Incoming CEO A. G. Lafley knew he had some pretty major changes to identify and implement when he took over from Durk Jager in June 2000. They were dark days. Procter & Gamble had just issued profit warnings after its stock had nearly halved in value and had been the worst performing component of the Dow industrial average in the first quarter. After years of continued growth, the world’s largest FMCG company had hit a major barrier and a different approach was clearly required.
Over the next nine years Lafley rebooted the company, changed the way it thinks about innovation, and fundamentally changed its approach to customers. He did a pretty good job. By the time he left in 2010 Procter & Gamble had 18 $5 billion brands and another 20 or so billion dollar brands. ‘In 2000 only 15% of innovation efforts met profit and revenue targets. Today the figure is 50%.’ Although there were 7,500 people in R&D, several senior managers in Procter & Gamble felt that there was untapped potential for extra innovation outside the company. With internal innovation failing to hit its targets, the company decided to seek ideas from the external ecosystem of ‘around 1.5 m worldwide whose knowledge they needed to tap into.’
By 2010 this initiative, which became called Connect + Develop, had helped bring more than 250 new products into the marketplace and was described by its leader Larry Huston as ‘matching what’s needed with what’s possible and doing fact-finding in between – Procter & Gamble’s Connect + Develop program represents a cultural shift from in-house advances toward external collaboration of all kinds.’ And this cultural shift has meant that innovation has become the lifeblood of the company and the primary focus is on the consumer – the benefits a product provides and the total consumer experience from purchase (the first moment of truth) to usage (the second moment of truth).
This consumer focus has resulted in Procter & Gamble being at the forefront of creating and adopting new research approaches from in-store shopping through to more investigative ethnographic and semiotic analysis of consumers, culture, and society. The company has developed a series of proprietary consumer research methods that ‘not only enable deeper understanding, but also broader understanding across 40 product categories in more than 80 countries.’
In 2010 Procter & Gamble’s stated that its growth strategy is focused on three areas:
- To grow core brands and categories with an unrelenting focus on innovation
- To build our business with un-served and underserved consumers; and
- To continue to grow and develop faster-growing, higher-margin businesses with global leadership potential.
It’s capabilities around a deep understanding of the customer, disruptive and open innovation and clear sense of purpose suggest that the 174 year old company still has growth potential.