It’s nearly impossible to go through your daily routine without encountering a Procter & Gamble product, from Gillette to Pantene to Crest to Bounty to Tide.
But like many big, established companies — P&G was founded in 1837 — it is increasingly competing against newly-launched brands and innovative business models. (Think Jessica Alba’s The Honest Company and Dollar Shave Club.) P&G is also grappling with a changing retail environment, and a customer that discovers products and buys them through digital channels like YouTube and Instagram.
That creates plenty of challenges for Kathy Fish, the Chief Research, Development and Innovation Officer at the $67 billion consumer packaged goods firm. In the company’s most recent quarterly earnings release, revenue growth was 1 percent (below the 1.7 percent that analysts expected), and the company told Wall Street it expected growth to be in the flat to one percent range for the 2019 fiscal year.
“Clearly, we’re not growing as fast as we need to,” Fish said in an August interview with InnoLead. She discussed how the company is working to change that dynamic, with initiatives like GrowthWorks — focused on diffusing the lean startup approach throughout the company — as well as startup partnerships and spin-outs of promising technology platforms.
“We are trying to drive the concept of ambidextrous leadership, recognizing that when you’re running the core big business, it requires a level of operational discipline,” Fish says. “You can’t afford big mistakes. [In contrast,] when you’re creating the future, you don’t know where you’re going. It has to be a culture of experimentation. There has to be a lot of debate, and you need to go off and learn fast and continue to work. That is what we’re working to drive.”
An edited transcript of our conversation is below.
InnoLead: How is your job focused these days, and how are you working with other parts of the company to spur innovation?
Kathy Fish: My job is primarily focused on the product and package experiences, but it’s so intertwined with the entire system that we are coming together in many ways. We’re finding that we’re much better when we work the consumer, the technology, and the business model together from the beginning, and learn and pivot as we’re going…
Sometimes, that also means we have to bring the product supply organization in. If we’re going to [pursue] a truly different business model, the supply chain’s very important in that.
Fostering Lean Innovation with GrowthWorks
InnoLead: If you think about the last five years, are there some new ways that you’re trying to get people in those different groups working together, and get past the traditional boundaries of, “Marketing does this, and packaging does this?”
Fish: We have embraced bringing lean innovation in. We have a program internally called GrowthWorks. [That is a small, multi-functional group that supports our] business units as they run their experiments. Marc Pritchard, the Chief Brand Officer, and I sponsor it together. We have brand, we have HR, we have finance, we have design. We’re bringing product supply in as we speak. As we’re working lean innovation, it is all about being multi-function from the beginning.
We call our internal program GrowthWorks, because we spent some time [with GE.] They called theirs FastWorks. … We felt like speed of learning was important to us, but growth was what we were trying to drive. We are creating our own program, but we’re leveraging a lot of experts externally as well.
I am leading the GrowthWorks efforts for the company, which is changing our approach to innovation to not just start with product and then figure out how to commercialize it, but start from the beginning with consumer, product, and business model — and multi-functionally iterate as we do that.
We bring [lean startup guru] Eric Ries in regularly. We also have been working with [the New York consulting firm] Bionic so we can leverage successful entrepreneurs and think about how we can do things differently when we’re trying to create new sources of growth.
We are trying to drive the concept of ambidextrous leadership, recognizing that when you’re running the core big business, it requires a level of operational discipline. You can’t afford big mistakes. You can afford small mistakes, but not big mistakes.
[In contrast,] when you’re creating the future, you don’t know where you’re going. It has to be a culture of experimentation. There has to be a lot of debate, and you need to go off and learn fast and continue to work. That is what we’re working to drive.
InnoLead: Did I misunderstand you when you said there’s a team that supports that cross-functional lean innovation work?
Fish: Yes, we have a dedicated multi-function team centrally. But rather than a mandated top-down program, we’ve decided to let each business unit define their own program.
First of all, it starts with a more entrepreneurial approach, so it’s about assigning small, multi-functional teams to the key projects — ideally dedicated teams.
