margin, more asset

efficientbusiness;andwinwith lower incomeconsumers,particularly in the fastest

growing developing markets (Lafley and Charan, 2008). In terms of targets, P&G

aspiresto10+percentannualearningspersharegrowthforadecade,4‐6%organic

salesgrowth,andfreecashproductivityof90%+(P&G,2008a).However,asLafley

andCharan(2008)argue,strategyformulation is insufficient if there isnotenough

alignmentwithinthecompany.Thatmeansaligningtheentireorganizationtowards

thesameobjectivesiscriticalinanopeninnovationapproachastheonechosenby

P&G.AsLafleyandCharan(2008)pointout,openinnovationallowsP&Gtostretch

strategy targetsmainlyby increasing the sizeofmarketdemandandcreatingnew

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customer needs. Furthermore, a stretched earnings goal puts pressure on

productivitythatleadstobetterrelativepricing,highermarginsandrevenuegrowth.

On the strategy implementation side, putting innovation at the center results in

managers “pulling” rather than “pushing” innovation projects (Lafley and Charan,

2008). Thismeans being consumer centric, focusing on ideas driven by consumer

needs rather than R&D output. To ensure a constant flow of consumer‐driven

productideas,eachbusinessunitisrequiredtodrawayearlylistoftheircustomers’

top10needs that theybelievecoulddrive thegrowthof theirbrands.Oncethese

needsareidentifiedandaclearbusinesscaseismade,atechnologybriefisprepared

bythebrandmanagementteamandcirculatedthroughoutP&G’spartnernetwork

toestablishifaready‐madesolutionisavailablefromanoutsidesource.Theaimis

toreducetheR&Dinvestmentriskontheonehand,andtoreducetimetomarket

fornewproducts,on theother.Moreover, thebenefitofusingopen innovation is

evidentwhenabusinessunitrunsshortinmeetingtargets.Thesolutioninthiscase

isacceleratingthetimelineforprojectsalreadyinthepipeline,scalingupprojectsor

addingnewones.Sucha resourceaccumulationoverashort timespan ispossible

onlybyappealingtoexternalpartnersandthusactivatingopeninnovation.

ChangesintheR&Dstrategy

In1999 lessthan10%ofthe internallydevelopedtechnologieswerebeingused in

products(Sakkab,2002).Anewstrategy,theConnectandDevelopprogram,aimed

touseopen innovationpractices inordertoturnmoretechnologies intoproducts.

An objective of Connect and Develop is to drive new innovation through

collaborationwithexternalpartnersinatleast50%ofcases.

Open innovation allows P&G to leverage its core competencies, namely a deep

understandingofthecustomer,creatingandbuildingbrandsthatendure,itsglobal

size and scale advantage; and also build additional competencies such as jointly

creatingvaluewithcustomersandsuppliersandmakinginnovationthe“core”ofthe

core strengths (LafleyandCharan,2008). Innovationasa core strength represents

the competence that unites and drives all the other core competencies to create

value.Inordernottolosefocusbyundergoingdivergentinnovationpaths,P&Ghas

madeinnovationasystematicprocessnamedStage‐Gateprocess,toselecttheideas

andproductsmostlikelytoyieldthehighestgrowthforthebusinessandbestreturn

oninvestment(seeFigure9)(Meziane,2007;Mirandadiaz,personalcommunication,

2008). Generally speaking, there are three key criteria that need to be satisfied

beforesignificanttimeandinvestmentarecommittedtoproductideas.Theseare:a

working product, prototype or technology; evidence of consumer interest and a

clear case for leverageof P&G’s existing capability, such as technology,marketing

and distribution. This represents a significant move away from the traditional

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approachof “lettingmany flowers bloom” towards focusing resources onprojects

which are most likely to yield high return on investment. Additionally, open

innovation turned innovation into a “two way street” (Lafley and Charan, 2008)

whichmeansbeingopento learnfromeverywherewherebest inclasscapabilities

are,inordertothenreapplytheminotherpartsoftheworld.

Figure9InnovationfunnelatP&G

Source:ownillustration,basedonMeziane(2007),Mirandadiaz(personalcommunication,2008)

Changesintheorganizationalstructure

This shift in the business model has translated into a change of the organization

structure,aswellasaclearcutmovetowardsanopen,collaborativeandmutually

supporting organizational architecture. As Lafley and Charan (2008) point out,

innovationisabout“just‐enoughstructure”.Whilesomelevelofstructureisneeded,

abalancemustbeachievedbetweenstructureandcreativity.Oneofthemainaims

of the “Organization 2005” restructuring was to stimulate innovation by making

P&G’s internally focused and fragmented communicationmore outwardly focused

and cohesive (Schilling, 2005). Gordon Brunner, Chief Technology Officer, and

WorldwideR&DHead,saidthathewantedtocreateaculturethatconnectspeople

and technologies in a more effective way. For him R&D could become C&D –

“ConnectandDevelop”.

Specialstructurestocaptureideas

Three special structures have been designed to promote innovation within P&G:

P&GFutureWorks,NewBusinessDevelopment,andExternalBusinessDevelopment.

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Figure10P&G’sSpecialstructurestocaptureideas

Source: own illustration, basedonMirandadiaz (personal communication, 2008) andWai (personal

communication,2009)

P&GFutureWorksconsistsofmultidisciplinaryteamswhoseprimaryobjectiveisto

seekout innovationopportunities thatcreatenewconsumption.Unlike innovation

teamsthatresideinthebusinessunits,FutureWorksisnotconstrainedbyexisting

categoryparadigms.Rather,itexploresdiscontinuousideasthatmightcreateanew

category or segment, cut across existing categories, or create an adjacency to an

existing business. A business unit “sponsor” is identified early on for each Future

Workprojecttoprovidepragmaticbusinessinputupfrontandtakeresponsibilityfor

thecommercializationphaseof the innovationprojectafterFutureWorksqualifies

theinitialconceptandprototype.

Thesecondstructure,NewBusinessDevelopment(NBD)StructureinaBusinessUnit,

is focusing on creating both disruptive and incremental innovation for a specific

category, which can also be partially or entirely sourced from the external

environment. The third structure, External Business Development works like a

“brokerage house” for innovation. Instead of each business unit doing its own

outside search for innovation opportunities, such a structure facilitates speed and

interconnections of business units with outsiders, as well as interconnections

betweendifferentbusinessunitswithinthecompany.

Apart from thesemore structured organizational approaches for innovation, P&G

also introduced innovation hot zones that can be used to identify and start

developing ideas, by testing them through theeyesof the customer:whathe/she

actuallyexperiencesasashopper,thusimprovingthechancesofsuccessbeforethe

actual innovation development process is launched. This innovation centered

strategy has mirrored into a dedicated resource allocation to foster new ideas

through P&G Corporate Innovation fund, an organizational structure with some

resemblance to a venture capital firm,which specializes in high risk/ high reward

ideas.

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To conclude, there are four structuresmeant to capture ideas for growth: Future

Worksfordiscontinuousinnovations,NewBusinessDevelopmentforbothdisruptive

and incremental innovations, External Business Development as a “brokerage

house”,“hotzones”totestconsumerinterestandmarketopportunityfornewideas

andCorporateInnovationfundasa“quasiventurecapitalfirm”.

Openarchitectureasinnovationenabler

P&G’sConnect&Developmodelreliesontheresponseandfeedbackfromaglobal

network, which provides the necessary platform to harness the ideas and

technologicalinnovationrequiredtoanswerthebriefsdevelopedbydifferentbrand

teams. This platform consists of both proprietary and open networks (Meziane,

2007)(seeFigure11).

Figure11P&G’sopenarchitecturestructure

Source:ownillustration,basedonHustonandSakkab(2006)

P&G’s proprietary network consists of associated “technology entrepreneurs” and

“suppliers”. The “technology entrepreneurs” are senior employees in charge of

leading the development of the consumer “needs” lists and writing technology

briefs.Thisinvolvescontinuousscoutingofretailers’shelvesandlocalmediafornew

innovative products and technologies that can be leveraged using P&G’s existing

capabilities. The collaborationwith suppliers is done via a secure IT platform that

allows P&G to share technology briefs with suppliers. Although this adds to the

existingcostsofmanagingsupplier relationships, itallows thecompanytocapture

valuable information thathashadadirect impacton the company’sperformance,

increasinginnovationprojectsby30%.

The open network complements P&G’s proprietary network and allows project

teams to source the technologies theyneed todevelop their top10products and

bring themtomarketmuchquicker.Themost fruitful in termsof ideasgenerated

are: NineSigma, InnoCentive, YourEncore and Yet2.com. These are independent

businesses,whosebusinessmodelistoactas“openinnovationbrokers”.Although

this involves extra management time and resources, the incremental spend on

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administrationislikelytobeafractionoftheR&Dspentonin‐housedevelopment.

Furthermore, the risks associated with upfront investment to develop new

technologiesareavoided,thusboostingtheoverallreturnoninvestment.

Changesincorporatecultureandleadership

Innovative strategic planning implies creating the right corporate culture, attitude

and incentives to ensure that all personnel involved in the development process,

from R&D,manufacturing, market research,marketing and other functions works

togetherinamannerthatmaximizestheproductpipeline’spotential.Consequently,

P&Ghas attempted to change its slow, cautious and risk adverse culture,with an

emphasisonstretch,innovationandspeed:

“aculturethatrewardsgoingforbreakthroughgoals,thatsupportsstretching,takingrisks–evenif

thereisachanceoffallingshort…aculturethatstimulatesrobustinnovation–bigideasthatchange

the game – and encourages visionary leadership; a culture that encourages collaboration and

emphasizes learning and sharing new knowledge. A culture that values speed and fosters fast,

streamlineddecision–making”(VedpuriswarandKhan,2005).

As Lafley and Charan (2008) argue, creating an innovation culture takes time and

involves focusing on following four elements: courage, connectivity and

collaboration, curiosity, andopenness. P&Gpromoted courage by establishing the

“there’snobadidea”operatingprinciple,andthusrewardedandrecognizedteams

whotriedandfailed.Thishasenabledittocapturelearningfromfailedinnovations

and share it with other teams for reapplication (Mirandadiaz, personal

communication,2008).Thesecondelement,beingconnectedandcollaborative,has

led P&G to create in‐house infrastructures (e.g. Clay Street, co‐location) and

communities of practice to foster knowledge exchange and establish ways to

encourageemployeestoleverageandextendtheirexternalnetworks.Thirdly,being

curious,meanstosetanexpectationofongoing learning, topromoteshopperand

customer immersion and keep asking “why” and “why” again. Lastly, being open

means to be openminded to new ideas from anyone, anywhere, anytime, to be

opentolearnbearinginmindtheassumptionthatothers’ideawillultimatelymake

aproductorservicebetter,tobeopenandempathictothecustomers inorderto

bestunderstandtheirneedsandwantsandtobeopentosuspendjudgment(Wai,

personal communication, 2009). As Lafley and Charan (2008) argue,many people

within P&Gwere defensive about what Connect & Develop couldmean for their

positions. That is why performance appraisal and rewarding systems have been

aligned to measure and champion the application of these principles. As Lafley

(2008) acknowledges, getting people together on the spur of themoment so that

everyone hears the same thing and builds on each other’s ideas increases the

chancesofreachingtheclickpoint.

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To conclude, P&Ghas innovated strategic planning by changing its entire business

model towards an open approach known as the “Connect and Develop” strategy

(HustonandSakkab,2006).This strategy isderiveddirectly fromthe top, fromthe

CEOwho committedhimself to capture50%of innovation externally. Thebusiness

model involves a new way of creating and capturing value, by simultaneously

leveragingexternalknowledgeandreapingthebenefitsofsellinginternalknowledge

which does not directly fit P&G’s strategy. Furthermore, this open innovation

approachhasbeenappliedsimultaneouslyonseveraldirections:beginningwiththe

company’s mission and purpose, to culture, strategy formulation and

implementation,andorganizationalstructure.

