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Procter & Gamble’s path to constructive disruption

CEO David Taylor explains how a focus on innovation is driving the company’s growth and shaping its sustainability strategy.

This interview is part of the Inside the Mind of the CEO series, which explores a wide range of critical decisions faced by chief executives around the world.

This interview was conducted in April 2021 as part of a joint report by PwC and the Consumer Goods Forum, “What’s next: How consumer goods leaders envision tomorrow.

During his four decades at Procter & Gamble (P&G), David Taylor worked his way up from the factory floor to the corner office. He started at the company in 1980 after graduating from Duke University with a degree in electrical engineering, managing plant production and operations. Before being named chairman, president, and CEO in 2015, Taylor, now 63, worked in brand management and led two of P&G’s core categories: the beauty, grooming, and healthcare business, and the family and home-care business. (It was announced on July 29, 2021, that Taylor will step down from the CEO role in November, and will become P&G’s executive chairman.)

Under Taylor’s leadership, the consumer products giant—which reaches 5 billion consumers in 180 countries with leading brands that include Crest, Pampers, Gillette, and Tide—has delivered consistent profit and sales growth. Operating income climbed from US$5.5 billion in 2019 to $15.7 billion in 2020, on net sales of $71 billion. During the pandemic, P&G pivoted smoothly by realigning supply chains and factory lines to keep store shelves stocked with the products consumers needed. The company also saw 40% organic sales growth in e-commerce in FY20.

In a recent conversation, Taylor talked about the premium he places on research and innovation—funded with an annual R&D budget of $2 billion—and the startup mindset that has reinvigorated the 180-year-old company’s culture. It’s a mindset that has supported P&G in maintaining its competitive advantage and creating value while enabling the company to identify creative ways to mitigate its environmental impact and enhance sustainability.

S+B: You’ve talked about the idea of “constructive disruption.” How does that influence your approach to innovation?
We’ve learned a lot from Silicon Valley about how entrepreneurs operate. If you can take the speed and curiosity you see in the startup community, and combine it with the technical depth, breadth, and systems of a Procter & Gamble, you bring together two really powerful forces. But it has to be done constructively, because disruption can destroy value. What we want to do is find a constructive disruption that creates value for our consumers, our communities, and other stakeholders—to build our company and empower our people.

What we want to do is find a constructive disruption that creates value for our consumers, our communities, and other stakeholders—to build our company and empower our people.”

For example, in P&G, we have traditionally had a bias toward consensus. So much time was spent negotiating internally, we weren’t as effective as we could be. We said, “Let’s talk about where the frustration points are,” and for the first time, we changed the reporting structure. We moved thousands of people’s reporting lines. We’ve changed the axis of the whole company to be focused around the operating business. If you’re close to a consumer, a customer, or you make something in a plant or you build it in a lab, you’re one of the people working where value is created. The rest of us are here to help, and we want to minimize the number of people who are managing and maximize the empowerment, development, and unleashing of talent.

For R&D, instead of big project teams that are staffed with multifunctional resources—which is how things were run ten years ago—I now have more than 150 small groups working on all kinds of exciting ideas that they can fast-cycle learn. This means we have many more bets being placed.

S+B: What results have you seen from this approach?
We’re already seeing the benefits. The last two years have been our best results in a decade, in very challenging times. And just in the last six months, we’ve seen incredible growth. Our people have been amazingly resourceful in keeping our plants open. We had container loads on the ship that was stuck in the Suez Canal, and we had raw materials waiting to go through, but you didn’t see our plants shutting down. People reformulated and rerouted. Some of this had been anticipated in business continuity plans, but there’s just been an incredible level of resourcefulness.

S+B: What has the impact of P&G’s innovation strategy been on the company’s efforts to mitigate environmental harm?
There are many things that we can do with formulas. Consider fabric and home care. By far, the biggest environmental footprint of washing your clothes is heating up the water, so if you can find a way to use a short cycle at a low temperature and still get the same cleaning results, then you can take a tremendous amount out of the environmental impact while still giving consumers what they want. We’re already at zero waste to landfill in our plants, and we’re using renewable energy for many of our plants or credits if we can’t get all the way there. But then the question becomes, “How do we bring our Scope Three [value chain] emissions down?” That’s when we start talking about chemistry and new formulations.

