Viewpoint: P&G will avoid risks at cost of innovation

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It's bad to miss your target. It's worse to miss the point. The departure of CEO Durk Jager is further evidence of the Procter & Gamble Innovation Crash that first hit media radar in March with the collapse of the company's stock price.

Mr. Jager's inability to innovate P&G's entrenched, risk-averse culture is the point -- with important lessons for all marketers and new-products leaders -- that is being avoided or missed.

The company has made two disappointing earnings estimates this year, so its stock price falls and the CEO falls on his sword. Nothing new here.

But look at the numbers. A year ago, P&G stock was just over $90. Then last June, Mr. Jager's new management team introduced the second phase of "Organization 2005," the new program that would give the company "bigger innovation, faster speed to market and greater growth." The stock climbed to $118 by January.

The descent into oblivion began in January, not March. The speed changed, but not the direction. The price has languished in the $50s and $60s ever since, and fell to $58 on June 8.

The first phase, announced in September 1998 with considerably less fanfare, contained descriptions of a new global strategy, e-commerce experiments and other activities that appear to have truly innovative dimensions.

Now look at three high-profile announcements: the lead items of Phase 2. With these openers, it might have been called "Organization 1985."

* Workforce downsizing. The first corporate act in the name of innovation. Nothing about investments in new technologies to make operations speedier, or new organizational principles or processes to enable fewer people to make decisions faster and better. Nothing about new tools that would make it possible to take bigger risks more effectively and more innovatively.

* Recall Dick Wilson (Mr. Whipple of 1950s and '60s commercial fame). Retro is all well and good, but it has to translate. And it didn't.

* Acquire Iams. What's wrong with an acquisition? Not a thing. But until the P&G culture is changed, the combination is as likely to harm Iams as help P&G.

And what about "speed to market"? This was never the key problem. The shelves of stores are glutted with safe line extensions that furthered someone's career at the expense of risk-embracing, innovative approaches to customers' problems.

I can appreciate the impulse to give people time to "ease into" innovative change, but it won't work. P&G needs to "just do it," to focus on an "Innovation Prospectus" that, like a stock investment, identifies the goal, sets the direction and provides incentives for everyone in the organization.

There are initiatives P&G can take to create a more risk-embracing, innovative culture:

* Establish a corporate-level Innovation Board headed by a chief innovation officer.

* Build cross-functional innovation teams ( e.g., Navy Seals) to focus on organizationwide innovation.

* Institute "new product stock," enabling employees to own and earn benefits from their investment and assumption of risk.

Why am I pessimistic about the company's innovation future? In a comment after Mr. Jager's departure, successor A.G. Lafley said, "In hindsight it's clear we changed too much too fast. As a result we didn't make enough of the tough choices required to balance top- and bottom-line growth."

Translation? Innovation is dead and risk aversion is back at the helm at P&G.

I hope I'm wrong. Innovation involves risk and, with it possible failure. But it's the only path to real growth.

Mr. Kuczmarski is a partner at consultancy Kuczmarski & Associates, Chicago; adjunct professor at Northwestern University's Kellogg Graduate School of Management; and author of four books including "Managing New Products," from Book Ends Publishing.

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