4.2 Case2:Unilever

4.2.1 FactsandFigures

Unilever is an Anglo‐Dutch consumer goods company with corporate centers in

LondonandRotterdam.Withsalesofabout€40billion, it isoneoftheworld’stop

three food firms, after Nestlé and Kraft Foods and the world’s second largest

packagedconsumergoodscompany,behindProcter&Gamble(Euromonitor,2008).

Figure12FactSheet:UnileverGroupin2008

Source:ownillustrationbasedoncompanywebsite

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TheGroupproduces andmarkets awide rangeof foods, homeandpersonal care

products, includingwell‐knownbrandssuchas:Lipton,Flora, ICan’tBelieve It’sno

Butter, Omo, Dove.With a global presence, Unilever employs 174000 people and

invests about2.2%of annual turnover inbasic researchandproduct innovations,

leading to the filling of more than 400 patent applications annually (Unilever,

2008d). Unilever pursues a different business model than P&G, the organization

having a rather extensive history of clear decentralization, with only a recent

tendencytowardscentralization.UnlikeP&Gwhichfocusesonafewverybigbrands,

Unilever simultaneously manages a high number of brands, including many local

brands.

Inordertounderstandtheinter‐hierarchicalinteractionwithinthecompanyduring

theplanningprocess,abriefoutlineontheorganizationalstructureusedbyUnilever

follows.

Organizationalstructure

UnileverGroup functionsas theoperationalarmofUnileverNV (Netherlands)and

UnileverPlc.(UK),itstwoparentcompanies.Thoughtheparentcompaniesoperate

as separate legal entities, they function as a single business, with a single set of

financialsandacommonboardofdirectors.

Unilever is structured along three dimensions: categories, regions and functions.

Categories are the business units, which are responsible for strategy, brand

developmentand innovationandareheldaccountable for:mediumand longterm

marketshare,brandhealth, innovationmetricsandCategoryvaluecreation.There

are two categories: Foods and Home & Personal Care. Regional units play a

complementaryrole,beingresponsibleformanagingthebusiness,deployingbrands

andinnovationseffectivelyandwinningwithcustomers.Thiscentral/regionalmix

is visible on the accountability side, aswell. As such, Regional Presidents are held

accountable for growth, profit, cash flows and short‐term market shares. In the

entireprocess,theyaresupportedbytheFinance,R&DandHRfunctions(Figure13).

Figure13Unileverorganizationalstructurein2008

Source:ownillustration,basedoncompanywebsite.

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4.2.2 Strategicplanningsystem

At Unilever, strategic planning is taking place on three levels: corporate level,

categorylevelandregionallevel.

Corporatelevelstrategicplanning

The corporate level through its Executive Committee and through the Chairman’s

voicedevelopsastrategyeveryfiveyears,whichisupdatedonaquarterlybasis.This

timeframe is considered to be appropriate for the velocity characterizing this

industry(Maljers,1990).Itsmainpurposeistosetthedirectionforthecompany.At

the basis of the strategy stands the company mission, on which the corporate

purpose is built. Apart from the corporate purpose,which is broadly defined, the

Chairman establishes a set of strategic priorities and performance targets to be

achievedbytheendoftheplanningperiod(Gatej,personalcommunication,2008).

As such, during the last two corporate planning cycles, Unilever has shifted its

mission, from“Meetingeverydayneedsofpeopleeverywhere” (used in the2000‐

2004 strategicplanningperiod) towards “To addVitality to life”(from2004on). In

line with the mission, the strategic priorities have changed, as well. Hence, the

following three strategic priorities have been derived: Personal Care Category,

Developing and Emerging Economies (D&E) and Vitality. These three strategic

priorities are considered levers of value creation (Markham, 2006). Before

proceeding, the motivation and implication of these priorities will be briefly

explained.

Firstly,anemphasisonPersonalCaremeansthatmoreresourceswillbededicated

tothiscategorycomparedvs.theFoodscategoryinordertoincreasetheCategory’s

momentumandgrowthrate(Benea,personalcommunication,2008).Thisinvolvesa

reshapeoftheproductportfolioandaconcentrationonmarketleadershippositions,

whereUnilevercanbenefitfromhighgrowthspaces(Markham,2006).Secondly,the

focus on D&E merely reflects the acknowledgement that developed markets are

alreadysaturatedandthat inordertogrowUnilevermustconcentrateonmarkets

that have a clear expansion potential (Benea, personal communication, 2008). In

this regard, Unilever builds on its deep local roots and long local presence, and

makes sure to incorporate this knowledge in locally adapted products (Markham,

2006). This strategic priority is also reflected in the organizational structure:

Romaniamoved alongwith its CEE neighbors into the Asia / Africa / CEE Region,

whichmarks an important attitude change from the previous situationwhen CEE

wasnotparticularlydistinguishedamongtheEuropeRegiongroup(Benea,personal

communication,2008).Thirdly,putting ‘Vitality’upfront isessentiallya reaction to

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existing trends, with people placing greater focus on living longer, better, higher

qualitylives(Markham,2006).

Apart from these strategic priorities, Unilever is guided from the top by a set of

performance targets,whicharesetevery fiveyears, theirprogressbeing reviewed

annually.Forthetimeframe2004‐2009,theobjectivesare:underlyingsalesgrowth

of3%‐5%p.a.,operatingmargininexcessof15%by2010,increaseintheROICover

its2004baseof11%andanungearedfreecashflowof€25‐30bio(Unilever,2008d).

CategoryLevelStrategicPlanning

Categories are responsible for brand development and innovations. They have a

planning horizon of three years and in the strategy development stage, they are

collaboratingwith theProductdevelopment teams.Theirmainactivities consist in

market forecasting,pickingupmarket trends, competitoranalysis,developingnew

product ideas. Based on the value creation capacity, growth rhythm,market size,

profitabilityandothermetrics,Categoriesmakeabrandprioritizationatcorporate

and regional level and set targets (Gatej, personal communication, 2008). InApril‐

May,theCategoriespresenttheplansforthefollowingyeartotheRegions(Benea,

personalcommunication,2008).

RegionalLevelStrategicPlanning

Regionsandcountriesareresponsibleforbrandbuilding.Inotherwords,theyhave

the task of deploying the innovations, which the Categories are developing, at

country level. Based on information received from the Categories, Regions split

targetsonoperatingunits(MCOs)(Gatej,personalcommunication,2008).Thesame

happens with innovations, which Regions receive one year in advance. As such,

Regions set annual performance targets and establish annual budgets, which are

then discussed at Category levelwhen targets are agreed upon. Aggregated plans

are then discussed and approved by the Board (Benea, personal communication,

2008).

At regional level, corrections can be made in the course of a year only on the

operational side in order to ensure that agreed targets are met (Gatej, personal

communication, 2008). Regions have the possibility to make suggestions to the

Categoriesregardingnewproductsbasedontheir localknowledge,whicharethen

included in the global portfolio (Gatej, personal communication, 2008). Regional

Presidentsareheldaccountableforgrowth,profit,cashflowsandshort‐termmarket

shares.

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Figure14StrategyprocesscycleatUnilever

Source:ownillustration,basedonBenea,GatejandCross(personalcommunication,2008)

4.2.3 Innovatingstrategicplanning

Strategicplanningshouldincludethechangeofopportunitytoreflectthefutureof

thebusinessmodel (Cross,personal communication,2008).A shift in thebusiness

model implies a change in all the elements of a company, starting from the

company’s mission, strategies, organizational structure and processes, as well as

softer factors such as the corporate culture and leadership style; they all need to

change.

Changesinthecompany’smission

Assettingpurposerepresentsthefirststepinaplanningsystem(Chrakravarthyet.

all, 2003; Grant, 2007), Unilever strengthened the importance of innovation by

puttingitatthebasisofitsmission.Consequently,from2000thecompany’smission

has progressively shifted from “meeting consumers’ everyday needs” towards

“adding Vitality”. When the latter established itself as the company’s mission in

2004, the focus on innovation has been derived directly from the top, from the

Chairman’shimselfwhopointsouttheemergenceofamovefrom“astep‐upinthe

qualityofproducts”towards“astep‐upininnovation”.Likeanychangeinstrategy,

the support from the top is essential (Cross, personal communication, 2008). The

change in strategic direction has cascaded down into a change in the innovation

strategy.

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Changesinstrategyformulationandimplementation

InnovatingstrategytowardsadoptingthismoreopenapproachimpliesforUnilever

arealinternalstrategyalignmentbothwithinthecompanyandalsoagainstwhatit

wants toachievewith its externalpartners (Cross,personal communication, 2008;

Lindegaard, 2008).Without such alignment, the company can find itself in a very

vulnerableplace,ifitstartsdoingsomethingitdidn’tplantoorforwhichthereisnot

enoughcommitmentfromthetop(Pryor,2007).

Intheareaofstrategyformulation,beingoutwardsorientedrequiresUnilevertobe

clear about where it wants to position itself in the future “based on its core

capabilities and on its capacity to envision the future” (Cross, personal

communication, 2008). Furthermore, in order to make strategic planning more

innovative, a highdegreeof internal coherencybetween strategy formulation and

strategy institutionalization is needed. This calls for a very good target and

performance appraisal to reward people forwhat they agree to do and notwhat

theywouldliketodo(Cross,personalcommunication,2008).

ChangesinR&Dstrategy

Inordertoachievehighergrowththantheoverallmarket,Unilevermanagershave

beenconvincedabouttheroleofknowledgeandinnovationasakeydifferentiator,

and have thus committed to “driving 40% of growth through innovation“ (Banga,

2008). The contribution innovation brings to the table is affected by the level of

funding that can be made available, the technical capability of the research and

developmentfunctions,andthesuccessregisteredbytheoperatingmanagementin

quicklyrollingouttheresultingimprovements(Unilever,2008d).Inordertoreapthe

maximum benefit out of innovation given a fixed level of resource allocation,

Unileverhasopeneduptolookforthebesttechnologieseverywhere,whereverthey

are. Figure 15 shows how the corporate strategy translates itself downwards on

operationallevel.

Innovating within Unilever involves four steps: want, find, get, manage (Unilever,

2008g).Thisbasicallymeanstobeclearaboutwhatyouwantbeforeyougooutto

finditandsearchforpartners,andbeforeyoubuildthedeal;thelaststagerefersto

managingtheconsequences(Cross,2006).

Figure15Step‐upininnovationprocess

Source:ownillustrationbasedonCross(2006)

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In linewith the same strategicdirection,Unilever invests in fewer,biggerprojects

developedgloballyandregionally,whichareconsideredtodeliverthehighestvalue

tothebusinesseitherintermsofproductsalesormarginimprovements(Unilever,

2008d). Consequently, Unilever aims to reach an average project size ten times

biggerthanin2005andtoadecreasetheundergoingprojectsfigurefrom5000+in

2005 to no more than 700 in 2009 (Banga, 2008). In terms of organizational

structure, this aim translates intoa concentrationof researchanddevelopment in

globalandregionalcenters,whichoperateas innovationpowerhouses. Theeffect

on resourceallocation is visible inFigure16,which illustrates the shift in resource

allocationonlocal,regionalandgloballevel.

Figure16ResourceallocationforR&Donlevelsoforganization

Resourceallocation(%shareoftotalR&Dbudget)Levelintheorganization

2006 2007

Local 40% 25%Regional 37% 42%Global 23% 33%

Source:ownillustrationbasedonUnilever(2008d)

ThefigurescitedabovecometostrengthenthefactthatlocalUnileverbranchesdo

nothavethesamepowerasbeforetocomeupwithlocalproductsandbrands.Mr.

Benea (personal communication, 2008) argued the same during the interview,

mentioningacentralizationofthecompanyintime,withnegativeconsequenceson

the independenceandpowerof localbranches towardsbuildingupownproducts.

However, as Ms Gatej (personal communication, 2008) argues, there is still a

possibilitytodeveloplocalproductswhich,followingasetofsystematicwell‐defined

phases(Figure17),areincludedintheglobalproductplatform.

