Succeeding at New Product Development the P&G Way: A Key Element is Using the "Innovation Diamond"
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Succeeding at New Product Development the P&G Way: A Key Element is Using the "Innovation Diamond"

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New products are engines to growth and profitability for many companies. Exceptional performance in Product Development in companies such as Procter & Gamble is no accident. And the roots of success ...

New products are engines to growth and profitability for many companies. Exceptional performance in Product Development in companies such as Procter & Gamble is no accident. And the roots of success go much further and deeper than having a few spectacular winners in a single year. Rather, it's the result of a disciplined, systematic approach based on best practices. In this article, the authors explore the drivers of new product performance with a particular focus on P&G's best practices. The "Innovation Diamond" is used as an integrative and guiding framework to help management focus on what's important to success: innovation strategy, a solid idea-to-launch process, portfolio management, and the right climate and leadership.

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Succeeding at New Product Development the P&G Way: A Key Element is Using the "Innovation Diamond" Succeeding at New Product Development the P&G Way: A Key Element is Using the "Innovation Diamond" Document Transcript

  • October 2005 Vol. XXIX No. 4C VISIONS PDMA’s quarterly magazine for Product Development professionals Insights into Innovation™How P&G achievessuch stellar NPD resultsLE © 2000-2013 Product Development Institute Inc. www.stage-gate.com Product Development Institute Inc. and Stage-Gate International are registered trademarks.
  • NPD P RA CTIC ES Cover Story Succeeding at New Product Development the P&G way: A key element is using the “Innovation Diamond” by Robert G. Cooper, President, Product Development Institute, Professor, McMaster University (robertcooper@cogeco.ca) and Michael S. Mills, Manager, Corporate New Initiative Delivery, The Procter & Gamble Company (mills.ms.1@pg.com) New products are engines to growth and profitability for many companies, including Procter & Gamble (P&G). In this article, the authors explore the drivers of new product performance with a particular focus on P&G’s best practices. The “Innovation Diamond” is used as an integrative and guiding framework to help management focus on what’s important to success: in- novation strategy, a solid idea-to-launch process, portfolio management, and the right climate and leadership. W hy are some companies so Diamond philosophy. Today, successful at New Product De- P&G’s Cosmetics business velopment? And how do some is a healthy, growing, and businesses make it seem so profitable enterprise. Per- Robert G. Cooper Michael S. Mills easy—one new product winner after another? formance results have sig- Product Development Institute The Procter & Gamble Company Consider Procter & Gamble (P&G): Total sales nificantly improved since the at P&G increased by $8 billion in 2004, with late 90s, and the business is new product winners playing an important seen as a key growth contributor for P&G. Some background: The Innovation Dia- role. Information Resources Inc. cites P&G How was this stunning reversal achieved? mond and these four driving factors or as the clear winner in its annual New Product The turnaround did not happen by chance; themes in Exhibit 1 were derived from a Pacesetters report: In the non-food category, and one key to success was getting new major study into new product performance five P&G new products were among the top products right. and the practices that led to exceptional best-sellers, with Prilosec OTC and Crest Authors’ note: We use the term “new performance.3 The diamond actually began Whitestrips Premium in the Number One and products” to mean any change to the product years earlier as a triangle—process, re- Number Two positions.1 visible to the consumer or customer; these sources, and strategy—the result of a 1990s Exceptional performance in Product include true new-to-world products as well Cooper-Kleinschmidt study of innovation Development in companies such as P&G as new items in an existing product line, across a broad range of businesses.4 P&G’s is no accident. And the roots of success go significant modifications and improvements, management in the 1990s subsequently much further and deeper than having a few and extensions. transformed the triangle into the Initiatives spectacular winners in a single