Samsung and Procter & Gamble: Open Innovation

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Table of Contents

Abstract
Introduction
The Two Companies
Samsung Electronics’s Open Innovation
P&G’s Open Innovation
Comparison
Conclusion
References

Abstract

In business, a company’s ability to innovate is recognised as one of the greatest determinants of the future success of a business (Popa, Preda, & Boldea, 2010). The concept of open innovation refers to the strategies applied by various companies for the purpose of improving their operations, processes, services, and products (Raja & Sambandan, 2015). The popularity and use of open innovation have increased due to the intensification of competition in different markets and industries. Attempting to stay at the top of the competition, the companies are forced to adapt to the rapidly changing business environments and generate change and innovation on a regular basis. The purpose of this paper is to compare and contrast two companies that are choosing to employ different approaches to open innovation practised through the companies’ respective innovation strategies. The selected companies, Samsung Electronics and P&G, are large international corporations that have expanded globally and are known for their strong business presence and good brand reputation.

Introduction

According to Leger and Swaminathan (2006), “innovation can be defined as all the scientific, technological, organisational, financial, and commercial activities necessary to create, implement, and market new or improved products or processes” (p. 1). However, regardless of this clear and recognised definition, the concept has a diverse nature and can be understood in several different ways. In practical terms, the latter tendency serves as one of the major points of difference between the innovation strategies chosen by various businesses based on their vision of and approaches to innovation as a phenomenon. Today, a new form of innovation, known as open innovation, offers an approach that involves new resources as well as new perspectives on this concept and what it entails. Chesbrough’s definition of open innovation is based on the theory that in order to prevent the exhaustion of the internal resources, the leadership of a company is to engage the external opportunities of obtaining creative ideas, new technologies, and innovative projects (as cited in Di Minin et al., 2016). In other words, a combination of the ideas generated both internally and externally is viewed as an optimally efficient approach referred to as open innovation. There exist a variety of ways in which this approach could be employed by contemporary businesses. This paper will review and compare two of such strategies used by two different companies – Samsung Electronics and P&G. First of all, an introduction of the two companies and their businesses will be provided, followed by the respective descriptions of the open innovation strategies employed by both manufacturers. Secondly, the similarities of and contrasts between the two strategies will be pointed out with the help of analysis of the open innovation strategies chosen by the companies, as well as the theoretical frameworks and knowledge to which these strategies apply.

The Two Companies

The primary objective of open innovation strategies is to encourage businesses to refer to a larger pool of resources while attempting to grow and expand. The two companies selected for this review are Samsung Electronics, a world-renowned manufacturer of electronic and digital devices, and P&G, a business specialised in manufacturing and branding versatile consumer goods. Both of the businesses are global companies with very strong reputations, functioning in highly competitive industries and successfully maintaining their positions at the top of the competition in their respective fields. Also, both of the companies are using open innovation in order to provide themselves with access to a broader scope of resources. However, the approaches employed by the two manufacturers are rather different.

Samsung Electronics’s Open Innovation

In particular, has developed a wide and diverse research and development network, Samsung draws ideas and innovative projects from the internalised resources (Kim, 2013). To be more precise, the company operates as many as forty-two research centers and facilities located all around the globe (“About Samsung,” 2017). The major function of these facilities is to generate creative ideas and serve as the sources of ongoing innovation for the company. One may criticise this approach and state that it does not qualify as an open innovation strategy because it centres on the ideas and projects generated from within the organisation and does not integrate the resources found externally. However, it is important to notice that research and development represent the expenditures that require a very heavy investment; in fact, Samsung is known to be among the most generous research and development spenders worldwide (and not only in the electronics industry) (Triggs, 2014). To be more precise, the amount spent on research and development at Samsung in 2014 reached 14 billion US dollars (Adnan, 2016). The total number of employees engaged in R&D practices for the company approximates 42 thousand people, thus making the research and development facilities some of the most populated areas of the organisation. In addition, Samsung recently initiated the CIT, an internal committee responsible for the promotion of collaboration with the external sources of innovation (Kim, 2013). In that way, the overall open innovation strategy of Samsung can be summarised as a centralised and focused network of specialised facilities developed and established specifically for the purposes of innovation.

P&G’s Open Innovation

At the same time, when it comes to the strategy employed by P&G, it has a more external orientation and is designed based on the operation of several innovation portal-sites using open networks and a “connect and develop” principle (Panduwawala, Venkatesh, Parraguez, & Zhang, 2009). In particular, using its open innovation strategy, the company relies on such resources as NineSigma, Yet2.com, YourEncore, and Innocentive (Kim, 2013). This strategy is designed to provide the company with creative projects and ideas upon request once there is a need for innovation or change in product design, marketing schemes, packaging, operations, or technologies. The resources mentioned above serve as the providers of connection between the company in need of innovation and creative teams of professionals. Interestingly, connect and develop model has been adopted by P&G several years ago after the company’s leaders made a decision to shift from the previous practice of research and development (Huston & Sakkab, 2006).