Figure17InnovationFunnelatUnilever

Source:ownillustrationbasedonBanga(2008)

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One of themethods used to foster more idea generation is open innovation. An

advantage of open innovation is that it allows Unilever to benefit from the

knowledgeofitspartnersandprogressivelybringinexternalcapabilitiesinitsearly

thinking (Cross,personalcommunication,2008),which in turnallowstheGroupto

stretchstrategicobjectives,suchasgrowthtargets.Thus,thisprocessrevealsanew

avenueforlearningandappropriatingnewcapabilities(Krogh,Nonaka,Aben,2001).

Thismeansdeploymentofsuperiortechnologies,shortertimetomarket,whichthen

make possible a rapid rollout across keymarkets (Unilever, 2008d). Furthermore,

openinnovationallowsUnilevertoleverageexternalcapabilitieswhicharedeployed

for the company by engaging in partnerships with external collaborators. Open

innovation promotes strategic experiments involving lower levels of risk and

resources allocation, together with the opportunity to extend core business and

create new sources of growth (Pryor, 2007). This argument is confirmed during

interviewswith thecompanyrepresentatives,whichacknowledgethehigh levelof

riskwhenfunctionsinnovateontheirown(Cross,personalcommunication,2008).

Changesinorganizationalstructure‐Towardsanopenarchitecture

Incorporating innovation in the corporate mission involves a change in the

organizational structure, as well. This change bears two dimensions: first, how

Unilever operates internally and second, how Unilever interacts with external

partners.

Internally,strategicplanningneedstorespondtothetrendtowardscross‐functional

innovation, in that “a cross‐functional sense of risk taking is reflected in a cross

functional sense of reward” (Cross, personal communication, 2008). Innovation

requiresan increase inthequalityofcross‐functionaldiscussions,togetherwithan

increase in coherency. Cross‐functional discussions foster leverage of existing

capabilities (Krogh, Nonaka, Aben, 2001), regardless wherever these capabilities

mightcomefromthe insideor fromexternalpartnersthroughopen innovation. In

the absence of cross‐functional collaboration Unilever may end up only with

incremental change as this involves a low risk (Cross, personal communication,

2008).However, inthecaseofincremental innovationthebenefitsarealsolimited

asthefinancialperformancereveals,dependingontheconsumptionlevelwithinthe

given category, usually within a year after its implementation (Gatej, personal

communication,2008).

Still, Unilever has to improve its way of gathering ideas at the regional level. As

mentionedduringtheinterviewswiththecompany’srepresentative,localsuppliers,

brandmanagers, local consumers, advertisingagenciesbringa lotof insight about

trends, which in many cases fail to be captured. Thus, an Innovation board is

suggested, which would stimulate and receive ideas from within the company’s

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regionalbranches,fromthelocalsuppliers,advertisingagenciesandotherexternal

partners at local level. These ideas will then be tested and internalized in the

company’sproductportfolio.AlthoughtheplatformIdeas4Unileverhassucharole,

it is apparently not promoted enough within the company. Hence, the suggested

innovationboardshouldbehighlyvisibleandcentraltothecompany,andshouldbe

alsoprofileitselfasthemaindriverforinnovation(Gatej,personalcommunication,

2008).

Being aware that innovation capacity is limited if only internal innovation is used,

Unileverhasopenedup to theexternal environmentandengaged in relationships

with external partners: main suppliers, academia, scouting networks, basically

anyone that had ideas which fit Unilever strategic priorities or new technological

solutions(NottinghamUniversityBusinessServices,2008;YSTN,2008).

AsDavidBird,R&DAcademyLearningManageratUnileverexplains:

"AtUnilever,wewant todevelopourcollaborationwith thebestminds in the industry to

makethedifferencethatnosinglecompanycouldmakeonitsown."(Brightwave,2008)

For the external world, Unilever has built an external web interface, which is

dedicated to all those individuals / companies coming to Unilever to build new

businesses through Unilever Ventures and to people who bring new technologies

throughPhysicVentures.Fortheoneswhohaveideas,technologiesandcapabilities

that fit Unilever’s strategy and can go to market to generate value the

Ideas4Unilever website is used. With existing partners, Unilever shares its

investment plans and strategy so that the partner company can find what role it

could play to achieve Unilever’s growth targets (Cross, personal communication,

2008).

Besides a more open organization structure, this implies to develop the right

information technology tools to capture the value that derives from open

innovation. Unilever Ventures, Physic Ventures and Ideas4Unilever are such

examples.

Changesincorporatecultureandleadership

If planning is in itself a performance (Whittington and Cailluet, 2008), then

innovatingstrategicplanningmeansthatthementalityofdoingthedailytaskshasto

change. Using open innovation as a tool to promote idea generation calls for a

change in both the corporate and employee mindset. This is in line with the

interview findings,where open innovation is fundamentally seen as “amindset, a

wayofthinking,whichisallaboutchangingeverythingyoudoinacompanysothat

youextractmaximumvalue”(Cross,personalcommunication,2008).Thischangein

mentality is driven from the topby clearly communicating innovation as a growth

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driver. In addition to this, there is a range of programs (Standards of Leadership

Program, Senior Executive Seminar) directed tomanagers,which target to change

theirbehavior.Thenewe‐Learningprogram“OpenInnovationAwareness”ismeant

togetemployeesthinkingaboutopeninnovationinadifferentway,explainingthe

need for change,providingdistinctionsbetweenopenand closed innovation inan

Unilevercontext(Brightwave,2008).AsDavidBird,R&DAcademyLearningManager

atUnilever,argues:

"In order to develop our plans for open innovation further, we need to drive deeper

understandingofthesubjectamongstourglobalemployeepopulation.”(Brightwave,2008)

The “Standards of Leadership” Program aims to instill a set of behaviors, which

should ensure that every manager takes personal responsibility for delivering

Unilever’s agenda through excellence in strategy execution. Senior Executive

Seminarisorganizedeveryyearandexamineskeybusinessissues,inordertomake

managersawareoftheopportunitiesthattheenvironmentoffers(Unilever,2008d).

This change in behavior is also reflected in the performance appraisal. That is,

Unilevertries to findtherightbalanceof functionalandcross‐functionalorshared

targets in order to foster collaboration. However, asmentioned in the interviews,

the focus is on the outcome, on growth achieved by any means, including open

innovationamongotherinstruments,andnotonusingopeninnovationjustforthe

sakeofkeepingupwithwhatcompetitorsdo.

Toconclude,duetotheneedtogrowandtokeepupwiththeindustrypace,Unilever

hasinnovateditsstrategicplanningprocessandhasbeendeployingopeninnovation.

The institutionalization of this tool has called for several changes in the

organizational structure and, more importantly, has required a commitment from

top management, which set the strategic direction towards a “step‐up in

innovation”. The change has allowed Unilever to stretch goals and targets by

including/ leveragingpartners’capability intheirearlythinking,andinthisprocess,

acquiringnewcapabilitiesbecamepossible.Furthermore,forstrategyinnovationto

be effective, a clear corporate direction had to be accompanied by a very good

internal alignment. Apart from this, the corporate culture has changed,

counteractingthe“NotInventedHere”syndrome,beingmoreopentoexternalideas

andbeingmoreentrepreneurial.Furthermore,ashifttowardsmorecross‐functional

collaborationandhigherrisktakingsoonbecamevisible.

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4.3 A theory of how strategic planning process can be made more

innovative

‐Applyingtheinnovationtagtostrategicplanningprocess‐

The case studies reveal severalways tomake the strategicplanningprocessmore

innovative in terms of developing more ideas for growth. Innovating in strategy

termsinvolveschangesintheentirestrategicplanningprocess,fromthecompany’s

missiondowntostrategyevaluationandcontrol stage.Thischapter integrates the

findings from the cross case analysis,which are then confrontedwith the existing

theories inthe literature.Consequently,propositionsaredrawn. Inordertobetter

understandtheresults,theanalysisbeginswithanoveralllookoverwaystoimprove

theplanningprocess itself, andcontinueswith improvement suggestions targeting

eachofthemainstrategicplanningphases:formulation–implementation–control.

Finally,onemethodisdescribedingreaterdetailasitisofgreaterimportancetothe

fast moving consumer goods industry: making strategic planning more innovative

throughopen innovation. Indeed, open innovation as a tool tomake the strategic

planningprocessmore innovativedeservesparticular attention since,when scaled

up, open innovation leads to changes in the entire businessmodel. The focus on

opennessandinteractionininnovationstudiesreflectsawidertrendatthelevelof

company behavior research, which hints at the idea that the network of

relationships between the company and its external environment can play an

important role in shaping business growth. For instance, Shan,Walker, and Kogut

(1994) find an association between cooperation and innovative output in

biotechnologystart‐upfirms.Powell,Koput,andSmith‐Doerr(1996)showthatfirms

embedded in benefit‐rich networks are likely to have greater innovative

performance. Laursen and Salter (2006) reach a similar conclusion, their results

showingthatinvestigatingwidelyanddeeplyacrossavarietyofsearchchannelscan

provide ideas and resources that help firms gain and exploit innovative

opportunities.

Research in evolutionary economics also suggests that a firm’s openness to its

external environment can improve its ability to innovate. Evolutionary economists

highlighttherolesearchingplaysinhelpingorganizationstofindsourcesofvariety,

which allow them to create new combinations of technologies and knowledge

(Nelson andWinter, 1982). Furthermore, open innovation, once just amethod to

conduct R&D, is increasingly becoming central to the business. The relationship

between open innovation and strategic planning works the other way around, as

well. As Lichtenthaler (2008) argues, strategic planning plays a critical role in the

successfulexploitationofexternaltechnology.Toconclude,literaturefindingsshow

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the increasing importance of collaborative innovation to innovation performance.

Thus,thisstudywilldiscussinaseparatechaptertheimpactofopeninnovationon

strategicplanning.

Figure18Overviewplan–makingstrategicplanningprocessmoreinnovative

Source:ownillustration

4.3.1 Innovatingtheplanningprocessitself

Figure19Overview‐Innovatingtheplanningprocessitself

Source:ownillustration

Theprocessofstrategicplanningitselfcanbedesignedsothatacontinuousflowof

ideas is captured in the strategymaking.What is presented in the literature as a

phase based process, which starts with the company’s mission and follows a

stepwise approachof strategy formulation, implementation and control (Bradford,

Duncan and Tarcy, 2000) is in practice an ongoing, iterative process, in which

formulation, implementation and control are intertwined. Furthermore, based on

thenewacquiredinformation,planningiscontinuouslymonitoredtoberesponsive

to significantand systematicmarket conditions changes,whose implicationsaffect

strategy formulation. This idea was confirmed during the interviews and is

strengthened by both academic and practitioner oriented literature. During the

interviews,Ms.Gatej (personal communication, 2008)mentions thatplanning and

performance appraisal at Unilever happen on a rolling basis and are not calendar

driven.Althoughanindicativetimeframeforagreeingonperformancetargetsexists,

new ideasand innovation intentionsarepresentedat several times,dependingon

when innovation projects are ready. Mr. Mirandadiaz (personal communication,

2008) confirms this when saying that planning is an iterative process, in which

strategy formulation and implementation take place in parallel. In the academic

literatureMintzberg(1994b)arguesthatstrategymakingisnotanisolatedprocess,

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being in fact interwoven with all that it takes to manage an organization.

Furthermore, in order to be able to come up with more ideas for growth, an

integrated perspective of the enterprise, a not too precisely articulated vision or

direction shouldbepromoted. In another study,Wilson (1998)drawsattention to

the same, supporting that strategicplanning isnota “sometime” thingand that it

cannot be turned on and off. Other researchers such as Wall and Wall (1995)

consider strategymaking a process in which strategy evolves organically, through

constant “give and take” and iteration, rather than being formulated via analysis

alone.

