Question

Discuss TWO reasons why continuous emphasis on R & D could prove to be advantageous for P&G. Justify your answers with examples.

Answer 1

Procter & Gamble launched a new line of Pringles potato crisps in 2004 with pictures and words—trivia questions, animal facts, jokes—printed on each crisp. They were an immediate hit. In the old days, it might have taken us two years to bring this product to market, and we would have shouldered all of the investment and risk internally. But by applying a fundamentally new approach to innovation, we were able to accelerate Pringles Prints from concept to launch in less than a year and at a fraction of what it would have otherwise cost.

Back in 2002, as we were brainstorming about ways to make snacks more novel and fun, someone suggested that we print pop culture images on Pringles. It was a great idea, but how would we do it? One of our researchers thought we should try ink-jetting pictures onto the potato dough, and she used the printer in her office for a test run. (You can imagine her call to our computer help desk.) We quickly realized that every crisp would have to be printed as it came out of frying, when it was still at a high humidity and temperature. And somehow, we’d have to produce sharp images, in multiple colors, even as we printed thousands upon thousands of crisps each minute. Moreover, creating edible dyes that could meet these needs would require tremendous development.

Traditionally, we would have spent the bulk of our investment just on developing a workable process. An internal team would have hooked up with an ink-jet printer company that could devise the process, and then we would have entered into complex negotiations over the rights to use it.

Instead, we created a technology brief that defined the problems we needed to solve, and we circulated it throughout our global networks of individuals and institutions to discover if anyone in the world had a ready-made solution. It was through our European network that we discovered a small bakery in Bologna, Italy, run by a university professor who also manufactured baking equipment. He had invented an ink-jet method for printing edible images on cakes and cookies that we rapidly adapted to solve our problem. This innovation has helped the North America Pringles business achieve double-digit growth over the past two years.

From R&D to C&D

Most companies are still clinging to what we call the invention model, centered on a bricks-and-mortar R&D infrastructure and the idea that their innovation must principally reside within their own four walls. To be sure, these companies are increasingly trying to buttress their laboring R&D departments with acquisitions, alliances, licensing, and selective innovation outsourcing. And they’re launching Skunk Works, improving collaboration between marketing and R&D, tightening go-to-market criteria, and strengthening product portfolio management.

But these are incremental changes, bandages on a broken model. Strong words, perhaps, but consider the facts: Most mature companies have to create organic growth of 4% to 6% year in, year out. For P&G, that’s the equivalent of building a $4 billion business this year alone. Not long ago, when companies were smaller and the world was less competitive, firms could rely on internal R&D to drive that kind of growth. For generations, in fact, P&G created most of its phenomenal growth by innovating from within—building global research facilities and hiring and holding on to the best talent in the world. That worked well when we were a $25 billion company; today, we’re an almost $70 billion company.

By 2000, it was clear that our invent-it-ourselves model was not capable of sustaining high levels of top-line growth. The explosion of new technologies was putting ever more pressure on our innovation budgets. R&D productivity had leveled off, and our innovation success rate—the percentage of new products that met financial objectives—had stagnated at about 35%. Squeezed by nimble competitors, flattening sales, lackluster new launches, and a quarterly earnings miss, we lost more than half our market cap when our stock slid from $118 to $52 a share.

As was the case for P&G in 2000, R&D productivity at most mature, innovation-based companies today is flat while innovation costs are climbing faster than top-line growth. Meanwhile, these companies are facing a growth mandate that their existing innovation models can’t possibly support.

most of P&G’s best innovations had come from connecting ideas across internal businesses. And after studying the performance of a small number of products we’d acquired beyond our own labs, external connections could produce highly profitable innovations, too. The strategy wasn’t to replace the capabilities of our 7,500 researchers and support staff, but to better leverage them.

With a clear sense of consumers’ needs, we could identify promising ideas throughout the world and apply our own R&D, manufacturing, marketing, and purchasing capabilities to them to create better and cheaper products, faster.

Through connect and develop—along with improvements in other aspects of innovation related to product cost, design, and marketing—our R&D productivity has increased by nearly 60%.