Comparison

The differences between the strategies used by the two companies lie in their orientation (R&D has a primarily internal focus whereas C&D is externally-centred), operations (R&D is usually based in brick and mortar research facilities, while C&D relies on the Internet as a source of connection and ideas). R&D can be viewed as an old-fashioned approach to innovation that requires a significant portion of the investment in the maintenance of multiple physical facilities and thousands of employees. C&D is lighter and more flexible, with this model, the research is generated by a network of specialised companies, thus allowing the user company leveraging the external ideas bringing them through their own labs as products. In terms of cost-effectiveness, R&D can be recognised as requiring more attention and finding than C&D. However, the effectiveness of the strategies is also evaluated based on the resources involved in the generation of innovation. Samsung’s R&D is controlled in a centralised manner, helping the leadership of the company organise the roles and goals of the research facilities worldwide. Also, it is suitable for the organisational culture of Samsung based on the Chaebol structure and encouraging a lower openness when it comes to innovation and change. P&G’s C&D strategy allows for about half of the company’s initiatives related to product design and marketing to come from the outside sources.

Comparing the two open innovation strategies, it seems possible to note that Samsung Electronics seems to be one step behind its Western counterpart P&G. In particular, the history of the adoption of innovation in these companies indicates that P&G has changed its approach, moving on from R&D strategy as a tactic that is no longer cost-effective. However, Samsung still relies on R&D and deems it a useful and viable strategy. It is possible that the leadership of Samsung has developed a complex and extensive network based on R&D; if that is the case, the potential adoption of C&D would be complicated by a common factor in innovation theory – the lack of readiness to shift to a new system (Wisdom, Chor, Hoagwood, & Horwitz, 2015).

Moreover, both C&D and R&D can use the chain-linked innovation model in which market research serves as the basis for the invention of a new design that undergoes testing and analysis, potential redesign and production leading to distribution and marketing (Leger & Swaminathan, 2006). However, the major difference is that when applied to the strategies used by Samsung and P&G, it can be seen that the latter company prefers to obtain needed inventions for their business improvement from creative teams working on the outside of the organisation. At the same time, it is important to note that market research conducted from within the company is still a factor by which the company’s leaders and managers arrive at the decision to implement some kind of change. As a result, the desired inventions and innovations being sought are not randomly generated but are specifically outlined by the company. In other words, P&G experts contact their open innovation channels with clear and detailed requests as to what kind of change or invention is needed. As for Samsung, all of the stages of the chain-linked innovation model seem to occur within the organisation’s extremely elaborate network of research centres. In accordance with this model, it is up to the company to decide whether the preferred source for innovative projects would be people who were specifically recruited for this purpose or unknown creative teams working online.

Both C&D and R&D rely on knowledge as a tangible commodity that is inherent in the skill levels of the employees or the people engaged in the development of innovation (Mytelka & Smith, 2001). Samsung’s products reflect the knowledge, experience, and professionalism of the people behind the innovative projects the company adopts. The company’s choice of R&D approach indicates that the company is oriented to emphasise awareness of what types of skills the employees in their centres possess, how (and whether) they learn and develop, and what kinds of skills are going to become essential in the future. At the same time, P&G prefers to trust outside creators when it comes to the necessary skills and knowledge.

In addition, it is important to mention that in the process of exploring the concept of innovation in general, various researchers approach this topic differently. In particular, contrasting perspectives treat innovation from the point of view of inventing new technologies and generating new knowledge or else as seeing innovation primarily as a process of adoption of new technologies and knowledge (Berglund, 2004). The two views emphasise different aspects of innovation – the creation of change and the adoption of change. In R&D strategy, the creation of change is the main purpose of a research department, while in C&D, innovative technologies and projects generated by outside agents are adopted by the company.

Conclusion

In conclusion, Samsung and P&G are two global companies using two different open innovation strategies. The former draws innovative ideas using C&D portals, and the latter relies on a specifically established network of 42 research facilities located worldwide. In other words, one may say that the approach of Samsung is similar to that of P&G but is based in brick and mortar centres instead of using the Internet as the major sources of connections. The leaders of Samsung have centralised control of their research facilities and can coordinate their actions and break down projects. To sum up, in terms of control, R&D is more beneficial, while C&D’s strength is cost-effectiveness and flexibility. Both strategies are strong and viable in contemporary markets and are based on the frameworks developed within the theory of innovation.

References

About Samsung. (2017). Web.

Adnan, F. (2016). Samsung’s R&D spending was over $14 billion in 2015. Web.

Berglund, H. (2004). Interesting theories of innovation: The practical use of the particular. Innovation Engineering and Management, 1, 1-22.

Di Minin, A., De Marco, C. E., Marullo, C., Piccaluga, A., Casprini, E., Mahdad, M., & Paraboschi, A. (2016). Case Studies on Open Innovation in ICT. Web.

Huston, L., & Sakkab, N. (2006). Connect and develop: Inside Proctor & Gamble’s new model for innovation. Web.

Kim, E. (2013). A case study about Samsung Electronics’s open innovation. Web.

Leger, A., & Swaminathan, S. (2006). Innovation theories: Relevance and implications for developing countries. Web.

Mytelka, L. K. & Smith, K. (2001). Innovation theory and innovation policy: Bridging the gap. Web.

Panduwawala, L., Venkatesh, S., Parraguez, P., & Zhang, X. (2009). P&G’s big stake in open innovation. Web.

Popa, I., Preda, G., & Boldea, M. (2010). A theoretical approach of the concept of innovation. Managerial Challenges of the Contemporary Society, 1, 151.

Raja, B. H., & Sambandan, P. (2015). Open Innovation in Pharmaceutical Industry: A case study of Eli Lilly. Web.

Triggs, R. (2014). Samsung Electronics is the biggest R&D spender in tech, 2nd overall. Web.

Wisdom, J., Chor, K., Hoagwood, K., & Horwitz, S. (2015). Innovation adoption: A review of theories and constructs. Administration and Policy in Mental Health, 41(4), 480-502.

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