When A.G. Lafley became Procter & Gamble’s president and CEO in 2000, the company had 10 billion-dollar brands. When he retired from his position as chairman, president and CEO in 2009, the company had 23 billion-dollar brands. Viewed as one of the best chairmen and CEOs in P&G history, Lafley accomplished what he did through a focus on innovation and the consumer.
Four billion times a day, P&G brands like Gillette, Old Spice, Tide, Charmin, Pampers, and Duracell touch the lives
of people around the world. Lafley and Chris Thoen, former director of innovation and knowledge management at Procter & Gamble, spoke last November at the Ernst & Young Strategic Growth Forum in Palm Springs, Fla., to share their insights into how innovation and consumer focus has been the key to P&G’s success.
“The biggest decision we made was to move to an open innovation platform,” Lafley says. “The problem at P&G in 2000 was not that we weren’t inventive. The problem with us was that we weren’t turning that invention into innovation that created customers, that benefitted customers, that created value for customers or a better experience for customers, and that’s all I wanted to do.”
The drive and focus on innovation Lafley instilled in the company during his time there is now one of the most important aspects of the organization’s business.
“Our belief is that innovation is the way for a sustainable competitive advantage and business growth,” Thoen says. “Everyone in the organization breathes it in and out every day. At Procter & Gamble, we see it as the cornerstone to develop the best possible products for consumers everywhere in the world. Innovation has been a great game changer at P&G, especially over the past 10 years.”
P&G had net sales of $78.9 billion in fiscal 2010. Here is what Lafley and Thoen had to say about how the company’s biggest advantage is its ability to innovate.
Innovate for the consumer
P&G innovations have become so successful and a part of people’s daily lives because the company innovates its brands with the customer in mind 100 percent of the time.
“I’m a big believer in pushing the idea, the innovation and the technology in front of the prospective customer very early in the process,” Lafley says. “I learned this working with a lot of very good design shops. We used to spend way too much time and way too much money designing and engineering pretty ornate prototypes. I pushed us to prototype very quickly and prototype very crudely. Consumers are smart. … You just want them to get the idea.”
Not only does P&G innovate with the customer in mind, but it strives to understand its customer base for new products.
“For us, the consumer is the boss,” Thoen says. “It’s the consumer that hands over the money to the cashier and makes a choice to buy a product of P&G or a competitor’s products. So for us, it’s really important to understand what the consumer wants and to be able to deliver that experience. That means understanding the consumer fully. To go forward with that, it’s finding the best possible innovations to put those into the products.”
Once consumers grasp a concept for a product, you have to test it to see if the product holds true to its purpose in a real situation.
“I also believe in getting into some kind of transaction test,” Lafley says. “You don’t know if you have something until somebody will part with some money. You can run all kinds of research and people will say that they are going to do something, but you can’t believe any of it until you actually have to reach into their pocket and pull out hard-earned money, hand it to somebody else who is going to take it away from them and then get that product to try it.”
Innovating products that customers can’t live without doesn’t come without trial and error. You have to be willing to fail and work until you get a product that consumers want.
“The failure rate is high; that’s part of the game,” Lafley says. “Many fail multiple times. We just introduced a new chemistry foam-based feminine hygiene product that we worked on for 13 years. We failed so many times with that technology I can’t even tell you. But we stuck with it because we knew if we delivered it, it was going to deliver protection and security that no other existing technology could come close to. You’re going to fail and you’re going to fail multiple times. I always encouraged fast failure and I preferred cheap failure. I didn’t want to drop $50 million or $60 million. That’s a high price to fail even for a company with deep pockets.”
You can’t underestimate the importance of being able to innovate. You have to identify innovations that will help your business keep growing well into the future.
“As I’ve looked at a number of other industries, virtually all the value gets created by innovation,” Lafley says. “At our company, all of our revenue growth was either organic innovation — serving new brands or new products or better products and improvements in existing brands — or it was acquiring. In our view, an acquisition was a platform for future innovation. We didn’t buy Gillette because we wanted their male shaving business. We bought Gillette because we thought Gillette would be a fabulous platform for male personal care innovation for the next 50 or 100 years. Innovation drove everything.”
Hunt for innovation
Innovation isn’t always easy to come by. You have to be willing to ask for help and let partners in business know that you are innovating.
“For us, it’s tapping into a network of partners, ecosystems, and they range from the individual, the innovator, inventor, to small and medium enterprises, to big enterprises,” Thoen says. “Where the innovation comes from is not important. It’s finding it, doing the right thing with it in our context, putting it in the right products, and then delivering that innovation to the consumer.”
Even if your business is a known leader in innovation, you have to let it be known that you are looking for assistance with new innovations.
“I think we are still trying to get the word out,” Lafley says. “We did all kinds of things. We got a lot closer to our customers and I mean our retail customers, our distributors. We reached out to universities and research laboratories and we tried to get the word out to individual entrepreneurs. One of the things we did was we ran these big innovation fairs. We would run it for two or three days and it was sort of, you had to give if you wanted to receive. So we would show off some of our technologies that we were looking for partners on. Then we would invite people in to show off theirs. It starts out with making a couple of connections, ‘Gee, maybe I have an idea you might be interested in’ and you talk to a third party.”
