AG Lafley and the Innovation at P&G
This is a material that has been compiled from the book published in 2009 “The Game-Changer: How You Can Drive Revenue and Profit Growth with Innovation”
AG Lafley is the chairman and CEO of Proctor and Gamble, which is consistently recognised as one of the most admired companies in the world and a great developer of leaders. AG was named CEO of the year in 2006 by chief executive Magazine and serves on the board of GE and Dell. His first opportunity to manage a business came when he was in the Navy and in charge of retail and services businesses for 10,000 Navy and Marine Corps groups people and their families. After the Navy he went to Harvard business School and then joined P&G following graduation. He started as a brand assistant for joy in 1977 and was appointed CEO in June 2000.
1. a visionary strategist who alters the game his business place or conceives an entirely new game
2. a creator who uses innovation as the basis for sustaining profitable organic growth and consistently improving margins
3. a leader who understands that the consumer or customer — not the CEO — is boss
4. a catalyst who uses an innovation to drive every element of the business from strategy to organisation, and from budgeting and resource allocation to selecting, rewarding, and promoting people
5. an integrator who sees innovation as an integrated end-to-end process, not the series of discrete steps
6. a breaker of chains of commoditization who creates differentiated value — added brands and businesses through innovation
7. a hotheaded humanist who sees innovation as a social process and understands that human interaction — how people talk and work together — is the key to innovation, not just technology
Winning is pretty much the same in today’s business world as it has been for decades: Create new customers, new products, new services that drive revenue growth in profits. What’s different is how to do it.
But innovation has often been left to technical experts or perceived as serendipity or luck. Loan geniuses working on their own have, indeed, created new industries or revolutionised existing ones. But there is a problem. You can’t wait for the lightbulb to go off on someone’s head. The fruits of innovation — sustained and ever improving organic revenue growth in profits — have to become integral to the way you’re running your business.
That means making innovation central to the goals, strategy, structure, systems, culture, leadership, and motivating purpose and values of your business.
Innovation is an integrated management process
(insert image of customer centric innovation game changing from page 11)
1. Motivating purpose and values
having a sense of purpose larger than delivering numbers that will keep Wall Street happy gives meaning to one’s work and unifies an organisation.
Our purpose inspires us. Our values unite us.emphasising them was the first critical step in the transformation of P&G as a company with the consumers as the boss and innovation at its centre.
2. Stretching goals
Goals influence every other critical choice. Identifying a few critical goals creates clarity in focusing on strategies that win and align everyone’s energy. (…) Goals that are stretching but achievable, yet cannot be reached without a sustained process of innovation, driven by leaders who see it as the way to change the game.
3. Choicefull strategies
Once goals are set, you have to figure out how to achieve them.strategies are the few critical choices required by clear goals — choices that result in winning with consumers and customers and against competition. Putting innovation at the centre of our thinking enabled us to see strategic choices in a different light.
4. Unique core strengths
Core strengths enable you to play successfully in your industry and are consistent with what your company does or could do best. They create and sustain competitive advantage; they can be integrated in different ways to meet the new and unforeseen needs. Our research has moved away from traditional focus groups and invested heavily, to the tune of $1,000,000,000 (double the industry average), and consumer and shopping research, with particular focus on immersive research.
5. Enabling structures
Well there is no 1 Best Way to structure an innovation centre to company it is clear that the sun is sitting on the internally focused, vertically integrated organisation .
6. Consistent and reliable systems
Innovation is creative but not chaotic.it is a systemic way of moving from concept to commercialisation. The process of innovation has well defined success criteria, milestones, and measures.
7. Courageous and connected culture
In an innovation centred company that managers and employees have no fear of innovation since they have developed the know-how to manage its attendant risk innovation builds their mental muscles, leading them to new core competences. Of forward-looking culture continuously transforms the company at the speed of external change
8. Inspiring leadership
No organisation can work without leadership that in the integrated process of innovation, it is the leaders who think all the drivers of innovation together, energise people, and inspire them to new heights. Leaders are instigators. They continually look over the horizon to gauge the changing landscape in their industry they said the goals that are stretching but achievable and requires innovation.
