IT's Role in Collaboration and Innovation at Procter & Gamble

By Christopher Koch
Thu, February 01, 2007

CIO — Procter & Gamble is famous for being innovative, but the hard truth is that it had better be. The company spends 3.4 percent of its revenue on R&D, more than twice the average of 1.6 percent in the consumer packaged goods industry. But big spending on R&D does not guarantee success: A study by consultancy Booz Allen Hamilton found no correlation between dollars spent on R&D and profitability. What matters is the productivity of that spend—the "hit rate" of ideas that lead to products.

The company behind Swiffer and Crest toothpaste assesses its hit rate at about 80 percent—pretty good, considering that the overall industry success rate is just 30 percent, according to ACNielsen. But in consumer products, the real blockbusters—products that aren’t merely new variations or tweaks of existing products—are few. According to research company ProductScan, of 10,649 new product introductions across the industry in 2005, just 484 were truly innovative—meaning they added significant new benefits in areas such as formulation or technology. And the creativity of the big consumer goods players is waning: A study by McKinsey found the top seven companies, including P&G and competitor Unilever (whose products include Surf detergent), accounted for just 5 percent of all the patents filed for laundry and home-care products between 2000 and 2005.

No wonder then, that the 170-year-old manufacturer has been driving hard to improve its R&D productivity since CEO A.G. Lafley took the reins in 2000. Lafley’s proclamation at the time, that by the end of the decade P&G would get at least half its new product ideas from external sources, was hailed as visionary. But really it was a response to the reality that the days of "not invented here" are over. Today, Lafley claims that outsiders are involved in developing 35 percent of new products, and P&G’s spending on internal R&D has decreased 30 percent in seven years.

But P&G needed to do more than bring more cooks into the kitchen. It needed to change a perfectionist mentality in its research culture. "The front-end ideation process took time," says Steve David, who retired from a 34-year career at P&G in 2005, the last five years of which he spent as CIO. The company began rewarding researchers for speeding up experiments. "The goal was to encourage people to fail early and often and if the idea isn’t working, either kill it or move it into another organization and let them work on it," recalls David, who is now a senior adviser to The Boston Consulting Group.

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