The Game-ChangerHow You Can Drive Revenue and Profit Growth With Innovation

by AG Lafley & Ram Charan

How and Why Innovation At P&G Changed Its Game

Chapter One:

What We Had To Do

Put the consumer at center of everything we do

Opened up

Made sustainable organic growth the priority

Organized around innovation to drive sustained organic growth

Began thinking of innovation in new ways

What We Had To Do Put the consumer at center of everything we do

“consumer is boss” standard Spend more time with consumers

In stores In their homes Consumer testing centers

Delight our consumers at two moments of truth When they buy When they use

Opened up Seek out innovation from all sources, inside and outside

the company Innovation is all about connections; everyone involved

Connect & develop More Connections, more ideas, more solutions

Goal set that half of new product and technology innovations come from outside P&G

What We Had To Do Made sustainable organic growth the priority

Innovation enables expansion into new categories Allows us to reframe mature business & transform them

into platforms for profitable growth Creates bridges into adjacent segments Emphasis on organic growth

Less risky than acquired growth More highly valued by investors

Organized around innovation to drive sustained organic growth

Innovation as a strategy Regular business strategy that focuses on innovation Regular innovation reviews for every global business unit Careful selection and use of the right metrics Evaluating, development and promotion of outstanding

business and innovation leaders Allocation of resources …to outstanding innovation

What We Had To Do Began thinking of innovation in new ways

Run innovation like we run a factory Broadened way we thought about innovation

Not just products, services but to include business models, supply chains etc.

Not just disruptive, but also incremental Innovation is risky

Learned how to pinpoint the risks Developed tools and the know-how to manage them

How We Did It…First Things First1. Improve our execution

“we were trying to do too much, too fast and nothing was being done well.”

Growing the core Laser-sharp focus on current consumers, current retailers,

wholesalers, and distributors

2. Pricing Too high, find pricing “sweet spot”“sweet spot” “…better value for

consumers, gave retailers a fair profit, and would drive P&G to improved market share, net sales, and margin performance.”

3. Innovation Key to winning medium and long term Strategy of differentiation Brands are promises of something different and better in terms

of performance, quality and value. Brand are guarantees of consistent quality, performance, and

value.

Critical Questions on Innovation

How could we put innovation at the center of everything we do?

How could we turn innovation into a more consistent, more decisive, and more sustainable competitive advantage?

How could we manage the risks associated with our all-in and full-on commitment to innovation?

Could we identify and take advantage of the opportunities innovation might offer us?

Courageous& Connected

Culture

Consistent &Reliable Systems

EnablingStructures

Unique Core

Strengths

Choiceful Strategies

Stretching Goals

Motivating Purpose &

Values

Inspiring Leadership

Customer-CentricINNOVATIONINNOVATION

Game-Changing

Drivers for Customer-Centric Game Changing Innovation

Drivers for Customer-Centric Game Changing Innovation

Motivating Purpose & Values Companies centered on innovation are inspiring places

to work and the people who work there are turned on by a higher purpose

Purpose inspires; Values unite

Stretching Goals A few critical goals creates clarity in focusing on

strategies that win and align everyone’s energy Stretching but achievable, yet cannot be reached w/o

sustained innovation; driven by leaders who see it as game changer

Choiceful Strategies Choices that result in wining with consumers and

customers and against competition Focus on four core businesses, ten leading brands Enabled where not to play (exited most food & beverage)

Unique Core Strengths Focus on how to win by building on, enhancing and

deploying our unique core strengths Effectively leverage global learning Immersive research living, shopping and being part of

consumers’ lives

Drivers for Customer-Centric Game Changing Innovation

Enabling Structures Unique core strengths require design of organizational

structure that supports innovation at the center Era of open corporation (end of internally focused, vertical integrated

organization)

Need to be comfortable designing structures and processes that bring in and commercialize outside ideas

Consistent & Reliable Systems Innovation is creative but not chaotic Systematic way of moving from concept to

commercialization Has well-defined success criteria, milestones, and

measures

Drivers for Customer-Centric Game Changing Innovation

Courageous & Connected Culture Culture is what people do day in and day out without being told No fear of innovation = know-how to manage risk Employees are more connected to:

Consumers whose lives committed to improving Customers and suppliers who are important innovation partners Each other based on open-learning culture “that applies and reapplies with

pride”