For example, what if instead of just saying that the task is to clean the garment, you adopt a broader objective and say that you want to extend the life of the garment? With the rise in popularity of fast fashion, people are throwing away massive amounts of fabric. If you can extend the life of a garment by making sure it doesn’t pill or separate, and you keep it clean and stain-free, you can make a meaningful impact. If we focus not only on reducing the carbon footprint of our factories but also on taking carbon out of the task that the consumer has, we can achieve much more. We currently have hundreds of Ph.D.s working in our upstream R&D organization using enzymes, polymers, chelants, and other formulations to extend garment life.

Another way we can reduce our Scope Three emissions is by making things lighter and reducing plastic packaging. We’re very close to converting some of our plastic packaging in some categories to paper. The concept we have now is “built in, not bolted on.” Instead of making something and then trying to reduce the waste, you design from the outset to reduce waste—even going down, in some cases, to the molecular level. In other words, part of the design brief, along with product performance, is the environmental impact. In an ideal world, first you reduce waste, then you go to no waste. And then the vision for many of us is to get to regenerative solutions, which means using life-cycle analysis to find solutions that are much more holistic than just the task at hand that we typically would design a product for.

S+B: Your goal of reducing packaging by 20% per consumer use has been particularly challenging. What are the major obstacles?
In the short run, it’s because of customer choices. Small-format stores have grown around the world. These stores may not want big boxes of things; they want smaller packages, and smaller packages have more packaging per unit of consumption than very big packs. If you’re a small retailer, you may only want a six-pack of something in a case. E-commerce is also growing fast. So there’s been a shift to these small-format channels, and we’ve had to adjust to that and solve for it.

S+B: In a recent report, P&G said that showering, laundry, cooking, and washing dishes in the home accounts for 10% of global water usage. How are you addressing this issue?
We can address this through new formulations, technology, and broader business model solutions. For example, we’re part of something called the 50L Home project. We’ve been one of the key drivers, working with the World Economic Forum and many other partners, looking at how you design a home where a family could live on 50 liters of water a day per person and have a good quality of life. The typical American family uses maybe ten times that in a day. What kind of products would you design? You need to partner with the appliance manufacturers, so you can capture the used water, say from the washing machine, filter it, and then reintroduce it.

The concept we have is ‘built in, not bolted on.’ Instead of making something and then trying to reduce the waste, you design from the outset to reduce waste—even going down to the molecular level.”

Then you get to what we can directly do with our brands. Right now, a good bit of the environmental load is the water many of our products contain. The ultimate solution, which is in limited tests because it’s very hard to make, is to reduce the product to just a little wafer. Essentially, we take all the water out. We have a laundry detergent that’s a wafer with no water, and it has the chemistry, using a fiber system, to hold it together, called EC30. Same for laundry and home-care products such as toilet cleaner. We have a shampoo that’s a little dry wafer, you put a little water on it, and it creates a rich lather. When you take out the water, you can also take out all the preservatives—the chemicals that we have to add to keep the products stable in shipping—and you take all the weight of water out, as well.

If you remove water, only adding it at the point of use, it can have tremendous benefits. Plus, it gives us design formulation opportunities, because we can take away incompatible chemicals. This is something that we’ve worked on for a decade, to develop a technology that will allow us to do something that has a dramatic environmental footprint benefit as well as consumer and formulation benefits.

S+B: Would reducing the amount of water be more cost-effective, as well?
The cost-effectiveness is going to depend on how complex the industrialization process is. It may shift from some material costs to the capital costs of what is a highly complex process. Having said that, we’re early in that process. My hope and belief is that after five or ten years of learning, we would be able to get the cost down. Doing so would open up a lot of opportunity.

