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Running head: PROCTER & GAMBLE'S INNOVATION

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Assignment Five: Term Paper

Research Question: How does Procter & Gamble, a company known for having introduced many
popular consumer goods into the market, prioritize innovation in its corporate structure?
Research Topic: Innovation and Structure

Zahin Hasan

Management 610 – Organizational Theory (Section 9024)
November 2, 2014

Turnitin Score: 10% Similarity

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Abstract

Procter & Gamble, founded in 1837, is a worldwide consumer goods company that has been on
the forefront of innovation for many categories of consumer products. Considering this company
has been operating for over 177 years, and has evolved significantly since its inception, how
does Procter & Gamble prioritize innovation within its corporate structure? This paper examines
multiple documents and sources that discuss corporate structure, innovation, the history of
Procter & Gamble, and how the company has addressed innovation during different periods of
the company’s lifetime. In the early days, the company would involve itself with consumer
products and trends, focusing research and development to address consumer concerns. It would
also partner with professionals and academic institutions. As this approach began to work less
and less for the company, it revamped its structure with the Connect + Develop program, which
introduced Open Innovation, a method which invites outsiders to collaborate with companies.
Procter & Gamble's approaches, and changes to its approaches, to innovation prove to be a
driving method for the company's long-lasting success.

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Procter & Gamble's Approach to Innovation
Procter & Gamble (P&G) started as a candle-making company in 1837. From the
company’s humble beginnings, employees quickly discovered innovative methods to evolve their
business. Technologies used to make candles with oils and fats could also be applied to making
soaps, marking the company’s first big innovation and creation of a new consumer product.
Those soaps then lead to the creation of cleaning products and dishwashing products, and the
cycle of innovation has never stopped since (Sakkab, 2007, p. 59).
A History of Innovation
In 1841, the company had filed its first patent, and by 1859, Procter & Gamble was
seeing sales figures exceeding $1,000,000 with a workforce of only 80 employees. The leading
products at the time were lard oil, candles, and soaps. In 1879, finding competition with soaps
imported from Europe, P&G developed its first branded product: Ivory soap. Ivory, unlike its
competitors, was a soap that could float in water, which was a solution to a problem consumers
faced with soap bars sinking to the bottom of wash tubs. Ivory was also the first soap of its kind
to be considered a 2-in-1 soap: it was mild enough to use on the body, but strong enough to
effectively clean clothes and floors.
In 1890, P&G had established its first research and development lab, one of the country’s
first product research labs. In 1901, the company added to its collection of patents with King C.
Gillette’s patent of the KC Gillette Razor, an alternative to the straight razor traditionally used by
men to shave their facial hair. This forged the path for an entirely new category of consumer
products: personal razors. The original design of the KC Gillette Razor would be the foundation
of future razor designs ("Technology", 2013).

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A chemist by the name of Edwin C. Kayser came to P&G in 1907 having developed a
new process called hydrogenation, a method in which liquid oils can be converted into fats. At
the time, lard had been a popular consumer product, but with the innovation of hydrogenation,
P&G were able to produce and patent an edible shortening composed of cottonseed oil mixed
with cottonseed stearin. The product would come to be called Crisco, and would provide
consumers with a healthier, vegetable-only alternative to animal fat that was also more
economical than butter.
Having developed an expertise in soaps and innovating new products and technologies
with detergents, P&G ventured into hair care. In 1934, P&G released its first hair care product,
Drene. Using the same technology used to develop Drene, P&G developed alkyl sulfates as
synthetic detergents, and in the same year, releases Dreft, the predecessor for modern detergents
that could be used to wash clothes and dishes. The lead researcher for the technology behind
Dreft, David Byerly, insisted on further developing the technology, and eventually came with a
new solution/product, Tide, that would prove to be a more efficient cleaner than any other
product on the market. Tide continues to be a leading product in the market today ("Technology",
2013).
The late-1940s and mid-1950s, P&G entered itself into the oral care category of
consumer products. With the assistance of dentist Dr. Robert Huston, who was concerned for the
oral health of his patients, P&G introduced Oral-B, the first soft, flat-trimmed, nylon bristled
toothbrush. This style of toothbrush would prove itself to be the most popular and effective style
of brush. A few years later, after discovering a research team at Indiana University was working
to identify the most effective fluorides, P&G partnered with the team to work on research,
development, and testing. These efforts would lead to the development of Crest toothpaste, the