On the practitioners’ side, Hamel (Bryan and Hamel, 2008, p. 2) observes that

“strategy is not a once a year rain dance, nor is it a once a decade consulting

project”,butaprocessthatrequiresanddeservesalong‐termcommitment.Within

thesameline,Rumelt(McKinseyQuarterly,2007,p.3)pointsoutthat“theneedfor

strategywork isepisodic,notnecessarilyannual”.Thus, strategicplanning isnota

one‐timeprocess,butonewhichtakesplaceonanongoingbasis.Theadvantageof

such an arrangement is that it makes planning more adaptive to environmental

changes and allows for new growth ideas to be internalized. Hence, the first

propositioncanbedrawn:

Proposition 1a: A continuous monitoring strategic planning process allows for

adaptability to changes and internalization of new ideas, which in turn make the

strategicplanningprocessmoreinnovative.

Besidesthis,otherresearcherssuggesttheseparationbetweenthestrategymaking

andthefinancialsdiscussion.Simpson(1998)arguesthatfinancialplanningaspects

shouldnotbediscussedtogetherwithstrategymakinginordertokeepthestrategy

dialoguewell focused. Rumelt (McKinseyQuarterly, 2007) supports the same idea

whenheadvisesagainstusingthelabel“strategicplan”andthebudgets“longterm

resource plans”, favoring instead the setting up of a separate, nonannual,

opportunity driven process for strategywork. Dye, Sibony (2007) add to this that

budgetingmustbecomplementedwithafocusonstrategicissuesthatwillhavethe

greatest impact on future business performance. However, every business’s main

goalistomakeprofit,andtheliteraturesupportedvisiononhowtomakeplanning

more innovative isonlypartially implemented.P&Gseparatesthisvisionaryaspect

ofstrategymakingfromfinancialcommitmentsbyschedulingthediscussionofthe

two tasks at different points in time. That is, during the bottom up process of

planningwhichusuallyhappensinthefirstquarter,visionisrenewed,goalsareset

andstrategiestodeliverthosegoalsaredeveloped.Inthesecondquarter,financial

targets are set from the top and goals are negotiated with the business units

(Mirandadiaz,personalcommunication,2008).Thishelpsavoidstiflingcreativity in

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the strategy making process and thus promotes an innovative strategic planning.

Hence,thesecondpropositioncanbedeveloped:

Proposition1b:Disconnectingstrategicplanning fromfinancialplanningmakes the

strategicplanningprocessmoreinnovative.

4.3.2 Innovatingstrategyformulation

Oneof themain areasof improvement concerning the innovativenessof strategic

planning isstrategyformulation.Becauseof itshigh importance,bothpractitioners

and academics make recommendations on how to reap more benefits from this

stage. Findings cluster in the following areas: outward orientation, strategy clarity

andinternalalignment,togetherwithsettinglimitedpriorities.

Figure20Overview–innovatingstrategyformulation

Source:ownillustration

Oneofthemainwaystocomeupwithmoregrowthideasisthroughbeingoutward

orientedinstrategyformulation.AsLafley(LafleyandCharan,2008,p.34)putsit:

“thebusinessisprettysimple.Theconsumerisourbossandwehavetowinwithherattwomoments

oftruth(whenbuyingandwhenusingtheproducts)dayinanddayout”.

Beingexternally focusedhelps identifyandserveconsumer’sneedsandwantsand

thuscomeupwithsolutionstosatisfytheseneeds.P&G’sCEOfurtherarguesthat

“it is inspiringtounderstandconsumers’ livesandhowP&Gcanmaketheireverydayhouseholdand

personalcareexperiencesmoresatisfying”(LafleyandCharan,2008,p.35).

Mr. Mirandadiaz (personal communication, 2008) confirms this idea during the

interview and adds that by being consumer focused, P&G translates needs into

unsolvedproblemsandthusopensuptheavenueforgrowth.Lafleystrengthensthis

by saying that growth opportunities can be found through understanding the

customer’sunmetneedsanddesires,botharticulatedandunarticulated(Lafleyand

Charan,2008).Withinthesameline,Mr.Cross(personalcommunication,2008)from

Unilever highlights the need to shift the company’s positioning from promoting

product‐related brands to service‐related brands, which helps move the

organization’s business thinking towards adjacent areas. In another interview, he

points to the fact that Unilever is using a combination of exposing employees to

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customersandmakingsureemployeesgetexposedtowhat'sgoingonoutsidethe

company(Cross,2006).

Academicliteraturestrengthensthisfindingandconcludesthatunderstandingwhat

the customer’s truly needs and values is the essential basis for strategic success

(Wilson,1998).Wilson(1998)goesontoaddthatmanagersshouldfocusmoreon

creative thinking, the strategic capability that this understanding should generate.

Within the same line,Mintzberg (1994a) concludes that studieshave revealed the

mosteffectivemanagerstorelyonsomeofthesoftestformsofinformation.

On the practitioners’ side, Beinhocker (McKinsey, 2006) argues that improved

identification of and focus on important strategic issuesmakes strategic planning

more innovative. Rumelt (McKinseyQuarterly, 2007) calls this outward looking an

acknowledgementofstrategydynamicsandmarketgaps,orwhathenames“value

denials”.Hepointstotheneedtoturnasidefromcentral innovationandaskwhat

valuedenialsitwillbeuncovered,and,moreimportantly,howwilltheybefixed.

Thisdiscussionisprolongedintoanadjacentareaoftheparticipantstobeinvolved

in strategy formulation. Bryan and Hamel (2008) have recently restated that the

traditional management belief according to which strategy is decided at the top

should be abandoned. Along the same line,Wall andWall (1995) argue that the

broader the participation is, themore evolutionary the strategyprocess becomes,

andthereforecallstotakeintoaccountinputfromexternalsuppliersandcustomers

informulatingstrategy.

Other researches also support this argument, concluding that it is impossible to

developaplan that canbe implementedunless key stakeholdershavea say in its

content (Clark and Krentz, 2006). However, some researchers such as Simpson

(1998) disapprove of this and argue against participatory planning pointing to the

factthatitleadstoanever‐endingdebateandthatitdoesn’tallowthecompanyto

stretchgoals.Thisstatementnot longerholdswater innowadays’world,asLafley,

the CEO of P&G points out that only innovation allows strategy targets to be

stretchedandthusideasfromeverywherearewelcomed(LafleyandCharan,2008).

Hence,thefollowingpropositioncanbedrawn:

Proposition2a:Beingoutwardorientedinstrategicformulationmakesthestrategic

planningprocessmoreinnovative.

Complementary to this, another way of unleashing innovative growth ideas is

throughhavingaclearstrategyandfewstrategicprioritiessothateveryonewithin

theorganizationcandirectitscreativitytowardsthesamegoal.Academicresearch

supports using this method to foster a more innovative strategic planning. As

Simpson(1998)states,simplicityandclarityarethekeystoinfluencingbehavior.He

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arguesthatoneof thekeystogoodstrategy is tomake it simple, tosynthesizeall

the complexities of the business environment and the company’s position for the

futureintoafewimportantactions,afewimportantdirections.Itshouldincludenot

onlyasimplestatementof theobjectivesandgoalsof theunit,butalsostrategies

(nomore than five), measures by which progress against those strategies will be

evaluated,andspecifictactics(actionplans)whichbringthestrategytolife.

Furthermore, strategies and tactics should cascade into lower levels of the

organization. So thatpeople at lower levels in theorganization clearlyunderstand

how theypersonally impact the strategyand itspriorities (Simpson, 1998).Wilson

(1998, p. 510) argues that a powerful and coherent strategic vision that is well

communicated and well understood throughout an organization increases the

organization’s flexibility. In the absence of such a clear vision, the following

observation gains substance: “if you don’t know where you’re going, it doesn’t

matter how you get there”. Mintzberg (1994b) supports the same view when

presenting the three steps of strategic planning (codification, elaboration and

conversionofstrategies),stepswhichensurethateveryoneintheorganizationpulls

towards the same direction. In the practitioner‐oriented literature, a McKinsey

QuarterlySurvey(2006)statesthat,byimprovingthecompany’salignmentwithits

strategicplan,strategicplanninginnovativenessispromoted.

Both companies under review follow this best practice. Unilever (2008d) has set

threeclearstrategicpriorities:personalcare,developingandemergingmarketsand

vitality.Mr.Crosspointstotheimportanceofinternalstrategyalignmentinorderto

focus the resources within the company towards the same direction and thus

innovatestrategy(Cross,personalcommunication,2008).P&Ghasputinnovationat

thecenterofitsthinking,whichaccordingtoLafleyhasenabledthemtonowlookat

businesses and brands previously considered mature, and see the growth

opportunities in them (Lafley and Charan, 2008). The strategy is summarized into

onesentence:drawing50%ofallnewproductsdevelopmentfromopeninnovation

(P&G, 2008). Building on this innovation‐centered approach, priorities have been

derived: focus on P&G’s core, migrate portfolio toward faster growing, higher

margin, more asset efficient businesses and win with lower income consumers,

particularly inthefastestgrowingdevelopingmarkets.Bytriangulatingthefindings

fromtheacademicandpractitioner‐orientedliteratureandthoseextractedfromthe

casestudies,thefollowingpropositioncanbedrawn:

Proposition 2b: A clear strategy and good internal coherency directs all the

company’sresourcestowardsthesamegoalandthusfostersthegenerationofnew

growthideas.

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4.3.3 Innovatingstrategyimplementationandcontrol

Growth ideas from strategic planning appear not only in the strategy formulation

process, but at all times, including during strategy implementation. This remark

results from the interviews with the studied companies and is strengthened by

respectedacademicresearch,aswellasbypractitioner‐orientedliterature.

Figure21Overview–innovatingstrategyimplementationandcontrol

Source:ownillustration

AsMintzberg(1994b)argues,innovativegrowthstrategiescannotbedevelopedon

scheduleandimmaculatelyconceived.Theymustbefreetoappearatanytimeand

at any place in the organization, typically through unsystematic processes of

informal learning that must be carried out by people at various levels, who are

deeplyinvolvedwiththespecificissuesathand.Withinthesamelineofreasoning,

DyeandSibony(2007)claimthatthosewhocarryoutstrategyshouldalsodevelop

it, which advocates for increasing the involvement of business unit leaders in the

strategicplanningprocess.Additionally, cross functional collaboration is supported

in the practitioner‐oriented literature by Beinhocker (2006) who concludes that

increasing discussion among business units makes strategic planning more

innovative.

Theneedforcross‐functionalcollaborationisdrawnfromtheinterviewfindings,as

well.Infact,accordingtoMr.CrossfromUnilever,strategicplanningshouldrespond

tocross‐functionalinnovationneeds.Hegoesontooutlinethenecessitytocreatea

cross‐functional sense of risk taking, reflected down the line in a cross functional

senseof reward, inorder to foster thegenerationofnewgrowthenhancing ideas

(Cross,personalcommunication,2008).Ms.GatejfromUnileverfurthersuggeststhe

institutionalization of an “Innovation Board”, which should be a very central and

visible platform to collect ideas from brand managers, suppliers, advertising

agencies; and to act as the main driver behind the innovating strategy (Gatej,

personalcommunication,2008).Similarly,LafleyfromP&Gpointstothebenefitsof

collaborationbystatingthatinnovationisa“teamsport”,asocialprocessandthus

drivinginnovativeideasimpliestakingactiontofosterthisspirit(LafleyandCharan,

2008). Mr. Cross further suggests that in order to promote cross‐functional

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collaboration,abalancedapproachinsettingindividualandsharedtargetsshouldbe

taken (Cross, personal communication, 2008). Hence, the following propositions

result:

Proposition3a:Cross‐functionalcommunicationandcollaborationfostersintegrative

thinkingandthegenerationofgrowthenhancingideas.

Proposition3b:Settingbalancedindividualandsharedtargetsandrewardspromotes

cross‐functional collaboration and thusmakes the strategic planning processmore

innovative.