You can imagine a world where you can have even better performance than you have today, and where you’ve eliminated any preservatives or other ingredients that are not necessary when there is no water in the product, adding water only at the point of use. Think about this from the retailer’s perspective as well. Instead of all that bulk in the laundry aisle from water in formulas, now the value of shelf space goes way up. The distribution cost, the trucking cost, all that goes way down, and all the emissions that come throughout that process get dramatically reduced. Solving this dilemma has meaningful societal and economic benefits.

S+B: How are you approaching sustainability at the strategic level?
We’re a 180-year-old company, founded on good principles and values. I started with P&G 41 years ago, and those principles were crystal clear when I arrived. They’ve been expressed a little differently over time, but essentially it is about recognizing the consumer as the center of our world; treating customers, competitors, and suppliers with respect; and taking care of the communities in which we live and operate.

What has changed from, say, ten years ago is that the consumer now wants to know the values of the companies behind the brands they buy. That’s becoming increasingly important, especially for younger consumers. Moreover, what you need to do to be considered “good” at ESG [environmental, social, and governance] has changed dramatically. Expectations are changing when it comes to plastic and water usage and just overall carbon footprint. Companies like ours need to have ambitious plans.

There is a lot of momentum externally to reach net zero by 2050. But there are many challenges we have to work through to get there. Many other companies are out there committing to things that they do not know how to deliver. You talk to them and they say, “Well, in 30 years, it’ll probably be figured out.”

The world is asking us to be more ambitious, to state things that people want to see happen and that people hope motivate us to move even faster. We haven’t yet come out with too many statements beyond 2030, but we likely will. We’re still working through it. The same is true when it comes to ingredient disclosures and other issues. Many different bodies are asking for much more disclosure.

S+B: How are your employees influencing your approach to sustainability and to ESG more broadly?
When it comes to sustainability, there are many, many different pockets that we have around the company that are leading the effort. Arguably, they’re leading and challenging the more senior management, because you have people who are passionate and who tend to be young. In some cases, there’s heavy bias toward Europe, where people have grown up in a society that is used to asking questions like, “What’s the world going to look like in 20, 30, 50, or 100 years?” We want to activate further in this space.

On social issues such as diversity, we’ve embraced differences as an advantage. If you look at my leadership team, my board is 50–50 men and women for the independent directors. Three of the six sector leaders who lead our multibillion-dollar businesses are women. We have people who grew up outside the US and people who have grown up inside the US. Our top leaders are reflective of the consumers that we’re trying to lead and serve.

Like many companies, we’ve had affinity groups for years. But we’ve tried to advance and empower and use those to teach, and in many cases reverse-mentor the more senior leaders. We’ve listened, not only to our consumers, but to our employees. In listening, we’ve learned that there are people who feel marginalized. You find there are microaggressions that exist in any group of people. We’ve worked very hard to take away the defensiveness from people at the top—the fear of questioning things that are uncomfortable. The more that we can make it OK to question and make it safe for people to be their authentic selves, the more we can unleash people’s talent, passion, and creativity.

Many people wait to speak, but they don’t listen, and there’s a big difference between the two. If you listen to understand how someone came to a particular conclusion, you’ll usually find they accessed a different set of facts than you know or experiences than you’ve had. Personally, I’ve now widened my knowledge base for making decisions. It’s a very powerful concept of a better third way: you understand how I came to my conclusion, and I’m a smart person, and I understand how you came to your conclusion, and you’re a smart person. And now we have access to the broader group of facts.

All of this comes back to the idea of constructive disruption—we’re shifting from a culture that has prioritized being polite to one that values passionate collaboration, which can be a little messy. I want leaders who don’t want to be right; they want to do the right thing. That is such a freeing approach, to recognize that you have talented people, and then to create the systems and processes that enable them to deliver.

Author profile:

  • Barbra Bukovac is the Vice Chair, Consulting Solutions - Consumer Markets, for PwC US. Leveraging extensive industry experience, she enables teams to solve complex challenges for their clients related to digital, finance, and workforce transformation; cybersecurity and privacy; and M&A and tax consulting. She also writes frequently about the advancement of women and diverse professionals. A partner with PwC US, she is based in Chicago.
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