year. Rather, The major factors that drive a business’s Diamond, shown in Exhibit 2.5 P&G’s major it’s the result of a disciplined, systematic new project perfor- approach based on best practices. mance, illustrated in Exhibit 1: The Innovation Diamond includes the Innovation Dia- the four major drivers of NPD results Dramatic example mond in Exhibit 12 on P&G’s cosmetics business is a case in point this page, are:where a dramatic turnaround was achieved • Having a productvia a disciplined, holistic approach to new innovation and tech-product management. The story begins when nology strategy inP&G acquired the Cover Girl and Clarion place for the busi-cosmetics brands in 1989. Two years later ness;Max Factor was acquired. P&G then applied • Having an effectiveits tried-and-true approach of leveraging and efficient idea-scale and an innovation strategy with a few, to-launch process;big new products. But there was no real busi- • Resource commit-ness strategy, and efforts were scattered and ment, which focusesunfocused. And so, by 1994, management was on the right proj-forced to retreat and retrench. They dropped ects—portfolio man-the Clarion line; and through much of the 90s, agement; andsenior management at P&G wondered if they • People; that is, hav-should be in the cosmetics business at all! A ing the right climatenew line, under the Oil of Olay banner, was and culture, effec-attempted but failed, and the entire cosmetics tive cross-functionalbusiness continued to decline. teams, and senior The turnaround of P&G’s Cosmetics busi- management commit-ness started in the late 90s when business ment to New Product SOURCE: R.G. Cooper, Product Leadership: Pathways to Profitable Innovation,unit management turned to P&G’s Initiatives Development. 2nd edition. Reading, MA: Perseus Books, 2005.© 2000-2013 Product Development Institute Inc. www.stage-gate.comProduct Development Institute Inc. and Stage-Gate International are registered trademarks.
  • NPD PRACTICES “aha” was that there is no one key to success individual new product projects are managed The first element of the diamond is a in product innovation, and thus management so they succeed, using P&G’s idea-to-launch product innovation strategy. Indeed, the stepped back from a focus on individual ini- SIMPL™ methodology. real breakthrough occurred in the Cosmet- tiatives and looked at the broader picture. Coincidentally, the two diamonds—P&G’s ics business turnaround when the business For example, having a great idea-to-launch Initiatives Diamond in Exhibit 2 on this page leadership team began a rigorous business process is not sufficient; it’s not a stand and the research-based Innovation Diamond planning process leading to clearly defined alone driver of positive performance. in Exhibit 1—are almost the same. Each one objectives, goals, strategies, and measures. P&G’s Initiatives Diamond serves as a guide or both can be used to guide your business’s A much more concentrated innovation for each business’s product innovation effort, new product efforts. Here is a quick look at strategy was elected, focusing on lips, face and helps to focus management’s attention the four drivers of performance and how and eyes, rather than the entire body. The on what is important to success. According they work at P&G. battlefields had been decided! to Bob McDonald, P&G’s Vice A second facet of strategy “ Chairman of Global Operations, meant getting the supply chain “The Initiative Diamond played under control: end-to-end sup- a significant role in improving ply network management. the business results in P&G’s The turnaround of P&G’s Cosmetics Management streamlined Household Care global busi- ness unit. This work brought business started in the late 90s when “ the supply network so that production and shipments us a new discipline to manage our innovation programs and business unit management turned to P&G’s were tied to market demand. As a result, they were able to yielded a major increase in the Initiatives Diamond philosophy. reduce the time in the supply in-market success of our initia- network, thereby eliminating tives. We aligned our organiza- much of the product obsoles- tion on how to use Stage-Gate® cence generated with each success criteria, and portfolio and resource Driver #1—A product innovation and new product launch. By focusing first on management to deliver better innovations for technology strategy for the business an innovation strategy for the business, the consumers we serve.”6 Best performing businesses put a product the stage was set for effective Product innovation and technology strategy in place, Development. Connecting