Strategicplanningcanbemademoreinnovativebychangingtheincentivesofthose

whoimplementit.Thismeansachangeintheperformancemetricsusedtoevaluate

strategyachievement.Alotofevidenceisfoundtosupportthisargument.Simpson

(1998) emphasized the fact that performance measures help focus attention on

what is important and getting the right set of measures is extremely difficult.

Generally, companies prefer to measure results in terms of financial targets, or

outputmetrics.However,asDyeandSibony(2007)argue,acompanyundertakinga

majorstrategicinitiativetoinnovateitsstrategicplanningprocessshouldmeasurea

varietyof inputmetrics, such as thequality of available talent and thenumberof

ideas/projectsateach stageofdevelopment,not justpureoutputmetrics suchas

revenuesfromnewproductsales.

Anotherbenefitof thisbalancedapproach toperformanceappraisal is that sucha

systemcan give anearlywarningof problemsoccurring at the strategic initiatives

level,whereasfinancialtargetsaloneprovide,atbest,laggingindicators.Withinthe

same line of reasoning,Müller, Välikangas andMerlyn (2005) argue that although

outputmetricssuchasannualR&Dbudgetasapercentageofannualsales,number

ofpatentsfiledduringthepastyear,percentageofsalesfromproductsintroduced

during the previous year, and number of ideas submitted by employees are

somewhat useful, they do notmeasure a company’s overall innovation capability.

Thus,theysuggestaframework(seeFigure22)fortheselectionofmetricsthatcan

help senior executives assess their company’s innovativeness and hence combat

strategydecay.Figure22Innovationframework

Source:ownillustrationbasedonMüller,ValikangasandMerlyn(2005)

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The framework combines three views on innovation: resource, capability and

leadershipview.Metricsundertheresourceviewaddresstheallocationofresources

tobalanceoptimizationandinnovation.Theresourcesinputsarecapital, laborand

time and the output is the return on investment in strategic innovation. The

capability viewassesses the extent towhich the company’s competencies, culture

andconditionssupporttheconversionofinnovationresourcesintoopportunitiesfor

business renewal. The inputsof this capability vieware the verypreconditions for

innovation, whereas the outputs include the development of new skills and

knowledge domains that spawn innovation as well as the number of strategic

options(opportunitiestosignificantlyadvanceanexistingbusinessorinvestinnew

business).Theleadershipviewassessesthedegreetowhichacompany’sleadership

supports innovation. As such, it evaluates leaders’ involvement in innovation

activities,theestablishmentofformalprocessestopromoteinnovation,andtheway

innovation goals are disseminated across the organization. Innovation processes

compriseorganizationalstructuressuchas incubators, innovationmarkets,venture

fundsandinnovationincentives.

Aneffective systemenablesmanagement to step in and correct, redirect, or even

abandonaninitiativethatisfailingtoperformasexpected(Dye,2007).AMcKinsey

GlobalSurvey(2008)pointtothesamedirection,statingthatcompanieswouldgain

adeeperunderstandingoftheirinnovationperformanceiftheypaidmoreattention

to inputmetrics aswell as outputmetrics, benchmarked themselves against their

competitors, and dug into the relationship between innovation spending and

shareholdervalue.

Thisbalancedapproach tometrics isalso supportedby the interview findings.Mr.

Mirandadiaz(personalcommunication,2008)fromP&Gremarksthathiscompanyis

currentlyworkingonanewgenerationofmetrics,whicharemorequalitativeand

provideawell‐balancedcombinationof input/outputmetrics. Mr.Cross (personal

communication,2008)fromUnileversignalsthesamedirection,statingthatUnilever

usesmorethancommonoutputmetrics,whichheconsiderstobeoflimitedvalue.

He further adds that Unilever is using uniform world definedmetrics, which also

capturequalitative aspects thathavebecome increasingly relevantnowadays (e.g.

the sustainability issue). By corroborating the interview findings and the academic

literatureinsights,thefollowingpropositionscanbedrawn:

Proposition3c:Usingabalancedmixofinputandoutputinnovationmetricsrewards

new ideas generation and thus makes the strategic planning process more

innovative.

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Proposition 3d: Using a balanced mix of quantitative and qualitative innovation

metricsfostersstrategicrenewal.

4.3.4 Innovatingthecompany’sculture

Figure23Overview–Innovatingthecompany’sculture

Source:ownillustration

Making the strategic planning process more innovative through the methods

presentedabovecannotbedonewithoutachangeinthecorporateculture, inthe

way employees think and act and theway the organization perceives employees’

initiatives.This idea is found inbothacademicandpractitioneroriented literature,

beingalsoconfirmed in the interviews.Well‐known researchers suchasMintzberg

(1994c) argue that planners should find patterns “amid the noise of failed

experiments, seemingly random activities, andmessy learning”. They can discover

newwaysofdoingorperceivingthings.Mintzberg(1994b)furthersupportstheidea

that the essence of strategy making is promoting experiments that gradually

converge into viable patterns that eventually become strategies.Within the same

line of reasoningWall andWall (1995) acknowledges that the best approach in a

changingenvironment is toallowstrategytoevolvethroughthediscoveryofwhat

works and what doesn’t. That is, new growth enhancing ideas can arise when

employeesarelefttoexperimentandwhentheentireorganizationlearnsfromsuch

mistakes. Such a behavior involves a change in how people regard successes and

failuresandinhowthecompanyappraisesthem.

Ari de Geus (1988) argues in the same direction when hementions that the real

purposeofeffectiveplanningisnottomakeplans,buttochangethementalmodels

thatdecisionmakerscarry in theirheads.Simpson (1998)strengthens theneed to

workonchangingtheattitudesandskillsofpeopleinordertorejuvenatestrategies.

Markides (1997) argues that a changedmindset allows a company to look at the

businessnotintermsofproducts,butintermsofcustomerneedsittriestofulfillor

intermsofcorecompetenciesportfolio.Thisideaisconfirmedinbothcasesunder

review:Unilever sees itself in termsof customer function ‐ “addingvitality to life”

(Unilever, 2008d), while P&G portrays itself as a portfolio of core competencies

“developing the core strengths to win in the consumer products industry” (P&G,

2008a).Inthepractitioner‐orientedliterature,Beinhocker(2006)goesevenfurther

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and looks atwhatmoderates such a change. She acknowledges that people have

difficultytoadaptbecausetheyactinaccordancetomentalmodels,whichbecome

morerigid,more locked in,andmoreaversetonoveltyaspeoplegainexperience.

Withinthesamelineofreasoning,TomPeters(2008)arguesthatfailureisthekeyto

successandcallsforfastfailureinordertogeneratefastsuccess.JudyEstrin(2008)

highlights the importance of integrating “learning from failure” into the corporate

culturetoallowacompanytokeepitsgrowthmomentum.

As Lafley points out, an innovation culture fosters openness, curiosity and

networkingwithsuppliersandcustomers(LafleyandCharan,2008).Itisthiskindof

behavior that discovers new market niches and new ways of serving customers,

thereforegeneratinggrowth for thecompany.For this tohappen,P&Gusessocial

mechanisms and tools (e.g. Clay Street, co‐location) to mold diverse experts into

highlyfunctioningteams(MirandadiazandWai,personalcommunication,2008).Mr.

Cross fromUnileverdrawson the same reasoningwhenhe states that companies

risktolimitthemselvestocurrentcapabilitiesbecauseofhumanpride,alsoknown

as the “not invented here” syndrome. By corroborating the information from

academic and practitioner‐oriented literature, as well as interviews insights, the

followingpropositioncanbedrawn:

Proposition 4a: Amore proactive, higher risk ‐ taking, collaborative culture fosters

thegenerationofnewgrowthenhancingideas.

Proposition4b:Aculturethatpromotesexperimentationandapproaches failureas

sourceoflearningincreasestheinnovationpaceinstrategyformulation.

4.4 Howopeninnovationmakesthestrategicplanningprocessmore

innovative

In thepreviouschapter itwasexplored thewayswhichallow innovation toplaya

bigger role in each stepof the strategymakingprocess: from changes in strategic

mission,toshiftsinstrategyformulationandimplementation,alongwithchangein

softerfactorssuchascompanyculture.Asshownbyseveralstudiesonthemotives

to engage in open innovation, the most common reason for external technology

acquisition is the commonbelief that it is critical tomaintain growth (Chesbrough

and Crowther, 2006). Thus, open innovation represents an important source of

businessgrowth.Itsimpactoninnovatingstrategicplanningwillbediscussedlaterin

this chapter. Van der Vrande, Jong, Vanhaverbeke and Rochemont (2008) have

reached a similar conclusion, namely that basic entrepreneurial values such as

growthandrevenueswillbeamongthekeymotivesurgingenterprises topractice

open innovation. Other literature suggests that enterprises may engage in

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collaborations inorder toacquiremissingknowledge,complementaryresourcesor

finance;tospreadrisksortoenlargetheirsocialnetworks(HoffmanandSchlosser,

2001;MohrandSpekman,1994).

Theimpactopeninnovationhasonstrategicplanninglargelydependsonthedegree

to which open innovation is integrated within an organization. Case study based

findings show that open innovation has beenprogressively institutionalizedwithin

the organization. As a first step, open innovation is considered just a means to

performR&Dmoreeffectively.Thisneedsaclearstrategy,combinedwiththeright

tools to capture open innovation ideas, and supported by a good partnership

management. A second phase of integration involves scaling up innovation in all

businessprocesses,andgraduallyleadstochangingeverythingfromthecompany’s

purpose and values to strategies, structure and systems, up to culture and

leadership.Usingtheaboveperformedanalysis,thetwostudiedcompaniesseemto

beindifferentdevelopmentphases:whereasUnileverconsidersopeninnovationas

oneoftheseveralmeanstoachievegrowth,P&Gcallsinnovationasthemaindriver

of its business. Nevertheless, Unilever is in the process of creating the adequate

structuresandchangingthemindsetforfurtherscalingupopeninnovation.

Open innovation promotes new idea generation by changing theWho,What and

Howof a company (Markides, 1997).Who is derived from the company’smission

andreferstothecustomersservedandneedsmet,Whatcomesfromthestrategy

formulation and refers to the products being offered, and How refers to the

capabilitiesrequiredtoservethecustomers.Thisstructurewillbeusedtoshowhow

open innovation makes strategic planning more innovative in terms of a more

intensegenerationofgrowthenhancingideas.

Figure24Overview–InnovatingSPPthroughopeninnovation

Source:ownillustration

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4.4.1 Addressingthe“Who”

Embracingopeninnovationhasallowedthetwocompaniestoextendtheirpurpose

andserve largerconsumersegments,thus increasingtheoverall revenuepie.Both

companiesarenowservingtheentireconsumerincomespectrumandgeographies,

withanemphasisondevelopingandemergingmarkets,whileinthepasttheywere

primarilyfocusedonmiddleincomeconsumersfromdevelopedmarkets.

Thisprocesshasbegunwithredefiningthecompany’smissionandbythischanging

thecorporateandemployeemindsetconcerningwhatthecompanystandsfor.Both

case studies show that progressive openness towards collaborative innovation is

accompaniedbyanupgrading in the company’smissionandpurpose.Procterand

Gamble’s corporate purpose has shifted from delivering sustainable growth and

“improvingeverydaylivesofconsumers”throughcreatingthemostsuccessfulglobal

brands ineachcategory inwhichtheycompete(“Designtogrowth”)to“Designto

Innovate”, in which customer centered innovation is the basis for growth. In the

formerstage,innovationislimitedtodevelopingnewproducts,whileinthelatterit

isdefinedmorebroadly,beingattheverycenterofthebusiness(LafleyandCharan,

2008). Unilever hasmodified itsmission aswell from “meeting everyday people’s

needs” to a more service‐oriented purpose of “adding vitality to life”. In fact, as

Cross (personal communication, 2008) argues, open innovation is primarily a

mindset,whichisdrawndirectlyfromcompany’spurposeandvalues.Thisextension

intermsofpositioninghasallowedthemtoseestrategicchoicesinadifferentlight

(LafleyandCharan,2008).Businessesandbrandspreviouslyconsideredmatureare

now be looked upon as growth opportunities (Mirandadiaz, personal

communication,2008).