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first fluoride toothpaste clinically proven to fight cavities and help prevent tooth decay (which, at
the time, was the second most prevalent disease). Fluoride toothpastes would begin emerging
from competitors, proving to be the most effective type of toothpaste.
At this point, P&G had a strong foothold in the soap industry, hair care industry, oral care
industry, personal hygiene industry, food industry, and many more. However, development and
innovation never stopped increasing and expanding. In 1961, P&G worked to take on cloth
diapers by developing the first disposable diaper. After experimenting with test-markets and
improving designs based on feedback, P&G launched the first disposable diaper, Pampers. The
product marked innovation in reducing leaks, messes, and rashes. In that same year, P&G
addressed customer dissatisfaction with existing dandruff shampoos by researching better
solutions, eventually developing Head & Shoulders, the first dandruff shampoo to include
Pyrithione Zinc, which would go on to be a staple ingredient in future successful shampoos.
Procter & Gamble would continue to innovate and introduce new products into the
consumer market, with its most notable products including Pert Plus (the first 2-in-1
shampoo/conditioner), Braun (the first power toothbrush), Febreze (an effective odor eliminator
meant for fabrics), and Swiffer (a popular dust-removing fabric) ("Technology", 2013).
Establishing Best Practices for Innovation
Top companies in today’s economy approach innovation as a strategic means to grow the
top line of their organizations. In a piece for Industrial Management, Alex Diong and David
Choo (2008) identify a few key innovations made by today’s top companies that can also be
found in Procter & Gamble’s business practices, which have evolved since 1837: using
customers as a rich source of ideas, investing in human capabilities, using goals/measurements as
steering tools, and building a knowledge database, and reinventing the business model.

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Many companies invest heavily into market research, often analyzing sales figures,
surveying, and creating focus groups to have a better idea of the wants and needs of the
consumers of their products. Using the many methods of interaction between a company and its
consumers, companies often times come away with innovative new ideas that lead to new
products, which in turn can lead to higher sales. Procter & Gamble exhibited this very practice
through its constant involvement with its customers and responding to a need for a soap that
floats (Ivory), a more convenient razor (Gillette), a healthier shortening for cooking (Crisco) ,
more effective oral hygiene methods (Oral-B brushes and Crest toothpastes), and a stronger
dandruff shampoo (Head & Shoulders).
Companies that have a large research & development presence often invest time into
finding top researchers in a particular field to assist with the development of current and future
consumer products. Practices like this have lead to the creation of entirely new consumer product
categories and industries. For Procter & Gamble, partnering with researchers such as Edward C.
Kayser, Dr. Robert Huston, and David Byerly, entirely new scientific processes and products
were founded (hydrogenation, nylon-bristled brushes, and extra strength detergents,
respectively).
Quantitative data can be a driving force for many companies. Figures and metrics are
used to set standards and measures and allow a company to properly evaluate its strategic and
operational performance over a period of time. After an evaluation of performance, companies
can then reassess and adjust company practices to better reach their goals. In his keynote address
at the 2010 Annual Meeting, P&G’s Chief Technology Officer Bruce Brown expressed the
importance of using goals and measurements as steering tools for the company’s initiatives and
innovations. “For us, it all starts with goals; goals influence every other choice we make. So

