Procter & Gamble's Lean Innovation Makeover | Cold Call

0:01HBR Presents.

0:09Kathy Fish:Always Ariel Bounty, Charmin Crest, Don Downey, Fairy Febreze, Gain Gillette, Head & Shoulders, Olay, Oral-B, Pampers, Pantene, SK2, Tide, and Vicks. What is this, you might ask? This is a list of the brands in the Procter & Gamble family that generated over a billion dollars in revenue in 2019. They are the superstars of a portfolio that includes 66 active brands in the home goods and personal hygiene categories. Founded by brothers-in-law David Procter & William Gamble in 1837, P &G has been a dominant force in consumer brands since landing its first contract to provide soap and candles to the Union forces in the Civil War.

0:51Kathy Fish:Along the way, they shaped the fields of consumer marketing and brand building through advertising and mass media. Simply put, P &G is the firm to beat, and that's what worries them. Today on Cold Call, we welcome Professor Emily Truelove to discuss her case entitled, Kathy Fish at Procter & Gamble, Navigating Industry Disruption by Disrupting from Within. I'm your host, Brian Kenney, and you're listening to Cold Call on the HBR Presents Network. Emily Truelove studies the changing nature of work inside established organizations, experiencing the digital transformation of their industries, a very timely topic.

1:27Kathy Fish:Emily, thanks for joining me today. Thanks so much for having me, Brian. It's great to have you here. You and I are in the studio together in Klarman Hall. I don't get to say that very often. It's been a long time since we've been able to be in the studio together, but I see this as clear signs of progress of a post-pandemic world. Very exciting. Very exciting. And we are fully protected and socially distanced and all those other caveats. This is a great case to talk about. P &G has reached into our homes and our hearts and our wallets so much. So I think people will really like to hear about this mature, established firm that is still sweating the details and trying to find ways to innovate and remain competitive in their space.

2:04Kathy Fish:Let me ask you to start just by telling us how you would start this class. What's the cold call? I opened the class with the question, why is it so hard for P &G to innovate? And I point out to students that they have this incredible R &D budget. As you've pointed out, Brian, there's this massive track record of success in terms of breakthrough innovations and defining whole new categories. And yet, as we see in the case, when Kathy Fish is entering her role, there are really big challenges related to innovation, particularly breakthrough innovations. And what I find is that students pretty quickly can generate a long list, right?

2:40So there are cultural factors. People are afraid of taking risks. There are issues related to systems and processes like funding and performance management and how these don't necessarily incentivize breakthrough innovation. And students also often point out shifting competition. There are new direct-to-consumer competitors that are much savvier with digital technologies. What we quickly see in discussing this case is that there's a long list of issues that they interrelate with one another. And it's really hard to figure out what is the root cause of why innovation is tough for P &G today. And I think that's a great way to open for students because that's often the place that leaders find themselves in.

3:18Kathy Fish, the case protagonist, said to us, everybody was convinced that the innovation machine was broken at P &G, but it was not so clear what the real problem was or how to fix it. And I think that's a common challenge leaders face.

3:30Kathy Fish:Yeah, and I'll bet people who are listening to the show today who work in large organizations probably bump up against this a lot, this feeling that we're stuck in our ways and we can't change. And so the case really dives into that. So I'm looking forward to talking about some of those issues that surface in the case. I mentioned in introducing you that you study organizational behavior and organizations that are going through transformations. And that's a very sort of a buzzword we hear these days, the digital transformation. I'm wondering, how did you choose this case to write about? And how does it relate to the kinds of things that you think about as a scholar?

4:01I was immediately attracted to the opportunity to write a case at P &G, particularly after meeting Kathy Fish. And we'll go much more into her background, I know, later in the podcast. But to the extent that this is this iconic American company over 100 years of history, this incredible history of innovation, and yet they were finding themselves in a position where historic strengths were actually liabilities. was very fascinating to me and I think is completely common for incumbent firms to experience when their industry is being transformed, particularly by digital technologies. And so my interest in understanding how leaders can lead change in this situation and also how work changes for employees on the ground in terms of new mindsets they need, new capabilities they need.

4:43The minute I learned about this case opportunity, I knew I wanted to go to Cincinnati and visit to understand what was happening and to capture because I think there's a lot to learn.