At P&G, the consumers often referred to as she or her because the majority of purpose registers and users of P&G brands and products are women. Consumers boss is far more than a slogan.it is clear, simple, and inclusive — not just internally for employees but also for external stakeholders, like suppliers and retail partners.
Using the dynamic combination of core strengths to innovate the business model
Leveraging the combination of core strengths enable P&G fine fragrance team to turn a small, underperforming business that it easily could have walked away from into a global leader this happened in 1992 with the acquisition of Max factor. The business includes Hugo Boss, Le Jardin, Laura Biagiotti, Otto Kern and Ellen Betrix.
· Using a deep understanding of the consumer to drive the business. Beginning with clearly and precisely defining the target consumer for each fragrance brand (and even identifying subgroups of consumers for some brands) at P&G’s fine fragrance brands and product innovations were driven by consumer pull instead of manufacturer push.
· Emphasising big global brands with well differentiated brand equities and promises that reflect the aspirations of the consumers they were designed for.
· Focusing on a few, big lunches driven by consumer inspired innovation — with emphasis on creating holistic propositions that included fresh new fragrances, distinctive on equity packaging, provocative marketing, and delightful in-store and usage experiences.
· Working with retailers to provide shoppers in their stores with a steady stream of commercial and conceptual news and innovation to entice new users to try and buy P&G fine fragrance brands and products year in and year out, not just during the first few weeks following the launch.
· Leveraging the global, scale enabled organisation structure and supply chain to reduce complexity and enable a significantly lower cost structure that result in industry-leading margins.
Using design to amplify the power of your strengths
The roots of me being a design believer actually lie when I lived in Japan from 1972 through 1975.I have ran retail and service operations (the Navy exchange) for a community of several thousand Navy airmen and their families that years later I moved back to Japan in 1994 to lead P&G’s Asia business. Japan was an incredible experience design is important in Japan — not only outstanding product design, and everything from automobiles to electronics and exquisite packaging, but also the design of everyday experiences.
I learned a lot when I was in Japan. When I returned to the United States, I was passionate about the need to make design an important new innovation strength P&G. Good design is catalyst for creating total experiences that transcend functional benefits alone and delight consumer. It is a catalyst for moving a business from being technologies centred product myopic to one that is more consumer — experience — centred.
From the consumer’s point of view, design is about form and function, about emotion and experience. Ultimately consumers will pay more for better performance, better quality, better value, better design, and better experiences.
Design thinking is a methodology for problem solving or identifying new opportunities using tools and mindsets taught in design schools. While business schools tend to focus on inductive design (based on directly observable facts) and deductive thinking(logic and analysis, typically based on past evidence), design schools empathise a productive thinking- imagining what could be possible. This new thinking approach helps us challenge assumed constraints and add to ideas, versus discouraging them. Design in addition, could amplify and connect with P&G’s core strengths in the following ways:
· Re-orientating in significantly improving P&G’s consumer understanding. Design shifts the focus to understand who the consumer is and how he lives his life. It helps us focus on behaviour and on experiences. It requires a more anthropological, ethnographic, and empathetic approach to customers.
· Design enables us to build stronger bonds- trust and passion- between customers and our brands by consistently creating holistic delightful experiences.
· Design dramatically changes the way we go to market with retailers and distributors. We’ve redesigned the first moment of truth in the store- when the customer decides which brand and product by.
· Great design is scalable, globally. SK-II, Pantene and Olay are each one brand with one brand equity and one design execution in a lot of countries and for a lot of customers and consumers around the world.
· Finally design unlocks and unleashes new sources of brand, product, and business model innovation
Tide/Ariel- revolutionised the category by introducing a synthetic detergent technology that obsoleted soap powders
Pampers- created the first mass disposable diaper that replaced cloth diapers
Gilette Blades and razors- reduce the level of consumer skill required to achieve the best she performance and improved safety via game changing shaving technology
Pantene- provided first ever salon level conditioning at home and reframe the haircare category by positioning the brand with a higher order, more aspirational benefit- her so healthy it shines.
Always/Whisper- transform the feminine category with dry weave technology and new product designs such as Pat’s with wings
Fine fragrances- transformed business model by focusing on consumer Paul versus manufacturer and retailer push.
