CPGMatters: P&G Changes Rules for Product Development

Discussion
Feb 19, 2008

By John Karolefski

Through a special arrangement, what follows is an excerpt of a current article
from CPGmatters, a monthly e-zine, presented here for discussion.

P&G’s new product process now relies on Internet-based, interactive, collaborative communication internally and with its own suppliers and retail customers. Deploying these concepts has resulted in a doubling of the innovation success rate at P&G. Innovation productivity has increased by 60 percent for the CPG giant due to a reduction in internal R&D from 4.8 percent in 2000 to 3.4 percent today. It is targeting 50 percent external innovation by 2010.

“Product innovation is a pre-requisite for sustained retail growth. It’s critically important that manufacturers bring innovation to retailers,” said Thomas Kinder, vice president of customer development, global innovation and strategic alliances for P&G, in a session at the recent annual National Retail Federation (NRF) convention.

Innovation is a big global business, Mr. Kinder said, but it is not limited to new products. It also includes new business models, new ways to go to market, and other facets of the operation.

What’s driving innovation at P&G today? Mr. Kinder said joint value creation with retailers, technology innovation, and the Web 2.0 process.

The Innovation Execution Framework concepts that P&G
has deployed consist of three elements:

  • Consumer Insight Network: Internet-based
    social network that encourages and enables consumer-originated interactive
    content devoted to issues relevant to CPG brand categories.
  • Open Innovation
    Network:
    An open-source, Internet-based, social network that encourages and
    enables interaction aimed at developing ideas, solving problems, or formulating
    disruption opportunities.
  • Operational Agility Network: Internet-based, collaborative
    network that overlaps and loops through the other networks to add knowledge
    and improve responsiveness.

“The rapidly growing phenomenon of Internet-based, interactive, collaborative communication has created an opportunity for the CPG industry to shift from a traditional, linear process to one that creates a virtualized innovation process that originates from, and centers on, the consumer,” stated a white paper on improving innovation productivity distributed by its technology partner, the Cisco Internet Business Group, at the NRF session.

According to the report, innovation can be accelerated only if an organization is able to implement multi-dimensional mass collaboration. “This means simultaneous downstream collaboration with retailers and customers, upstream collaboration with vendors, horizontal collaboration internally, and collaboration with other ecosystem partners and outside communities of common interest, including freelancers and academicians.

“In order to change the outcome,” the report continued, “the industry needs to transform its approach by including Web 2.0 technologies and processes that achieve higher results.”

Discussion Question: What do you think of P&G’S goal to reach 50 percent external innovation by 2010? What do you think of the potential of Web 2.0 to drive innovation and explore ideas internally as well as externally with consumers, retailers and other partners?

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12 Comments on "CPGMatters: P&G Changes Rules for Product Development"


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Michael Richmond, Ph.D.
Guest
Michael Richmond, Ph.D.
14 years 2 months ago

P&G is a recognized leader in the CPG category and their focus on Open Innovation and seeking external sources is clearly a best practice. All the comments are on the mark and Web 2.0 is a tool to help the process.

A couple of things that were not highlighted but are extremely important to delivering future innovation include collaboration and dealing with the physical working environment. For those out there that work in large corporations, it amazes me that any work gets done–Welcome to The Office!

The need for external resources to deliver the innovation is critical and those that recognize this will be more innovative than those who choose to work mostly internally. Also critical is collaboration and specifically non traditional collaboration–this effort will help organizations deliver new and non-linear innovation. This is a big idea and a big opportunity for the future. Web based technologies and mobile technology will be important tools to help move innovation forward!

Jeff Weitzman
Guest
Jeff Weitzman
14 years 2 months ago

I think Don has it right: these networks are near the open end of the funnel, and they represent an outstanding opportunity to change the product development process. But they are only part of the picture. The same networks could lead to a ‘tyranny of the masses’ where only lowest-common-denominator products come out the other end of the funnel. The magic happens in the middle, where ideas become innovation.

Web 2.0 is merely a media label for the return to a focus on the internet as a community-driven medium after a long slog through ‘content is king’ traditional push publishing models. Marketers can take advantage of this renewed focus to drive real consumer engagement into their business processes. That alone won’t generate innovation. But it does better align the product development funnel to be consumer-driven, as opposed to developing product ideas based on internal capabilities, then focus-group testing them to see what might work.

James Tenser
Guest
14 years 2 months ago

New product innovation is limited only by the imagination of the innovators. Traditionally this system has relied on the imagination of a few experts within organizations. P&G appears to be attempting to capture the imaginations of the masses with this announced initiative. An exciting concept, that is designed to locate ideas that originate outside the corporate comfort zone, based on user sensibilities.

Web 2.0 tools will make this a bit more manageable, compared with, say, collating index cards from a giant suggestion box. But P&G corporate product innovators may soon feel they are drinking from a fire hose, unless they incorporate a systematic method for boiling down the idea flow into a rich syrup of quality concepts. Here’s where method will trump technology. Don’s comment about “filters” above is right on: If they filter out the soul of innovation, the end results will be no better than the present expert system.