4:52Kathy Fish:There sure is. And a lot of those issues surface in the case. Maybe you can just start for people who aren't familiar with P &G. I had some fun with that intro. I just barely scratched the surface of their product portfolio. Tell us a little bit about P &G and their history of innovation. You covered a lot of the big brands. And I think one of the incredible things about P &G is that there's just a parade of brand names that you can cycle through when talking about the innovations of this company. It's quite a formidable history. And as people have pointed out when I've taught this case, students who are, you know, 50 years old in executive education will say, oh, my grandmother used this brand.

5:27I remember when I was young. And so just the history of the company is really pretty incredible. I think, though, one of the challenges for P &G, particularly what we capture when the case opens, is just this shifting environment. And again, as I said earlier, how these strengths were becoming liabilities. P &G has this massive R &D budget. It has this incredible scale. It's clearly excelled at mass media advertising and has these incredible relationships with retailers like Target and Walmart. And internally, the innovation processes were actually quite slow, which was OK back in the day, but not so much anymore.

6:03So the processes were very much about, OK, R &D is going to cook something in the lab. That's their language. We're going to cook this idea in the lab. Maybe we'll rely on consumer focus groups, but pretty much it's us in our lab. And then we're going to hand something over a couple of years later to people in marketing who are going to hand it over to sales. And you can get this impression of it's very sequential. It's very siloed. And it's really quite slow, which again, was OK back in the day. What they started to really struggle with, though, is that the industry was changing much faster. They were facing newer competitors where that approach to innovation simply couldn't cut it.

6:37Kathy Fish:So who are those competitors? Who are they worried about? One of the interesting things happening in this industry is that really the notion of value starts to shift pretty much at the time of when we're starting the case. And it shifts from a focus on competing on products to competing on experiences. And I think giving an example from the razor business, which is one that P &G gave us when we were writing the case, helps to really crystallize this. For many decades, P &G had dominated in the razor business by having basically a technically superior razor. And they would change it in incremental ways, but it basically worked and people would buy it again and again.

7:11That business was really rocked by Dollar Shave Club, one of these direct-to-consumer companies that came on the scene and ultimately, I think in 2016, was purchased by Unilever, one of P &G's competitors, for a billion dollars. What was interesting about what Dollar Shave Club did, though, is that they had this subscription model where they said one of the big pain points of Razors is that you run out and you have to run to the store then at night or in the morning when you don't want to have to. And so we're going to have a subscription model such that the purchase experience is really frictionless.

7:40And we're going to collect data on people so that we can give them personalized products. So you have kind of pre-shave and aftershave products related to your razor, which is also customized for you. They were also really great at using social media to advertise their brand, again, to collect more data from consumers. And so fundamentally, P &G had this industry where they had really kind of dominated, and yet they're facing this competitor that's playing a different game. Again, they're competing more on the experience. And that is broadly the big shift that P &G was grappling with when we were writing the case.

8:12Competitors being these direct-to-consumer companies, which were much smaller, much more focused, very agile, very adept at using social media, adept at doing small batches, at creating holistic experiences, etc. And that marked a huge change because historically P &G was really competing with other big CPG companies like themselves. So this was a whole new game for them.

8:35Kathy Fish:Yeah. And we've done a couple of episodes on direct-to-consumer companies. They are a very interesting phenomenon that we're seeing quite a bit more of these days. The protagonist in the case you mentioned before is Kathy Fish. Tell us a little bit about Kathy. What's her background and what is she being asked to do here? Kathy Fish joined Procter & Gamble way back in 1979. And she joined as a chemical engineer and made her way through the ranks, basically over the course of four decades. She visited one of our executive education classes here at HBS and mentioned that she almost came to HBS, but decided not to.

9:09She was going to stay in R &D, but keep a business focus as much as she could. And she really rose up the ranks working in many of the different business units, which are category-based at P &G. And ultimately, she made it into the role in 2014 of being chief technology officer at the company. And her final role then, which we see in the cases in 2017, she becomes the chief research development and innovation officer at P &G.

9:36Kathy Fish:Okay. Well, I guess she did all right, even though she didn't come to HBS. She did okay. So tell us a little bit about the company itself. You mentioned its size. I mean, how big is it? And what's it like to be part of the P &G community? What's the culture like? P &G has something like 100 ,000 employees. It's a relatively large organization. It's Cincinnati based. Some people come and go, but many stay for years, as Kathy and many of her peers on the leadership team had. And in a lot of ways, it's quite a healthy culture. People have a lot of pride in all these amazing brands they've produced and intended over time.

