Strategic Thinker: A.G. Lafley Credentials: Chairman and CEO of Procter & Gamble Co., named Executive of the Year by the Academy of Management in 2007, serves on the boards of GE and Dell. He is the coauthor, with Ram Charan, of The Game Changer: How You Can Drive Revenue and Profit Growth with Innovation, published in 2008. Big Idea: Innovation requires an open social system that sparks new ideas and enables critical decision-making. Article: "P&G's Innovation Culture," by A.G. Lafley, with an introduction by Ram Charan, published by strategy + business, Autumn 2008 issue.
P&G is known as a leader in innovation, but when A.G. Lafley became CEO in 2000 only 15% to 20% of the new brands and products the company introduced were a commercial success. In only eight years they have tripled their success rate. They did it by focusing on innovation and putting the customer first. They also sold most of their food and beverage businesses and concentrated their efforts on the products that "were driven by the kinds of innovation we knew best," said Lafley, in an article about P&G's innovation culture that he wrote for the fall issue of strategy + business magazine.
Their brand of innovation has been dubbed "open innovation," which reaches out to people throughout P&G's more than 100,000 person company for their ideas and collaboration as well as to people outside the company who are invited to submit their ideas and become a P&G partner. They did this because they believe an open innovation culture is crucial for global growth. With a market presence in 160 countries they knew they needed to extend the innovation process to people both inside and outside the company who understood the needs of this worldwide consumer base. Today, in fact, more than 40% of the company's innovation comes from outside the U.S.
They also needed to foster teamwork to carry new ideas from conception to launch and to be sure that innovations were integrated into the business strategy and processes. To do this required a broad social network that would allow the kind of interactions they needed to achieve their goals. Innovation failures, said Lafley of P&G's experiences with them, are "social failures." The root cause is often "poor social interactions; the right people simply don't engage in productive dialogue frequently enough." To get the right people into the dialogue they expanded their mission to include the concept that "the consumer is boss." And they made it a priority to listen to them and learn from them.
One of the steps they took to build a social connection with consumers was to use the Web to reach them. Instead of building prototypes for new products, they showed people digital models that could be viewed on screen and redesigned instantly based on real-time feedback. And if you go to P&G's Web site and click on an area they call Connect + Develop you will find a description of this program from Gil Cloyd, P&G's chief technology officer: "It's our version of open innovation: the practice of accessing externally developed intellectual property in your own business and allowing your internally developed assets and know-how to be used by others." It's more than technology, he adds, it's about "collaborating on everything from trademarks to packaging, marketing models to engineering, and business services to design."
P&G makes it easy for people to communicate their ideas to the company online and even lists their innovation needs to identify areas where the company is looking for solutions from the outside. When I looked, there were 43 needs listed, ranging from a technology enabler for decreasing the time required to conduct aging-and-abuse tests of batteries to diagnostic kits and devices that aging consumers can use at home. In fact, you can sign up to receive an e-mail whenever a new need is posted. Partnering with outsiders has resulted in more than 1,000 "active agreements" on innovation projects, said Cloyd.