We’re trying to get them all dedicated. That is one of our biggest challenges… Then, the second piece of that is having a growth board, which is the structure so that these teams can have access to funding and access to leadership when they need it.
The growth board decides whether the quality of learning is good enough to get the next level of funding and helps guide and counsel them. Then, they’re working together to put a future-focused portfolio of experiments together in each business unit. [We want to be] looking at where the consumer’s going, where technology’s going, what are our biggest potential growth opportunities or potential disruptions — if we don’t address them. What are the portfolio of experiments that we should be running to go forward?
InnoLead: I guess one detailed question is about the growth board: is that something that exists in each business unit or is that a central thing that is a corporate board?
Fish: We have growth boards in each business unit, and then we have an enterprise growth board that is made up of all of our function leaders, plus our CEO. I’m the key driver for [that one], but [it is] led by our CEO.
We are taking on enterprise challenges, things that go across the business units, as well as looking at whether our total portfolio of experiments in the business units is going to be sufficient to meet our new growth goals.
Using the Word ‘Growth’ Instead of ‘Innovation’
InnoLead: The term growth is an interesting one, because my guess is that most people across a big business like P&G understand the need for growth, versus…sometimes the word “innovation” feels a little too soft, warm, fuzzy. Particularly if it’s an organization that has an existing R&D arm, like a pharma company or an aerospace company. The R&D people think, “Who is this new innovation group that’s trying to create innovation outside of our domain?” Talk for a second about the word growth, the word innovation, and how you guys think about those two concepts.
Fish: Our history as a company is that we create innovations that grow categories in really major ways and grow the markets. That’s when we’re successful. That’s when our trade partners give us disproportionate support.
That’s when the consumer’s really happy, because you wouldn’t be growing in a category unless you’re solving a really meaningful pain point for them, or giving them something that they had never even imagined before. Growth is what it’s all about.
The foundation of [our growth model] is irresistibly superior products and package experiences. That’s the foundation. It requires a lot more. … We have to communicate to the consumer in incredibly inspirational ways. We have to make it a good value, both for the consumer and for our customers.
We have to execute with excellence in the stores and online now today, or wherever the consumer’s shopping.
Investing more in Life Sciences and Data Sciences
InnoLead: If we talk about the traditional R&D organization, where I assume you have lots of chemists, engineers, process people…How is that organization changed?
Fish: We’ve increased our investments pretty significantly in both the life sciences and in the digital and data sciences, because those are fields that have been exploding with innovation. We recognize that we are not going to be on the very leading edge in either one of those.
Therefore, we hire small groups of brilliant people who can access the best of what’s going on externally, so we can leverage that in our innovation.
Our purpose as a company has been to improve lives for a long time. We’re trying to get granular on what that means… It needs to go beyond superior functional products to truly irresistible, holistically-crafted products and packages that provide an experience so delightful it’s hard for the consumer to go back… That has been one change…
The other one is lean innovation. We are saying, “We’ve got to be more forward-looking. We’ve got to leverage all of the tools that are available in the world today to learn much faster, and we’ve got to take a more entrepreneurial approach.” We as R&D need to think and work differently.
Elevating P&G’s Open Innovation Game
InnoLead: Do you think in terms of that R&D organization, is there more openness in 2018 than there was five or ten years ago, in terms of willingness and mechanisms to say, “Hey, we know how to collaborate better with universities, with startups. We know how to run external challenges, the type where you’re putting a problem out there and [asking] who can solve it?”
Fish: We’ve been on the leading edge on [what we call] “connect and develop” for a long time. …We made a big deal about that in the 2000s, but I would say we have elevated our approach, first by being more strategic, and then second by better leveraging the startup community.
The third thing I would say is we are also doing some external value creation [with] our technology. That’s a new arm, but let me talk about all three of those. Virtually every single big project that we [work on] has multiple external partners.
[One example] was the creation of Olay Skin Advisor, where we used Iconmobile to help us design the initial prototype, and then we partnered with Nara Logics, [a startup that has] artificial intelligence capabilities.