Don Delzell
Guest
Don Delzell
14 years 2 months ago
Web 2.0 isn’t really the paradigm shift behind P&G’s approach. Technology may enable the flow of ideas and communication to be more rapid, visible and easily consumed. What is done with the information which moves through those networks, and how those networks are built from a social process perspective is, I think, the key to this approach. Innovation, someone said, is the generation of possibilities beyond those already known. The more sources for those possibilities, up to a point, the more powerful the end results become. Without deep insight into the P&G Network structures, it is difficult to see the “how” which will make these possibility-engines be efficient. Does the Internet and Internet-based technology enable more robust and flexible communication networks? Absolutely. Does involving more people in a process guarantee a better outcome? Absolutely not. My experience with innovation in product development is that collaborative work flow increases efficiencies and time to market. Front-end innovation management processes increases the success ratio for new product introduction. The image I use is that of a funnel. If… Read more »
Dan Raftery
Guest
14 years 2 months ago

The interesting thing about the current hype is the focus on Web 2.0, rather than the real point. Product innovation is an enormously complex process and Web 2.0 is simply a new landscape upon which the process can applied. Discipline is still part of the process, so it will be interesting to see how the mayors of these new social networks manage and harness the creativity and information at their disposal.

Doron Levy
Guest
Doron Levy
14 years 2 months ago

It’s always good to have a second or even third set of eyes when developing a new product or packaging. P&G has always been on the forefront of product development (you don’t become the biggest consumer brand by sitting on the sidelines!). Just take a look at any retailer’s shelf and you will see P&G front and center with excellent labels and packaging.

This next step will keep them on the cutting edge (and will probably make them even bigger and better). Any initiative that helps customers pick up their product over a competitor is always a positive direction.

Lisa Bradner
Guest
Lisa Bradner
14 years 2 months ago

The recognition of the need for external participation is really what Web 2.0 is all about. P&G is, as usual, ahead of the pack in leveraging and systematizing it. While other companies bury their heads in the sand trying to avoid the inevitable, P&G looks at the trend and tries to figure out how to master it ahead of the pack…bravo to them.

What’s the right percentage of external vs. internal? Not sure anyone really knows. What we do know is that the old stage gate process of revealing only finished (or nearly finished) concepts after the cost, form and contents are locked leads to huge rates of product failure. To be sure, the new method has issues of confidentiality and credit–no one has, I think, sorted out who owns the patent on a community generated idea–but finding ways to tap ownership, interest and involvement of the community will lead to better success rates and innovation overall.

Kai Clarke
Guest
14 years 2 months ago

While Web 2.0 is desperately needed, the key here to P&G’s innovation is their flexibility in accepting feedback from their customers and working with them to innovate to meet their needs.

Ryan Mathews
Guest
14 years 2 months ago

Web 2.0 is an enabling technology–nothing more, nothing less. Over time it will be replaced by Web 3.0, 4.0 and beyond. The real news here is the continued commitment to seeking external sources of innovation–an idea by the way that was virtual heresy prior to A. G. Lafley taking over the reins at P&G.

Whether 50 percent external innovation is a real, or achievable or even desirable goal isn’t the point. The power of the goal is its impact on the internal P&G culture. It drives a stake in the hearts of anyone clinging to the “not invented here equals inferior” mindset that characterized some past P&G innovation strategies and opens to the door to untold new opportunities.

That said, I’m sure it will be an effective strategy both in terms of creating new possibilities and making sure the troops don’t rest on their laurels.

David Biernbaum
Guest
14 years 2 months ago

Internet-based, interactive, collaborative communication dictates an obvious direction for the consumer goods industry to fully utilize a virtualized process that starts with the consumer. In terms of P&G taking the leadership, I’m admittedly skeptical that they will have the entire industry in mind, but nonetheless it’s a good initiative.

Michael L. Howatt
Guest
Michael L. Howatt
14 years 2 months ago

Adding Web 2.0 information is good to have as part of any new product or initiate’s introduction. Any company can adopt this process, but P&G has a leg up because of superior implementation capabilities; an ability others don’t have to that degree. However, a 50% success rate seems unlikely.

There will be a point of diminishing returns where their customers will feel that only P&G products and ideas are being helped, and the retailers’ focus is on the category, not brand. When it looks like a P&G takeover, they will push back.

Mark Lilien
Guest
14 years 2 months ago

P&G’s innovation success stems from their no-baloney attitude towards new ideas. Many businesses want new ideas only from the boss, not contractors, ad agencies, outsourcers, customers, or suppliers. And many CPG brands define “innovation” with the lowest bar imaginable: a “new” product is one with a new label or slightly different size package.

Real innovation means a whole new category. Swiffer brought a whole new category. Post-it Notes brought a whole new category. Those ideas aren’t just a new label or a new scent or a new size for a 40 year old product.

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