Innovation at Procter & Gamble

AI is transforming the world. And it starts with the right compute. ARM is the AI compute platform trusted by global leaders, proudly NASDAQ listed, Built for the future. Visit arm.com discover. Hello, I'm Paul Michelman, Director of Content for Harvard Business Digital, and welcome to the 100th episode of the Harvard Business Idea Cast. I am delighted to be joined today by A.G. lafley. The Chairman and CEO of Procter & Gamble AG is also the author of a new book which he co wrote with consultant Ram Sheran, called the Game how youw Can Drive Revenue and Profit Growth with Innovation. Ag, thanks so much for taking the time to talk.

Today. My pleasure.

Paul. Okay, Our goal today is to look at what it takes to make innovation an everyday practice in your organization. What? Which is, of course, both the theme of your new book and also one of the key drivers of what's really been a remarkable run of success at P and G under your leadership. So you open the game changer by saying, my job at Proctor and Gamble is focused on integrating innovation into everything we do. AG what is innovation at P and G? How do you define.

It? Well, Paul, we define it differently and more broadly than we did 10 years ago, and certainly differently and more broadly than we did 30 years ago when I joined the company. Historically, P and G, and I think a lot of companies have defined innovation rather narrowly as technology or product. And technology, that's just the beginning for us. We define it. We try to define it in the terms that our consumers view it and experience it. So for us, innovation is the brand in addition to the product. It's the design of the shopping and the usage experience in addition to the functional attributes or benefits. It is the business model. It is the way we go to market and the supply chain. It is the way we create a cost structure so we can deliver delightful new products at affordable.

Cost. Okay, so we've got the what? Let's look a little bit at the. How you use a phrase at P and G that I love, the customer is the boss. Let's dig into what that means, really. How do managers at P and G make sure the innovation efforts are really focused on the needs and demands.

Of the customer when we get it right and where we get it right. And this is a journey. Okay? We're not at the end point. We really try to put the customer, or in our case, the end consumer, at the center of everything that we do. And in the case of the innovation process, we want the consumer engaged at the front end. What does that mean? Right after we have an idea right after we have the kernel of a technology, right after we have the most primitive of prototypes. We engage with consumers. It may only be a few at the beginning, but what we ideally would like to do is literally co create and co design with target consumer prospects who are most likely to become buyers and users of the eventual brand and.

Product. In the excerpt from your book that we're publishing in Harvard Management Update, you describe how P and G approaches the innovation review process. Can you walk us through what an innovation process, innovation review process.

Is? I will try. First, I have to say no two are exactly alike. We're in 20 to 25 different industries or product categories, but they do have the same basic structure and the same basic flow. The first thing I think that's important is all the critical players and leaders are there. So I'm at every innovation strategy, program review, the head of the business is there, the head of R and D is there, and the head of design, the head of consumer understanding is there. So we have the right people all in the same place, all at the same time. What do we talk about? Essentially we talk about business goals and business strategies and related integrated innovation goals and innovation strategies. So we try to integrate the innovation strategy, program and process with the business goals, strategies and process. Second thing we talk about, and this is a big part of our discussion, if we aspire to grow X percent over the next five years, do we have the innovations in development that will actually deliver that growth in the marketplace? Then we ask ourselves, how does our innovation strategy and program stack up versus our best competition in any given industry? We ask ourselves, finally, what will it take to deliver this stream of innovation through development, through qualification, through commercialization to the actual.

Marketplace? You talk about how P and G uses posters for the innovation reviews, and I just love this. Will you talk about the role of posters and how you use.

Them? Sure. It's low tech. In a high tech innovation world, what we try to achieve is a conversation, a discussion that focuses on the critical issues so we really can advance an innovation program or strategy in the two to three to four hours that we spend or devote to any given business. 10, 20, 30 years ago, you were greeted with a briefing book that was two inches thick. Okay. And I'm not sure that approach was all that different from what a lot of other industries and companies were doing. So we wanted to simplify it down to five to 10 posters, three to five pieces of paper to prepare you. Going into the review, we like the poster approach. Think of a science fair when you were in college or high school, on one poster or one poster and some prototype products sitting in front of it, we can focus on the key issues. Do we have an idea, do we have proprietary technology, do we have a prototype? And do we have a few iterations with some consumers so we know whether we've got something? If we're in the development phase, what are the critical milestones? What are the killer issues? What are the absolute one, two, at most, three most important issues, that if we get them right, we'll have a success. And if we don't get them right, we're going to shut the project down and move our resources on. So we try to keep it focused, we try to keep it conversational. We all try to gather around the one poster area and we work them one at a time until we get to resolution. And then at the end of the session, we try to step back, step up and ask ourselves whether in its entirety, do we have a strategy and a program and a series of innovations that's going to achieve our goal of being ultimately the leader in the industry or category in which we.

