Procter & Gamble’s Lean Innovation Transformation

BRIAN KENNY: Always, Ariel, Bounty, Charmin, Crest, Dawn, Downy, Fairy, Febreeze, Gain, Gillette, Head & Shoulders, Olay, Oral-B, Pampers, Pantene, SK-II, Tide and Vicks. What is this, you might ask? This is a list of the brands in the Procter and 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 and 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. 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 Proctor & Gamble, Navigating Industry Disruption By Disrupting From Within.” I’m your host, Brian Kenny, 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. Emily, thanks for joining me today.

EMILY TRUELOVE: Thanks so much for having me, Brian.

BRIAN KENNY: 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.

EMILY TRUELOVE: Very exciting.

BRIAN KENNY: 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. 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. Let me ask you to start just by telling us how you would start this class, what’s the cold call?

EMILY TRUELOVE: I open 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 and 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. So 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. And so 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. Kathy Fish, the case protagonist, she 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.

BRIAN KENNY: 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 buzz word 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?

EMILY TRUELOVE: I 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 a hundred 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. The 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.

BRIAN KENNY: Yeah, 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.

EMILY TRUELOVE: 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.

BRIAN KENNY: It’s crazy.

EMILY TRUELOVE: 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 50 years old in executive education will say, “Oh, my grandmother used this brand. I 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 the shifting environment. And again, as I said earlier, how these strengths were becoming liabilities. P&G has this massive R and 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 okay back in the day, but not so much anymore. So the processes were very much about, “Okay, R and 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 okay 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.

BRIAN KENNY: So who are those competitors? Who are they worried about?

EMILY TRUELOVE: 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. So 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. And that 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, and 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. Competitors being these direct to consumer companies, which were much smaller, much more focused, very agile, very adept at using social media adept to doing small batches, at creating holistic experiences, et cetera. 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.

BRIAN KENNY: Yeah. We’ve done a couple of episodes on direct to consumer companies. They are in sort of 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?

EMILY TRUELOVE: Kathy Fish joined Proctor and 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 last week and mentioned that she almost came to HBS, but decided not to. She was going to stay in R and 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. 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 case in 2017, she becomes the Chief Research Development and Innovation Officer at P&G.

BRIAN KENNY: Okay. Well, I guess she did all right, even though she didn’t come to HBS.

EMILY TRUELOVE: She did okay.

BRIAN KENNY: 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?

EMILY TRUELOVE: P&G has something like a hundred thousand 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 and people have a lot of pride in all of these amazing brands they’ve produced and tended over time. I 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, and this largely sprang from the fact that the people who would get promoted were typically those who are really great at execution and operating. Therefore it was really scary to be somebody who is 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 launch, millions and millions of dollars, it’s very scary if you fail and it’s very public. And 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. And there’s a number of different BUs based on categories-

BRIAN KENNY: Business units there.

EMILY TRUELOVE: Business units, yes, Fabric care, haircare, feminine care. And as a result, Kathy Fish being in this very senior role, she was actually the most senior woman at Procter and 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.

BRIAN KENNY: 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 they kind of run those in a siloed fashion. So I think we see that play out a lot. Interesting. And presents huge challenges in terms of how you break those silos down and get them thinking about an enterprise wide solution to something. So, Kathy has this notion of “irresistible superiority,” which I just like the sound of that.

EMILY TRUELOVE: Why do you laugh?

BRIAN KENNY: What does that mean? What does that mean?

EMILY TRUELOVE: So, Kathy developed this notion of “irresistible superiority” and 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. Like what are these brands doing where people have found them to be irresistibly superior? And that’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.

BRIAN KENNY: And that probably makes them think very differently about their process from concept to delivery of a product. How does that affect the way that they come at their science and their packaging and all those other things?

EMILY TRUELOVE: Yeah, exactly. So once Kathy 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. And in 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.

BRIAN KENNY: So this concept of GrowthWorks then is one of the central themes in the case. Can you talk like, what is growth works and how did they start to operationalize that within the firm itself?

