My love of Procter & Gamble is well known to long-time readers of Disruptive Thoughts so Howard knew that I couldn’t say no to discussing the company and stock for Wallstrip.

I’m long P&G because as technology is disrupting business models in every industry, P&G hasn’t simply survived, they’ve found a way to benefit - not only innovating around product lines and brands but entire business stages and processes pathways.

P&G’s strategy is a brilliantly innovative one and their execution so far has been excellent. Wallstreet has rewarded the company: 5 years after the stock price dropped 50% the price has more than doubled (and made me look great in Howard’s paired trade competition).

P&Gs success formed from three observations:

1) Realizing that their ‘invent-it-ourselves’ strategy wouldn’t support necessary growth

2) Their innovation competitive advantage (size, available cash, # of researchers, …) was eroding due to technology that allows individual entrepreneurs to innovate like never before

3) Technology advances facilitated the creation of networks to efficiently locate innovations

With these observations what does a company like P&G do? Innovate their business stage and process pathways.

P&G is taking a lot of the costly risk out of the product development cycle and providing a proven pathway for innovators to commercialize and scale their inventions. Through Connect + Develop P&G is effectively taking innovation off of their balance, parceling it off to a network of innovators around the globe, and leveraging successful innovations into the P&G machine.

This strategy allows P&G to maximize returns from their competitive advantages, core competencies, and scale/scope economies (marketing, consumer research, manufacturing, purchasing, distribution, …).

Want to see the power of this strategy? Here’s a quick example:

P&G’s Pringles team has an idea that will fuel significant growth in Pringles sales: the printing of text/images onto the surface of the chips.

Instead of making the business case to get the project on P&G’s R&D department’s project list, the Pringles team mines the network and finds…

uses to print

ped a technology that allows the printing of edible ink on ringles teamng it off to a network of innovators arouThat (of course!) a baker in a small Italian village has developed a technology that he uses to print edible ink on dough. The team licenses the technology, tweaks it for their production quantities and start printing trivia onto Pringles.

Pringles sales skyrocket, an Italian baker (of course!) becomes wealthy, kids everywhere become Trivia buffs (ironically becoming trans fat experts), the company enjoys growth free from the expensive risk and time of intense R&D, and the stock continues its upward ascent.

That’s P&G’s Connect + Develop strategy.

The beautiful thing for shareholders is that as the network grows and technology advances this strategy increasingly benefits P&G. Beautiful.

[Deeper analysis of PG: Daily Options Report, Ugly Chart, Roger Ehrenberg, Brian Shannon, Roger Nusbaum]

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