The Game-ChangerHow You Can Drive Revenue and Profit Growth with InnovationBy A.G. Lafley and Ram Charan

Published by Crown Business, 2008ISBN 9780307381736

IntroductionWinning is pretty much the same in today’s busi-ness world as it has been for decades: create newcustomers, new products and new services thatdrive revenue growth and profits. What’s different ishow to do it.

The best way to win in today’s world is throughinnovation. But innovation has often been left totechnical experts or perceived as serendipity orluck. Lone geniuses working on their own have in-deed created new industries or revolutionized exist-ing ones. But there’s a problem: you can’t wait forthe light bulb to go off in someone’s head. The fruitsof innovation — sustained and ever-improving or-ganic revenue growth and profits — have to be inte-gral to the way you run your business. That meansmaking innovation central to the goals, strategies,structure, systems, culture, leadership and motivat-ing purpose and values of your business.

It’s why A. G. Lafley, CEO of Procter & Gamble,says his job is focused on integrating innovation intoeverything the company does. When he took thehelm in June 2000, P&Gers were embarrassed byrecent results. They wanted to turn things aroundand focused on a few simple but powerful things:

• They put innovation at the center of every-thing they do. At P&G, the consumer, not the CEO,is the boss. Regardless of the original source of in-novation — an idea, a technology, a social trend —

the consumer must be at the center of the innova-tion process from beginning to end. The companyspends much more time now with consumers — instores, in their homes and in consumer testingareas of all kinds — to watch them use products,to listen to them and to learn what they want.

• They opened up. Long known for a prefer-ence to do everything in-house, P&G began toseek out innovation from any and all sources, in-side and outside the company. Innovation is allabout connections, so the company involveseveryone it can: P&Gers past and present, con-sumers and customers, suppliers, a wide varietyof partners in the “Connect and Develop” pro-gram that seeks innovation outside P&G walls,and even competitors.

The more connections, the more ideas; themore ideas, the more solutions. And becausewhat gets measured gets managed, Lafley estab-lished a goal that half of new product and tech-nology innovations would come from outsideP&G. They company is already beyond that figure,compared to 15% in 2000.

• They made sustainable organic growth thepriority. Innovation enables expansion into newcategories, allows P&G to reframe businesses con-sidered mature and to transform them into plat-forms for profitable growth, and creates bridgesinto adjacent segments. So the company changed

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its emphasis to organic growth, which is less risky thanacquired growth and more highly valued by investors.

It’s not an easy path. P&G is now an $80-billion-plus company, so increasing revenues 5% a yearmeans adding the equivalent of a brand like Tide or amarket like China — year in, year out — against world-class competitors such as Colgate-Palmolive, Johnson& Johnson, Kimberley-Clark and L’Oreal, as well as re-tailer private labels and popular low-cost local brandsin developing markets like Brazil, China and India.

By running a disciplined development, qualificationand commercialization process, P&G has proved it canmanage a large portfolio of innovations in variousstages of development. Innovation is now P&G’slifeblood and is at the core of its business model.

• They began thinking about innovation in newways. First, the company started from the premise thatit’s possible to run an innovation process in much thesame way as a factory. There are inputs — these gothrough a series of transformative processes, creatingoutputs. It’s possible to measure the yield of eachprocess, including the quality, the end product, and thefinancial and market results. The necessary dynamics totalk about innovation this way — opening the innovationprocess, focusing more on the consumer, and buildingteamwork and processes — cannot be done in isolation.To work at all, they have to work together and be inte-grated into the main decision-making of the business.

Second, P&G broadened the way it thought aboutinnovation to include not just products, technologiesand services, but also business models, supply chainsand conceptual and cost innovations. P&G also saw in-novation not just as disruptive — the proverbial homerun — but also as incremental, the less glamorous buthighly lucrative and profitable “singles and doubles.”

And third, while everyone knows that innovation isrisky, P&G learned how to pinpoint the sources ofthose risks and developed the tools and know-howfor managing them. It has made learning from failure aregular practice to improve the company’s ability tomanage risk.

The Customer Is BossEvery culture has a language, and the corporate cul-ture at P&G is rich in words and phrases that conveywhat it’s trying to do. Of these, the most important isthe phrase that sums up all its priorities: the consumer

is boss. The people who actually buy and use P&Gproducts are a rich source of innovation — if only youlisten to them, observe them in their daily lives andeven live with them.

Consumer is boss is more than a slogan. It’s clear,simple and inclusive — not just internally for employ-ees, but also for external stakeholders like suppliersand retail partners.

“Our business is pretty simple,” Lafley told em-ployees in one town hall meeting after another duringhis first months as CEO. “The consumer is our boss,and we have to win with her at two moments of truth,day in and day out.

“We face the first moment of truth at the storeshelf, when she decides whether to buy a P&G brandor a competitor’s. If we win at the first moment of truth,we get a chance to win at the second, which occurs athome when she and her family use our products anddecide whether we’ve kept our brand promise.

“Only by winning at both moments of truth — con-sistently, every day — do we earn consumers’ loyaltyand sustain the company’s growth over the short andlong term. And we have to win both moments of truthmillions of times a day in more than 180 countriesworldwide.”

Starting in 2001, for example, P&G realized that inMexico, to reach the crucial lower-income group thataccounted for 60% of the population, it had to knowthem better. All it really knew was there was a gap be-tween what P&G was offering and what most Mexi-cans wanted.

The “consumer closeness program” developedways to get literally closer to the consumer. Living It isa program in which P&G employees live for severaldays with lower-income families.

