Creating a “Growth Factory” … How P&G tripled its innovation success rate, and how you could too.
December 1, 2017
Scott Anthony is my favourite innovation guy.
Whilst we have Business Models and Design Thinking, Disruptive Innovation and Lean Startups, Scott focuses on the reality of making innovation happen in the business. The problem with innovation, too often, is that it is the most important thing for the business (it moves us forwards, it makes us better, it creates our future), but also the least important (it is often without a function, a role for everyone but responsibility of nobody, and a nice to have compared to quarterly results). Of innovation matters, and is much more important than quarterly results.
I loved Scott’s work on Procter & Gamble’s “Growth Factory“.
Back in 2000 the prospects for P&G’s Tide, the biggest brand in the company’s fabric and household care division, seemed limited. The laundry detergent had been around for more than 50 years and still dominated its core markets, but it was no longer growing fast enough to support P&G’s needs.
A decade later Tide’s revenues have nearly doubled, helping push annual division revenues from $12 billion to almost $24 billion. The brand is surging in emerging markets, and its iconic bull’s-eye logo is turning up on an array of new products and even new businesses, from instant clothes fresheners to neighborhood dry cleaners.
This isn’t accidental. It’s the result of a strategic effort by P&G over the past decade to systematize innovation and growth. You can read the full story in How P&G Tripled Its Innovation Success Rate. Scott wrote the full story in How to Create a Growth Factory.
Scott’s most recent book is Dual Transformation. When I recently ran a fabulous event exploring “the world’s top 50 business ideas in one day”, the participants overwhelmingly chose this idea, as the most important to take back to their businesses. A+B+C = Dual Transformation.
Sounds simple. But if you think how many companies today are trying to sustain their existing businesses, whilst also creating the future, it becomes invaluable.
A is about reinventing today, optimising and innovating the legacy business if you like without throwing away all its good stuff (like sustaining revenues), whilst B is about creating the future business, the more disruptive ideas and business models that are more risky but could be great. C is how you leverage your relevant assets to support both.
In our recent book Dear CEO, my Thinkers50 colleagues and I asked 50 top thinkers to write an open letter to the world’s CEOs about the most important thing for them to think about. This is Scott’s letter.
It’s cliché to say that the pace of change is accelerating. Indeed, that statement has arguably been true since the renaissance. But something feels different today. Businesses built painstakingly over decades get ripped apart almost overnight. Innosight’s research shows that 50% of the companies on the S&P 500 will not be on the list in 10 years. Many of the companies that will replace today’s giants likely do not even exist today.
Every business leader needs to think about the impact of ever-accelerating change. Broad trends such as the rise of robots and drones, the disappearance of computers into everyday life, everything-as-a-service, and big data analytics promise to bring disruptive change to every nook and cranny of the global economy.
Many leaders describe increasing uncertainty as an existential challenge. Indeed, it causes a leader to question his or her very identity. Most leaders ascended to their current position by mastering the intricacies of today’s business, making rigorous, fact-based decisions. They need to develop new skills to make decisions using judgment and intuition, replacing an optimization mindset with an exploration one.
While the pattern of market leaders being felled by disruptive upstarts feels like an essential factor of capitalism, it carries a heavy transaction tax, destroying know-how formulated over decades and ripping local communities apart. And, it is unnecessary, because the forces that threaten to disrupt today’s business simultaneously creates the possibilities of creating tomorrow’s. Leaders that learn how to bend the forces of disruption in their favor can own the future, rather than be disrupted by it.
Responding to the challenge requires executing what we call dual transformation. Transformation A repositions today’s business to increase its relevance and resilience. Think about how Adobe shifted its core business from selling packaged software to providing on-demand access over the Internet, or Hilti went from selling tools to providing tool management solutions. Transformation B creates tomorrow’s growth engine. Consider how Amazon.com turned an internal effort to accelerate IT projects into a multi-billion-dollar cloud computing offering, or how Nestlé is creating a portfolio of health and wellness businesses.
We call it dual transformation because these two transformations need to be pursued in parallel. This is not unrelated diversification. Rather, Transformations A and B should be connected by a carefully crafted and actively managed “capabilities link” that flips the innovator’s dilemma into an opportunity. After all, while a large company can’t innovate faster than the market, it can innovate better than the market if it combines together unique assets of scale with entrepreneurial energy.
Dual transformation is the greatest challenge a leadership team will ever face. Successfully managed, it reconfigures the essence of a company. Some of the old remains, just as it does when a caterpillar becomes a butterfly or ice turns into steam. But, as in those metaphors, the form or substance of an organization fundamentally changes. Mastering dual transformation requires:
- The courage to choose before signals are clear. The more obvious the need to transform, paradoxically, the harder it is to do it.
- The clarity to focus on tomorrow’s growth opportunities, even if it means saying goodbye to important pieces of yesterday’s business.
- The curiosity to explore in the face of significant uncertainty, and to handle the inevitable false steps, fumbles, and, yes, failures that comes along with moving in new directions.
- The conviction to persevere in the face of dark days, when key executives question the depth of commitment, conflict between today and tomorrow emerges, and fundamental issues of identity threaten to distract or derail progress.
Dual transformation is also the greatest opportunity a leadership team will face. Disruptive change creates a window of opportunity to create massive new markets. It is the moment where the market also-ran can become the market leader. It is the moment when business legacies are created.
To start the journey of becoming the next version of yourself, ask three deceptively simple questions. Who are we today? Who will we become tomorrow? How do we start making the change? Remember that the biggest risk is not the action you take, it is trying fruitlessly to cling to the status quo as the world changes around you.
Leaders that catch disruptive changes early and respond appropriately will have the ability to thrive in the years to come. Those that don’t, well, Darwin has a way of taking care of them.