Innovationhasalsoenabledthetwocompaniestomakedecisionsaboutwherenot

toplay.AssuchP&Gexitedmostfoodandbeveragebusinessesasitconsideredthat

theyneitherhavethepotential togrowthrough innovation,nordotheyrepresent

long‐term competitive advantage (Lafley and Charan, 2008). Consequently,

resources have been freed up and deployed toward the faster growing, higher

margin, more asset efficient beauty, health and personal care businesses. Open

innovationhasalsoopenedupanentirelynewopportunityforP&Gtocapturemore

than a billion new lower income consumers, particularly in the fastest growing

developingmarkets (P&G,2008a).Unileverhas even setdeveloping andemerging

markets as one of the threemain strategic priorities (Unilever, 2008d). Thus, the

new approach towards innovation is reflected in the companies setting higher

purposesintermsoftargetedcustomer,servedgeographiesandrangeofneedsto

bemet.Thisideaissupportedbybothacademicandpractitioner‐orientedliterature.

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Intheacademicliterature,FetterhoffandVoelkel(2006)contendthatnewcustomer

demandscanbemetthoughopeninnovation.DittrichandDuysters(2007)conclude

thatunderchangingconditions,collaborative innovationnetworkshelpacompany

tore‐define itsstrategicpositioning.VandenVrandeet.al. (2008)reachthesame

conclusion,namelythatthemostimportantmotiveforacompanytoengageinopen

innovation is market related: better meet customer demands and needs. In the

practitioner‐oriented literature, Lafley (2008) largely supports this, by stating that

open innovation is critical for company repositioning and profiling the essential

growthopportunitypresentedbyemergingmarkets.Hefurtherarguesthatgrowing

the business in these countries is achievable only by consistently developing new

products, processes, and forms of community presence, which is possible only

throughcollaborative innovation.By summingup interview insights, academicand

practitioner‐orientedliterature,thefollowingpropositioncanbetraced:

Proposition 5a: Open innovation fosters growth by changing the company and

employees’mindsets regardingwhat they stand for, thusallowing the company to

targetnewcustomersegmentsandgeographies.

However,asEstrin(2008)claims,acompanycanexperienceincrementalinnovation

by llistening o its customers. As for the development of the next generation of

products,whichaccountforthecompanyleapfroggingthecompetitionandmeeting

thefutureneedsofcustomers,acompanyshoulduseinformationderivedfromthe

customers,and,atthesametime,fosterinnovativethinkingwithingroupsofpeople

whothinkdonotsharetheparadigmsofmainstreambusiness.Makingaparallelto

Henry Ford’s times, “ifHenry Ford had asked the customerswhat theywanted, it

wouldhavebeenafasterhorse,notacar“(Estrin,2008).Thus,acompanyneedsto

beable tocombinecustomercentricitywithacontinuoussearch fornewbusiness

areas. Special dedicated teams should be appointed to “hunt” down such new

venuesandmaderesponsiblefortheso‐called“disruptiveinnovation”.

This idea isalsostronglysupportedby theacademic literature.Trott (2001)makes

the case that traditional market research can have a devastating effect on the

developmentofradical ideas,orcanevenbemisleadingattimes.Withinthesame

line,Assink(2006)underliesthefactthatmarketswhichdonotyetexistcannotbe

analyzed.Hence,asChristensenandRaynor(2003)suggest,establishedcompanies

could exploit a disruption only by creating a separate unit, and thus investing the

time of a multi‐functional group to “out of the box” thinking. Both studied

companies have distinct structures to support the two types of innovation. P&G

tackles both types of innovation with different organizational structures. Through

P&G Future Works it aims to deliver disruptive innovation, which leads to new

businesses (P&G, 2008d), while the New Business Development structures within

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eachbusinessunitandthe“hotzones”accountfor incremental innovation.Within

Unilever, Knowledge Workshops and the ideas4unilever website account for

incremental innovation, whereas R&D centers located within universities lead

researchthatcouldresult indisruptiveinnovation.Bytriangulatingtheinformation

obtained via interviews and literature review, the following propositions can be

drawn:

Proposition 5b: Being customer centric accounts for growth ideas coming from

incrementalinnovationactivities.

Proposition5c:Futuregrowthareasshouldbeinvestigatedcontinuouslybemeansof

appointing specialmulti‐functional teams,whose timeallocationand rewardsplan

aredirectlylinkedtothistask.

4.4.2 Addressingthe“What”

Except for decidingwhom to serve, another areawhere a company can come up

with more growth enhancing ideas is its product offer. Open innovation brings a

company closer to the customers, to theend consumers,makes itmore awareof

trends and thus increases the chances that new product ideas could become

successfulproductlaunches.Asaresult,thecompanycanstretchitsgrowthtargets.

Inthepractitioner‐orientedliterature,Lafley(2008)confirmsthisassumptionwhen

he proves that successful products have been launched and growth has been

achievedbyusingopen innovation,byhavinganoutwardorientedattitude,being

clearlyandfirmlyfocusedontheexternalenvironmentandconstantlyconcentrating

on the consumers’ needs. Burghin and Johnson (2008) outline in a McKinsey

Quarterly article the increasing success of new product development which

originates in co‐creation and point to the added value captured from open

innovationactivities. Linder, JarvenpaaandDavenport (2003) strengthen this idea,

showingexamplesofcompaniesthathavegrownbycreatingnewsalescategoriesas

aresultofnewformsofinteractingwiththeirconsumers.

Intheacademicliterature,vonHippel(2005)discussesevidenceofhowcompanies

canbenefitfrompartneringwiththeircustomers,processwhichformsthebasisfor

breakthrough products that satisfy unmet needs and thus create new areas of

growth for the business. Lokshin, van Gils and Bauer (2008) argue that customer

centricopeninnovationpositivelyinfluencesinnovativeoutputandbusinessgrowth.

However, academic literature raises warning over the fact that customers have

“sticky knowledge” that is not easily revealed through standard market research

(PillerandWalcher,2006).Openinnovationsolvesthisprobleminthatitopensnew

waysto interactwiththecustomersandend‐consumers,an ideaderivedbyLafley

(2008)fromP&G’sexperience.Amongtheacademics,VanderVrandeet.al.(2008)

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support the same idea stating that firmsmay benefit from their customers’ ideas

and innovationsbyusingproactivemarket research,providing tools toexperiment

withand/ordevelopproducts similar to theones thatarecurrentlybeingoffered.

Comingupwithproductsbasedoncustomermadedesignsandalsoevaluatingwhat

maybelearnedfromgeneralproductdevelopmentareothermeasuresthecompany

shouldusetotapinthehighpotentialofcustomercreativeinvolvementandontime

feedback.Fromthepreviousstreamofarguments,thefollowingpropositioncanbe

drawn:

Proposition6:Co‐creationandcustomerfocusexperimentsareopeninnovationtools

thataccountfornewideageneration,thusmakingstrategicplanningprocessmore

innovative.

Furthermore, open innovation introduces new elements or practices to strategic

planninginthesensethatitallowsthecompanytotransformitsunusedIPbaseinto

additional revenue sources. For instance, one part of the P&G’s “Connect and

Develop”platformisdedicatedtoknowledgecommercialization(P&G,2008c).This

ideafindssupportinbothacademicandpractitioner‐orientedliterature.Chesbrough

(2003)mentionsthatonebenefitoftheopeninnovationparadigmisthatcompanies

canbringtheirin‐houseideastomarketbydeployingpathwaysoutsidetheircurrent

businesses,thusopeningnewavenuesforthegrowthstrategy.DittrichandDuysters

(2007)contributetothesamepoint,observingintheirstudybuiltonexamplesfrom

thehightechindustrythat,throughefficientuseofopeninnovation,newproducts

andservicesaredeveloped,andsothegroundissetfornewgrowthopportunities.

Kirschbaum(2005)presents inoneofhisarticlesacasestudy inwhichacompany

efficientlycombinesinternalandexternalcompetenciesandout‐licensesknowledge

togrowitsbusinessrevenue.Vanderet.al.(2008)consideropeninnovationtobe

onewayofextendingtherevenuebase.Intheirstudy,theauthorsobservethatout‐

licensing allows companies to profit from their IP when other companies with

different business models, use the unused, but valuable knowledge to find

profitable,externalpathstothemarket.Hence,interviewfindingscorroboratedwith

resultsadvancedinthereviewedliteratureleadtothefollowingproposition:

Proposition7:BycommercializingunusedIPbase,openinnovationaddsnewgrowth

sourcestothebusiness.

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4.4.3 Addressingthe“How”

AsLafleyandCharan(2008)pointto,itisveryimportantforcompaniesactinginan

open innovation environment to know what they are good at in order to decide

wheretoplayandwhetheran innovation‐drivenstrategy isdecisive.This ideawas

confirmed during the interviews, when one Unilever representativementions the

need to know what the capabilities of a company are in order to be able to go

beyondthesecapabilities(Cross,personalcommunication,2008).

In the academic literature, Chesbrough and Schwarz (2007) argue the same,

emphasizing the need to accurately define and distinguish between the business’

core capabilities and its contextual, little added value competencies, in order to

know which circumstances allow the company to engage in co‐development

partnerships without losing its competitive advantage. Chesbrough (2003)

strengthens this point when he states that cooperation is not to be seen as a

solution to all innovation problems, but as part of the portfolio in which some

projects are carried out by the company itself, while others are developed out in

cooperation with other firms. From the above argumentation, the following

propositioncanbedrawn:

Proposition 8a: Open innovation fosters growth enhancing idea generation by

pressuringtheorganizationtoaccuratelydefineexistingcapabilities.

Besidesbetterdefiningthecompany’scorecapabilities,openinnovationfostersnew

capabilitycreationthroughextendedcollaborationamongcompanybusinessesand

among the company and various external parties. This idea of new knowledge

accumulation finds consistent support in literature. Cohen and Levinthal (1990)

argue that the ability to exploit external knowledge is a critical component of

innovative performance. Cohen and Levinthal (1989, 1990) further state that not

onlydoesR&Dgenerategenuinelynewknowledge;italsoenhancesthefirm’sability

to assimilate and exploit existing knowledge from the external environment. As

found by Dodgson, Gann and Salter (2006), the adoption of open innovation has

extended the interface’s role, therefore improving existent connections among

differentbusinesseswithinthecompany,orthosetyingthefirmtotheoutside.This

interface increases the organization’s ability to absorb, or assess the impressions

fromtheoutsideenvironmentandallowsmorebusinessgrowthenhancingideasto

begenerated.Furthermore,LaursenandSalter(2005)intheirquantitativeresearch

concludethatfirmswhohaveopensearchstrategies—thosewhosearchwidelyand

deeply—tend to be more innovative and come up with more growth enhancing

ideas.

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Ontheotherhand,practitionersconfirmthatopeninnovationhelpsbuildupcritical

knowledgeuseful fornewproductdevelopmentbyextensively leveragingexternal

partners’ capabilities (Chesbrough,2003; Innovaro,2007). Lafley (2008)argues the

sameclaiming thatopen innovationgivesacompany thepossibility tobroaden its

capabilities.Lichtenthaler (2008)adds to thisby stating that ifexternal technology

exploitation is an established component of corporate strategy, in identifying

technologycommercializationopportunitiesthecompanyshouldseriouslytakeinto

account the exploitation of external technological possibilities, beside its own

resources. This thinking should be applied to all major decisions concerning

technology acquisition. Hagel and Brown (2005) argue that it is imperative for

companiestoengageincollaborationwithexternalcapabilitiesinordertobuildnew

capabilitiesandsustaintheircompetitiveadvantage.