They [created] a diagnostic that’s truly unique in the beauty care space and really stands out [in terms of] getting people to the right product for their own unique needs.
We’ve also gotten much more intentional about leveraging the startup community across a full range of our innovation needs, including new business models. [Through partners,] we have access today to 275,000 startup companies and 10 major hubs. … We are running all sorts of experiments, including finding small startup companies and partnering with them to incubate their brands in market.
InnoLead: You talk about helping startups develop their brand. Is that an example of funding indie products that maybe would have seen P&G as a big competitor in the past, or am I going the wrong direction with that?
Fish: No, we’re not usually investing in startups, although we’re not opposed to that either. It’s more partnering. They bring the technology, and we are working with them on brand building.
An Update on P&G’s Clay Street Studio
InnoLead: One thing we’ve written about in the past is the Clay Street Studio there in Cincinnati. How does that tie into all this? My sense was that [the team there was doing] skills training, design thinking, maybe some lean innovation training for P&G folks.
Fish: Clay Street was how we started with design thinking. What we’ve learned is we need to integrate design thinking into everything that we do, versus sending some people off to Clay Street for a special session.
We’ve actually moved some of the people from Clay Street into our GrowthWorks team, and they’re being hugely effective at helping us with training and coaching on how to step back and think about the problem bigger, think about the space, [and] bring in inspiration from other industries to help us think about the problem differently.
We’ve integrated that into everything we do.
InnoLead: Does Clay Street still exist as a separate space there in Cincinnati?
Fish: No, we have brought it in. We have integrated it.
InnoLead: When you look at the rankings of “most innovative companies,” it’s still based on number of patents, which seems to me like a really silly metric.
Fish: It’s a really poor measure. …You can have a lot of patents that aren’t just not that interesting and never leveraged.
Measuring R&D Productivity
InnoLead: Are there metrics that you, as the head of R&D, the head of innovation, think are emerging as new metrics that are important to know about?
Fish: We’re experimenting right now with three different metrics. One is, “How often are your patents cited?” and, “Are people trying to copy it?” That means it’s meaningful.
For example, for us, we are now the market leader in baby care pull-up pants, but for 25 years, we struggled because Kimberly-Clark had such a wide moat of patents in that space. We had a hard time innovating without infringing on their patents. We would be citing what they were doing often. We would be trying to work around that.
The other two metrics are how many of our patents are being used in our marketed products, and the extent to which our patents give us competitive advantage.
Setting Up Some New Platforms as Separate Ventures
InnoLead: You talked before about external value creation. What does that mean?
Fish: Increasingly, we’re embracing external value creation with our technologies. That’s a major shift for us — not that we’ve never done it — but we’re being very intentional. We’re doing it for a couple of reasons.
First of all, the investment and the breakthrough platforms that are required for irresistible superiority are expensive. It takes a lot of R&D, a lot of industrialization. They’re also high risk. When you start up a new platform, you’re learning a lot about the new platform. You can have challenges.
We have decided that some of our technologies are much broader than just P&G. You can leverage them to create funding to reinvest in R&D. We can also leverage it to derisk our scale-up.
We have a couple of examples that are public that I can tell you about. The rest of them, I can’t right now. The first one we did was a company called PureCycle. The technology is to decontaminate recycled polypropylene so that it performs virtually like a virgin material.
If you think about the plastic industry today, you can recycle plastics that have had color or other contaminants [and use them] for park benches or things that are gray or black. [With the PureCycle approach,] you can reuse it like a virgin material…It starts to contribute to this circular economy — recycle, reuse. It works amazingly well.
We realized quickly that that was bigger than just P&G and that we would try struggle to fully industrialized that would get it to its full potential. We reached out to a company called Innventure, a startup that helps commercialized disruptive technologies. They are building the first pilot plant. They are going to industrialize it for us. It’s going to give us a revenue stream for an extended period of time that we can project into innovation.
