5.8 Conclusion
Innovation is a cultural phenomenon. According to P&G's A.G. Laffley, companies must make the "consumer the boss." Laffley explained,
The people who buy and use P&G products are valued not just for their money, but as a rich source of information and direction. If we can develop better ways of learning from them—by listening to them, observing them in their daily lives, and even living with them—then our mission is more likely to succeed. "The consumer is boss" became far more than a slogan to us. It was a clear, simple, and inclusive cultural priority.
When innovation becomes a cultural priority, it is easier to follow McKinsey & Co.'s Kenichi Ohmae's advice: "First comes the willingness to rethink, fundamentally, what products are and; what they do." Deep customer insight will help you envision how your product solves customers' problems. A collaborative end-to-end NPD process will then help you translate great ideas into profitable new products. By making innovation a cultural priority, an entrepreneurial edge emerges, driving a virtuous cycle of satisfaction—and success. New products become the lifeblood of your company.
Entrepreneurial spirit is not the exclusive domain of small companies. Even large companies must cultivate an entrepreneurial spirit. When this spirit is lost, companies move toward maturity. Decline can quickly follow. Consider Rubbermaid. Rubbermaid was Fortune Magazine's most admired company in the world in 1994 and 1995. In 1999, Newell Corporation acquired Rubbermaid. What had happened? According to then CEO Wolfgang Schmitt, Rubbermaid had lost its "entrepreneurial edge."2
How do you assess entrepreneurial edge? One approach is to measure where your best product ideas come from. AG Laffley, CEO of Procter & Gamble, made this a core metric in his quest to create an innovation culture. To shift P&G's culture, he set a key goal and he issued a vital challenge.
The Goal: Laffley "set a goal to get half of our innovation from outside."
The Challenge: Laffley asked the entire P&G team why almost all of P&G's new product ideas came from an 8,000 person R&D staff when 100,000 people worked for P&G. Laffley explained,
At least 85 percent of the people in our organization thought they weren't working on innovation. . . . We had to redefine our social system to get everybody into the innovation game. . . . Today, all P&G employees are expected to understand the role they play in innovation. Even when you're operating, you're always innovating—you're making the cycles shorter, or developing new commercial ideas, or working on new business models.
How would you evaluate the following results?
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The commercialization success rate jumped from 20% to over 50%—even as R&D spending decreased by 40%.
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The business development group receives and reviews over 1,500 external ideas each year.
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P&G obtains 42% of new product ideas externally—with 40% coming from outside the U.S.
Has P&G maintained its entrepreneurial edge?