Thereviewedcompaniesmakethecaseforthisargumentation.Overthecourseofa

few decades, Procter & Gamble has developed through “Connect and Develop” a

way to connect internally inorder to improve theattitude towards initiatives that

came from outside one’s own department (both from outside and inside of P&G)

(Huston&Sakkab,2006;2007).Unileverhas initiatedtheplatform Ideas4Unilever,

which functions as a “one stop point” meant to capture ideas from inside and

outsidethecompany.Thus,openinnovationallowsforexternalknowledge,including

tacit knowledge, to flow into the company, be leveraged and subsequently

internalizedbytheemployeeswhouseittodevelopnewcapabilities.Initsturn,this

willformthebaseforextendingthebusinessandachievinggrowth.

Asconfirmedduringtheinterviews,intherelationshipwithcustomers,Unileverhas

a wide reach across the store, bringing ‘shopper insight’ to the partnerships with

customers. With main suppliers, it has built long‐term partnerships, which have

already produced benefits in the form of new launched products (e.g. Lipton

pyramidal teabags). In cooperation with the academia, Unilever deploys new

technologies at industrial scale and develops new capabilities (e.g. ice cream

crystals).Furthermore, intimecapabilitiesofmainpartnersareconsideredearly in

thestrategyformulation(Cross,personalcommunication,2008).P&Ginnovateswith

the support of retail and non‐retail customers, that of suppliers and even with

competitors input (Lafley and Charan, 2008). The “Inverting the Pyramid” model

adopted by P&G in relation with its main retail customers implies direct

communication flowsandplanningactivities involving the corresponding functions

of each company, expert to expert, speaking a common languagewith joint goals

and measures. Thus, knowledge is built on both sides and idea generation is

fostered.Addedtothis,asLafleyargues,partneringwithretailersisawaytocreate

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demandbybetterunderstandingtheshoppers(LafleyandSharan,2008).Hence,the

followingpropositionsresult:

Proposition 8b:Open innovation fostersmore growth enhancing ideas by allowing

externalknowledgetobeleveragedinternally.

Proposition 8c: Open innovation makes strategic planning more innovative by

promotingnewknowledgeacquisitionandbuildingnewcapabilities.

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5 DiscussionThisthesisconductsanexploratoryresearchonhowtomakethestrategicplanning

processmore innovative, and is based on two case studies from the fastmoving

consumer goods industry. Grounded on pieces of information collected from the

interviews, as well as from secondary sources like company sites, articles and

industry/companyreports,whicharethenlinkedtotheory,thisqualitativeresearch

provides directions on how strategic planning can be made more innovative.

Furthermore, it enlarges upon how open innovation can be used as a tool to

innovate strategymaking. The findings from this thesis complementedwith other

recent evidence (Grant, 2003) show that strategic planning continues to play a

centralroleinthemanagementsystemsoflargecompaniesandthatchangescanbe

doneinitsdistinctphasestoaccommodateforamoreintensegenerationofgrowth

enhancing ideas. In this way, the thesis develops new theory (5.1.) and reveals

opportunities for futureresearch(5.2.).Furthermore, thepaperhelpspractitioners

get a better understanding of how strategic planning process can bemademore

innovative. The role open innovation can play is also outlined, this tool bearing a

muchgreaterpotentialthanthatofjustanotherR&Dstrategymethod(5.3.).

5.1 Contributionstothetheory

This thesis aimed to contribute to the two research fields mentioned in the

introduction.Threereasonssuggestitmanagestodoso.First,thethesisaddstothe

strategyprocessresearchfield inthat itattemptstoprovide informationregarding

actions thatcompaniesundergo inorder tocounteract thedissatisfactionwiththe

strategicplanningprocess(McKinsey,2006)andincreasetheinnovativenessoftheir

corporate strategy. As such, this study extends Grant’s (2003) research on how

strategic planning process is done, by showing how companies from the FMCG

industrymakechangesineachphaseofthestrategicplanningprocesssothatthey

encourage the appearance of “creative accidents” (Beinhocker and Kaplan, 2002).

The thesis explores the evolution of two leading FMCG companies as they

progressivelychangetheirbusiness,startingfromthecompanymissionandculture

andgoingfurtherintostrategyformulation,implementationandcontrol.

Secondly, the thesis contributes to theopen innovation research field,whichwas,

until now, mainly focused on defining open innovation. This thesis sets out to

connect two researchsubjects:open innovationon theonehand,and strategyon

the other; and shows how open innovation, if scaled up to bemore than a R&D

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59

method and placed at the center of the business model, fosters more intense

generationofgrowthenhancingideasandthusinnovatesstrategyformulation.

Thirdly, this study sheds light on how the innovation process actually takes place.

Despitea largebodyof literatureonthistopic, innovationhas longbeenseenasa

“black box” (Rosenberg, 1994). If the locus of innovation is not only the R&D

department,buta fieldofcollaborationbetweenthecompanyandoutsideactors,

this puts themagnifying glass on how innovation actually happens. The two case

studies show what organizational structures companies have created to foster

innovationandhowtheyopeneduptheorganizationtonewthinkingbyadoptingan

open architecture to promote a more intensive generation of growth enhancing

ideas.

5.2 Limitationsandrecommendationsforfutureresearch

AsYin(2003,p.8)argues,“casestudiesaregeneralizabletotheoreticalpropositions

andnottopopulationsoruniverses”.Consequently,oneneedstobeawareof the

followinglimitations,whichopentheavenueforfurtherresearchinadjacentareas.

Firstly, in linewiththecasestudyapproachprinciples,thepropositionsneedtobe

testedthroughquantitativeresearch.Aquantitativestudywouldnotonlyprobethe

validity of these findings, butwould also integrate other aspects,whichwere not

visible using the case study approach. For instance, this study has mainly

investigatedhowtocomeupwithmore ideagenerationandhowopen innovation

contributestothis.Furtherresearchcouldlookatthewayopeninnovationimpacts

theperformanceofthestrategyplanningprocess.

Secondly, a change that comes along with the current movement towards open

innovationistheabilitytocollaboratewithmany.Surowieckicallsthisthe“wisdom

ofcrowds”(Surowiecki,2005).Theassumptionisthatthecollectiveintelligenceofa

largergroupofpeopleexceedsthatofafew,bothintermsofideasandknowledge.

Aproblemhere ishow toorganize thecollective intelligence– to create structure

out of the information chaos that would otherwise exist. As argued by Dodgson,

Gann and Salter (2006) the change of the interface demands a change in the

organizational ability to absorb, or assess the impressions from the outside. As

shownbythecases,therearedifferenttypesoforganizationalstructuresthatcanbe

created in order to gainmore benefits from open innovation throughmore ideas

beinggenerated.Afurtherstudy, toprovideacomprehensiveviewontheexisting

organizational structures and on their contribution to creating strategic options,

wouldbehighlywelcomed.

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Furthermore, a quantitative study, to investigate the variables that facilitate the

integration of open innovation in the strategic planning processwould also prove

necessary. Some of the moderators have been already mentioned in the current

study(e.g.leadershipstyle,companyculture).Thecompaniesstudiedbelongtothe

same cultural group, characterized by individualism and performance basedmerit

(meritocracy).Thus,adistinctinvestigationoncompaniesfromotherculturalgroups

(e.g.Asiaregion)wouldbeusefultotestwhethersomeofthefindings(e.g.mixof

individualandsharedtargetsandrewards)holdtrueforthese,aswell.

Thirdly,inordertoensurefortheoreticalreplication,thisstudyhasbeenlimitedto

the fastmoving consumer goods industry. In particular, the thesis has focused on

largemultinational companies, whichmanage a great deal of resources. Thus, it

needstobefurtherresearchedwhetherthefindings,especiallytheonesrelatedto

resourceallocationandknowledgeleverage/acquisition,stillholdtrueforsmalland

mediumsizedenterpriseswithinthesameindustry.

Finally,most of the research until now has been focused on the high tech sector

(Chesbrough,2003;WestandGallagher,2006;GruberandHenkel,2006).Hence,it

wouldbeinterestingtoverifywhetherthesefindingsfromthefastmovingconsumer

goods are relevant for other less technology intensive industries, such as

manufacturing,garment,furniture,etc.

5.3 Relevanceforthepractitioners

Thereare threeareas inwhich this thesis seeks todeliver informationvaluable to

managers. First, this studymentions situationswhere practitioners should step in

the different phases of the strategic planning process in order to make it more

innovative. Thus, it responds to themanagement concerns that were voiced in a

McKinseyQuarterlyGlobalSurvey(2006),whichhasfoundthatlessthanhalfofthe

executives are satisfied with their company’s approach to planning strategy.

Secondly, itoffersa firsthandunderstandingonhowto integrateopen innovation

intomanagementprocessesinordertocomeupwithmoregrowthenhancingideas.

Thirdly, itpoints to importantaspects ina company’s structure, culture,processes

andrewardsystemthatneedtobechangedsoastoaccommodateforthescaleup

of the place open innovation occupies in the business model. Hence, it draws

attention to significant elements, which impact the competitive advantage and

profitabilityofacompany.

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Acknowledgements

Firstofall,IwouldliketothankProf.Dr.Muller‐Stewensforhiswillingnesstoaccept

mythesisforhissupportandadviceduringthewritingprocess.

I am also thankful to Ms. Gatej, Mr. Cross andMr. Benea from Unilever, to Mr.

Mirandadiaz,Ms.DuprayandMs.WaifromProcter&Gamblefortheircooperation

and insights, which boosted my knowledge about the topic and made valuable

contributionstothisthesis.

Finally,Iwanttothankmyfamily,andthevariousfriendsinSt.GallenandBucharest

whosupportedmeduringthesepastfewmonths.Withouttheirpatienceandlisten

tomyideas,thispaperwouldhaveprovedmuchmoredifficulttowrite.

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Appendix

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Appendix1:Interviewlist

Company Interviewpartner

Function Date Duration Type

December15th,2008

70min Phoneinterview

Procter&Gamble

Mr.AlvaroMirandadiaz

P&GFutureWorksC&D

December2nd,2008 30min Phoneinterview

Procter&Gamble

Ms.JoelleWai FinanceDepartment

January6th,2009 45min Personalinterview

Unilever Ms.AlexandraGatej

ChairmanUnileverSouthCentralEurope

December2nd,2008 60min Phoneinterview

Unilever Mr.GrahamCross

CollaborativeInnovationDirector

December1st,2008 70min Phoneinterview

Unilever Mr.AdrianBenea

MarketingandAdvertisingConsultantandContractor

November28th,2008 60min Personalinterview

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Appendix2:Interviewguidelines

Thesetofquestionsadministeredisdividedintotwogroups:

- a set of questions administered to the managers responsible for strategic

planning

- asetofquestionsadministeredtotheopeninnovationexecutives

Appendix 2.1. Questions about the strategic planning process

(example)

1) Whatistheroleofstrategicplanninginyourcompany?Howimportantisit?

2) Canyoushortlydescribeit:mainphases,whoisinvolved,whenduringtheyearit

takesplace.

3) Did the strategic planning system (planning cycle, frequency, content, process

itself)changedovertime?WhydiditchangeandHow?

4) Howdoesyourcompanycomeupwithgrowthideasforitsbusinesses?

5) Aretherecorrectionsregardingthestrategicplanningwhichtakeplaceduringthe

yearandwhy?

6) Isthereapossibility/howoftendoyoudeveloplocalbrandsandscalethemupin

theglobalproductportfolio?

7) At regional and local level, how do you treat open innovation? Do you have

specialresourcesallocatedforthis?

8) Ifyouwereaskedtoprovideyourideasonhowstrategicplanningprocesscould

beimproved,whatwouldyourecommend?

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Appendix2.2.Questionsaboutopeninnovation(example)

1) Howdoyoudefineopeninnovationinyourcompany?

2) Do you think that being more open to collaborative innovation has had an

influence on your strategic planning process or on its outcome? Did anything

change?Whatkindofinfluence?(growthtargets,resourceallocation).

