How can you build a growth factory?
Due to its sheer size, Procter & Gamble faces an especially steep growth challenge. With a stated annual growth goal of between 4% and 6%, the world's largest consumer products company needs to boost sales on the scale of its Tide brand each and every year. P&G called on Innosight to help meet this challenge by turning innovation from a serendipitous activity into a systematic discipline.
While P&G is widely recognized for its marketing might, its legacy as an innovator is equally rich. Over its 175-year history, the Cincinnati firm has consistently created new categories of consumer goods -- from the first disposable diaper (Pampers) to the first toothpaste with fluoride (Crest) to the first synthetic laundry detergent (Tide).
The problem of growth
But in March of 2000, a slight decline in P&G's sales and an earnings warning sent its stock price tumbling. By June, P&G named a new CEO, A.G. Lafley, who brought in fresh thinking about corporate strategy and welcomed new perspectives on innovation. When an internal analysis revealed that only 15% of innovation projects were meeting success targets, senior executives began searching for ways to turn around this key metric.
During this time, a number of top P&G leaders were exploring ideas in The Innovator's Dilemma, the groundbreaking book by Innosight co-founder Clay Christensen. And not long after, P&G began collaborating with an Innosight team to build innovation capabilities that would spawn new brands and business models. The idea was to institute a process that was analogous to a factory -- making innovation systematic, repeatable and reliable.
Innovation assembly lines
Via its new Connect & Develop program, P&G stepped up the sourcing of raw materials -- in the form of product ideas from outside the company. "It didn't matter where the ideas came from," says Nathan Estruth, vice president of P&G FutureWorks. "We had to systematize a process to find them, to partner, to bring them in, and to turn raw ideas into innovations in our growth factory."
A key part of improving its innovation success rate was setting up "innovation assembly lines" by seeking growth from four major categories of innovation:
- sustaining innovations to improve on existing products (i.e Gillette Fusion)
- disruptive innovations that bring high-end services to mass markets (i.e Crest White Strips)
- transformative innovations based on performance breakthroughs (i.e Olay Pro-X)
- commercial innovations to enhance the consumer experience (i.e BrandSaver events)
Small bets labs
Innosight's "emergent strategy" approach of testing and refining market approaches was applied to a string of new product ideas.
For instance, P&G had tapped into university research for a potentially transformative innovation: a probiotic supplement to improve digestive health. But there was a large degree of uncertainty as to whether the new dietary product, called Align, was a worthwhile opportunity.
Instead of committing to a national retail launch, P&G created a website and promoted Align in just three mid-sized metro areas. "We placed a small bet," says Bruce Brown, P&G's Chief Technology Officer. "And that was one of the smartest things we did in terms of rapidly progressing the Align brand."
P&G also conducted a small-scale market trial for the concept of attaching the venerable Tide brand to a new consumer experience. Deploying "jobs to be done" research, P&G found that there was high dissatisfaction with existing dry cleaners and potential room for a national brand.
Tide Dry Cleaners was initially launched in just two or three locations. That allowed P&G to refine the customer value proposition and the operating plan before it began to scale to more locations.
All in all, thousands of P&Gers applied its improved innovation framework to scores of new projects and products. "Innosight has been a close partner in P&G's innovation transformation," said A.G. Lafley, who retired in 2010 but returned as CEO in May 2013.
P&G's growth factory initiative was detailed in a June 2010 article in the Harvard Business Review by Scott Anthony and Bruce Brown.
The result is that P&G has dramatically improved its innovation success rate, moving from about 15% to over 50%, meaning about half of its new product efforts are meeting benchmarks for success. That has helped boost overall corporate performance. Over the decade, P&G's revenue more than doubled, and profits quintupled.
The commitment to the growth factory principles has continued through management changes, including the return of CEO A.G. Lafley in 2013. So it's about more than just hitting financial numbers. "There is a confidence inside P&G," says Estruth, "that the systematic approach enabled by Innosight will continue to drive our growth factory, and help us meet our goals for many years to come."
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