Bounty-m change the product design and the cost structure in a highly commoditised category
Olay- brought department store skincare benefits and products to the mass market place.
Downy/Lenor- created the first mass retail fabric softener
head and shoulders- reframed the antidandruff care category- providing no trade-offs between beautiful hair and scalp care
crest- obsoleted previous toothpaste by providing cavity protection enabled by fluorite technology: enable professional quality teeth whitening at all
Actonel- introduced first offering that provided osteoporosis treatment and protection
IAMS- created animal-based protein for the dry dog food market. Increased consumer access by expanding distribution into mass retailers
Dawn/Fairy/Joy- transformed category by creating true performance based products and benefits (Grease removal)
Prilosec OTC- dramatically broadened consumer access by switching from pharmacy to over-the-counter
Fabreeze- created a new category of fabric odour elimination and freshness
Swiffer- created quick surface clean category
Innovation doesn’t just happen. You have to work at it. It requires deliberate practice, consistency, rhythm, discipline, and continuous learning from success and failure. Doing innovation right means developing a repeatable, scalable, and consistent way of converting ideas into results. It requires a degree of standardisation so that others can imitate the model and improve it.
Your role as an innovation coach:
Innovation reviews are conversations that involve a higher degree of uncertainty than the more analytic approach needed to review the budget forecast. Importantly, using the appropriate mindset will actually influence the culture and how the organisation receives and approaches innovation. In a nutshell, the leader should do three things:
· be honest
· be helpful
· Foster free-flowing it frank conversation
The principles underlying the choice and use of innovation metrics:
1. the key is not to measure each project individually and then declare victory or defeat to measure total investment over a period of time compared to total output. These pools high and low risk projects and encourages people to take canny chances.
2. The pair from innovation has a time-lag similar to other investments you might make, such as building and then fully utilising the capacity of the manufacturing plant.
3. Simply because something can be counted doesn’t mean it is worth counting. Count what counts despite the difficulty and imprecision. In precise measurement of the right thing will tend to become precise measurement tomorrow.
4. Some aspects of innovation can be precisely quantified such as the percentage of new products over a specific time period. Other measures are qualitative and can be measured only on a relative scale. Qualitative measures often zero in on the most mission critical issues that determine success or failure.
5. Other aspects are physical measures that formed the foundation for the eventual financial results- such as the speed and developing a prototype and the number of iter orations that are tested with the boss, the consumer.
6. Each phase of innovation process should have rigourous output measures and milestones. For example 100 ideas are greenlighted. How many then make it through to nurturing? Finally how many then become successful in the eyes of the consumer and made financial criteria?
7. The output of innovation results from a sequence of decisions at every stage in every phase, each building on the previous one. Thus, the better the metrics and the better the decisions at each stage, the better the effectiveness of the whole process. The discipline of reviewing each stage has a very important effect on the outcome of innovation.
8. The number of people developed for future promotion, especially to the general management level, by building their experience curve in the process of innovation.
Warren Bennis said it well in the character of leadership when he referred to leaders as pragmatic dreamers. Leaders of innovation trained differently, not just looking at the world as it is but what it can be. They try to conceive how they can change the game. They view the external landscape in a new way, imagining possibilities that elude others. They are thus able to generate new strategic alternatives and select more ambitious goals, choose the right ones, and then converted them into reality.
Leaders of innovation are, however, more than just dreamers; they effectively balance the possibilities with the practical realities of the business. First, by being the role model of the unique behaviours required for creating and sustaining an innovation culture. Second by performing the unique value added work that only an innovation leader can do. And, third, by honing personal skills in the most critical areas take their innovation leadership to the next level.
Role modelling the behaviours of an innovation culture- collaborative, connected, curious, open and courageous.
Roger Martin, the Dean of Rothman School of Management the University of Toronto: “an integrative thinker finds an obvious connections and patterns from a diverse set of factors. They seem more things as relevant and important, such as contradictions in what customers say and what they actually do. Then they bring it all together by synthesising and translating salient information into simple insights that lead to action. Integrity of thinkers our creative problem solvers because they find solutions to break the tensions of opposing ideas.”