Procter and Gamble (P&G) which is well known for its unique work culture and for development of innovative and diverse spectrum of fast moving consumer goods products is a American multinational company. The Procter and Gamble is spread around 79 countries and the employee strength of P&G is around 1,40,000 all around the world. It produces a large variety of products being used by customers. The important products of P&G can be classified into following 6 categories: (P&G, Annual Report, 2008)
Household Care: The main products in this include- Batteries, fabric care, air care, air care etc. Some examples of the products are Ariel, Tide, Duracell
Health Care: It includes product related to health like oral care, personal health care, feminine care, pharmacy etc. Some of the examples of these products are- Oral-B, Actonel, Crest etc
Baby care And family care: This category includes products related to baby wipes, facial tissue, bath tissue, paper towels, and diapers. Some of the products in this category which are produces by P&G are- Pampers, Bounty, Charmin
Grooming: This category includes products related to Razors, Face, Shave products, and Home appliances. Some of the important products in this category are- Gillete, Fusion, and Mach3 etc
Beauty: This category includes products related to beauty and face care like deodorants, soaps, Skin care, Fragrances, cosmetics etc. Some of the most commonly used products of this category which are used worldwide are- Head & Shoulders, Pantene, Olay etc
Snacks & Pet care: This includes products like Coffee, snacks, pet food etc. Some important brands in this category are Folgers, Pringles, Iams etc
Procter and Gamble was started by William Procter and James Gamble in 1837, with the introduction of company in Cincinnati which produced soaps used at homes and the candles, after that began the era of growth and innovation.( P&G, Annual Report, 2008) By 1945 P&G expanded its production 30 different varieties of soaps which included Ivory and the sales market became global. Then from 1945 to 1980 P&G introduced many other products in different fields. It also started to build small business in other countries like Mexico, Japan, and Europe etc. Till 1980, Procter and Gamble expanded its business to more than 20 countries across the world and the total sales of the company increased to around $11 billion the earnings from which were 35 times greater than that of the previous years and this led to more worldwide expansion of the company. Currently Procter and Gamble is providing its services to around 180 countries worldwide with the products of vary superior quality and efficiency.( P&G, Annual Report, 2008)
Worldwide Market Share
Procter and Gamble products hold a large share of the FMCG products sold in the market. Family care, baby care and coffee products of P&G contribute around 40 % of the American market and around 23% of the world market. Grooming products from P&G contributes around 70% of the world market. Beauty, health care, fabric care and home care contributes around 20% of the world market. Snacks especially potato chips contributes around 10% of the global market (P&G annual report, 2008).
From the point of revenues the net sales of P&G has increased to $86 billion this year. There is an organic sales growth in every reportable segment. Per share diluted earnings (net) increased by around 20%. There is a continuous increase net flow of cash from operating activities, it has increased to $ 18 billion and the free cash flow productivity has increased to by 110% overtaking there desired target of 90%.
Key Strategies of Procter and Gamble
- Sustainability along with innovation
- To make their leading brands grow in the worlds big markets and to win over their customers
- To shift their mix of portfolio to fast growing business with increase in the gross margins
- To grow disproportionately with their conscious consumers and especially in developing markets (Teresko, 2004)
The major challenges faced by P&G
- In order to maintain or increase their market position P&G has to continuously focus on introducing innovative products.
- The other major challenge is to explore new markets in Africa , Asia while maintaining their market positions in UK and US
CHARACTERISTICS OF INNOVATIVE ORGANISATION
In literature it has been talked a lot about innovative organizations. (Fox, 2002) (Ozsomeer, 1997) (Jamrog, 2006) (Merx, 2005) Any factors are presented in literature that leads to establishment of an innovative organization. After a thorough study from the literature the following eight important factors are found which affect the innovation process in organizations.
To understand the innovation the first most important thing is to learn about the structure of the organisation that adopts and generates innovation.
