Tips from A.G. Lafley, Chairman and CEO of Proctor & Gamble, on managing innovation

Citation

Kelly Dominiquini, J. (2008), "Tips from A.G. Lafley, Chairman and CEO of Proctor & Gamble, on managing innovation", Strategy & Leadership, Vol. 36 No. 5. https://doi.org/10.1108/sl.2008.26136eac.001

Tips from A.G. Lafley, Chairman and CEO of Proctor & Gamble, on managing innovation

Article Type: Conference report From: Strategy & Leadership, Volume 36, Issue 5

The annual Front End of Innovation Conference, held in Boston this year, showcased over 70 experts on how to innovate more effectively. Their topics ranged from how to make innovation more predictable to how companies can better understand customer needs in emerging markets. One of the stars of the show was A.G. Lafley, Chairman and CEO of Proctor & Gamble, a firm that is well known for rapidly adopting innovation best practices from all over the world. Lafley boiled his advice on managing innovation down to a few essential points:

1. 1.

   Learn by walking in the customer’s shoes.

2. 2.

   Get ideas into prototype as quickly as possible.

3. 3.

   Don’t go it alone.

4. 4.

   Experiment on the structure side – there is no one single way to organize for innovation that works every time.

5. 5.

   The CEO should also be the Chief Innovation Officer.

1) Learn by walking in the customer’s shoes. Lafley confessed that he learned this lesson the hard way: “All I used to do was to look at internal things.” Lafley and his team now recognize the importance of “living it” in the shoes of consumers by conducting observational research with target consumers markets or “working it,” by actually working in small retail establishments that account for much of P&G’s trade in the developing world. Lafley talked about how the company runs a daycare center at company facilities where it can capture insight for its Pampers products. He also emphasized the limitations of traditional research, such as phone surveys. For example, through such research P&G had learned that consumers rated the packaging of one its detergents to be excellent. However, when P&G conducted in-home research they soon realized that consumers needed to use a screwdriver or other work-around tool to open this “excellent” packaging.

2) Get ideas into prototype as quickly as possible. “It doesn’t make sense to have an idea unless it can be expressed in a single concept and then a very crude prototype,” says Lafley. Nowadays P&G speeds up the process and keeps costs low by spending just a few hundred dollars on a simple prototype. P&G used to spend thousands of dollars on prototypes–and still does at times, Lafley noted ruefully. He encourages his teams to get the idea into a small-scale transactional learning experiment, one that simulates purchase or usage. This emphasis on finding less expensive ways to take some of the risk out of innovation experiments, has enabled P&G to be more efficient. In 2000, for example, its innovation funds had around $200 million to invest, but at the time the average cost of a front end project was $1.2 million. Now, the average project cost is down to $500,000 and P&G has therefore benefited from being able to conduct more potential product experiments. Or, as Lafley put it, P&G now has more “at-bats.”

3) Don’t go it alone. P&G’s Connect and Develop program, that links P&G to external sources of innovation, is frequently cited as an Open Innovation best practice. Lafley reaffirmed his company’s commitment to collaborating with external stakeholders such as retailers, customers, suppliers, even competitors. “I haven’t found a company yet that has resources to go it alone,” he noted. Lafley cited the lab that P&G runs with BASF in Germany as an example of how P&G is partnering with suppliers to drive innovation. Lafley also points out that retailers are another key part of the puzzle. “We know about one part of the customer, they know about another other part. So together we get a better picture of the customer.”

4) Experiment with organizational models. Lafley says that P&G has yet to find a single organizing structure that works perfectly for every innovation experiment. He encouraged the audience to try out different types of organizational models, starting with the “amoeba model” that morphs into shape as it goes. Lafley discussed several structures at P&G that have worked reasonably well to date, including an external business development group that serves as an angel investor. The group actively searches for the next game-changing products, packaging, technologies and processes. Another successful organizational model has been the “Clay Street project” located in a remodeled building near corporate headquarters. At the Clay Street project teams come together for two to ten weeks to exclusively focus on breakthrough corporate initiatives. Now in its third year, the program is facilitated by a small group that concentrates on disruptive innovation. P&G business units typically contract with Clay Street for time and resources.

5) The CEO is also the Chief Innovation Officer. Lafley reaffirmed the importance of leadership, at all levels, to catalyze innovation. While they might not formally hold the title of Chief Innovation Officer, CEOs need to embrace their responsibility for driving the company’s innovation agenda. When asked about how the CEO can promote innovation even when company stock is under pressure, Lafley responded “I believe one of the roles of the CEO is to address the short, medium and long term. You just have to ignore the pressure from the sell side/buy side analysts.” The right approach, he added, is to “get the customer focus right and then everything else will work itself out.”

Acknowledgements

© Jennifer Kelly Dominiquini

Jennifer Kelly DominiquiniAssociate Partner at Prophet (jdominiquini@prophet.com), a brand, marketing and innovation consultancy. The annual Front End of Innovation Conference was hosted by the Product Development and Management Association and the Institute for International Research.