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 / Autumn 2008 / Issue 52(originally published by Booz & Company)


P&G’s Innovation Culture

The result? Our team turned a small, underperforming business into a global leader. In 2007, P&G became the largest fine fragrance company in the world, with more than $2.5 billion in sales — a 25-fold increase in 15 years.

Elsewhere in our company, we experimented with new ways to build social connections through digital media and other forms of direct interaction. We designed Web sites to reinforce consumer connections, to better understand consumers’ needs, and to experiment with prototypes. For example, we used to hand-make baby diapers for a product test. Now, we show people digitally created alternatives in an onscreen vir­tual world. If the consumers we’re talking to have an idea, we can redesign it immediately and ask them, “Do you like that better? How would you use it?” It allows us to iterate very quickly. In effect, we are building a social system with the purchasers (and potential purchasers) of our products, enabling them to codesign and co-engineer our innovations.

Integrating Innovation
We are constantly innovating how we innovate. We keep refining our product-launch model — from idea to prototype, to development, to qualification, to commercialization. Applying this sequential practice on a large scale, and making it replicable, does not mean eliminating judgment. In fact, there’s still a fair amount of judgment that’s applied along the way. That’s why we need active leaders and a strong innovation culture.

Scalability is critical at a company the size of Procter & Gamble. If we can’t scale our processes, they don’t have much value for us. In fact, scalability is often the justification for our existence as a multinational, diversified company. Our innovation practices are thus designed for deliberate learning, across all our functions, product categories, and geographic locations. Once people understand a particular process, they can replicate it and train others. It soon becomes a part of normal decision making.

P&G had not treated innovation as scalable in the past. We had always invested a great deal in research and development. When I became CEO, we had about 8,000 R&D people and roughly 4,000 engineers, all working on innovation. But we had not integrated these innovation programs with our business strategy, planning, or budgeting process well enough. At least 85 percent of the people in our organization thought they weren’t working on innovation. They were somewhere else: in line management, marketing, operations, sales, or administration. We had to redefine our social system to get everybody into the innovation game.

Today, all P&G employees are expected to understand the role they play in innovation. Even when you’re operating, you’re always innovating — you’re making the cycles shorter, or developing new commercial ideas, or working on new business models. And all innovation is connected to the business strategy.

In fostering this approach and building the social system to support it, the P&G leadership has had to be very disciplined. For instance, we are now set up to see many more new ideas. Our external business development group is very small; all it does is meet with individuals, groups, research labs, and other potential collaborators, including (as we noted in The Game-Changer) P&G’s competitors on occasion. Any of these may propose new technologies, new product prototypes, or new ways to connect us to our consumer base. Last year, the business development group reviewed more than 1,000 external ideas. This year, they’ll see 1,500. We tend to act on about 5 to 7 percent of them.

We are also open to ideas from more regions than in the past. Innovation used to travel primarily from developed markets to developing markets. When new technology appeared in Japan, Germany, or the U.S., it flowed across the regions and down the hierarchy. Today, more than 40 percent of our innovation comes from outside the United States. People in India, China, Latin America, and some African countries have become part of our social system. Their presence has made us more open, and this helps compensate for our natural tendency to become more insular.

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  1. Daniel Goleman, Emotional Intelligence: Why It Can Matter More Than IQ (Bantam Books, 1996): Developing individual maturity for an organizational innovation culture.
  2. Larry Huston and Nabil Sakkab, “P&G’s New Innovation Model,” Harvard Business Review, March 2006: Anatomy of an open approach for attracting ideas and consumer insights from around the world.
  3. A.G. Lafley and Ram Charan, The Game-Changer: How You Can Drive Revenue and Profit Growth with Innovation (Crown Business, 2008): Guide for giving large, mature companies the sustainable capacity for breakthrough innovation.
  4. Roger Martin, The Opposable Mind: How Successful Leaders Win through Integrative Thinking (Harvard Business School Press, 2007): Gaining the ability to overcome the limits of partisan thinking, to enhance innovation or anything else.
  5. Steven Wheeler, Walter McFarland, and Art Kleiner, “A Blueprint for Strategic Leadership,” s+b, Winter 2007: Context for chief executives, drawing on A.G. Lafley’s example, among others.
  6. Procter & Gamble Web site: Includes Connect + Develop, a portal for engaging innovation partners, and Everyday Solutions, through which the company connects with consumers.
  7. For more thought leadership on innovation, sign up for s+b’s RSS feed.
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