Organisational structure is a primary context for the innovation. The structure of an organisation represents the kind of relationship between authorities and responsibilities of the members. The main purpose of the structure within an organisation is to assist the members in order to collaborate with each other and to help them to utilize the resources in proper manner so as to achieve the desired objectives of the organisation. For an organisation to be innovative the characteristics of structure that are desired are: cross functional collaboration, good communication decentralised decision making and low hierarchies of authority. (Merx, 2005)
Human resource management:
It is the people in which the capacity of an organization to innovate lies and therefore it becomes essential for an organisation to manage its human capital in a effective manner which is very important for an organisation to be innovative. The organization should focus on the plans for the development of human resource like training, motivational plans, incentives etc. The human resource development should also cover basic characteristics of human like self awareness, adaptability, openness etc. The motivation and incentive plan should satisfy employees multi dimensionally including thee incentive itself, trust, acceptance, passion for the activity and the clear vision about the goal. (Jamrog, 2006)
Culture and environment:
Innovation grows and adopts in an organisation where there is proper culture and environment available. They are very essential for building an innovative organisation because the possibility of coming innovation from an environment which discourages creativity is very less. (Ozsomeer, 1997)
Whenever an organization goes for innovations thee major consequence is that it has to deal with lot of changes. In such case it becomes very important on how the change management is being taken up in the organization. It is required that to cope with the changes, organization should have some processes on managing the changes, integration of the change management in the whole organization and the effective communication of changes internally. (Ozsomeer, 1997)
Sources of innovation:
The other major factor important for innovations in an organization is what the sources of innovation in an organization are. To develop outcomes which are innovative a large number of factors are needed to exist in an organization. At the individual level as well as at the organizational level it is required that they have the creativity as it leads to generation of concepts. The presence of absorptive capacities, knowledge and learning processes helps to capture these concepts as an asset of organization. Innovations can be generated internally as well as the needs of the customers and the external factors can be a source of innovation. (Fox, 2002)
To be innovative it is very important that what process of innovation an organization uses. In literature many models of process of innovation are present and have been suggested. In general all these models can be combined to form one basic model which involves following steps:
- Problem identification
An innovative organization must utilize one of the innovative processes in order to be effective. (Merx, 2005)
To have innovations, it is very important that what performance measurement tools are being used on the basis of which the innovation strategy depends. If the results and the activities are measured properly then they can lead to better outcomes. Also apart from good measurement system thee organization should also of a track of the total data from the planning stage to that of the final target. (Jamrog, 2006)
Innovation in an organization can bee of many type, it can be incremental, product based, process based, radical etc. In such case it becomes very important on how the organization is managing that particular innovation. Different practices in accordance with the type of innovation are needed to be present in the organization in order to manage different types of innovation. (Merx, 2005)
EVALUATION OF CHARACTERISTICS OF P&G
In the following sections the innovative aspects of Procter and Gamble with respect to the innovation factors stated above would be discussed: (Teresko, 2004)
Organization structure: P&G divides its business in to largely two main parts: one is the retail stores and the other being supply units. A middle manager is assigned at both the sections in the company in order to facilitate communication in the organization and help the organization in setting cross-functional teams which will support the development of innovation activities.
Human resource management: In order to facilitate the innovations, the company motivated the employees to become a part of innovation process. It also introduced a program on competition award for innovation project in order to motivate the employees. The competition winner will have the full authority in order to implement the innovative project and will also be provided handsome rewards for the ideas.
Culture and environment: The main components of the innovative environment and culture in the P&G are initiation, openness, collaboration, freedom to think and act etc.
Change management: P&G has a very unique strategy of change management. Initially in order to deal with the changes the organization created a central team to communicate the goals and visions and to coordinate the changes but this strategy didn't work well. So then instead of thee central team a team made f local volunteers was introduced which was called as innovation team. This was responsible for communication within the organization regarding the necessity and importance of development of new services and products and to help in the implementation of the changes required in the firm.
Sources of innovation: The main contributors for the innovation are the lower levels. The needs and the feedbacks of the customers are collected and used in order to go for innovations.
