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January 13,2019 Facilitating Innovation

Procter & Gamble’s King of the Innovation Mountain

Procter & Gamble’s King of the Innovation Mountain

The personal healthcare company Procter and Gamble, better known as P&G, was founded in 1837 in Cincinnati by brothers-in-law William Procter and James Gamble. Their business was a budding enterprise that experienced steady regional progress during the mid-19th century and then exploded with growth during the Civil War winning Union contracts to provide soap and candles to the war effort. By the turn of the century, they had expanded across the United States and then internationally making everyday items from toilet paper and shampoo to fabric softener and toothpaste. Over the last 50-years, P&G continued their evolution absorbing companies and becoming one of the top global conglomerates at one point reaching $83 Billion in annual sales. They had become an iconic company of personal healthcare and a standard in the American household.

Today’s corporate environment call on mature companies to create around 5% of organic growth a year to maintain market share and stock stability. For P&G that equates to $4 Billion a year in new business. While many corporations look at this as a continual innovation crisis, P&G has positioned themselves to systematically introduce new products on a routine basis. This begins with their investment in 26 research and development (R&D) centers around the world while spending ~$2.1 Billion per year in these efforts. This renewed commitment came in the year 2000 when their performance of new products was hitting a success rate or achieving a return on investment in only 15% to 20% of each new product introduction. A renewed focus and investment back onto innovation proved successful wherein 2008 P&G achieved a success rate of 50% to 60% on new product introductions. Surprisingly enough, their goal is not to achieve a higher percentage of successful product introductions as they believe that strategy would be too limited by risk management and that they wouldn’t be pushing the edge of innovation far enough.

Their culture of innovation has led to P&G being not only a hub for human talent but also an American mainstay in the corporate lexicon. They do this in simplistic terms by maintaining their focusing on the customers’ needs. Everybody in the company plays a role in innovation, not just the R&D department. Their goal is to achieve a cross polarization of different groups to blend ideas to counteract the natural evolution of a very large company to become insular and parochial. Crest Whitestrips film came from this type of interaction where specialists from paper products, bleach from fabric products, and glue from production came together for a unique product. P&G points to two main elements of their environment which have renewed their success in facilitating innovation with the first being their culture of experimentation and the second being their changes in recruiting from hiring the smartest to searching for the most agile and flexible.

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