P&G – a giant hungry for growth

Procter & Gamble has grown into a multi-billion dollar business over a period of 178 years. It currently holds in its portfolio 21 brands with annual sales of $1 billion to $10 billion and 11 brands with sales of $500 million to $1 billion. Its success over the years has been primarily due to the company’s persistent focus on effectively delivering value to its customers and ultimately to its shareholders.

The mission of P&G is “to provide branded products and services of superior quality and value that improve the lives of the world’s consumers, now and for generations to come.” a P&G has recently consolidated its business portfolio to focus on the categories where P&G has a leading position through a strong and differentiated product / brand and a good understanding of consumer needs.

To deliver value to its customers and shareholders, P&G has engineered an operating model that focuses on innovation and execution. Its operational model integrates each part of the value chain to ensure strong execution from product innovation, to production, to delivery to customers.

Innovation
Innovation is at the core of P&G’s growth and competitive advantage, and management is not afraid to invest major resources to fuel its pipeline with transformative products. In fiscal year 2015 alone, its research and development expenses were $2 billion. Through these investments, the company aims to create products that transform categories and drive market growth by “winning from the top” – offering the best-performing products in the category, with the highest quality, at a modest price premium. b

In early 2000’s, P&G set out to create a “New-Growth Factory” – systemization of the pursuit of growth through innovation c – and enable the company to find innovations, ideas, and new products everywhere and not just in R&D labs. It began by crowdsourcing ideas from outside the four walls of the company through a program called “Connect + Develop”. Owners or representatives of an innovation are welcomed to submit their ideas online (pgconnectdevelop.com) for review by the C+D team. While this effort led to a plethora of ideas and improved innovation success rates, P&G wanted to build robust in-house growth capabilities. Through the help of Innosight, key P&G executives created the foundation of the new-growth factory:

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1. Raw materials
   • Basic consumer understanding, including information coming from Connect + Develop
2. Factory floor
   • Processes to turn “raw materials” into an idea, to test the idea, and to take the new product to the market
3. Skilled operators
   • Employees with experience in innovation that can successfully take ideas to the market
4. Process manual
   • Step-by-step guide that outlines best practices for employees
5. Dashboard
   • Key information on every project that is constantly updated including status, project potential, current resources allocated to project, and resources needed to commercialize the product or business
6. Production schedule
   • What needs to be produced in the factory and by when

Execution

CPG companies such as P&G must have efficient and costs-effective processes that keep COGS low and enable the company to set competitive prices. P&G has created a data-driven culture where operational decisions are driven by operations research (OR) – the use of scientific principles to provide a quantitative basis for complex business decisions. From major supply chain strategies to small improvements at the plant level, P&G uses a mix of software and internal tools to assess the health of the operations and to determine the best course of action to stay competitive.

While the use of operations research at P&G began as a way to consolidate a constellation of manufacturing plants across the US, this data-driven approach is now used in new product branding, material sourcing, international trade and finance, inventory management, and organizational design.

To supplement the robust operational systems at P&G, the company heavily invests in maintaining a culture of continuous improvement and ownership at every level. In the past year, P&G has simplified the organizational structure to build a stronger sense of ownership. In parallel, it has structured incentive systems that link individual performance to individual contributions to operating Total Shareholder Return (TSR).

Sources

a Procter & Gamble. “PVP.” Purpose Values & Principles. Web. 01 Dec. 2015. http://us.pg.com/who_we_are/our_approach/purpose_values_principles

b Procter & Gamble. “2015 Annual Report.” 2015. Web. 1 Dec. 2015.
http://www.pginvestor.com/Company-Strategy/Index?KeyGenPage=208821

Brown, Bruce, and Scott Anthony. “How P&G Tripled Its Innovation Success Rate.” Harvard Business Review. 01 June 2011. Web. 01 Dec. 2015.
https://hbr.org/2011/06/how-pg-tripled-its-innovation-success-rate/

Fine, Charles. “P&G Operations Strategy – MIT Sloan Executive Education.” P&G Operations Strategy – MIT Sloan Executive Education. Web. 01 Dec. 2015.
http://executive.mit.edu/blog/bringing-process-innovation-and-creativity-into-operations#.Vl0bdzZdE2I

Hines, Andrew. “How Operations Research Drives Success at P & G.” CBSNews. CBS Interactive. Web. 01 Dec. 2015.
http://www.cbsnews.com/news/how-operations-research-drives-success-at-pg/

“Innovation Capabilities: How Procter & Gamble Built a New Growth Factory.” YouTube. YouTube, Web. 01 Dec. 2015.

c “Inside P&G’s Growth Factory.” YouTube. YouTube, Web. 01 Dec. 2015.