Making P&G New and Improved

By Bill Saporito

Procter & Gamble is a place you'd look for wash-day miracles, not management revolutionaries. Yet A.G. Lafley, CEO since 2000, proved otherwise. He drove relentless change at the famous but once flailing company. In The Game-Changer, written with management guru Ram Charan, Lafley explains how P&G flourished by organizing around customer-driven innovation. He talked with TIME's Bill Saporito:

So how's business at P&G? We try to grow our organic sales, which means--not including any acquisition, not including any currency, all of that--4% to 6% a year in markets that grow a couple of percent a year. So we're obviously trying to build our share. We try to grow our earnings per share by double digits. We have very comfortably been doing that this year. And we think we'll finish the year and deliver that.

We think of innovation as a creative, nonlinear concept. Yet you and Charan are saying it's a manageable process. Isn't there a conflict here? I don't think so, because first of all, we have a definition of innovation. For us there's a big difference between an idea or invention and innovation. And the main difference is, there has to be a consumer or a customer for innovation. We've got to close the sale. You have to part with your hard-earned money. An innovation business model is driven by trial generation and purchase generation and then delightful usage and experience, which results in, in the end, a loyal user of the product or service that we've innovated.

You talk a lot about opening up the innovation process across the company. We speak in jargon in the business world, and it's really horrible at a big company. But the whole idea of open architecture and open systems and open marketplace for ideas and innovations is really important. And this, this concept that we call "connect and develop," is really important because of what we're trying to do--connect is a really important word. We're trying to connect with the consumer and customer. We're trying to connect an early-stage innovation with a consumer and customer and see how important it can be for them. Can it really improve their life?

Can you give me an example? Febreze and Swiffer are great examples, because in essence Febreze created a new category first: a category that removed malodors from fabric. Swiffer is an interesting one because we simply made cleaning, surface care and quick cleaning easy, simple. Everybody in the family can do it. And now instead of maybe cleaning once a year or really not cleaning at all, people are doing more cleaning.

You devised the four Cs and an O to describe an innovative culture. The biggest ones [are] openness and connectedness. Openness is just so important. If your mind's not open, you can't even interact with a customer. If your mind's not open, you're not going to be able to engage in an innovation process. It's that sort of "jacks or better" to have an open mind. And then we really believe in connectedness, we really believe in collaborative, and they're related. They're not identical. Connected is fairly literally making connections. Collaborating is once you've made the connection, can you work in an all for one, one for all, with that value? And then the last two are curious and courageous ... We find a characteristic, high correlation in people who are naturally curious: the more things you're curious about, the more likely you're going to be an agile innovator or a contributing member of an agile innovation team. And then the last one is courage. I mean, there's a lot of uncertainty. Look at my industry, everyday household and personal-care products: 80% to 85% of the new ones fail.

Innovation demands failure. How does P&G manage that? The key in the [innovation] process is that it's consistent, it's repeatable, and it's predictable. Innovation is a failure and risk-management game. If you're running a good innovation strategy and process, you have way more failures than successes. So what you want to do is fail early and fail fast and fail cheap.

You're a revolutionary in a company with an enormous heritage. A lot of CEOs get killed this way. How do you avoid the counterrevolution? I worked hard on reassuring the culture--the P&G people and the P&G community broadly and the leadership--that I was preserving the core of the company, but we had to change everything else if we were going to achieve our aspirations. And then I said, "We're going to change the strategy. We're going to be an innovation-driven strategy."