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Downy Single Rinse is one highly successful exam-ple of how to convert insights from such experiencesinto profitable products. In the early 2000s, the Mexi-can market share for Downy fabric softener was lowand stagnant. P&G wasn’t sure what could be doneabout this since the assumption was that people whodidn’t have washing machines didn’t use softener. Notwanting to compromise the price too much, the com-pany decided to see if it could design something spe-cific to the needs of the lower-income consumer.

One of the things P&G people noticed — often totheir shock — was the problem of water. Before Euro-peans arrived in the 16th Century, Mexico City was sur-rounded by a lake; now it’s parched. Millions of ruralwomen still lug buckets back from wells or communalpumps. In the cities, many people have running wateronly a few hours a day.

Most homes don’t have fully automatic washingmachines; even fewer have dryers. All this makes doingthe laundry a serious, draining chore. At the same time,Mexican women take laundry very, very seriously. Theycan’t afford to buy new clothes very often, but theytake great pride in ensuring that their families areturned out well.

A typical load of laundry goes through the follow-ing six-step process: wash, rinse, rinse, add softener,rinse, rinse. That’s no problem if it’s just a matter ofpressing a button every once in a while, but it’s nojoke if you have to walk half a mile or more to getwater. Even semi-automatic machines require thatwater be added and extracted manually. And if youget the timing wrong, the water supply might turn offin the middle.

“The big ‘aha!’” says Carols Paz Soldán, vice presi-dent of P&G Mexico and Central America, was discov-ering how valuable water is to lower-income Mexicans.“And we only got that by experiencing how they livetheir life.”

Having identified a problem to solve (making laun-dry easier and less water-intensive) and a consumerbenefit, all that was left to figure out was what prod-ucts to offer. Specs for performance and target costswere sent to the labs and they came up with an an-swer: Downy Single Rinse. Instead of a six-stepprocess, the new product reduced it to three — wash,add softener, rinse.

Downy Single Rinse was launched with the en-dorsement of the Mexican water and environmentagency, with lots of in-store demonstrations so womencould see it work. It was a hit from the start, a sign ofthe value of understanding consumer needs by findingout everything you can about the consumer.

The Eight DriversThe foundation for game-changing innovation is a cus-tomer-centric approach. Beyond that, a company mustmanage eight integrated drivers of innovation:

• Motivating purpose and values. Companies cen-tered on innovation are inspiring places to work, andthe people who work there are turned on to a higherpurpose. P&G is purpose-led and values-driven. Bil-lions of people around the world are striving to improvetheir lives through accessible and affordable productsand services. P&G’s purpose is to improve their every-day lives in small but meaningful ways with brands andproducts that continually deliver superior performance,quality and value better than the best competition.

• Stretching goals. Identifying a few critical goalscreates clarity in focusing on strategies that win andalign everyone’s energy. In creating game-changing in-novation, you need goals that are stretching butachievable. The goals can’t be reached without a sus-tained process of innovation driven by leaders who seeit as the way to change the game.

• Choiceful strategies. Once goals are set out, youhave to figure out how to achieve them. Strategies arethe few critical choices required by clear goals —choices that result in winning with consumers and cus-tomers and against competition. Putting innovation atthe center of P&G’s thinking enabled the company to

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see strategic choices in a different light. Businessesand brands previously considered “mature” could thenbe looked upon as growth opportunities.

• Unique core strengths. Once you make yourchoices about where to play, you then have to focus onhow to win by building on, enhancing and displayingunique core strengths — what your company doesbest. P&G’s core strengths include a deep understand-ing of consumers and placing them at the center of alldecision-making, creating and building brands that en-dure, the ability to create value with customers andsuppliers, and effectively leveraging global learning andscale into competitive advantage. P&G moved awayfrom traditional focus-group market research to focuson immersive research.

• Enabling structures. While there’s no one bestway to structure an innovation-centered company, it’sclear that the sun is setting on the internally focused,vertically integrated corporation. We’re in the era of theopen corporation. P&G has designed structures thatbring in and commercialize outside ideas. Through the“Connect and Develop” program, more than 50% of in-novations come from outside P&G.

• Consistent and reliable systems. Innovation iscreative but not chaotic. It’s a systematic way of mov-ing from concept to commercialization. The process ofinnovation has well-defined success criteria, mile-stones and measures.

• Courageous and connected culture. In an inno-vation-centered culture, managers and employeeshave no fear of innovation because they’ve developedthe know-how to manage the risks.

• Inspired leadership. In the integrated process ofinnovation, it’s the leaders who link all the drivers of in-novation together, energize people and inspire them tonew heights. Leaders are instigators, looking over thehorizon to gauge the changing landscape of their in-dustry and what must be done in response.

ConclusionBy constantly searching for a new game and executingit well, you serve notice to competitors that you’ve

changed the rules of the game or the game itself, andthat they will have to play a different game entirely. e

ABOUT THE AUTHORS: A.G. Lafley is chairman and CEO ofProcter & Gamble. Ram Charan, co-author of Executionand author of What the Customer Wants You to Know,Profitable Growth Is Everyone’s Business and Know-How, is a counselor to CEOs.

Related ReadingWhat the Customer Wants You to Know: How Every-body Needs to Think Differently About Sales, by RamCharan, Portfolio, 2007, ISBN 9781591841654.

The Customer-Centered Enterprise: How IBM andOther World-Class Companies Achieve ExtraordinaryResults by Putting Customers First, by Harvey Thomp-son, McGraw-Hill, 1999, ISBN 9780071352109.

Profitable Growth Is Everyone’s Business: 10 Tools YouCan Use Monday Morning, by Ram Charan, CrownBusiness, 2004, ISBN 9781400051526.

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