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Articles - Publication Date 12.1.2004
Technology Leader Of The Year -- P&G's Secret: Innovating Innovation
G. Gil Cloyd, chief technology officer of America's biggest consumer packaged goods company, is acknowledged by CEO A.G. Lafley as "the technical innovation leader" of Procter & Gamble. A 34-year veteran of the company, Cloyd became CTO in 2000 and began developing and executing an innovation strategy to support the vision of his CEO, also newly appointed. The result: a stunning, technology and innovation driven transformation of what some once called a stodgy 167-year old Midwestern giant.
By John Teresko
G. Gil Cloyd has done more than contribute to the transformation of what has grown into a $51 billion consumer products goods maker. He has successfully shown how any company can contend with the classic innovator's dilemma -- most innovations fail, but companies that don't innovate die.
His solution, innovating innovation, is the underlying support for the payoff dramatized in P&G's annual report to stockholders for fiscal 2004: "P&G exceeded all its financial goals in fiscal 2004."
The detailed dimensions of his challenge are, of course, specific to a global company whose 300 brands touch, on a daily basis, between 2 billion and 2.5 billion consumers. But the innovation approach taken by Cloyd and his 7,400 researchers can enhance competitiveness in any industry.
"One of the challenges we have is serving the needs of a very diverse consumer population, but yet to be able to do that quickly and very cost effectively," says Cloyd, noting that that is the growing challenge for all of today's global corporations.
P&G's challenge is further complicated by a product scope that stretches across a whole range of everyday items from paper towels to laundry detergents, personal cleansing products, dentrifice, antiperspirants, hair-care products, a wide range of beauty-care products, fragrances, personal over-the-counter health-care products, and a pharmaceutical business.
"The challenge we face is the competitive need for a very rapid pace of innovation. In the consumer products world we estimate that the required pace of innovation has doubled in the last three years," says Cloyd. "That means we have less time to benefit from any innovation that we bring into the marketplace." The nagging problem is to cost effectively meet that challenge globally while focusing on being very responsive on a local basis. Cloyd directs 21 research centers in nine countries.
How has P&G fared? Cloyd's report card is in the financial data reported for the 2004 fiscal year:- Volume is up 17%, and organic volume is up 10%.
- Sales are $51.4 billion, up 19%, with organic sales up 8%.
- Earnings are $6.5 billion, up 25%. Earnings are up 13% versus prior-year core earnings.
- Earnings per share are $2.32, up 25%. Earnings per share are up 14% versus prior-year core earnings per share.
- Free cash flow is $7.3 billion or 113% of earnings.
- Dividends are up 13%, annualized.
- Total shareholder return is 24%.
To grow and support those results, Cloyd has leveraged a strategy designed to innovate innovation. The focus is on using technology and innovation to compete on multiple fronts simultaneously without spreading the corporate structure too thin. The proof is in the demonstrated ability to deliver a higher frequency of new products across multiple markets.
"What we've done is refine our thinking on how we conduct and evaluate research and development. I look at R&D in terms of two venues -- where do we focus our efforts and secondly, how do we get it done," says Cloyd. "We made some changes. For example, historically, we tended to put the evaluation emphasis on technical product performance, patents and other indicators of internal R&D efforts. Now there is more emphasis on perceived customer value."
"With research centers in nine countries, the strategy is to emphasize our consumer's deepest wants and desires as they vary from culture to culture."
Cloyd describes holistic or 360-degree innovation as a major focus. "What that recognizes is that we're really about creating experiences for our consumers. And when we focus on the experience aspect, it becomes intuitive that all components of that experience must be addressed if we are to be successful in the marketplace."
Components of Cloyd's holistic innovation include the product technology to achieve the desired performance, the manufacturing technology to deliver the product at the right price point, and the conceptual and aesthetic aspects of<
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". . . historically, we tended to put the evaluation emphasis on technical product performance, patents and other indicators of internal R&D efforts. Now there is more emphasis on perceived customer value."
-- G. Gil Cloyd, P&G's Chief Technology Officer
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