Inspiring Leadership Link all the drivers together, energize people, and inspire them

to new heights Leaders are instigators Passionate about knowing about consumers, immersing in

finding insights about consumer needs In time they develop confidence, how to deal with risk and

inherent risk in innovation

Drivers for Customer-Centric Game Changing Innovation

CourageousCourageous& Connected & Connected

CultureCulture

Consistent &Reliable Systems

EnablingStructures

Unique Core

Strengths

Choiceful Choiceful StrategiesStrategies

Stretching Stretching GoalsGoals

Motivating Purpose &

Values

Inspiring Inspiring LeadershipLeadership

Customer-CentricINNOVATIONINNOVATION

Game-Changing

Drivers for Customer-Centric Game Changing Innovation

What P&G’s Innovation Transformation Means For You

Chapter Two:

What P&G’s Innovation Transformation Means For You

P&G’s managerial breakthrough was to conceive of and implement innovation as an integrated process based on the idea of customer is boss

Continual innovation process can change the landscape of the business

P&G change form technology-push innovation model to a customer-pull one

Other companies: General Electric (under Immelt) Nokia HP (personal computer unit under Bradley)

What is real Innovation?

Differences between invention & innovation: Invention is new idea that is often turned into a tangible outcome. Innovation is the conversion of a new idea into revenues and

profits.“Innovation without a customer is nonsense; it’s not even innovation.” --Jeff Immelt

Innovation is not complete until it shows up in the financial results

Real innovation can change the context (market space, customer space, competitive space, societal space)

Innovation enables you to be on the offensive

Commoditization drive down prices; differentiation from innovation carries an economic premium

Key to shaping corporate life, helping leaders conceive previously unimagined strategic options

Enables you to potential acquisitions through a different lens

Provides an edge in being able to enter new markets faster & deeper

Puts companies on the offensive

Why Innovation Matters

Innovation Leader Skill Set

Effective at evoking the skills of others to build an innovation culture

Collaboration is essential Failure is a regular visitor Comfortable with uncertainty and have an open

mind Receptive to ideas from very different disciplines Have organized innovation into disciplined

process that is replicable Have tools and skills to pinpoint and manage the

risks inherent in innovation

Myths of Innovation

It’s all about new products Functions, logistics business models and processes can also

benefit greatly through innovation Toyota’s Global Production Systems Wal-Mart’s Inventory Management

Innovation is for geniuses Waiting for the “eureka” moment will be fatal True innovation matters for the present, not for centuries hence“Anything that won’t sell, I don’t want to invent. Its sale is proof of

utility and utility is success.” --Thomas Edison

Size matters Innovation can happen in companies as large as P&G, GE,

DuPont or as small as Ram Charan’s fathers’ shoe store in India

Innovation is a social process

When people do that simple, profound thing – connect to share problems, opportunities, and learning

Anyone can innovate, but practically no one can innovate alone

Develop leaders of the future

Improve productivity

Execute strategy

Create innovation

To prosper, companies need to do four things:

A strategy

Ideas

A process that moves these ideas to market

An organizational structure that supports innovation (and protects and rewards innovators) up and down the line.

To create an innovation culture, you need,

Innovation Is A Team Sport

Chapter Nine:

Total Immersion

Co-location Released from usual duties Discouraged from emailing colleagues Constantly accessible to each other Deeply concentrated Multiple disciplines, demographics Outsiders Full-time staff for immersion (brand strategy,

description of product and category, introductions, etc)

Breakthroughs

Knowing the consumer

Teamwork

Building an Innovation Team

Idea Generator – Push beyond plausible to create provocative ideas

Project Manager – Ensure all pieces come together

Executor – make things happen Team Leader – pragmatic dreamer

The Key is intellectual diversity!

Building an Innovation Team

Risk Diversity No “like” thinkers Deadlines – can spur creativity and it is a

business after all… 5-12 people on the team Communication Say No to bad ideas Team connectedness Interdisciplinary – “T” Shape

Changing Culture requires Changing Behavior

Clearly defined business and personal development expectations

Change the consequences that follow success and failures – reward entrepreneurial behavior

Start small and focus on four important elements: Courageous, Connected, Collaborative, Curious, and Open.