P&G has a huge network of past and present employees, and it puts that network to good use.
“An amazing source for us was the thousands of people who had worked for P&G that had moved on and I reconnected with them,” Lafley says. “Believe it or not, former P&Ger’s around the world get together and they have these big events. They created a community where they connect on business ideas, they connect on entrepreneurial ideas and they connect on innovation and we started getting a lot of leads from former P&Ger’s, colleagues of former P&Ger’s, and friends of former P&Ger’s.”
The company also utilizes its websites to gain ideas. You have to use all your resources if you want to find the best innovations and ideas.
“We pose those same needs on our PGConnectDevelop.com website,” Thoen says. “A lot of people can go and visit that web site and say, ‘I think I have a solution for you.’ They then submit their idea onto the website. Within P&G, we have a back store process to go in and evaluate those ideas and see if they fit with our strategy and what we want to do. Once those ideas come in, we also have a commitment to those partners that have submitted those ideas to come back to them within a very reasonable time frame, four to six weeks, on whether or not this is an idea that has traction within the company and we want to move forward with it.”
To find or develop products or services that will become true game-changers, you have to be able to get different view points on that innovation.
“All innovation comes from people and you have to open them up and you have to open up to the world around you,” Lafley says. “All innovation comes from either a person or a small group of people making unlikely associations or connections that others don’t make. Everybody’s going to be looking at it, but you have to see it in a way that’s slightly different.”
Find what consumers want
To build upon your innovation, you have to know what consumers are looking for and what you can do to give them what they want. You have to know what products are and aren’t the right fit for your business.
“It’s clearly important to define what are the areas where we want to play and the areas where we don’t want to play,” Thoen says. “For many years, this was all about physical products, consumables. Those will continue to be important, and we have significant business units where we have developed a strong portfolio of products and will continue to strengthen the performance of those products and make sure they have the right value. But what we’ve found is that the consumer is not only looking for products, they’re looking for services. So as we set ourselves up for success in the future, we need to make sure that we follow that trend into the market and make sure that we don’t only have consumables but also have the right services.”
As you try to develop future endeavors you have to devote the time to those projects to make sure they fit.
“One thing you have to keep in mind is how do you balance the return from the present with the investment of the future?” Lafley says. “The other is what business are you in and what businesses do you want to be in and what businesses should you not be in and they are kind of related. I spent a lot of time with what businesses do we want to be in. And I spent a lot of time on making sure that we were putting enough resources, not just financial resources but human resources, in partner investment and acquisition investment for creating the future. I probably spent a third of my time on people development and talent allocation. I easily spent a third to a half of my time on innovation for the future and creating a strategy and a platform for the future.”
A big part of what an innovator does is create something that builds a relationship, creates a better experience, delivers some value and creates trust over time.
“We have a very simple business model in most of our businesses,” Lafley says. “We try to create a brand that makes a promise that you’re interested in and a promise that will make your life a little bit better. We try to deliver a product that delivers better value and a better experience in performance value. Then we try to generate some trial. We try to get some people who we think are most interested or most in need of the brand or product to try it. Then we hope that you like it enough and you come back and try again and will use it on a regular basis. That frankly, is our game and that’s the secret of success to our brands. They have higher trial rates and they have higher usage and loyalty rates and that’s what makes it go.
“At least with consumers, a successful brand is a promise that’s kept. A successful product is a promise that’s kept. If you can take it one more step and add some delight, I not only kept the promise, but I delighted you in some unexpected way then you’re off to the races. That’s what you’re trying to create.”
HOW TO REACH: Procter & Gamble, (513) 983-1100 or www.pg.com
The Lafley File
Former chairman, president and CEO, Procter & Gamble
Born: New Hampshire
Education: Bachelors degree from Hamilton College; MBA from Harvard University
Experience: He joined Procter & Gamble in 1977. He was named a group vice president in 1992, an executive vice president in 1995 and president of global beauty care and North America in 1999. He served as president and CEO from 2000 to 2009 and was elected chairman of the board in 2002.
Accolades: During his leadership, sales doubled, profits quadrupled, and P&G’s market value increased by more than $100 billion dollars.
He was named “CEO of the Year 2006” by Chief Executive Magazine. He received the 2010 Edison Achievement Award, an annual award recognizing leaders that have made significant and lasting contributions to innovation, marketing and human-centered design throughout their careers.
The Thoen File
Former director of innovation and knowledge management, Procter & Gamble
Education: Masters degree in science and chemistry and a Ph.D. in biochemistry from Universiteit Antwerpen
Experience: He joined P&G in 1988 as an R&D scientist for Fabric and Home Care. In 1993, he became section head of R&D for Fabric and Home Care. In 1997, he was named associate director of R&D for Fabric and Home Care. In 2003, he was promoted to R&D director of technology for Fabric and Home Care. In 2007, he was named Personal Health R&D director. In 2009, he became the director of innovation and knowledge management.