Innovation at Procter and Gamble

G. Lafley, the CEO of Procter and Gamble, has brought a lot of creativity and rigor to P&G's innovation process. During the past 2 years, P&G has raised its new-product hit rate from 70% to 90%. That's terrific in an industry where half of new products fail within 12 months.

Organic growth - meaning growth from core businesses, excluding gains from acquisitions - is at the root of P&G's transformation. According to Lafley, organic growth strengthens a company's ability to innovate.

Jim Stengel, Procter's Chief Marketing Officer, has cut his reliance on focus groups - the conventional method for studying consumers. He has urged the marketers to spend lots of time with consumers in their homes, watching the ways they wear their clothes, clean their floors, and asking them about their habits and frustrations.

Procter and Gamble has 7,500 R & D people located in nine countries. In order to collect feedback over this vast area, the company encourages employees (both scientists and marketers) to post problems on an internal website. Lafley evaluates the ideas that have been shared between employees. Each year he presents his findings in half-day 'innovation reviews' for each business unit.

It's not the P&G way to put out a product 60 without test-marketing it. But consumer testing takes time - a luxury that P&G executives increasingly don't have. Says Susan Arnold, P&G's beauty queen: 'We don't have time to cross all the T's and dot all the I's. This business is trend-based and fashion-based. You have to be intuitive.' By cutting down on test-marketing (but not, mind you, on science), P & G has reduced product launch time from laboratory to roll-out from three years to eighteen months company-wide.

Lafley believes that P&G needs to market not just the product itself but the consumer's experience of the product - how it looks, smells and feels. In an attempt to encourage growth, some companies offer fat bonuses for innovation or hire stars from outside. Lafley hasn't done either of those things. He doesn't need to revamp pay schemes, he says, noting that managers who fail to share ideas simply do not get promoted. He does motivate the rank and file by giving out modest rewards, such as giving 50 stock options, for creative ideas and by celebrating innovators on P&G's internal website.

From Fortune Magazine