In current conditions, where the search for competitiveness has become one of the main motives of organizations, innovation can be considered as one of the fundamental factors that contribute to achieving this condition in the market and the environment.
The following work constitutes an approach to the innovation processes of the prestigious company Procter & Gamble, which, during its long history, shows an indisputable example of the links that exist between innovation and business competitiveness.
Introduction
The search for competitiveness by companies is of vital importance for their permanence in the markets for which they compete. Competitiveness includes obtaining a significant market share, maintaining it and its growth.
A competitive company is one that your market, or a large part of it, prefers over the rest of its competitors. Therefore, in the search for competitiveness, companies must adopt a position on the client side, always starting from the same when designing the offers it will provide.
Under current conditions, the satisfaction of customer expectations is conditioned by certain factors. On the market side, consumers are more demanding and demand has become more complex and dissimilar. Customers are no longer content with "the best product" that meets their needs, but are constantly looking for a new way to meet those needs.
This means that the life cycle of products suffers a considerable shortening, therefore, on the supply side, companies need to continually renew their product portfolio, in order to follow market requirements and remain competitive with respect to its rivals.
The renewal of an organization's offer is essentially based on innovation, understood as solutions to problems that break with the established or seek a new way of providing such a solution. Therefore, it can be affirmed that to a great extent the competitiveness of a company rests on the foundation of innovation.
There are sectors much more susceptible to innovation than others, however, all sectors, to a greater or lesser extent, can and should appropriate technological innovation.
In the case of the sector that produces packaged consumer products (convenience goods), their technological density is low, therefore, technological generation and the appropriation of innovation is less than in purely technological sectors such as the electronics or computing, to name a few.
Procter & Gamble (P&G) is a company whose core businesses operate in the type of sector mentioned in the previous paragraph. However, this company has shown that it is possible to innovate in a sector that has been classified by many as "mature".
P&G was created on October 31, 1837 by James Gamble and William Procter. The company emerged as a company dedicated to the manufacture of candles and soaps. Today P&G is a global company, and a leader in the production and marketing of consumer products in the USA. Its products are used by nearly 5 billion consumers around the world.
The company has a presence throughout Europe, the Middle East and Africa, Latin America and Asia, reaching an approximate of 160 countries.
P&G productions are divided into five business segments: fabric and home care, family and baby care, beauty care, health care, and light food and beverages, which total approximately 300 products. in your wallet.
The parent company is located in Cincinnati, Ohio, and has production plants in 42 countries. The company had a total of around 98,000 employees registered on its payrolls in 2005.
P&G recorded total revenue of $ 56.8 billion during the fiscal year ended June 2005 and net revenue of $ 7.3 billion.
As can be seen, the company has more than 160 years of success in the markets where it operates and given the type of industrial sector to which it belongs, it can be affirmed that the achievement of its competitiveness is largely due to the stimulus that exists in the organization towards innovation.
In this work, innovation in P&G is analyzed and characterized as a fundamental source of the organization's competitiveness.
Some concepts to keep in mind.
Throughout this work, some concepts on the subject of innovation are handled that must be taken into account for their better understanding.
It is important to know that when talking about innovation, the main approaches by which the problem is approached are the “science-driven” approach and the “market-driven” approach, which establish a distinction between the way in which innovation can take place.
The “science-driven” approach proposes that innovation can occur due to the advancement of science itself that fosters its appearance. The "market-driven" approach refers to a better understanding of market needs leading the company to innovate to meet those needs.
Other important considerations are the areas susceptible of innovation in an organization: the products: the products, the processes and the technologies.
Product is understood as the final result of the organization and can be both a good and a service. Process includes the ways in which the activities of the organization are carried out, and can include both production processes and managerial processes. Technology is understood as the set of knowledge specific to an activity or process.
When the types of innovation that can take place in an organization are discussed in the literature on the subject, Incremental Innovation and Radical Innovation are distinguished.
Incremental Innovation is understood as one that takes place little by little, that is, gradually and over time small innovations occur in any of the susceptible areas. Instead, Radical Innovation is one that takes place at a certain time and that generates a change in the way of conceiving both products, processes or technologies. It is a totally and totally different qualitative and quantitative leap.