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P&G has clear and demanding goals for innovation. Given our growth goals, we must deliver
new incremental sales, largely driven by innovation.” (Brown, 2010). He then went on to discuss
how one of the company’s initiatives, Connect + Develop, had a target goal of incorporating at
least 50% of innovation initiatives externally within 5 years. The company was able to reach that
goal within 4 years.
The innovation process is largely driven by a company’s knowledge database and the
people who contribute to that database. Many companies will fund research groups to help find
solutions to questions and problems the companies face. Funding may come through a research
grant to a private group of scientists/engineers, a partnership with a university in which science
and engineering majors will work on a company’s project as a Capstone Design Project, or
simply hiring Masters and Doctorates in relevant fields. Procter & Gamble’s history has shown
this is an effective strategy with the company’s decision to fund researchers at Indiana University
to work on fluoride solutions, which lead to the creation of Crest toothpaste.
A company as old as Procter & Gamble has surely seen the dynamics of industries
change over time, and as those dynamics changed, so did the business models of many
companies. As companies expanded, organizational structure started taking on new forms,
including horizontal, matrix, and mixed structures. Globalization further changed the dynamic of
business models, with many companies introducing themselves into completely foreign markets.
Procter & Gamble, while being on the forefront of innovation, was seeing increasingly stronger
competition. In early 2000, Procter & Gamble had missed two earnings projections, and at the
senior level, A.G. Lafley had just joined as Chief Executive Officer, and Gil Cloyd had just been
promoted to Chief Technology Officer. After carefully examining the company’s structure, it was
decided Procter & Gamble needed to readdress how it approached innovation (Euchner, 2012).

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Revamping Innovation with Connect + Develop
After missing two earnings projections, P&G experienced a sudden downturn in business
and lost half of its market value overnight, senior level staff examined the causes of the
increasing losses the company was facing (Polat, 2012). The Chief Technology Officer at the
time, Gil Cloyd, discussed this period of time in an interview:
We felt that we were overpriced in several markets, and as we looked at key competitive
challenges we had, we recognized the growing challenge of store brands in developed
geographies and our need to have different approaches to innovation to really capitalize
on the growing markets in the developing world. We recognized that we needed to make
significant changes in our approach to innovation. (Euchner, 2012).
Although Procter & Gamble’s previous approach to innovation had been successful for a long
period of time, it was evident that change would be needed in order to bring the company further
success. This change would come in the form of Procter & Gamble’s Open Innovation plan,
Connect + Develop, or C+D (Polat, 2012).
The Connect + Develop program was a platform in which Procter & Gamble could
crowdsource innovation, meaning the company could put forth problems it wanted to address
and receive input from the worldwide public. Researchers and developers from around the world
were open to submitting ideas and innovations to the company, and if their research could be
protected intellectual property (through means of patenting and similar processes), P&G would
approach the researchers with an innovation partnership.
This process had always been used by the research & development division of P&G,
where the division would reach out to different academic and supplier communities for solutions,
but it had never been established as the core of the company’s innovation process. When C+D

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became a core company strategy, CEO A.G. Lafley set the goal for at least 50% of all
innovations to come from outside the company within 5 years (Brown, 2010). This was first step
of the company’s five-step approach to completely revamping its business structure as it
readdressed innovation.
The second step for this corporate restructuring would involve the company’s individual
business units. Cloyd refers to this as the, “‘Where to Play’ Strategy,” in which each business
unit was responsible for identifying what needed innovating, where they would need new ideas,
and if they needed new technologies. In a broader sense, this strategy required each business unit
to identify their key interest areas. This lead to each business unit having a Top 10 list of needs to
be addressed which was shared across the entire company (Euchner, 2012).
The third step was also at the business unit level: sourcing. Each business unit was
responsible for developing and practicing strategies to search for innovators and researchers
outside of the company that would help address their needs. It was important that these strategies
differed among the business units as the processes and products developed at each unit differed
greatly, with Cloyd citing the search strategy would be, “...very different in our baby-care
business than in our fine fragrance business.” (Euchner, 2012).
The fourth step readdressing the company’s approach to external innovators and dealmaking. In the past, P&G was very protective of its intellectual property, to the point where any
innovations contributed from external sources were required to allow P&G 100% ownership of
the intellectual property. However, with the increased need to work with outside partners, P&G
began to adjust its policy in a manner that would benefit both partners and P&G together. Along
with these changes included the establishment of a centralized organizational structure for dealmaking, making decision-making quicker, more streamlined, and more efficient.

