CEO Lafley lays out the principles of innovation that turned around his company and can fire growth anywhere
How You Can Drive Revenue
and Profit Growth with Innovation
By A.G. Lafley and Ram Charan
Crown Business; 336pp; $27.50
When A.G. Lafley was named CEO of struggling Procter & Gamble (PG) in 2000, investors had little faith that he could turn around the maker of Crest, Pampers, and Tide: P&G's stock plummeted on the announcement. The self-effacing career P&Ger also seemed the last person who might radically reinvent the company, turning its famously insular and stodgy culture on its head. Lafley delivered on both fronts. In fact, so bright is his star now that he has taken the unusual step of writing a how-I-did-it book while still CEO, instead of taking the standard course of waiting until retirement.
Co-authored with management consultant Ram Charan, The Game-Changer: How You Can Drive Revenue and Profit Growth with Innovation focuses on how innovation has been the cornerstone of P&G's turnaround and on what lessons business can draw from Lafley's experiences. Admittedly, a huge amount has been written on innovation—so much that the very term has become a business buzzword. But The Game-Changer stands out thanks to its concrete explanation of P&G's method and the rich company examples that Lafley provides. As in other Charan co-productions, the authors employ a tag-team approach, with Lafley taking us inside P&G and Charan providing external management analysis. Still, Lafley's voice comes through clearly. "We were trying to do too much, too fast, and nothing was being done well," he says of the mess he inherited.
Lafley certainly has the credentials to talk about innovation. During his run, P&G has led the consumer-product industry in internal sales growth, or sales excluding acquisitions, with much of this gain generated by new-product launches. The success rate of P&G's research and development efforts has risen by 85%. One pathway to this achievement: bringing in more upstream product and technology ideas from the outside, such as the 2001 acquisition of electric toothbrush SpinBrush. The move resulted from Lafley's mandate early on that P&G must get 50% of its innovation externally, a big change for a company known for its must-be-invented-here culture. The company now exceeds that percentage, up from 15% when he started.
A central theme of The Game-Changer: P&G now thinks of innovation broadly—not just with regard to products and technology, but in every facet of operations, from business-model development to cost-cutting. It's something every employee should be thinking about, Lafley says. "To succeed, companies need to see innovation not as something special that only special people can do, but as something that can become routine and methodical, taking advantage of the capabilities of ordinary people," Lafley writes.
How does P&G get employees to think effectively about a process that can be so amorphous? Lafley lays out eight principles, from sticking to things the company does best to making careful strategic choices on what markets to enter. But most key is understanding what consumers want. In the past, the book says, P&G tried to push products down to consumers rather than deeply probing their desires first. "We have figured out how to keep the consumer at the center of all our decisions," Lafley writes. "As a result we don't go far wrong."
Numerous anecdotes illuminate this change in mind-set. Before, P&G would rely heavily on consumer focus groups to gauge reaction to products that its researchers thought up. Now researchers go so far as to live with shoppers for several days at a time—an immersion process P&G calls "Living It"—to come up with product ideas based directly on consumer needs. Such experience with a lower-middle-class family in Mexico City produced Downy Single Rinse, a fabric softener that removed a step from the less-mechanized laundry process there. P&Gers also hang out in stores for similar insights, a process they call "Working It."
Identifying a product need is only half the battle; creating a loyal buyer is the other. Along with thinking about function, P&G has increased emphasis on design in an attempt to get consumers to connect with a product emotionally. Lafley describes the development of Tampax Pearl, a sleek new tampon and applicator aimed at teen consumers. Gone was the white paper wrapper that "crackled loudly—a source of embarrassment to women, particularly teenagers," Lafley writes. The Game-Changer abounds with other stories that bring P&G's innovation principles to life, like those involving skin-care products SK-II and Olay, as well as Tide and odor remover Febreze.
The book falls short in the comparisons Charan makes with innovation practices at other companies such as Nokia (NOK), 3M (MMM), General Electric (GE), and Hewlett-Packard (HPQ). At times, these seem like an artificial means of increasing the book's scope. Moreover, the approach leaves less space for Lafley's more insightful, detailed stories.
By publishing his book now, Lafley, 60, isn't able to evaluate a full career's worth of innovation efforts. He has another five years before he reaches mandatory retirement age. Results at the company have weakened lately, and Lafley will tell you that sustaining them is his biggest challenge. The book is an important statement on what he thinks will make the difference. "We have not perfected the process of innovation—not by a long shot," he writes. "But I have no doubt the right building blocks are in place because we have thought innovation through, step by step." The Game-Changer provides a valuable guide.
A.G. Lafley and other executives advocate "integrative thinking," a process of synthesizing opposing ideas. Roger L. Martin, the dean of the University of Toronto's Rotman School of Management, discusses the approach in his book, The Opposable Mind: How Successful Leaders Win Through Integrative Thinking.
The March, 2006, Harvard Business Review article "Connect and Develop: Inside Procter & Gamble's New Model for Innovation," by P&G executives Larry Huston and Nabil Sakkab, casts light on how P&G has succeeded by developing ideas that originate outside of the organization.