Development
Innovation throughout the history of P&G
As already mentioned, P&G emerged as a company where William Procter, candle maker and James Gamble, soap maker, partnered. And from these two product categories, the company currently markets products in approximately 50 product categories with a brand portfolio of around 95 brands and 27,000 patents around the world. The motto for its 150th anniversary was: "Excellence through commitment and innovation".
Through a historical journey, from its creation to the present day, it can be seen that more than a P&G motto, it truly pursues innovation to create value for its clients.
Innovation in P&G does not classify in a single way, but can be classified within the categories: product innovation, process innovation, technology innovation, incremental innovation and radical innovation. The following paragraphs show the different historical moments in which the results of this innovation have been evidenced, and are classified in the previous categories.
Product and technology innovations.
One of the first innovations carried out at P&G is the one that occurred when Crisco was created in 1911, the first all-vegetable shortening for home cooking. Since 1901 P&G had ventured into the production of cottonseed oil to avoid supplier dependency and competition.
Although Crisco's innovation classifies as a radical and product innovation, it underlies an incremental technological innovation through technological adaptation, since P&G arrived at this product through the application of a butter refinement technology and the butter stearin used in the manufacture of candles.
An incremental product innovation is the one that took place with the launch in 1978 of Ivory soap. Ivory arises from a process of technological imitation, a creative imitation through a process of reverse technology, where P&G decomposed and improved the formula of the white castile soaps that were imported in the United States at that time.
Edward G. Harness, Chairman of the Board and Chief Executive Officer of P&G in 1977 comments: “For the 1879 housewife, Ivory soap was a major innovation in many ways. Most of the soaps were yellow or brown in color and many irritated the skin and damaged washable surfaces and fabrics. Compared to other soaps of the time, Ivory was smooth and delicate. It came in attractively packed bars of uniform quality and size. It had a brand name, so that customers could request it by name and thus know what they got every time they bought. Ultimately, the product was advertised, giving the customer more assurance that the manufacturer endorsed the product. ”
An important and interesting event in the history of innovation at P&G was the accidental innovation that occurred with Ivory soap itself - the case for its floating soap quality. The “Ivory that floats” arose from having left the mixing machine on longer due to the neglect of a plant employee, the mixture was charged with more air than usual and thus the floating soap emerged.
The most interesting thing about this event is that the change went unnoticed in the company until customers began to request that type of soap that floated. This fact confirms what can be seen through all the work: P & G's position regarding innovation responds to a mixed model, that is, both the push of science and the push of the market are mixed. In the case of this company, both positions go hand in hand as parallel lines that at certain times make contact and lead to innovation.
An incremental innovation was the one that occurred with the launch of Lenox soap in 1886 for washing sebum and resin stained clothes. Likewise, in 1902 laundry habits had changed and P&G introduced its White Naphtha soap, which in this case the innovation was carried out by means of creative imitation through reverse technology, studying the Fels soap. Napththa.
Between 1919 and 1920 P&G launched Ivory Flakes, P & G's first flake soap. In the same way as in the previous cases, flake soaps already existed on the market, therefore, this innovation can be classified as an imitation.
However P&G has been a company that has also been characterized by radical innovations. In addition to the case of Crisco oil, there are other innovations of this type, which are mentioned below.
In 1921 P&G launched Chipsco, the first soap specifically designed to be used in washing machines; In 1933 P&G introduced the Dreft product, the first synthetic detergent for all domestic uses; In 1947 P&G introduced Tide, a synthetic heavy duty detergent that set the standard for the detergent industry, using a new type of phosphate compound: sodium tripolyphosphate.
Another type of innovation present at P&G is technology innovation. This is particularly exemplified by the Drene product, a shampoo in which the use of synthetic detergent technology was first extrapolated to shampoos. As can be seen in this company, the transfer of technology is not carried out by importing it only from abroad, but is transferred through the company's own different businesses.