selection to strategy driven by the business leadership team and a The message is that if your business lacks The top half of P&G’s diamond in Exhibit 2 strategic vision of the business. This product a product innovation and technology strate- is strategic in nature, and captures the busi- innovation strategy guides the business’s New gy, you are missing a key element of success- ness’s product innovation strategy: goals, the Product Development direction and helps to ful product innovation. This strategy should mix of new products required to meet those steer resource allocation and project selec- include the goals for the business’s product goals, and the required resources. Portfolio tion. In the mid-1990s, P&G’s Cosmetics innovation effort and how these goals tie into management (or project selection) is thus business lacked a business and product inno- the broader business goals. This strategy is closely connected to strategy. The bottom vation strategy, the result being that Product more than just a list of this year’s develop- half of the diamond is more operational and Development efforts were scattered; many ment projects. It has a much longer-term focuses on delivering specific new product different initiatives were launched in many commitment. The innovation strategy also projects or initiatives: what resources must different product categories and segments in includes defining strategic arenas or areas be put in place for each project; and how a futile attempt to win. There was no focus. of focus, much like the Cosmetics business did. That is, you need to define the product, Exhibit 2: P&G’s Initiatives Management Diamond market, and technology areas in which the guides each business’s New Product efforts business will focus its Product Development efforts. The key here is focus. Driver #2—An effective and efficient idea- to-launch system Studies show that an effective new prod- uct process, such as Stage-Gate®, exists in top performing businesses, a system that drives new product projects from the idea phase through to launch and beyond.2 In P&G’s Cosmetics business, developing an innovation strategy was a solid first step, but the means of implementing strategy must be in place too. So management turned to a second element of the diamond, namely P&G’s SIMPL™—the Successful Initiative Management and Product Launch model. SIMPL™ is a stage-and-gate new product process, a methodology for driving new product projects from the idea phase through SOURCE: M. Mills, “Implementing a Stage-Gate™ process at Procter & Gamble,” Association for Manufacturing to launch and into post-launch. (See Exhibit Excellence International Conference, “Competing on the Global Stage,” Cincinnati, Ohio, October 2004. 3 on page 12.) © 2000-2013 Product Development Institute Inc. www.stage-gate.com Product Development Institute Inc. and Stage-Gate International are registered trademarks.
  • NPD P RA CTIC ES The SIMPL™ model forced project teams goal, not merely going through the process. of-customer research; they front end-load to do their homework early in the project. Specific success criteria for each project are their projects, undertaking appropriate, For example, much consumer research work defined and agreed to by the project team often extensive up-front homework prior to was undertaken, and consumer insights and management at the gates; these success development; and they focus on developing gained led to winning new product concepts. criteria are then used to evaluate the project differentiated, superior products that meet One big success is Outlast™ by Cover- at the post-launch review. And the project customer needs better than competitors. Girl. This ten-hour lipstick—a kiss-proof, team is held accountable for achieving re- Note that SIMPL™ is also scalable and is long-lasting lipstick—uses a unique tailored for specific projects based on two-part application system (first a level of risk and size of investment. color and then a gloss) to produce The Main Principles Behind Not every project requires the same an enduring lip color and gloss. A P&G’s SIMPL™ Process degree of rigor, front-end work, and second winner—Lipfinity™ by Max market research. Factor—was also introduced, again • Remember that winning in the marketplace is Use a common language. Through- using the SIMPL™ model. Both new the goal. out the 1990s, each P&G business products have been huge successes unit had developed its own version • Use criteria for making Go/Kill decisions. not only in the U.S., but around the of a stage-and-gate new product world. The turnaround of the cosmet- • Balance risk and rigor. process. Integration, cooperation, ics