Innovation Culture Elements and Interventions

Courageous Connective &

collaborative Curious Open

Innovation Culture Elements and Interventions:CourageousCourageous

What it looks likeWhat it looks like No fear Learn from failure Knows how to manage risk based on measures

Expectation InterventionsExpectation Interventions Use innovation portfolio to manage risks Qualify few, meaningful broadly applied measures Establish there’s no bad idea Test prototype, and iterate

Consequence InterventionsConsequence Interventions Limited human and financial resources are sufficient to support in well-

managed portfolio Capture learning from failed innovations and share with other teams Broadly reward and recognize teams who fail Assign talent from a failed innovation to a new high-profile innovation

project

Innovation Culture Elements and Interventions: Connected and CollaborativeConnected and Collaborative

What it looks likeWhat it looks like Works effectively and productively with others—inside and outside

the company Works seamlessly across business, functions et al Uses personal and professional networks to seek out information

ideas

Expectation InterventionsExpectation Interventions Creates in-house communities to foster knowledge exchange Select team leaders who facilitate connections and expect

collaboration Establish ways to employees to leverage their external networks

Consequence InterventionsConsequence Interventions Include in performance evaluations Be prepared to change the leader and/or team members Continuity of team members builds trust

Innovation Culture Elements and Interventions: CuriousCurious

What it looks likeWhat it looks like Remains childlike, naïve Looks for obvious patterns Explores and likes to discover Looks for analogies and metaphors Asks “Why? and Why not?” “What’s Possible?” “How does that

work?” Uses “Columbo” approach to solve; focuses on solutions

Expectation InterventionsExpectation Interventions set an expectation of ongoing learning Brainstorming Consumer, shopper and customer immersion External connections and diverse experiences

Consequence InterventionsConsequence Interventions Challenges the team’s thinking Keep asking “Why? and Why not?” again

Innovation Culture Elements and Interventions: OpenOpen

What it looks likeWhat it looks like Open-minded to new ideas Open to learn to assumption that others’ ideas will make the product or

service better Open to empathy to consumer/customer Open to suspend judgment

Expectation InterventionsExpectation Interventions Institute an open architecture Establish and communicate clear goals Eliminate “not invented here”; encourage “apply and reapply with

pride”

Consequence InterventionsConsequence Interventions Reward and recognize those who seek out/commercialize innovation

opportunities from outside Reward and recognize those who reapply others’ success to their

business Include open-mindedness in performance evaluations

Emphasize Out of the Box IDEAS

Inclusive: Reaping benefits of diverse thinking and ideas needed to foster innovation

Decisive: Eliminating organizational swirl, debate, and over analysis - faster innovation, development, qualification, and commercialization

External: Externally focused to stay in touch with clusters, consumers, suppliers – honest and objective

Agile: Quickly reacting to changing conditions, forward thinking – taking calculated risks

Simple: Ongoing streamlining and simplification of structures and processes

Rules of brainstorming

Get a facilitator Be prepared Relax Ladders should follow Get everyone to contribute Keep track of ideas Think ahead Use props Outside the lines Follow the rules.

Questions for Leaders

What are you doing to encourage and eliminate fear of failure?

How are you fostering a culture of curiosity and openness? How are you eliminating unnecessary bureaucracy? How are the team leaders and members chosen? What are you doing to encourage open communications

within the innovation team? How well do you manager the development of an

individual’s innovation skills? How do you enable individuals to reenter more traditional

assignments in the most productive way? Do you use special approaches to enable teams to

immerse themselves in customers? Do you use co-location to help business units build

innovation?

New Job of the Leader

Chapter Ten:

Developing Leaders of Innovation

Performance Evaluations Early Identification Job experiences Reward and recognition Clear sense of purpose / inspiring

them

Leaders need to be good at…

Drawing people out Synthesize ideas Facilitating debates getting the group to be decisive and

action-oriented

How innovation Leaders Dream

See the world as it can be not as it is

View the external landscape in a new way

Imagine possibilities that elude others

Responsibilities of an Innovation Leader

Hone Critical Skills

Provide UniqueValue-added Roles

Role Model Behavior ofinnovation Culture

Model the 4 C’s and O

Integrate member tasks

Courage

Balance IQ and EQ

Inspire

Set the Vision

Deal with the killer issues

Integrative Thinking

Building the Pipeline

Performance Evaluation Power of Minds, People, Agility

Start them from day one Personal Coaching Support systems and training Intentional assignments Reward and recognition

How Jeff Immelt Made Innovation A Way Of Life At GE

Conclusion:

GE Case StudyHow Jeff Immelt Made Innovation A Way Of Life At GE

Put innovation and productivity on Your personal leadership agenda

Give innovation a seat at the table Find and follow up on the best ideas Shift the focus to customers and the longer term Rethink Leadership Build capabilities you are lacking Architect the social process of innovation Create the resources you need to fund growth Open up to learn from others Reorganize or restructure to get close to

customers Reinforce the culture you want Let Innovation spread