Procter & Gamble has a long and illustrious history as being one of our nations greatest innovators. Over its 175-year history, it has become known for breakthrough products such as the first synthetic detergent, the first fluoride toothpaste, and the first stackable potato chip (Dreft in 1933, Crest in 1955, and Pringles in 1968 respectively).
Lately however, the company is losing its momentum, largely because it is not relegating the priority and the resources to its research and development processes. Without ongoing R&D, any organization will lose its cutting edge.
The change seems to have occurred when A.G. Lafley became CEO in 2000. Although Lafley is no longer CEO, one of the significant decisions he made involved the structure and accountability of R&D. Lauren Coleman-Lochner and Carol Hymowitz report the mechanics of that situation (Bloomberg Businessweek At P&G, the Innovation Well Runs Dry 9/10/129/16/12, pp. 2426):
Lafley also decentralized R&D, making business-unit heads responsible for developing new items. R&D chief [Bruce] Brown says that inadvertently slowed innovation by more closely tying research spending to immediate profit concerns. Between 2003 and 2008, the sales of new launches shrank by half. By the time [Bob] McDonald became CEO in 2009, the number of what the company considered to be big product breakthroughs had fallen to an average of fewer than six per year as unit heads focused on short-term results and smaller inventions, says Brown. (p. 25)
Under McDonalds leadership, P&G is working to recentralize much of its R&D. That effort should right the ship.
Profit and loss, both short-term and long-term, must always be studied. Nevertheless, when a company begins to sacrifice its R&D, it is ultimately undermining its product pipeline and thereby its profit pipeline. Hopefully, P&G didnt learn this lesson too late.
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