Once Weedman convinced his bosses that the changes made sense, he had to convince his colleagues to resist their tendency to hoard their discoveries. The best example of how a licensing deal can work to the researchers' benefit is P&G's agreement with Tropicana. The license allows the juice company to use P&G's formula for helping the human body absorb supplementary calcium that gets added to juice. This technology is obviously valuable, but it was underutilized at P&G, which had only one major beverage, Sunny Delight, to use it in. P&G's food and beverage division keeps the licensing fees, which it can then turn around and use for more research and development. "Now everything I make goes back to the business unit," Weedman says. "Instead of being a distraction and a tax on their operations, I've become a strategic opportunity for them."
The straight-up competitive strategy that's involved here is impeccable. If your competitors are paying you to use your technology, then you have a leg up on them because they're writing you checks. If you don't let them use it, they have an incentive to innovate around you. The licensing group's true breakthrough, however, was more profound, yet more subtle: When you open your intellectual-property portfolio to others, it forces you to make faster decisions about the kind of technology you want to keep for your own products. Plus, it encourages you to compete with yourself to make new discoveries faster in order to exceed the inventions you've already made available to others. In effect, you're using the past to expedite the future, making the old patents an accelerant to the process of new innovation.
Essentially, P&G engineers now compete with themselves as they watch those three- and five-year timers tick -- and sweat as they do so. "I actually argued for a much shorter expiration period," Weedman explains. "For people in the computer industry, three years would be interminable. As it turns out, that was wasted effort because Procter people are highly rational."
How rational? During the past 12 months, Weedman says that he's had only one conversation with a senior research and development person at P&G who complained about the pending patent expiration date. "Most of the conversations now are around when it's the right time to make the technology available, not how people can continue protecting it," he says. "There are going to be some situations very soon where our technology will show up in other people's products before it shows up in ours." Then those fees will go right back into trying to improve that technology even faster.
So how do you keep score with an innovation initiative like this? What are the metrics that define success? One way is simply to count the number of deals cut. So far, Weedman's group, which is now called the external business development & corporate licensing group due to its added option to make equity investments in startups, has done several dozen deals. "The correct answer is, we've not done enough deals, and there will be more!" he says sternly, with a sly smile. "A good deal today is infinitely better than a great deal tomorrow. You know how close only counts in horseshoes and hand grenades? We have a horseshoe award we give out around here to people who are close to a deal but haven't cut it yet. It's not an award you want to get." Weedman won't disclose the revenues his group earned for other business units last year, but Dow Chemical runs a similar, though more mature licensing operation and pulls in about $100 million each year from it.
But perhaps the quantitative metrics are the wrong ones to use to evaluate Weedman's efforts. Even if the group brings in $1 billion in licensing revenues, which only IBM has accomplished so far, it would still amount to just 2% of P&G's revenues. Much more important is the way that the mere existence of the group is beginning to infect the thinking of researchers and strategists at P&G. Just a few years ago, Weedman had trouble getting people to sit down with him for an hour. Now they're loaning him staff and paying that staff's salaries to assist him in his licensing efforts. And at a time when P&G is asking more than 10% of its employees to take severance packages, Weedman's group is adding staff.
Recently, the company announced that it intends to be the recipient of underdeveloped patents too, not just the provider of them. In his report to shareholders this year, chief executive A.G. Lafley noted that up until recently, about 90% of the company's innovations came from inside the organization. Within the next few years, he wants half of the new ideas coming from outside of the company.
Ron Lieber (rlieber@fastcompany.com) is a Fast Company senior writer based in New York.
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