Another innovation of the radical type of P&G, and that gave much prestige to the company, was the launch in 1955 of the Crest fluoride toothpaste for the treatment of caries. Five years later, P&G submitted Crest to the American Dental Association for validation of its anti-caries effect, which resulted in a positive balance for the company, this product occupying the first place in the market and displacing Colgate.
Another radical innovation occurred in 1956 when P&G launched Comet, the first chlorine bleach home cleaner.
Innovation in technologies and transfer to other businesses is a characteristic of innovation in P&G. Crest's tremendous success and experience with other toilet products increasingly drove the company toward industrial chemical technologies, specifically the case of pulp processing for paper.
In the mid-1960s P&G created Pampers and a new category of product, disposable diapers. This innovation is of the radical type and also responds to the mixed model, since it can be said that disposable diapers respond to a latent need that existed in the market and that was identified by a director of exploratory development at P&G, however, it could not materialize in the product until technological innovation did not allow it.
After Pampers P&G launched Luvs as an incremental innovation, as other amenities were offered in the product; and the same happened with New Pampers and Ultra Pampers.
The discovery of another market segment where disposable diapers could be used, older adults with incontinence problems, led P&G in the 1980s to another incremental innovation with the launch of Attends.
Other incremental innovations associated with technology transfer within the company itself are reflected in the launch in 1965 of the Scope mouthwash and Bounty paper towels.
One innovation that you can classify as radical is the 1968 release of Pringle French Fries. Until now, potato chips were sold in polyethylene bags and P&G developed a new form of packaging (one can), but which consequently required modifications to the product (potato chips). Although P&G did not have the desired success with the Pringle, this fact can be analyzed as one more innovation to the balance of the company.
In the 1970s, technological innovation in P&G moved towards the development of detergents and soaps with low or no phosphate content, but which favored the same efficacy as traditional products, due to pressure from environmental groups, society and the government, due to the belief that these chemicals increased pollution of rivers and lakes.
Another incremental and creative imitation innovation is the 1972 launch of the Bounce fabric softener and antistatic agent.
In 1984, Always, feminine sanitary napkins, entered the market as a result of a product research process of more than 4 years, where a new product was achieved that spoiled the unvalidated negative effects attributed to Rely, a product similar to Always that had to be withdrawn from the market in order not to affect the image of the company with its customers.
Always it can classify as an incremental innovation, for which P&G took advantage of the transfer of the technology developed for the work with the pulp of paper fiber and that had already been used in Pampers and Bounce.
In 1985 P&G introduced the result of another radical innovation: Crest Tartar Control, the first toothpaste proven to prevent tartar buildup.
Another product resulting from a radical innovation attributed to P&G is the 2-in-1 shampoo and conditioner, a category that was introduced to the market as a result of the company's R&D under the Pert Plus brand.
Products such as peanut butter, coffee and medicines, although they cannot be considered as innovations, but rather have been acquisitions of the company or incursion into other businesses, it can be affirmed that they have had the support of technological innovation. P&G has been able to enter these businesses because the type of product is easily manageable through the transfer of the technology already used in other products, or at least through the knowledge that the management of said technology provides.
Other recent innovations coming out of P&G labs are:
Dryel, the newest mode of care for clothes that requires exclusively dry cleaning, and which can be carried out at home, as can be seen, is a radical innovation.
Another radical innovation: Actonel, the first osteoporosis therapy that has consistently shown a reduction in the incidence of fractures after one year of treatment.
Physique, a hair care line based on unique polymers and shampoos and conditioners that offer better results in washing and styling hair, which it classifies as an incremental innovation.
A radical innovation: Impress, a completely new form of food wrap that provides a superior seal.
Febreze, an incremental spray-based product innovation that employs the latest technology to safely remove bad odors.
Another radical innovation: Crest Whitestrips, a revolutionary new way to whiten teeth 10 times better than the leading whitening toothpaste, in just 14 days in-house, safely using the same product that dentists use.
Swiffer, a new system for cleaning hard surfaces and floors, which allows to remove dust, hair and dirt in general in a better way: an incremental innovation.
