Case Analysis:

Procter & Gamble in 2004 - Managing Product Innovation

The case is about how P&G managed the product innovation and what strategies did Mr.
Lafley - the new CEO of P&G Implemented.

In the summer of Year 2000 when Alan Lafley became the CEO of the company, the
company had following problems:

1. Costs had gone up

2. Volumes had been stagnated
3. Profit margins had shrunk on P&G's biggest brands like Pampers, Tide, and Crest.

By the year 2004, situation had significantly improved due to the following strategies of
Lafley:

1. Restructuring of the organization

2. Cut prices on many P&G products
3. Introduced more creativity into the P&G’s innovation process
4. Focus on organic growth

After studying the case and various facts from the case, following are strengths and
weaknesses of the P&G (Before Mr. Alan Lafley took the charge as CEO and accelerated the
growth)

Strengths:

1. Good Brand Name

2. Global footprint
3. Focus on research with good in-house research team
4. Many popular brands and products
5. Thorough product testing
6. Interaction with consumers and taking ideas from them
7. In-depth understanding of consumer behaviour

Weaknesses:

1. Took several years to develop new products

2. Lacked creativity in the innovation process
3. Products were age old
4. In the 1990s, pace of product development at P&G had slowed down
 5. Economist magazine reported that P&G's last real new product innovation had come
way back in 1982 i.e. no new product innovation was taking place
6. Risk averse culture of the company
7. Less focus on developing markets
8. Premium prising (emerging markets perspective)
9. Rule-bound culture (Hurdle in Innovation/Creativity)
10. Highest Marketing overheads

Strategies before and after 2000, comparative analysis:

Before Mr. Lafley After Mr. Lafley

Lagged innovation and creativity
Closed innovation i.e. looking for ideas
within the organization
Followed strategy of producing
technologically superior goods and used
clever marketing to sell them at premium
prises in developed markets
Focussed only on developed markets
First product and then prise to cover product
development and marketing costs i.e. no
input from Marketing team regarding market
and prices
No competition within P&G’s own brands
Centralized approach to brand management
Started supporting innovation and creativity
in the processes
Open-Innovation or co-innovation: Started
looking for ideas or ways to develop new
products outside the organization
Reduced prises
Focussed on emerging markets and realized
these customers in emerging could not afford
to pay premium prices
It changed its approach to R&D – it started
collecting the preferred blend of prise and
features and then work to make the product
within the price limit.
Started encouraging competition within
P&G’s own brands example: Camay and
Ivory
Cross functional team which included
representatives from different functional
areas were involved in the proposal
Competition:

P&G faced competition from focussed (on few segments) players’ such as - Colgate and
Kimberly-Clark and also from companies like Unilever. It also faced competition from
private labels.

Competitive landscape to P&G.

1. Colgate
2. Kimberley Clark
3. Unilver
4. Private Labels

Product Innovation Analysis:

Before Mr. Alan Lafley took the responsibility as the CEO of the P&G:

1. Before Mr. Lafley took over, P&G had rule-bound culture and hence there was no
creativity in the Innovation process.
2. New product success rate was slow
3. Product Innovation was just looked as an internal activity before Mr. Lafley took the
charge.
4. P&G used to look only internally i.e. within P&G for Ideas for new products

After Mr. Alan Lafley took the responsibility as the CEO of the P&G:

1. After Mr. Alan Lafley took over, he attempted to introduce more creativity in the
production innovation process
2. Mr. Lafley started looking outside the organization for ideas to develop new products
(Open-Innovation or Co-Innovation).
3. Mr. Lafley also ensured that existing products also keep in improving and innovating
with the changing consumer preference
4. P&G also took consideration of the different cultures and started taking feedback
from marketing teams regarding developing new products

Conclusion:

Mr. Lafley’s strategy of focussing on core competency and organic growth was right one as it
already had made lot of acquisitions and many products and brands in its portfolio. Thus
important thing was keep innovating the existing products, keep developing new products
based on core competencies and take these existing products to the new developing markets.