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The fifth and final step was for Procter & Gamble to establish a structure and platform
that makes it easy for innovators to learn of the company’s initiatives, and for the company to
easily sift through different propositions by outside innovators. This step was headed by R&D
Vice President Larry Huston who, with a team of scientists and engineers, identified new Internet
solutions and capabilities that would help the company establish the Connect + Develop
program, including services such as NineSigma, Innocentive, and yet2.com (Polat, 2012).
Global Culture Change with Open Innovation
By setting such a large goal with Connect + Develop to have at least 50% innovations
come externally, the company went through large cultural and organizational changes.
Departments had to shift their thinking of trying to provide solutions internally at all costs to
being open to seek solutions externally. One specific inventor that contributed to P&G’s
innovation efforts was an inventor who worked out of his personal garage (Polat, 2012).
These changes, however, quickly proved to be successful for the company. One of the
first large successes for the C+D program was Swiffer, a product used for picking up particles
from floors. The first Swiffer product, meant for floor cleaning, was inspired by a product in
Japan, but was developed mostly internally. However, the second Swiffer product, Swiffer
Duster, was co-developed by Japanese producer and competitor, Unicharm, who had no intention
of expanding into the North American market. This co-development allowed for a product
release within 15 months, half the time it took for the first Swiffer product to be released.
Since the success of the Connect + Develop program, other companies have followed
suit. Elli Lily, IBM, and many other global leaders have all started their own open innovation
initiative. These companies all invite innovators from around the world to contribute ideas,

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publish their problems and needs to be addressed, and have externally-facing roles in the
corporate structure to support these initiatives (Polat, 2012).
Open Innovation among companies has taken on several different forms as well. Some
companies have experimented with the incentives they provide for innovators, departing from
the usual co-producing method with credit and royalties benefiting both parties. Sites like
hultglobalcasechallenge.com and xprize.com provide platforms for companies to create
challenges with prize rewards to draw innovators to help solve some of the problems and
challenges companies aim to solve (including poverty, clean energy, and space exploration).
The U.S. Government has also implemented its own changes to incorporate a more Open
Innovation-type approach. The executive branch introduced the White House Open Innovation
initiative, where government data became more accessible in an attempt to fuel new industries
and business ideas. The U.S. Patent and Trademark Office also opened up its patent review
process to citizen experts to review existing patents and technologies that are discussed and
referenced in the patent review process by examiners (Polat, 2012).
Other parts of the world and other fields have also followed suit. Initiatives in Europe and
Singapore have spawned programs like the European Seventh Framework and the Singapore
Economic Development Board, which works to promote cooperation between governments,
industries, and academic bodies. Firms, both big and small, partner together to innovate in fields
like biotechnology, health, and life sciences. Academic institutions are providing spaces to
further research and encourage partnership, like with Global MIT and the Open Notebook
Science initiative.

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Conclusions
Procter & Gamble have proven itself, over the company’s long history, as a company
dedicated to innovation as a driving force for the company (and society)’s growth. From the early
days, the company would actively involve itself with the matters of consumers and seek research
groups to finding solutions, leading to the creation of many products and industries that are a
staple in today’s economy.
When the company began to see dwindling numbers and innovations, it readjusted its
approach to innovation with the Connect + Develop program. By introducing Open Innovation
and inviting innovators from around the world, Procter & Gamble once again saw a period of
prosperity. This approach then expanded to different companies, industries, and parts of the
world.
Procter & Gamble has established itself as an innovator of innovation, creating best
business practices and promoting worldwide collaboration. By approaching innovation as a
priority, P&G ensures itself a long lifetime.