business was underway! • Use a common language. and measurement across businesses Most companies claim to have a • Keep in mind that SIMPL™ is not stand alone. thus proved difficult with each busi- new product process or stage-and-gate • Practice effective implementation. ness using a different system and system in place, according to a recent different terminology. PDMA study.7 Further investigation re- veals, however, that most firms’ processes are sults when measured against these success A global process deficient. They are poorly designed, they miss criteria. (By contrast, the great majority of The current SIMPL™ process is a corpo- the mark when it comes to best practices, and businesses still do not conduct post-launch rate global process—the same stages, gates, they are badly implemented.2,3 reviews on projects; and even fewer hold principles and measures—and is universal P&G is an exception. Their idea-to-launch their project teams accountable for achiev- across geographies and business units. Each process, SIMPL™, is a rigorous process ing agreed-to project results).3 business, however, is free to adjust and that uses stage-and-gate decision-making Use criteria for making Go/Kill decisions. adapt the process to suit its own business complete with clear go/kill criteria and Not shown in Exhibit 3 on page 12 are requirements. timing requirements. The SIMPL™ model, the go/kill criteria applied at each gate. SIMPL™ is not stand alone. The idea- shown in Exhibit 3 on page 12, consists of Specific success criteria for each gate rel- to-launch process is only one ingredient of four main stages, with each stage building evant to that stage in a set of current best practices in the form are defined for each of key activities, and also clearly defined project. Examples expectations for project team in the form include: expected of end-points. There are also four gates or profitability, launch go/kill decision-points in the model; each d a t e , e x p e c t e d gate is comprised of a team recommendation sales, and even in- and a management decision. terim metrics, such as test results ex- The SIMPL™ Model pected in a subse- P&G’s approach is different from that of quent stage. These most firms’, however. Instead of focusing on criteria, and targets the process per se (like so many companies to be achieved in do), management stepped back and identified them, are agreed to the basic principles that the model is founded by the project team on. These principles are constants across and management many and varied businesses and geographies. at each gate. These But the constancy of these principles has success criteria are helped the company adapt the model to many then used to evalu- different types of businesses and different ate the project at types of projects leading to a standardized successive gates. and globally applied Stage-Gate® process. Risk and rigor The principles which underlie the SIMPL™ must be balanced. model are shown in the box on this page and Project teams em- explained here in more detail: ploy appropriate Winning in the marketplace is the goal. In rigor in learning, many firms, too much emphasis is on getting planning, and deci- through the process; that is, getting one’s sion-making in order project approved or preparing deliverables to mitigate risk. They for the next gate. In the past, P&G was no build in a strong different. By contrast, this principle em- consumer focus and phasizes winning in the marketplace as the rely heavily on voice-© 2000-2013 Product Development Institute Inc. www.stage-gate.comProduct Development Institute Inc. and Stage-Gate International are registered trademarks.
  • NPD PRACTICES Exhibit 3: P&G’s SIMPL™ Process—An Idea-to-Launch Stage-Gate® Model profiling approach to resource planning. The resource profiling method helps to assess fu- ture project resource needs based on learn- ing from past projects, and it anticipates peak resource periods of time. This approach enables businesses, such as Fabric Care, to improve the overall portfolio decision pro- cess by allocating scarce resources to the highest priority projects globally. The most technically complex, resource-intensive businesses use purchased resource manage- ment software. These software tools look at people available versus requirements for specific tasks on individual projects to focus on near-term resource constraints. P&G’s deliberate approach to portfolio management and resource planning (the resource facet of the diamond) has had a strong positive impact, according to Martin Riant, President of P&G Global Baby and SOURCE: M. Mills, “Implementing a Stage-Gate™ process at Procter & Gamble,” Association for Manufacturing Excellence International Conference, “Competing on the Global Stage,” Cincinnati, Ohio, October 2004. Adult Care and formerly President of P&G’s Global Feminine Care and Antiperspirants/ Deodorants business. “Using the diamond successful innovation, a single element of a new product initiatives, and secure the right has had a remarkable effect on our business much larger whole, the Diamond. Individual balance and mix. Through portfolio manage- results. It has forced a much higher level of projects cannot be managed independently of ment, the business built a pipeline of new discipline in how we allocate our resources, other projects, their priorities, resource con- and improved products that established the how and when we make investment decisions straints, and changing business conditions. needed initiative rhythm for each product and in accountability of projects to deliver Thus the Diamond represents the relationship line (face, lips, eyes). New products and what they promise,” he says. between these elements: innovation strategy, upgrades in each product line created news resource planning, project selection, and the and excitement in the market. This “launch Driver #4—A positive climate and SIMPL™ new product process. and sustain” portfolio approach was a key environment for innovation Effective implementation is another area part of winning in the marketplace. People, culture, and leadership make up where most companies falter. Not so at P&G. Best performers like P&G have an efficient the fourth driver of performance of the dia- Because they see the value of SIMPL™, portfolio management system that helps the mond (Exhibit 1). First, senior management everyone uses it—every busi- must lead the innovation effort “ ness unit, every manager, and be strongly committed to and every initiative team. New Product Development.2,3 When A.G. Lafley, Chairman This senior commitment is of the Board, President and If your business lacks a product most evident at P&G where Chief Executive, headed P&G Beauty, he sponsored the innovation and technology strategy, “ Chairman, President, and Chief Executive A.G.. Lafley, early work on stage-gating. He was a believer; he saw it you are missing a key element of makes it clear, “Innovation is a prerequisite for sus- build the business when he successful product innovation. tained growth. No other path was in Japan. Lafley expects to profitable growth can be rigor and uses the SIMPL™ sustained over time. Without terminology. The other com- continual innovation, markets pany leaders also value the process, so business leadership team effectively allocate stagnate, products become commodities, SIMPL™ has become part of the business resources to the right areas and projects.2 and margins shrink,” he explains. culture at all levels. Having a strong spon- P&G splits this resource commitment facet of A positive climate and culture for innova- sor at the highest level was one key to the diamond into two parts: project selection tion and entrepreneurship, combined with successful implementation. Perhaps it is and resource planning. The company relies effective cross-functional teams backed by no coincidence that the earliest proponent primarily on success criteria as part of the strong management support and empower- of the stage-and-gate process is now P&G’s SIMPL™ process to help make better go/kill ment are fundamental to success.3 P&G chief executive. decisions on projects, as noted above. In has focused much effort here in recent addition, a number of P&G businesses have years, which has helped it generate a step Driver #3—Resource commitment, developed screening tools using scorecard level improvement in results. The entire focusing on the right projects and portfolio methods for early decisions and for the selec- innovation effort, together with the Initia- management tion of ideas to enter the SIMPL™ process. tives Diamond and SIMPL™ process, is In P&G’s Cosmetics business, portfolio When it comes to resource planning for sponsored and owned by both the commer- management, a third element of the Initia- projects in the portfolio, P&G’s methods vary cial (sales and marketing) and technical tives Diamond, was next employed to enable depending on the nature of the business. (R&D and engineering) communities. An management to look at its entire portfolio of Many P&G businesses utilize a resource important step was the creation of Initiative © 2000-2013 Product Development Institute Inc. www.stage-gate.com Product Development Institute Inc. and Stage-Gate International are registered trademarks.