EMILY TRUELOVE: 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 if it’s going to work, but distributing it over time. And 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 needed to go. However, as I also mentioned, Kathy was coming from a place where she couldn’t mandate that those in the business units start working in a new way, given the nature of her position. So the idea with growth works 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. We’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. And they developed an 18-person team of volunteers from across the company who said, “Okay, we’re going to try to help people in the business units 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. So these were limited to three people. They called the members of these teams, founders. They would sic 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 team 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. And then throughout, there were a lot of different sponsors in the organization, including the CEO, David Taylor, who was very supportive throughout.

BRIAN KENNY: It all sounds really good. It all sounds really scary. And I’m wondering a couple of things. One is, how committed was the organization really to this it’s great that the CEO is putting 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 sort of 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’ve had within the firm to begin with.”

EMILY TRUELOVE: Right. A couple answers to that. One thing is in the summer of 2016, right around when GrowthWorks was launched, the CEO had taken the senior team on an innovation tourism trip to Silicon Valley. Those in the senior team had actually gotten really energized around the idea of, “Okay, 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. And 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 of examples of it, because I think that the way that the GrowthWorks team handled these challenges is really pretty interesting. So to give an example, even among people who were pretty excited about, “Okay, 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. Why 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, “Okay, 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.” And so like 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. So, one of the things that they did was bring in a consulting firm called Bionic, who they helped to use to really coach business leaders and get them into a place where they could actually serve as helpful sponsors for projects.

BRIAN KENNY: 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.

EMILY TRUELOVE: 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. And 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 developed to a problem doesn’t work, you just go back to that problem that you think is great and try to develop another solution. And so it very much helped with this issue of killing projects and making it feel… Of course, the idea isn’t that you want to be killing projects, you want them to be successful. But the idea is let’s try to actually normalize having projects not work out and just quickly move on to the next one.

BRIAN KENNY: So it’s not the project, it’s the problem that you’re really focused on.

EMILY TRUELOVE: Yeah, trying to keep people focused on the problem not their solutions. Yeah.

BRIAN KENNY: So what were some of the pilots that came out of this? Describe a couple of them.

EMILY TRUELOVE: In terms of some of the projects that came out of growth works, it’s interesting because some were, quite low tech and others were quite high tech. In terms of a low tech one, there was a team that did something called forever roll, where they developed a roll of toilet paper that was so big that you basically never needed to buy another one, or you didn’t have to buy one very frequently, which it’s interesting because this was happening pretty much in the months before the pandemic started. It turns out that’s actually a useful innovation. So that’s one kind of thing that came out of this. And again, from really looking at consumer insights. Some really interesting other higher tech products, too, there are some skincare products that use AI technology. You can take a selfie of yourself and get your skin age in case you want to know that I think there’s questions about it, people want to know that, but you got your skin age and it customizes for you, here’s different products you might use. You can imagine their social media integrations with this, product recommendations. A real robust set of projects came out of this and pretty quickly there were 130 different projects in the GrowthWorks portfolio. And these are across a range of business units and they were at different stages of development, some in validation, some were actually incubating in testing in the market.

BRIAN KENNY: The case talks about some key questions that business unit leaders need to be asking or thinking about when they’re looking at these opportunities. Can you describe what those are?

EMILY TRUELOVE: Yeah. So in concert with Bionic those on the GrowthWorks team, were really working towards coaching leaders. How can we actually help them to really coach these teams with their innovations? And there were four questions that they were really instructed to ask. So the first is, what did you learn in conducting an experiment? Second of all, how do you know? Third, what do you need to learn next? And finally, how can I help? And I think what’s really interesting about these questions is shifting it from a performance focus to much more of a learning and development focus, and very much positioning the leaders in a place not of, “I’m going to tell you what to do because I’m not the one who’s talking to consumers and who’s actually running the experiments, but I’m just going to figure out how can I enable you to actually get this work done.”

BRIAN KENNY: Yeah. And I think those questions actually could be used in a much broader way. I think managers just generally speaking, those are great questions to ask anybody who’s working on any kind of a project.

EMILY TRUELOVE: Absolutely. And I think one of the things that was really smart about how P&G utilized outside consulting help is that they very much had an approach of, “We want you to help us to build the capability internally.” So things like, what are the questions we need to ask, as opposed to just tell us what to do.” I think went a long way and helped to really embed this into the organization in a real way.