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References
Brown, B. (2010). Why innovation matters. Research Technology Management, 53(6), 18.
This article’s purpose is to address the revamping of Procter & Gamble’s internal revamping of
how the company addresses innovation. The author describes the company’s dedication to
innovation by discussing its investment in research and design, communication with consumers,
utilizing more powerful technological platforms, and achieving innovation through goal-setting.
The author concludes with celebrating the, “…best innovation year in the last decade,” with
goals to continue furthering innovation. The author, Bruce Brown, served as the Chief
Technology Officer for Procter & Gamble until 2014, and had a responsibility to oversee many
operations in the company (including innovation through research and design). He started
working at Procter & Gamble in 1980, and continues working for the company to this day. His
academic credentials include a B.S. in Chemical Engineering and an M.B.A. Brown has authored
and filed four patents and authored/co-authored two articles regarding relevant innovations at
Procter & Gamble. This article is published in a peer reviewed academic journal with a reference
list of primarily scholarly articles. The article presents one point of view (the company’s point of
view) of its internal structure, and provides figures and statistics to substantiate the author’s
statements. The article provides an insight on the workings of Procter & Gamble’s business
practices, allowing me to cite specific examples when discussing Procter & Gamble's approaches
to innovation.
Diong, A., & Cho, D. (2008). Transformative innovation for growth. Industrial Management,
50(3), 8.
This article serves to discuss the transformation of business culture to favor innovation as a
driving force for company growth. The article takes an academic approach to discuss innovation,
and includes theoretical practices for boosting innovation. To support these theories, the article
includes examples of companies successfully incorporating these practices. The authors, Alex
Diong and David Choo, have a combined 7 published articles. While the authors do not have any
readily available credentials listed in the database or article, the article is posted in a peer
reviewed academic journal which has a reference list of primarily scholarly articles. The authors
take an academic approach to discuss theories behind business practices, and thus, aim to present
the information in an objective point of view. The article substantiates its claims with facts based
on practices from successful companies. I will be taking knowledge and practices discussed in
this article (and utilized by other companies) and will compare/contrast them with Procter &
Gamble’s structure as I discuss the efficacy the company's approach to innovation.
Euchner, J. (2012). Building open innovation at P&G. Research Technology Management, 55(4),
14. doi:10.5437/08956308X5504003
This article consists of an interview with Procter & Gamble’s former Chief Technology Officer,
Gil Cloyd. In the interview, Cloyd discusses Procter & Gamble’s innovation process, and the

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changes the company made as a result of missing two earnings projections. He also discusses
technological partnering and outreach, as well as changes in the technology community. The
author, James Euchner, holds a B.S. and M.S. in Mechanical and Aerospace Engineering from
Cornell and Princeton Universities, respectively. He has co-authored 65 articles, ranging from
technology to business practices. The article is part of a journal that is peer reviewed and
primarily scholarly in nature. The interview provides one point of view: Cloyd’s, who includes
anecdotal experiences of his time at Procter & Gamble, which are substantiated by the
company’s figures and reports. I will be able to use this interview to discuss how Procter &
Gamble changed its business practices over time, and how different events changed the
company's approach on innovation.
Polat, S. (2012, November). Guest editorial: open “globally” to innovation. Drying Technology.
pp. 1506-1507. doi:10.1080/07373937.2012.711217.
This article is a guest editorial by a former Associate Director at Procter & Gamble, Dr. Suna
Polat. In the editorial, she discusses the need to innovate globally, involving research and
development teams from different parts of the world. She includes an example with Procter &
Gamble’s Connect and Develop (C+D) program, which proved successful for the company. Dr.
Polat earned a PhD in Chemical Engineering from McGill University, and has co-authored 15
articles discussing chemical innovations. The article is in a peer reviewed journal with a
reference list consisting mainly of scholarly resources. This article presents Dr. Polat’s point of
view, who uses objective statistics that came about as a result of different programs by Procter &
Gamble. She substantiates all of her claims with evidence from figures. This article focuses on a
particular program the company uses for innovation, allowing me to be specific in my discussion
of Procter & Gamble’s innovation techniques.
Sakkab, N. Y. (2007). Growing through innovation. Research Technology Management, 50(6),
59.
This article discusses Procter & Gamble’s business practices, as well as its approach on
innovation. It begins by discussing the company’s previous innovations, how it has evolved, and
speculates on the future of innovation. It concludes with advice on leadership and management
in an effort to spark innovation and continue company growth. The author, Dr. Nabil Sakkab,
served as a Senior Vice President for Proctor & Gamble and holds a PhD from the Illinois
Institute of Technology. He has authored 4 articles and filed 12 patents relating to chemical
innovations. This article is published in a peer reviewed journal with a reference list consisting
mainly of scholarly resources. He provides one point of view which discusses different
approaches by Procter & Gamble. He substantiates his arguments with details of company
practices, such as numbers of employees in certain departments and monetary costs for
programs. This article provides a good general overview of Procter & Gamble’s business
practices, as well as insight on its approach to innovation.
Technology. (2013). Retrieved October 30, 2014, from
http://www.pg.com/Heritage/technology.php

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Open Innovation: Could yours be the next game-changer? (2014). Retrieved
November 1,
2014, from http://www.pgconnectdevelop.com/