On the Procter & Gamble page referred to in the following hyperlink, the process of innovation followed in the company is graphically and summarized, and each circle that indicates a specific moment in the company is discussed below:
- Soaps and candles were a natural combination at P&G because they both essentially used the same raw materials. The company was formed in 1837 by William Procter and James Gamble. Based on knowledge of skin care, P&G has developed medications by prescription for acne treatment. Detergent research led P&G to dabble in deodorant, antiperspirant and skin care products. Based on knowledge of soap, P&G discovered a chemistry that was the basis for Dreft, the first synthetic detergent. Detergent technology led to shampoos, toothpastes, dishwashers and surface cleaners. Bounce was created by combining knowledge in detergents and fabric softener technology. In P & Detergent ResearchG increased his knowledge of skin and hair, which enabled the development of Lilt, the line of homemade perm. Dydronel was discovered based on in-depth knowledge of calcium fixation from the detergent business. Bleach technology evolved at Crest and Whitestrips. Using a hydrogenation process that turned vegetable fats into a solid, Crisco, the first 100% natural butter, emerged. Knowledge of fats and oils benefited the early butter P&G business. Jif-branded peanuts When coffee beans were put into machines similar to those used to make soap, P&G created Folgers Flaked Cofee.Dydronel was discovered on the basis of in-depth knowledge of calcium fixation from the detergent business. Knowledge of bleach technology evolved in Crest and Whitestrips. Using a hydrogenation process that turned vegetable fats into a solid, Crisco, the world's first 100% natural butter, emerged. Knowledge of fats and oils benefited P & G's early business of peanut butter under the Jif brand. When coffee beans were put into machines similar to those used to make soap, P&G created Folgers Flaked Cofee.Dydronel was discovered on the basis of in-depth knowledge of calcium fixation from the detergent business. Knowledge of bleach technology evolved in Crest and Whitestrips. Using a hydrogenation process that turned vegetable fats into a solid, Crisco, the world's first 100% natural butter, emerged. Knowledge of fats and oils benefited P & G's early business of peanut butter under the Jif brand. When coffee beans were put into machines similar to those used to make soap, P&G created Folgers Flaked Cofee.Using a hydrogenation process that turned vegetable fats into a solid, Crisco, the first 100% natural lard, emerged. Knowledge of fats and oils benefited Jif's brand of peanut butter early P&G business. Coffee was put into machines similar to those used to make soap, P&G created Folgers Flaked Cofee.Using a hydrogenation process that turned vegetable fats into a solid, Crisco, the first 100% natural lard, emerged. Knowledge of fats and oils benefited Jif's brand of peanut butter early P&G business. Coffee was put into machines similar to those used to make soap, P&G created Folgers Flaked Cofee.
As can be seen, P&G has to its credit a large number of product and technology innovations, which in many cases are of the incremental type, but at a certain moment, the company is in a position to generate radical innovation.
Although this paper does not cover all of the company's innovations, the examples shown are considered sufficient for the reader to appreciate the results of such a prestigious organization in the field of innovation.
However, something very surprising in all the examples is that each of these developments can be traced back to the original products: candles and soaps. The technologies learned and developed with the crushing of cottonseed for soap led to food, paper, coffee, etc. Each new line of business is strongly linked in some way to another line previously established.
Process innovations
In the case of Procter and Gamble, the main process innovations have taken place in the company's marketing and management.
P&G ventured into advertising in 1938 modestly with a few advertisements for candles and soaps in religious newspapers and newspapers in the cities where the products were distributed. In 1870 the advertising budget was 1500 USD. Currently, experts say that P&G is the company that spends the most on advertising in the entire US.
Innovation in marketing processes can be seen through several examples. Through Oxydol soap, P&G led to the appearance of a new form of advertising in the 1930s, one where a situation of daily life is recreated.
Another marketing innovation took place in 1939, when P&G ventured into television to advertise Ivory soap, making P&G the first company to employ the new mass media that was emerging.