Innovation process: The process of innovation in P&G starts from the market changes, technologies, preferences of the customers and the environments. This helped in forming the problem statements and implementing the changes that are required to respond to the problem
Performance measurement: To evaluate every innovation there is a set of criteria which is used to first evaluate the initiation of the innovation. Level of impacts is the most important key for evaluating the innovations.
Innovation management: Middle managers are assigned the responsibilities to initiate the innovation operations and manage them and to collaborate between operators and the executives.
INNOVATION AT P&G: Innovative products and services, benefits and challenges
The most innovative product developed by P&G which is used worldwide is he Ariel “Turn to 30”. It is the result of the sustainable innovations products strategy of P&G.
The strategy of sustainable innovations products mainly focuses on innovations in the field of surface cleaning, cleaning of fabrics etc in order to save the energy and water. (Teresko, 2004)
Challenges in the development of new product
The main challenges faced by P&G for successful development of the innovative product ariel “turn to 30” are:
- To satisfy the demands of thee consumers which were focused on a more greener and ethical product with the price and performance being the same
- To make the customer realize and get them to keep the temperature down while using new product for cleaning because the temperature was an important factor in the efficient working of the product.
In order to satisfy the customer needs and to make them use the new product at low temperature P&G took the following steps:
- It educated the customers on the importance of the right load and right temperature while cleaning. It launched a campaign the main aim of which was to turn the customers to keep the temperature at 30 degree while cleaning which was previously 43.5 degrees, in UK
- For the turn to 30 product P&G put messages on TV, advertised thee product, performed direct marketing, and organized internet campaigns. The “turn to 30” slogan was also evident on the box. The main punch line of the Ariel box was “Brilliant Cleaning and Energy Saving” which aimed at providing thee message to the customers that with the advent of use of this product they would be helping in maintain a cleaner and a greener environment.
Results and Benefits-
- P&G was successful in meeting the cleaning expectations of thee customers
- The product helped thee customers to save money by lowering down their electricity bills
- It also helped in reducing the emissions of greenhouse gases
This innovation thus helped P&G to strengthen its brand loyalty especially in the eyes of thee environmentally concerned customers who are not willing to compromise on the performance of the products. It also improved the position of P&G as environmentally and socially responsible company.
CONTIBUTION TO THE COMPANY
After the careful observation of the innovation process, the innovative products and the services of P&G my contribution would be towards accelerating the process of innovation. Currently many innovative products have been introduced by P&G for babies, mother, family, for aged etc. Not much has been done by P&G in developing innovative products for the school going children and the teenagers. So my first aim would be to increase the influence of thee P&G in this age group. The innovations for these age groups can be any forms like for the school children it can be drawing colors, for the teenagers it could be mouth fresheners, chewing gums which are different from the similar kind of products already present in the market.
Also since the currently the market situation is not very predictable and is fluctuating a lot, my next concern would be to preserve the resources in P&G. Also I would work for development of more environmentally green products in order to reduce the pollution
- Merx, C.M. and W.J. Nijhof, 2005 Factors influencing knowledge creation and innovation in an organization, Journal of European Industrial Training, 29(2): p. 135-147.
- Fox, S, 2002, A Framework for Innovation, Engineering management journal, 2002, p. 163-170
- Ozsomer, A., R.J. Calantone, and A.D. Benedetto, 1997, What makes firms more innovative? A look at organizational and environmental factors, Journal of Business & Industrial Marketing, 12(6): p. 400-416.
- Teresko, (2004), “Procter and Gamble's secret of innovation”, Industry Week, Vol. 253, pp.27-30
- Jamrog J., M. Vickers, and D. Bear, 2006, Building and Sustaining a Culture that Supports Innovation, Human Resource Planning, 29(3): p. 9-19.
- Damanpour, et al, 2006 Research on Innovation in Organizations: Distinguishing Innovation-Generating from Innovation-Adopting Organization, Journal of engineering and technology management, p. 269-291.
- P&G, 2008, annual report available online.