10:08I do think, though, when it came to fostering a culture of innovation, there were some challenges that P &G was facing. One of these was just a basic fear of failure. And this is something that came up again and again from people inside the company we talked to. This largely sprang from the fact that the people who would get promoted were typically those who were really great at execution and operating. And therefore, it was really scary to be somebody who was trying out something really new. And if you can picture that there is this very heavyweight approach to innovation, if that's your process where you have many years riding behind a product launched, millions and millions of dollars, it's very scary if you fail and it's very public.

10:47And so there was kind of a general sense of, I don't want to fail, which was a huge impediment to innovation at the company. A couple other things that I think are relevant to the case. Around the time of the recession, they struggled financially and also had an activist investor. And so there were a number of things happening in the environment for P &G that created quite a short-term focus. And people became really heads down, therefore not so much thinking about the future and where are our categories heading, what are new categories we could be inventing. The final thing I'll mention about the culture of P &G that I think is relevant for this case is that it's very much a decentralized organization where power is with the BU leaderships.

11:26And there's a number of different BUs based on categories there. Even business units there. Business units, yes. Fabricare, haircare, feminincare. And as a result, Kathy Fish being in this very senior role, she was actually the most senior woman at Procter & Gamble. But even as somebody on the leadership team, she was not in a position to really tell BU leaders what to do, which is an important piece of this case.

11:47Kathy Fish:And probably similar to the experience that a lot of people have had if they've worked in large companies. There are these solitary business units, and they've got presidents in charge of them and kind of run those in a siloed fashion. So I think we see that play out a lot. Absolutely. And presents huge challenges in terms of how you break those silos down and get them thinking about an enterprise-wide solution to something. Yeah. Kathy has this notion of irresistible superiority, which I just like the sound of that. Why do you laugh? What does that mean? Kathy developed this notion of irresistible superiority.

12:18And what it means is creating a product experience that is so good. People find it so good that they find it really difficult to switch to a competitor. And she talks about how this is not just about, again, having a technically superior product. It's really about the whole experience. The packaging, the purchase experience, the marketing, how all of these things integrate together. And Kathy developed the notion early on into her role as the chief technology officer where she wanted to figure out what is behind our billion-dollar brands. What are these brands doing where people have found them to be irresistibly superior?

12:56That's where she was kind of looking at these factors of it's not just the product. It's this emotional connection. and she strove to figure out how can we actually make sure that maybe not all of our innovations, but that most of our innovations are brought up to that bar.

13:09Kathy Fish:And that probably makes them think very differently about their process from concept to delivery of a product. I mean, how does that affect the way that they come at their science and their packaging and all those other things? Exactly. Once Cathy started socializing this idea with others on the senior team, everyone was like, great, we would love to do irresistibly superior innovations and products. But people also quickly realized we're not really set up to do this because to the extent that a huge piece of it is having this holistic, personalized experience, that's not something we're going to do when we have people inside the organization working in silos and when we have them working in a slow way that's behind the times.

13:47And particularly, we're not going to have it by cooking things in a lab. We actually need to have much more engagement with consumers and adapt our products accordingly.

13:55Kathy Fish:So this concept of GrowthWorks then is one of the central themes in the case. What is GrowthWorks and how did they start to operationalize that within the firm itself? The big philosophy behind it, or I should say the underlying philosophy, is one quite similar to Lean Innovation or Lean Startup. And the basic idea with Lean is you want constant, rapid, cheap experimentation. And you want to make sure that people are kind of falling in love with problems as opposed to solutions. That's something that the philosophy talks about, having people constantly test their assumptions, transact with real customers, having a metered approach to funding where you're not putting huge amounts of money behind something before you know if it's going to work, but distributing it over time.

14:38And so the general idea is we want experimentation to be happening all the time and for it to be de-risked and for it to be something that the culture embraces. Therefore, it's clear to see why this would be appealing to the leadership of P &G. This is kind of where they need it to go. However, as I also mentioned, Kathy was coming from a place where she couldn't mandate that those in the business unit start working in a new way, given the nature of her position. The idea with GrowthWorks was we're going to try to create this enabling capability where we help people to work in a new way, but they can basically volunteer to take part in it or not.