P&G subcontracts the advertising and design of its packaging, which may be common for many companies, but the form and requirements of P&G mean that the result of these functions can be considered innovative on many occasions - according to the criteria of specialists from companies to those that outsource the activity- and one of the main agents of the positive results of the company's marketing actions.
Another marketing innovation was the one that took place in the Crisco promotion. For this vegetable fat P&G relied on new forms of promotion such as the use of an area bakery to fry donuts and give them away to passers-by.
Between 1919 and 1920 another innovative moment in the marketing and commercialization processes can be seen: P&G pioneered direct sales to retailers, for which it hired 450 salesmen.
In 2002 P&G used adolescents to promote their products and increase sales, which can be classified as another act of marketing innovation.
Another radical process innovation at P&G was the one already mentioned when the company submitted Crest to the American Dental Association for validation of its anticaries effect.
Until then, no company producing consumer goods had requested such a service to validate such production. And P&G once again set the tone for what has become a common practice for any company that wishes to enjoy the prestige in the markets where it operates and the preference of its clients.
An innovation that the world of management owes to P&G is brand management. In 1931 P&G introduced the first brand management system: each brand was handled as if it were from a different company, allowing the company to market several different products, many of which competed with each other.
Brand management was one of the innovations that most favored the increase in the competitiveness of the company and its productions. Aware that there were products within the same company susceptible to cannibalism, P&G decided that the best way for everyone to compete in the market was precisely by encouraging competition within the company, but this could not be achieved if a single person managed products. Similar. For this reason P&G "launched" the brand manager.
This innovation allowed P&G to grow grandly in many similar or competitive products, but at the same time manage them all so that none was affected to the detriment of the rest, since for each product, there was a manager. Today, coupled with the company's divisional structure, brand management is still in place and many companies have followed the management model that P&G created.
Innovation: an ancient tradition that everyone follows at Procter and Gamble
Most authors who deal with the subject of innovation, recognize that it is an endogenous process of the company. That is why many researchers pay a lot of attention to fundamental aspects such as organizational culture, on which innovation largely depends.
In the case of P&G, it can be said that innovation is the blood that runs through the company's veins. From the very beginning of the company, the spirit of its creators and that of all successors has been closely linked with this theme. Proof of this is reflected in the following paragraphs.
A consistent practice at P&G was initiated by James Norris Gamble: researching products and processes before purchasing external technology. Ivory soap came about by upgrading to a formula purchased from another white soap manufacturer.
In this way, P&G has always been linked to R&D, creating its own facilities. In 1870, P&G set up its first provisional research laboratory, marking the beginning of what would become common company practice.
In 1915 a chemical division was established at P&G for the purpose of product research. And so, successively, over the years, this company has continued to increase its research assets.
Current signs of this concern of the company is the fact that in 2001, due to the importance of customer needs for products that help prevent diseases and alleviate their effects, P&G combined a wide range of research in the Health in a single research institute: the P&G Health Sciences Institute (HSI).
The main location of the institute's research activities is in Ohio, USA, although the research is carried out in other locations such as the United Kingdom, Newcastle, Singapore, Caracas, Mexico DF and other cities around the world.
The mission of HSI is to identify, develop and use the latest technologies in health care for the development of effective products, both for developed and developing countries. For this it has more than 200 scientists and the collaboration of external partners.
In this way, P&G evidences its tacit agreement that innovation is not only produced within the organization in its R&D departments or driven by the market, but also through the establishment of networks or alliances to achieve a result..
HSI's main lines of research are gastrointestinal problems, which is in line with its Pepto-Bismol brand; pain relief; respiratory problems for which it has created the Respiratory Science Center (RSC), which is also in line with the acquisition of Vicks; and the potability of water.
On the other hand, the current director of R&D at P&G declares that “within the R&D department of P&G we have a strong commitment to find the best researchers, and retain them in a culture designed to achieve success, stimulate learning, challenge complacency, and cultivate innovation. This has led us to a talent made up of 7,500 PhD. and researchers in 71 countries. "
P & G's commitment to innovation extends far beyond its R&D department. Other efforts include:
- Conferences to the national and international scientific community. Doctoral programs in the company's lines of research. Courses and colloquia for undergraduate students of careers related to the sectors where the company operates. Professional advancement facilities for company employees.
