Many of you will know that Procter & Gamble is one of my favourite companies when discussing innovation acceleration. The latest Harvard Business Review (June 2011) contains an extremely important article on the impact that innovation has had on P&G recently. We all know of the Connect and Develop program that was kicked off some years ago, but where is P&G now, and where are their innovation efforts? To be honest, I was unbelievably excited when I read this article, and I think you will be as well.
Here are some of the facts reported by HBR that really impressed me:
From 2004 to now, P&G looked to carry out the following:
a) Teach senior management and project members the mind-sets and behaviours that foster disruptive growth
b) Form a group of new-growth-business guides to help teams working on disruptive projects
c) Develop organisational structures to drive new growth
d) Produce a process manual – a step-by-step guide to creating new-growth businesses.
e) Run demonstration projects to showcase the emerging factory’s work.
The challenge that they found in 2008 was that they were burdened by a number of smaller projects that were not necessarily disruptive. This scenario is very common – the organisation establishes an Innovation program and soon people ask – “So where are the Big Ideas?”. So Bob McDonald (then the COO) and Bruce Brown (then CTO and coauthor of the article in HBR) drove three critical improvements:
a) Increase emphasis on an intermediate category, transformational-sustaining innovations, which would deliver major new benefits in existing product categories
b) Strengthen organisational support for the formation of transformational sustaining and disruptive businesses. P&G created several new business-creation groups whose resources and management are kept separate from the core business – dedicated teams with a separate General Manager. What is really interesting is that there is one group, FutureWorks, solely dedicated to enabling different business models. This to me is tremendous and a lesson for other companies – while “tiger teams” might be formed to boost sales and win deals, it is rare that they are formed specifically for new business models.
c) Revamp its strategy development and review process. Innovation and strategy assessments had historically been handled separately. Now the CEO, CTO, and CFO explicitly link company, business, and innovation strategies. What a great lesson!
Lessons learned include:
- Closely coordinate the factory and the core business
- Promote a portfolio mindset
- Start small and grow carefully
- Create new tools for gauging new businesses
- Make sure you have the right people doing the right work
- Encourage intersections – successful innovation requires rich cross pollination both inside and outside the organisation.
There are other significant lessons learned from the above cited in the article. And many more initiatives that you should read for yourself that are truly remarkable. Here, though, are some of the business impact metrics cited:
- In 2000 only 15% of its innovation efforts met profit and revenue targets. Today the figure is 50%. The past fiscal year was one of the most productive innovation years in the companyʼs history, and the companyʼs three- and five-year innovation portfolios are sufficient to deliver against their growth objectives. Projections suggest that the typical initiative in 2014 and 2015 will have nearly twice the revenue of todayʼs initiatives. Thatʼs a sixfold increase in output without any significant increase in inputs.
- In 2009 P&G introduced the wrinkle-reducing cream Olay Pro-X. Launching a $40-a-bottle product in the depths of a recession might seem a questionable strategy. But P&G went ahead because it considered the product a transformational sustaining innovation. The cream and related products generated first-year sales of $50 million in U.S. food retailers and drugstores alone.
- In 2010 P&G refreshed its C+D goals. It aims to become the partner of choice for innovation collaboration, and to triple C+Dʼs contribution to P&Gʼs innovation development (which would mean deriving $3 billion of the companyʼs annual sales growth from outside innovators). It has expanded the program to forge additional connections with government labs, universities, small and medium-sized entrepreneurs, consortia, and venture capital firms.