BRIAN KENNY:  And the case also describes as these pilots are moving to different phases, the teams start to encounter things that they probably had never had to think about before. And I saw this a little bit as an ode to central services everywhere because I think in a lot of places where you’ve got either scientists or you’ve got sort of thought leaders who are focusing on the solution, and then you’ve got other teams that are stepping in to support in different ways, that realization became really clear to these folks. Can you just describe that a little bit, too?

EMILY TRUELOVE: As teams started to move into the incubate phase, this is when they’re transacting with real customers, there were a whole new host of challenges that they encountered. So one of them is that P&G, I think we have a quote like this in the case, it is good at doing say 50,000 units of something and can do five units, but 5,000 is really tough. So one of the things they struggled with is, even if we now have the product, we have the experience, figuring out things like new supply chains, new ways of dealing with transactional marketing. This was very new for them. And interestingly at P&G, because it’s this massive company, for a lot of employees inside they just weren’t used to having to do a lot of little pieces of essentially starting up a business, which is what they were doing. And so many teams became very overwhelmed with, gosh, there’s so much stuff we took for granted. We now have to do. One of the things that the GrowthWorks team did that I think was very smart is they developed this centralized capability called The Garage. And the idea of The Garage was it’s this one-stop shop for capabilities that teams are going to use, regardless of which kind of business unit they’re in. Again, things like leaner supply chain, new ways of doing marketing. And Kathy Fish and Mark Pritchard funded this with their own budgets. And they said, “We’re going to pay for this capability. And if you’re running these experiments and you run into roadblocks, come to us, we’ll send over XYZ talent that you need or whatever capabilities. And if you really like it, you can keep those people. If you try it and like it, you can buy it.

BRIAN KENNY: This has been awesome conversation. I have two more questions for you before we wrap it up, the first would be, now that they’ve created this movement, people are getting excited about it. It’s a huge firm with a long history. How do you embed this in some ways? And how does this become the way that Proctor and Gamble operates on a going forward basis?

EMILY TRUELOVE: Kathy convinced the CEO and then the board of directors, to have innovation metrics really put on the scorecards of the business unit leaders in a way that they had never been before. And what’s really interesting about what they did is they didn’t just add innovation metrics that were more medium and long term. They also added a set of more qualitative questions that Kathy said really yielded completely different conversations with these leaders. So some of the questions were things like, how are you doing on irresistible superiority? Were you worried you might be disrupted? What experiments are you running against those areas? And how do you think about yourself as a leader of innovation? In what ways do you need to improve? What are your strengths? And it really just kind of shifted their focus into a very different space. Clearly they’re still very focused on the short-term objectives that they need to meet as they should be, but this really kind of complemented their evaluation in a way that really has them thinking much more broadly and much more aligned with doing disruptive innovation.

BRIAN KENNY: Yeah. It makes great sense. So Emily, I guess my last question then would be, as you know, as our listeners are sort of taking all this in, what’s one thing that you would really like to have them take away from the case?

EMILY TRUELOVE: I think something really important to take away is this basic approach to leading change, and even just to leadership that Kathy Fish exhibited and her team too I should say, because she really was working with a team. But it’s very much this approach of, as a leader, my job is to enable others to do great work. And I think whether it is in this constant, “Okay, here’s a problem that comes up, how can I remove that barrier from someone that we see throughout the case?” Or even Kathy’s general approach of, “I’m not going to force people to do something, I’m going to try to actually pull them in this direction as opposed to push them.”

BRIAN KENNY: It’s a great case, Emily, thank you for joining us to discuss it.

EMILY TRUELOVE: Thank you.

BRIAN KENNY: If you enjoy Cold Call, you should check out our other podcast from Harvard Business School, including After Hours, Skydeck, and Managing the Future of Work. Find them on Apple Podcasts or wherever you listen. Thanks again for joining us. I’m your host, Brian Kenny, and you’ve been listening to Cold Call, an official podcast of Harvard Business School, brought to you by the HBR Presents network.