  • NPD P RA CTIC ESSuccess Managers who report to each of the communities in which we live and work to es Top Performers, Product Developmentcompany’s business unit presidents. These prosper.” A simple statement perhaps, but Institute, 2003 (www.prod-dev.com).Initiative Success Managers make the dia- one with profound implications to action. 4 R.G. Cooper & E.J. Kleinschmidt, “Bench-mond and SIMPL™ work. Their jobs include To achieve its purpose, P&G relies on the marking firms’ new product performancefacilitating strategy development sessions, four themes—innovation strategy, a solid and practices,” Engineering Managementmanaging gate meetings, leading resource idea-to-launch process, portfolio manage- Review, 23,3, Fall 1995, 112-120.planning sessions, ensuring appropriate ment, and climate and leadership—that 5 As outlined in: M. Mills, “Implementing acapability, and training. And horizontal constitute the Innovation Diamond. They Stage-Gate™ process at Procter & Gam-networks—communities of excellence— can provide a sound framework for guiding ble,” Association for Manufacturing Excel-have been established across business your business’s product innovation efforts, lence International Conference, “Compet-units, so that experts can share leanings. as they have at P&G. w ing on the Global Stage,” Cincinnati, Ohio, Next, strong met- October 2004. “rics are in place. P&G 6 Stage-Gate® is a reg-tracks business results istered trademark offrom new products an- the Product Develop-nually or semi-annually. Best performers like P&G have an efficient ment Institute Inc.,Senior management re-views these results and portfolio management system that helps the “ and is described in: R.G. Cooper, Winningplaces heavy emphasison them. They are key business leadership team effectively allocate at New Products: Ac- celerating the Processperformance indicators resources to the right areas and projects. from Idea to Launch,in the business unit. 3 rd edition. Reading, E f f e c t i v e c ro s s - Mass: Perseus Books,functional teams are 2001.vital to driving new products to market. Robert G. Cooper is the President of the Product 7 PDMA studies: The most recent PDMAP&G has developed a common model to Development Institute, a Professor, McMaster study shows 79% of firms have a formalstructure teams, with a focus on develop- University, and the creator of Stage-Gate®. new product process. M. Adams & D.ing cross-functional team leaders, who can Michael S. Mills, as Manager of Corporate New Boike, “PDMA foundation CPAS studybe from any functional area (marketing, Initiative Delivery at The Procter & Gamble reveals new trends,” Visions, XXVIII.R&D, engineering, etc). These leaders are Company, is in charge of implementing P&G’s No. 3, July 2004, 26-29; and: The PDMAevaluated and rewarded based on how they SIMPL stage-and-gate new product process, as Foundation’s 2004 Comparative Perfor-deliver in the market against their project well as other NPD best practices. mance Assessment Study (CPAS).success criteria. References Winning at product innovation 1 IRI InfoScan Re- There is no magic to winning at product views, New Prod- innovation. Indeed, studies have identified ucts Launches the success drivers that lead to superlative February 2003- performance; and these have been inte- January 2004. grated into a simple, visible framework: the Washington: In- Innovation Diamond.3 The diamond works, so dustrial Research work the diamond! It impacts many facets Institute, 2004. of New Product Development. For example, 2 Details of the In- P&G’s Baby Care business “... has leveraged novation Diamond the business management diamond to look are in R.G. Coo- at our portfolio much more holistically…. per, Product Lead- the diamond has served to align our lead- ership: Pathways ership team and to enable organizational to Profitable In- capabilities to deliver our plan,” says Jane novation, 2nd edi- Wildman, Vice President of P&G’s Baby Care tion. Reading, MA: business. Perseus Books, The real challenge is making the Innova- 2005. tion Diamond and its drivers work in your 3 The APQC bench- business. And here is where P&G excels. marking studies Product innovation is embedded in the identified many very fabric and nature of the company, so best practices much so that it is central to P&G’s fun- that lead to higher damental statement of purpose: “We will productivity NPD. provide products and services of superior See: R.G. Cooper, quality and value that improve the lives S.J. Edgett & E.J. of the world’s consumers. As a result, Kleinschmidt, Best consumers will reward us with leadership Practices in Prod- sales, profit, and value creation, allowing uct Innovation: our people, our shareholders, and the What Distinguish-© 2000-2013 Product Development Institute Inc. www.stage-gate.comProduct Development Institute Inc. and Stage-Gate International are registered trademarks.
  • Stage-Gate International is the worlds leading full-service provider of solutions which enable organizations to improve their Product Innovation and Portfolio Management capabilities and performance. Our clients include 5000+ organizations of all sizes across all industries. +1-905-304-8797 www.stage-gate.comVisit our website and subscribe to receive the latest research, information andcomplimentary articles to keep you current in product innovation!