 Chances are that a Procter & Gamble (P&G) product will cross the path of a consumer in the United States or any of 140 countries worldwide at least once throughout the course of an average day. The Cincinnati, Ohio-based consumer and household products giant manufactures 300 brands, including Tide detergent, Crest toothpaste, Pampers diapers, Cover Girl cosmetics, and Pringles potato chips. In order to stay at the forefront of the consumer products industry, "P&G is challenging managers in all categories to step up the innovation quotient" (Bittar, 2000). The Procter & Gamble Company In 1837, candle maker William Procter joined forces with soap maker James Gamble to form The Procter & Gamble Company, known these days simply as "P&G." Within 22 years, the company saw sales of $1 million, and its first brand—Ivory soap—was introduced 20 years later ("85 years," 1999). Throughout its 163-year history, P&G has been known for its leadership in developing and marketing innovative brands and products to satisfy consumer needs. P&G saw a changing of the guard in
early 1999, when president and chief operating officer Durk Jager succeeded
John Pepper as president and chief executive of the company. Pepper
commented on Jager's ability to lead P&G into the future, saying that
"he is an outstanding strategic thinker and a passionate advocate for greater
innovation and speed" ("P&G Pursues Greatest Growth," 1998).
In September, Pepper relinquished his position as chairman of the board
to Jager as well.
Organization 2005 Four years ago, in 1996, Procter & Gamble stated a lofty goal of doubling its $35 billion to $70 billion within in a decade ("The Procter & Gamble Company," 2000). In order to achieve this sales goal, the company must realize consistent annual growth rates of roughly 7 percent. "We know the key is faster, bigger innovation in every part of our business," says Jager (Tomkins, 1998). His strategy: a massive reorganization of P&G's operations called Organization 2005, hitting everything from restructuring for increased globalization to changing the corporate culture of the old economy company. Until the beginning of the restructuring program, P&G divided its operations into four geographical regions: North America; Europe, Middle East, and Africa; Asia; and Latin America. Under Organization 2005, the company has re-divided its business to shift responsibility for making profits to brands, rather than geographic regions. A focus of the restructuring program is to design new product introductions for global reach, rather than simply sticking to one region. The program consists of five major transitions:
("Organization 2005," 1999)
In a strategic sense, innovation comes from a company's dedication to research and development of new products and "pioneers," or products and businesses that represent new growth and value potential for the company's portfolio (Kim & Mauborgne, 1998). Procter & Gamble is a leader in R&D investments, with $1.5 billion spent in 1998. The company, which holds nearly 25,000 patents and adds to that total each year, announced that "it is prepared to give away or license any of its 25,000 patents, including those used in established brands" ("Business: Jager's Gamble," 1999). Recently, P&G donated 100 patents to Western Michigan University's Paper Technology Foundation, Inc., citing that the company has "more innovative technologies than [it] can develop" ("P&G Donates Rights," 2000). P&G's capacity for research and development is impressive: 7,500 scientists, including1,250 Ph.D.s, working in 22 world-class research facilities across the globe ("Product Innovation," 1999). The company prides itself on its ability to apply knowledge about consumers and technologies across product categories. For example, the merging of P&G knowledge from various product areas was evident in a recent market test of Olay Daily Facials, the new facial cleansing and moisturizing cloth from the Oil of Olay brand. Daily Facials brought research from paper, laundry, beauty care, and even the food division of P&G, using information from the development of the Olestra fat substitute for the cloth's moisturizer (Nelson, 2000). Industry analysts and executives within P&G cite moving beyond incremental improvements to existing brands and developing truly innovative new brands as one of the issues the company must address in the future. This may serve as a problem for P&G's top managers, who "are trained to squeeze the last drop of sales out of existing products, not back risky new ones" ("Business: Jager's Gamble," 1999). CEO Durk Jager has his work cut out for him in changing the conservative P&G culture to allow for out-of-the-box (or in this case, brand) thinking. Jager conceded that the company's last major category invention happened in the 1980's, and that since then, true innovation came second to taking core brands into global markets (Edgecliffe-Johnson, 1999). P&G's History of 'Firsts'
P&G's focus with Organization 2005 is to get "more innovations in the pipeline than ever before" (Bittar, 2000) and take them to consumers with greater speed and wider global reach. The program may prove successful, if recent product introductions are any indication. Four of P&G's latest product developments have used P&G's research expertise to satisfy new consumer needs in the fabric care, cleaning, and food areas.
Making a calculated effort toward innovation
and globalization may prove to be quite a task, even for the likes of Procter
& Gamble. After announcing in March that earnings growth would
fall short of the 6-8 percent required to double sales to $70 billion by
2005, the company saw its stock plummet 31 percent in one day. Will
Durk Jager be able to recapture industry confidence through the bold move
toward innovative new products and categories and greater speed in taking
those products to global markets? With that left to be seen, P&G's
future will prove very interesting.
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