Innovation at P&G: AG Lafley’s New Challenge

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Excerpts

P&G had been considered as one of the most innovative companies in the world and rated higher than other consumer products companies like Colgate-Palmolive in terms of innovation (Refer to Exhibit III for the world’s top ten innovative household/personal care products). It had consistenly given importance to introducing innovative products in the market and invested a lot of financial and other resources in developing new products. P&G consistently invested US$ 2 billion in Research & Development (R&D) activities for the year 2011, 2012, and 2013 in a row (Refer to Exhibit IV for the chart of revenues, profits, and R&D expenses from 2004 to 2013). The company’s R&D spending was nearly 50 percent higher than that of its competitors.It alsohad a reputation of usingthe latest technology for developing new products.

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The innovation culture at P&G got a major boost with a newinitiative called Connect+Develop (C+D) started in the 1990s. During the late 1990s, P&G faced tumultuous times.Its sales growth had petered out,financial expectations were not met for two straight quarters in 1999-2000, and its market capitalization had shrunk by half as its share price fell from US$118 to US$52. .....

In order to stay at the forefront of innovation, P&G also invested a lot in its people to spread the culture of innovation among its employees. Ever sinceLafley took over as the CEO in 2000, P&G had worked hard to integrate innovation with the broad business strategy, budgeting process, and planning activities of the company. Despite investing a substantial amount in the R&D activities of the company, 85 percent of the people working in P&Gdidnot even realize that they were working for an innovation driven organization.....

Over the years, P&G continued to churn out innovative products at a healthier rate than its competitors (Refer to Exhibit V for latest innovations of P&G). However, going by its track record, the rate at which it was introducing new products was falling. Despite its emphasis on innovation, concerns were being raised on the falling rate at which new products were being introduced by the company. Concerns were also expressed over the fact that many of the blockbuster innovative products introduced by P&G were a decade old......

Immediately after the removal of McDonald, Lafley was brought back as the CEO of P&G on May 23, 2013. He was entrusted with the role of reviving the falling fortunes of the company. Analysts responded positively to Lafley’s return. Commenting on it, Ackman said, “He certainly knows the company and he had a great record while he was there. The only mistake he made was who he picked to succeed him, and now he’s going to fix that.” But some analysts doubted whether Lafley’s return would improve the fortunes of P&G ......

Exhibit I: Selected Financials of P&G from 2009-2013 (In US$, Millions)
Exhibit II: Chart of P&G’s Share Price from February25, 2009 to February 24, 2014
Exhibit III: World’s Top Ten Innovative Household/Personal Care Companies for the Year 2013
Exhibit IV:Revenues, Profits, and R&D Expenses from 2004-2013 (In US$, Millions)
Exhibit V:Some of the Latest Innovations of P&G
Exhibit VI:R&D Spending as a Share of Total Sales of Major FMCG Companies from 1996 to 2011