P & G's commitment to innovation extends to the company's financial area. In fiscal year 2004/2005 P&G invested $ 1.8 trillion or 3.5% of its net sales in R&D. This puts the company in the rank of the 20 largest R&D investors in companies in the country.
These efforts are embodied in P&G's superiority by the amount of PhD., Which exceeds the number of Ph.D.s that hold the faculties of science and engineering at Harvard, MIT, and Berkeley universities. It is also expressed in its 27,000 active patents throughout the world.
It is clear that P&G senior management is financially committed to investing in R&D to achieve innovation and better products. AG Lafley, President of P&G has stated: "Innovation is our blood: new ideas and new products that make consumers' lives better, build value and utility for the customer and build P & G's market share, sales, profits and the return on investment that investors expect. ”
P&G R&D Success Formula
To a great extent the success of innovation at P&G is that it has followed the line of connecting technology through the different categories, sometimes in unexpected ways.
As it could be seen in Annex 1, P&G can perfectly connect all its products through technology, and explain through it the incursions that the company has made throughout history. This can be considered the fundamental element of the innovation of the company that has led it to success.
Another aspect to keep in mind is that innovation at P&G focuses on the development of both existing products and totally new products.
P&G states that its unrivaled innovation capabilities are based on three essential characteristics:
- A deep understanding of the market, its habits and product needs. The ability to acquire, develop and apply technology across the company's wide range of product categories. The ability to make connections between consumer wishes and that technology can offer.
Other ingredients in its formula for success include the significant investment in R&D, the qualified and experienced staff it works with, and the high number of patents that the company adds each year to its portfolio.
Another component to the success that P&G claims is the fact of knowing how to convert its core competencies into world-class technologies. Furthermore, P&G knows how to build on these core competencies, transferring knowledge from one business to the rest of the others.
Thus, for example, its skills acquired in the soap and candle business with fats and oils, led the company to create the all-vegetable edible oil, Crisco. Similarly, competencies in the laundry business, in controlling calcium in hot water to achieve superior cleaning, led to the creation of technologies that allow better absorption of calcium through food, beverages and medications. like Dydronel.
Another aspect is the ability to transfer their experience in different markets, or from one country to another, without much effort in adapting products, which remain essentially similar, without the consequent generation of negative financial flows that this would entail.
P&G also recognizes as a vital factor the commitment of senior management to R&D and effective HR practices. Another important aspect that P&G considers is the development of effective mechanisms for evaluating the risks and results of innovation.
The last factor is given by the integration of R&D with the rest of the company's activities, essentially with Marketing, Product Development, Market Research and Senior Management.
Conclusions
It goes without saying that Procter and Gamble is a highly competitive company. Any student of management can see that the books abound with inspiring examples of the success of this company.
As demonstrated in this work, the success and competitiveness of P&G are largely due to the importance that this company has given over the years to innovation.
However, if there is something that is important to draw as a conclusion: the practice of this company validates the idea that innovation depends on many factors. But even more important is the fact that innovation must be perceived as a systemic and not compartmentalized process.
At P&G, innovation processes have been interrelated: product innovation is inseparably connected with technology innovation; Consequently, when this innovation allows the company to achieve further development and increase its productivity, internal processes will require new forms of management, which implies that they are capable of innovation.
This process must take place in the organization as many times as the development of the innovation generated in it requires. The organizational structure and management methods cannot be expected to change every year in response to the innovations taking place in it. However, when the phenomenon is considerable enough, the change is inescapable.
P & G's experience confirms that a company that wants to innovate effectively must be willing to do so in all areas of its organization.
Furthermore, innovation is not achieved without the commitment of everyone, but especially of top management. Furthermore, the experience of this company validates the fact that R&D that generates innovations should not be considered as an expense, but rather as an investment. Proof of this is P&G, a company that started with an investment of 7192 USD and whose assets are currently quoted in trillions of USD.
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