Compete? Gee, what's your role in those.

Conversations? It depends. It depends on what the subject of the poster is. Most of the time I let somebody else take the lead. The principal scientist, the innovation team leader, who might be from any one of a number of functions, the head of R and D or design or consumer understanding. It sort of depends on what the subject of the poster is. I generally weigh in in a few fairly well known areas. Are we on strategy? Okay, I'm a little bit of a stickler for once we've chosen a business strategy and an innovation strategy to make sure that what we're doing is very closely aligned with that strategy. I tend to push hard to make sure we've identified and are really addressing the killer issues. There's a natural human tendency to do the easy stuff first. So when you're qualifying a new product or a new idea or a new business model, you tend to check off the easy things. You tend to test them first and qualify them first. I want to do the hardest thing first. I want to do the one thing that if we. The one I want to clear the one hurdle that if we can clear it, I know it'll make a difference in the success of the project. I ask a lot of questions about resources. Do you really have the people you need? Do you really have the budget you need to move this project like you say you're going to move it? And the last thing I do is I'm the one that always leads the grading of the prior review. So, you know, a year ago or nine months ago, we said we were going to do abcde, you know, what did we really do? How well did we do? You know, what we did. But those are the kinds of areas that I weigh in.

On. AG, let's say that I work for an organization that doesn't have this broad innovation based culture as P and G does. But I want to apply some of these ideas in my part of the organization, within my team. Can I make innovation an everyday occurrence within a small part of an organization or does it have to come from the.

Top? I think you can. And frankly, we encourage it because we know, as I said earlier, we're on a journey. We know different businesses are making different rates of progress along the road. And therefore we encourage anybody from an initiative team leader to a small leader of a functional group to begin to put in practice some of the basic tools. For me, I think the starting point is your customer. Who is your customer? Do you really know who she is or he is? Or if you're in a B2B world, do you know who your best business customers are and what their real needs and wants are? Everything begins and ends with the customer. The second thing I would say is you have to bring the team together and set a basic direction, some simple goals, and make a few choices. And that's what strategy is, making a few choices. What you will do, what you won't do, where you will play, where you won't play, those kinds of things. And then the third thing I would say you would want is a very simple process for gathering ideas, converting the ideas into basic concepts and prototypes, very simple, primitive ones, and then beginning to expose those concepts and prototypes with your customer so they can see them, they can touch them, they can use them, and they can begin to give you feedback on whether they like it and whether it meets their needs and wants. And then last but not least, I think you need some kind of a development and qualification process. But if you think about it, even if you had a corner grocery store or a corner candy store or a corner bookstore, the basic approach and the basic process.

Applies. Is there one thing that really stands out, one action, one attitude that a leader needs to engage in to ensure that innovation remains a front and center.

Activity? If the leader's not in the game, you know, I think I said somewhere in the book, in my case, the CEO has to be the cio, has to be the Chief Innovation Officer. But if the leader's not in the game, if they're not taking the ultimate responsibility for innovation, if they're not engaged, you know, really engaged in the process and with the people who are responsible for innovating and then eventually commercializing that innovation, then I don't think it's going to happen. And the other part is related and that is creating this culture, innovation. You have to be open and open minded. Innovation is all about connections. It's connecting part of an idea here to part of an idea there to somebody that can make it a little bit better someplace else. And you have to be able to work collaboratively. If you're not open, if you can't make connections, if you're just not comfortable in a world where truly a team effort and a collaborative effort, then I think it's going to be very difficult to innovate successfully and sustainably over.

Time. I read recently you mentioning an innovation that has been some 12 years in the making that P and G is about to.

Unveil. What is it? I can't tell.

You. Okay, seriously.

Though. But it will come to.

Market. It.

Will. It will come to.

Market. How do you keep people motivated for that long working on innovation that takes that long to.

Develop? You know, it's not that I keep them motivated, it's that the feedback they're getting from their customers is what really keeps them motivated. In the case of this one, that's taken us over a decade to get to market. We had huge feasibility, capital, cost challenges, but every step of the way our consumer was telling us she really wanted this product. She loved the product. Where could she buy it? When could she buy it? So that's sort of what keeps you going. You know, you can create a new customer with the product. You know, there are sales and eventually profits there. You know that what you've been working on will really improve somebody's life. And I think that's what keeps you going. It's not the boss flogging you, it's the customer giving you very positive feedback about what you're.

Creating. Okay, I'll be very interested to see what this new product is. AG Lafley, thank you very.

Much. Thank you.

Paul. And thank you also to all of our listeners. We've been at this for 100 episodes now and your support has been nothing short of.