A.G. Lafley's approach to innovation at Procter and Gamble

a.G. Lafley

The P&G company's area of competition is the consumer product industry.

Rivalry: The competition in the consumer goods is very high, as numerous trusted, internationally known suppliers exist. The threat of substitutes is also high in this industry, as consumer goods brands exist in a large number of choices, contributing to price elasticity. Buyer power in the consumer goods industry is high, as this is a market that supplies goods to a wide demographic of all income levels. Because of the highly competitive nature of the industry, supplier power is not a limiting factor. There are no significant barriers to entry apart from the high competition level from existing suppliers. The consumer goods industry is therefore fairly attractive in terms of buyer power, whereas competition levels as a barrier to entry should be carefully assessed.

Critical success factors include quality, branding and unique products. As there is such a high level of competition in the industry, it is extremely important to ensure that existing goods are of the highest quality possible, at the lowest possible price. The company should also secure unique and high quality brands of products that cannot be found at other, similar stores. Innovative and new products are also critical to survive in the competitive environment.

4. Available tangible resources include its existing core brands that sold well in the past. These are the focus of a new strategy to recreate the company's existing basis of products to regain its original strength. The basis of this can then be used for innovations and new products to distinguish the store from others.

An intangible source is the brain power of all personnel involved in the company. When the entire personnel resource is used in creating ideas for marketing and strengthening of the existing product basis, the added benefit is that work satisfaction and quality increase. This strengthens the resource of personnel excellence and creativity, concomitantly having a positive effect on new product creation and the strengthening of existing product marketing strategies.

These factors integrate with each other. It is most critical to develop personnel satisfaction and excellence, as these positively affect the quality of ideas to enhance existing goods and create new ones.

5. The biggest problem with Jager's strategy is that too many new products were introduced at a too high price. Consumers were therefore not given the opportunity to develop trust in the new creations before new ones were brought out. In addition, no attention was given to existing products that historically performed well. There should be a balance between innovations and existing product marketing. Furthermore, the public should have the opportunity to test and learn to trust new products, before being bombarded with further new and exciting creations.

6. Jager's strategy was based upon the assumption that the main area of attention should be new product innovation and local research and development rather than expansion. This had a negative effect on the personnel force, as many jobs were lost by Jager's aggressive strategy of focusing current powers. Furthermore, too much funding was applied to new product development, which as mentioned above, were introduced at a much too fast pace. In terms of resources, the funding used for innovative products could more profitably have been applied to enhancing already existing resources in terms of both products and the personnel force. Core capabilities and competencies were thus ignored in favor of innovation and development rather than a potentially more profitable strategy of expansion and training.

7. Lafley's success can be attributed to his focus on existing resources. Firstly, he placed the research focus on products that historically performed well. These were ignored by Jager in favor of an aggressive strategy. Also in contrast to Jager, Lafley focuses on involving rather than ignoring the entire personnel base of the company in the research and development process, rather than just a fraction of this resource. This, as mentioned above, provides job satisfaction, tenacity, and excellence in performance. In this way the human resource is not ignored but used to integrate with product development.

Furthermore, Lafley recognizes the power of customer trust, whereas this is another element that Jager ignored in favor of his pure focus on tangible resources. Previously successful products are tried and trusted by customers; enhancing the marketing strategy for these utilizes this trust in order to build a strong product basis from which to innovate.

8. In general, Lafley's direction of focus was inward rather than outward. Jager for example focused only on tangible resource renewal. For him, innovation was the most important focus of improvement. As such, he invested a large amount of monetary resources into this focus, ignoring existing resources. Existing resources are the basis from which to build new products and resources. If the health of this basis is not ensured, innovation will most likely not be successful, as indeed proved to be the case with Jager's strategy.

Lafley, in contrast, focuses inward in terms of both tangible and intangible resources. Instead of frantically creating new products, he investigated the merits of the existing ones. In addition, he also recognized the vast, largely untapped human potential within the company. In terms of organization, he involved the creative power of a large collective base rather than just the fraction represented by the company's researchers and scientists. The effect of this is many-fold in terms of both human and product resources. Personnel operate from a basis of higher satisfaction, hence relieving the pressure upon the scientific research department, and also freeing creative power to ultimately both enhance existing products and create higher quality new ones.

9. The main concern with P&G's strategic health for 2005 relates to opportunity recognition. Doubtlessly, Lafley's inward focus was more successful than Jager's purely outward focus. Nevertheless, the inherent danger is that Lafley's approach could also result in an imbalance in terms of strategy. It has been mentioned above that there needs to be a balance between innovation and existing product promotion. The problem in Lafley's case is that excessive inward focus results in a lack of opportunity recognition.