3) Afterhowmuchtimearethebenefitsofopeninnovationresultstobeseeninthe

financialresults?

4) How does your organization support open innovation (corporate culture,

processes,structure)?

5) Can you provide me with an example of a product, which is the result of

collaborativeinnovation,andexplainmethemainstepsinitsdevelopmentuntil

itwaslaunchedonthemarket?

6) At regional and local level, how do you treat open innovation? Do you have

specialresourcesallocatedforthis?

7) Whatinnovationmetricsdoyouuse?Sincewhendoyouuseinnovationmetrics?

Howdoyoumonitoropeninnovation?

8) Ifyouwereaskedtogiveideasonhowmakethestrategicplanningprocessmore

innovative,whatwouldyourecommend?

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Appendix3:Listofpropositionsandcross‐caseanalysistable

Case1:Procter&Gamble Case2:Unilever

Proposition1a:Acontinuousmonitoringstrategicplanningprocessallowsforadaptabilitytochangesandinternalizationofnewideas,whichinturnmakethestrategicplanningprocessmoreinnovative.

‐Planningandperformanceisaniterativeprocessinwhichstrategyformulationandimplementationtakeplaceinparallel.

‐Planningandperformanceappraisalareonarollingbasisandarenotcalendardriven.

Proposition1b:Disconnectingstrategicplanningfromfinancialplanningmakesthestrategicplanningprocessmoreinnovative.

‐Thetwotasksatdifferentpointsintime.

‐Duringthebottomupprocessofplanningwhichusuallyhappensinthefirstyearquarter,visionisrenewed,goalsaresetandstrategiestodeliverthosegoalsaredeveloped.

‐Inthesecondquarter,financialtargetsaresetfromthetopandgoalsarenegotiatedwiththebusinessunits

‐Corporatestrategyisrenewedeveryfiveyears.

‐Corporategoalsandfinancialtargetsaresetbasedontheformulatedstrategy.

‐Regionallevelsareboundtoachievethefinancialtargetsagreedwiththecorporatelevel.

Proposition2a:Beingoutwardorientedinstrategicformulationmakesthestrategicplanningprocessmoreinnovative.

‐Lafley:“theconsumeristhebossandwehavetowinwithherattwomomentsoftruth.”

‐Mr.Mirandadiaz:bybeingconsumerfocused,P&Gtranslatesneedsintounsolvedproblemsandthusopensuptheavenueforgrowth

‐Mr.Crosspointstotheneedfindthebesttechnologyanywhere;nomatterifitcomesfromtheinsideoroutside.

‐Mr.CrossmaintainstheneedforemployeestobeattheperipheryofUnileverwhentheycanlookbothoutsideandinsidethecompany.

‐Mr.Cross:appraisalincludeselementsthatforceemployeestolookoutsideforideas.

Proposition2b:Aclearstrategyandgoodinternalcoherencydirectsallthecompany’sresourcestowardsthesamegoalandthusfostersthegenerationofnewgrowthideas.

‐Lafleyhassummarizedthecorporatestrategyintoonesentence:“drawing50%ofallnewproductsdevelopmentfromopeninnovation”

‐Clearprioritieshavebeenderived:focusonP&G’score,migrateportfoliotowardfastergrowing,

‐Hassetin2004threeclearstrategicpriorities:personalcare,developingandemergingmarketsandvitality

‐Mr.Crosspointstotheimportanceofstrategyalignmentbetweencorporatelevelandtheregionallevel.

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highermargin,moreassetefficientbusinessesandwinwithlowerincomeconsumers.

‐Mr.Miradadiaz–confirmsthatregionallevelsdiscussthestrategyandagreeontargets.

‐Ms.Gatejmaintainsthattargetsarediscussedandagreedwiththecorporatelevel.

Proposition3a:Cross‐functionalcommunicationandcollaborationfostersintegrativethinkingandthegenerationofgrowthenhancingideas.

‐Lafley:“innovationisateamsport”

‐Ms.Waiconfirmsthattheusualworkingprocessestakeplacewithinamultifunctionalteam

‐Mr.Cross:strategicplanningshouldrespondtocross‐functionalinnovationneeds.

‐Ms.Gatejsuggeststheinstitutionalizationofan“InnovationBoard”,whichshouldbeaverycentralandvisibleplatformtocollectideasfrombrandmanagers,suppliers,advertisingagenciesandwhichshouldbethemaindrivertoinnovatingstrategy

Proposition3b:Settingbalancedindividualandsharedtargetsandrewardspromotescross‐functionalcollaborationandthusmakesthestrategicplanningprocessmoreinnovative.

‐Usesacomprehensivesetofmetricswhichreflectsideasgeneratedthroughcollaborationwithotherunitsandwithexternalparties.

‐Mr.Cross:thenecessitytocreateacross‐functionalsenseofrisktakingreflectedinacrossfunctionalsenseofreward

‐Mr.Cross:inordertopromotecross‐functionalcollaboration,abalancedapproachinsettingindividualandsharedtargetsshouldbetaken

Proposition3c:Usingabalancedmixofinputandoutputinnovationmetricsrewardsnewideasgenerationandthusmakesthestrategicplanningprocessmoreinnovative.

‐Mr.Miradadiaztalksaboutthenewsetofmetrics,whichismorebalanced.

‐Apartfromtraditionalinnovationmetrics,specificmetricstomeasuretheefficiencyofopeninnovationareused.

‐Mr.Crossconsidersusingonlyoutputmetricstobeoflimitedvalue.Confirmsthatasetofinputandoutputmetricsisused.

Proposition3d:Usingabalancedmixofquantitativeandqualitativeinnovationmetricsfostersstrategicrenewal.

‐Mr.Mirandadiaz:thenewsetofmetricsbeingcurrentlydevelopedisacombinationofquantitativeandqualitativemetrics

‐Mr.Cross:acomprehensivesetofmetricsisused.

‐Includesdistinctivemetricstoreflectcurrenttrendssuchas:environmentalconcerns.

Proposition4a:Amoreproactive,higherrisk‐taking,collaborativeculturefostersthegenerationofnewgrowthenhancingideas.

‐Lafley:aninnovationculturefostersopenness,curiosityandnetworkingwithsuppliersandcustomers.

‐P&Gusessocialmechanismsandtools(e.g.Clay

‐MrCross:companiesrisktolimitthemselvestocurrentcapabilitiesbecauseofhumanpride,alsoknownasNIHsyndrome.

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Street,co‐location)tomolddiverseexpertsintohighlyfunctioningteams

Proposition4b:Aculturethatpromotesexperimentationandapproachesfailureassourceoflearningincreasestheinnovationpaceinstrategyformulation.

‐Mr.Mirandadiaztalksaboutthereportsoffailedprojectsthathavetobewrittenandpresented.Theseserveaslearningtools.

‐Mr.Cross:talksabouttheneedtotakerisksalsoincollaborationwithotherunitsinordertodrivesignificantinnovationandfuturegrowth.

Proposition5a:Openinnovationfostersgrowthbychangingthecompanyandemployees’mindsetsregardingwhattheystandfor,thusallowingthecompanytotargetnewcustomersegmentsandgeographies..

‐P&Ghaschangeditsmissionin2004:from“Designtogrowth”to“DesigntoInnovate.

‐Lafley:startedchangingP&Gwithchangingitscorporateculture.

‐Unileverhasshifteditsmissionfrom“meetingeverydaypeople’sneeds”toamoreservice‐orientedpurposeof“addingvitalitytolife”.

‐Mr.Cross:openinnovationisamindset

Proposition5b:Beingcustomercentricaccountsforgrowthideascomingfromincrementalinnovationactivities.

‐ Puttingcustomercentricityexplicitlyaspartofthecompany’smissionfrom2004on.

‐ Mr.Mirandadiaztalksaboutthe‘hotzones’and‘ClayStreet’,whereideasaretestedbyconsumers

‐Mr.Cross:employeesarebeingexposedasmuchaspossibletocustomers’ideas.

‐Mr.Crosspointstotheneedtoshiftthecompany’spositioningfrompromotingproduct‐relatedbrandstoservice‐relatedbrandsaimedtosatisfyconsumerneeds.Thishelpsthecompanydifferentiateandthusopensupthebusinesstonewadjacentareas.

Proposition5c:Futuregrowthareasshouldbeinvestigatedcontinuouslybemeansofappointingspecialmulti‐functionalteams,whosetimeallocationandrewardsplanaredirectlylinkedtothistask.

‐ Hasspeciallydedicatedstructuressuchas:FutureWorks,NewBusinessDevelopment,ExternalBusinessDevelopment

‐ SpecialfundsdedicatedtoinnovationoutsidethecurrentbusinessthroughtheCorporateInvestmentFund.

‐Mr.Cross:pointstotheneedtocollaboratebetweenbusinessesinordertogeneratedisruptiveinnovations.

‐Noadditionalinformationavailableonspecialteams

Proposition6:Co‐creationandcustomerfocusexperimentsareopeninnovationtoolsthataccountfornewideageneration,thusmakingstrategicplanningprocessmore

‐ Lafleypointstothecooperativeactionswithsuppliersandmaincustomers,whomtheyhelptosolvetheirproblemsandthusgrowthebusiness.

‐Mr.Crosspointstothecloserelationshipswiththemainsuppliersandwiththemajorcustomersandgivesexamplesofsuccessfullaunchedproductsdesignedincooperationwithexternalparties.

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innovative.

Proposition7:BycommercializingunusedIPbase,openinnovationaddsnewgrowthsourcestothebusiness.

‐ConnectandDevelopinternetplatformcontainsaspecialareadedicatedtoownedtechnologies,whicharecommercialized.

‐Ideas4unileverinternetplatform

‐Fromtheavailableinformation,nofocusisputyetoncommercializingownedbutunusedtechnology

Proposition8a:Openinnovationfostersgrowthenhancingideagenerationbypressuringtheorganizationtoaccuratelydefineexistingcapabilities.

‐Lafleyassertsasthebenefitofinnovationtheneedforthecompanytoevaluateitselfanditscapabilities.

‐Mr.Crossmentionsoneofthemajorrisksofopeninnovationtobelaunchinginprojectswhicharenotthecompany’smaincapabilitiesorwhicharenotwithinitsstrategies.

Proposition8b:Openinnovationfostersmoregrowthenhancingideasbyallowingexternalknowledgetobeleveragedinternally.

‐Mr.Mirandadiazconfirmsthistheoryandgivesexamplesofproducts,whicharetheresultofcombiningexistingcapabilitieswithcapabilitiesofexternalparties.

‐Mr.Crosspointstotheneedfortheemployeestobenotonlygreatintheirtechnologyarea,butbeinggreatatbrokeringexternaltechnologythattheyunderstandintothecompany.Givesexamplesofproductswherecapabilitiesofmainsuppliersweresuccessfullyleveraged.

Proposition8c:Openinnovationmakesstrategicplanningmoreinnovativebypromotingnewknowledgeacquisitionandbuildingnewcapabilities.

‐Lafleypointstothenewcompetencieswhicharedevelopedintimeasresultofcollaborationwithexternalparties.

‐Mr.Cross:thescientistsknowingthattheyareoneofthebesttendtoshuttheireyesforthecapabilitiesofothers.Thustheyriskremaininggoodatwhattheycandonow,buttheynevergobeyondthat.Byembracingopeninnovation,thisphenomenoniscounteracted.

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Declaration

Iherebydeclare

‐thatIhavewrittenthisthesiswithoutanyhelpfromothersandwithouttheuseof

documentsandaidsotherthanthosestatedabove,

‐ that I have mentioned all sources used and that I have cited them correctly

accordingtoestablishedacademiccitationrules,

‐ that I shall not pass any copies of this thesis to any third parties without the

President’s consent, with the exception of fellow students or persons who have

providedmewithessentialinformationforthisthesis,towhomImaypasscopiesof

thisthesisaftertheprocedurehasbeenconcluded.

St.Gallen,January27th,2009

LigiaFolea


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