15:12We're not going to force it on them. And so from the get-go, Kathy, I should say she worked very closely with the CMO of P &G, Mark Pritchard. And from the start, they had this idea of we want GrowthWorks to be business unit led but corporately supported. They developed an 18-person team of volunteers from across the company who said, OK, we're going to try to help people in the business unit start working in these new ways. And to your question of how they really operationalized it, what did this look like on the ground? One of the cornerstones was to have multifunctional teams that were very small and that were completely dedicated to a particular problem.

15:49These were limited to three people. They called the members of these teams founders. They would stick themselves on a particular problem that they knew consumers wanted to have solved, and they would run experiments and really just completely own this space. So the multifunctional dedicated teams was a really important piece and was quite different from how people had actually been working before. Another piece of it was to have growth boards. So within each of the business units, basically have a set of leaders from the business unit who would help to coach these teams along, who would give them funding in this metered way.

16:23And then throughout, there were a lot of different sponsors in the organization, including the CEO, David Taylor, who was very supportive throughout.

16:29Kathy Fish:So it all sounds really good. It all sounds really scary. And I'm wondering a couple of things. One is, like, how committed was the organization really to this? It's great that the CEO is putting, you know, a shoulder behind it. But how does the CFO feel about it? And are they creating the space that these teams would need to actually achieve something? And at the same time, who within the organization would have the nerve, I guess, to take this risk in a risk-averse culture and say, yeah, I'm going to be one of these founders and I'm going to try and make this thing happen at the risk potentially of losing whatever stature I might have had within the firm to begin with.

17:08Right. A couple answers to that. One thing is in the summer of 2016, so right around when GrowthWorks was launched, the CEO had taken the senior team on an innovation tourism trip to Silicon Valley. And so those in the senior team had actually gotten really energized around the idea of, OK, we can really work in these much leaner ways and it's going to really improve our innovation capability. And so I do think the groundwork in some ways had been laid for people to understand there is a case for change here. The other thing is, it's true. It was a big risk to ask people to take on these new ways of working.

17:43And indeed, along the way, as GrowthWorks started launching pilots, they started to learn some of the challenges that were arising that they hadn't even anticipated. So I can give you a couple examples of it because I think that the way that the GrowthWorks team handled these challenges is really pretty interesting. Even among people who are pretty excited about, OK, I'd like to be one of these founders. I'd like to do this newer kind of work. I'd like to work in a new way. They struggled because they were concerned about their careers. I think to the point you were making, Brian, this seemed like a risk.

18:14Why would you want to be on one of these teams when this has been a place where innovation is kind of seen as a risky area? One of the things that the GrowthWorks team did was say, OK, look, why don't we start a whole new career track where it's going to be just as prestigious as other ones, except you're going to have a different set of metrics that you're dealing with. So, for example, instead of rewarding you on short-term performance, we're actually going to measure how much have you learned by conducting an experiment. And if you've learned a lot, even if it failed, we're going to see that as positive performance.

18:42Like all these different problems kept coming up as they were trying to actually have teams pilot this new way of working, and they would try to throw solutions at those problems. Another one that came up is even after people's career concerns were somewhat assuaged, they realized that people down below in the organization were pretty much loving working in new ways. And yet the leadership of business units actually didn't really have the, even if they had the willingness, they didn't necessarily have the capability to coach these teams. One of the things that they did was bring in a consulting firm called Bionic to really coach business leaders and get them into a place where they could actually serve as helpful sponsors for projects.

19:20Kathy Fish:The idea of killing projects surfaces here. And we know that people who create projects get vested in them and they feel passionate about them. And it's hard to kill something. But it was pretty important to the overall success of what P &G was trying to do. Absolutely. So a lot of talk there during our visits about the importance of killing projects. And historically, that was just something that wasn't done. Again, part of this because there's a sense of, well, it's going to be horrible for this person's career if we kill this project. And what they came to realize over time is, first of all, if you don't kill projects, you have a problem in that you're spending your money and your time and attention in places where they could be much better spent elsewhere, making progress on something.

20:02And again, the other thing is what kind of culture does it create? It creates one where a project that is killed is seen as this career-ending thing. And so part of the idea with GrowthWorks, with this whole notion of we need to embrace experimentation and do it rapidly and do it cheaply, is we're going to de-risk this enough that if something is killed, it's not a big deal. You just move on to the next thing. I think another piece that was really interesting is they very much emphasized we want these founder teams to fall in love with problems, not solutions, such that if your particular solution you develop to a problem doesn't work, you just go back to that problem that you think is great and try to develop another solution.