Our second field that we signed with them is for a package that we’re calling Air Assist. [The technology has since been renamed AeroFlexx.] We take a plastic film and structure it with air so it can stand up like a bottle, but it uses 50 percent less plastic.More importantly, it doesn’t require bubble wrap or anything if you ship it through e-commerce, because it’s kind of its own bubble wrap. It’s really quite breakthrough from a sustainability standpoint.
…If Innventure helps us make it an industry play, then we’ll able to go faster. It will be able to have more impact. We’ll have a revenue stream. All those things are good.InnoLead: And is the idea that those companies can also get funded by partners of P&G or maybe traditional venture capitalists?
Fish: Absolutely. Innventure is raising funding from other places.
‘We’re Not Growing as Fast as We Need To’
InnoLead: I’d love to touch on two last things. One is an example that I think has gotten really high-profile in the last year or two. That’s the Gillette on Demand business which, I’m guessing, didn’t really come out under your purview, but maybe you want to talk about that as [an example of] business model innovation.
Fish: In this particular case, it obviously came up through the business unit which is where it should come out.
We recognized that for the consumer, innovation is not just a product in the package. It’s the business model. It’s the whole shopping experience. It’s how you reach them from a marketing standpoint.
Obviously, that was one that if we would’ve had GrowthWorks when Dollar Shave Club started, we would’ve been thinking more broadly. Today, we are. Obviously, that one was a catch-up, but they are looking at how to do it right.
InnoLead: Maybe the last thing to touch on is the harder learnings or the things that haven’t worked. Are there one or two things you’d highlight there?
Fish: On the things that haven’t worked — clearly, we’re not growing as fast as we need to.
Innovation needs to be broader than products and package. It needs to be about the entire consumer experience, and we need to be addressing it more holistically from the beginning.
Our GrowthWorks program is only two years old, or two-and-a-half. That’s what we’ve put in place to address that reality, because some of the misses that we’ve had are against a broader definition of innovation.
InnoLead: What do you mean? Misses that are things that are under-marketed, or things that are targeted at the wrong consumer set?
Fish: Dollar Shave Club — it’s a different business model. That would be a miss… The consumer wanted that, and we didn’t give it to them. We need to be sure that we are giving the consumer what they want when they want it. We have to be adjusting that, and figuring out how to make it a business model that makes sense for us too. That is part of the challenge.
Don’t Stomp on the Seeds of the Future
InnoLead: I think one last thing that I feel is important to touch on anytime you mention a startup like Dollar Shave Club is that stuff looks really small and insignificant at first.
It’s hard for people at large companies [to] dismiss it when it’s $5 million in revenue or even $50 million in revenue. They say, “Hey, this is a tiny business compared to us.” It feels like a big part of your job must be like, “Hey, we can’t kind of miss the signals of this disruptive stuff.”
Fish: That’s exactly right. That is what the GrowthWorks portfolio is all about. It’s like, “Where is the consumer going? Where is technology going?” Therefore, “What are the spaces where we need to be innovating? How do we go plant a lot of experiments to see where the consumer gets excited?”
Hopefully we keep pivoting until we get to something that the consumer loves and has a business model that makes sense, and we go from there.
These are the seeds of growth for the future. [They] are not going to save the world today, but they are so important to plant… We look for 10 to 20 percent of our growth to come from those.
We are asking our businesses to declare what they need to come from new growth and to be very intentional about planting these seeds.
It’s really easy to put your head down and deal with the issues of today, and you have to do that. But you also have to put some resources [into] planting the seeds for the future.
Everybody’s got the concept. Everybody’s got their portfolio of experiments now. We are starting to see some scale. Pampers Pure [diapers and wipes made from sustainable materials, without fragrances] is a great example of one that scaled recently, and it’s off to a great start. …It is totally a new segment for us in the natural space, and an important segment that’s growing.
That is what we’re committed to making happen here. It takes time for those seeds to show up as driving the top line in a major way, but they will.
InnoLead: That metaphor is great. Once a seed starts sprouting, you don’t want to stomp on that just because it’s small and it’s not the oak tree just yet.
Fish: Our fastest billion-dollar brand took 10 years, and many of them take 15 plus. Really good things often start small.
