Lessons on Innovation from the CEO of Proctor & Gamble

The Game-Changer: How You Can Drive Revenue and Profit Growth With Innovation. By A. G. Lafley & Ram Charan. Crown Business, 2008. 352 pages. $27.50.

As the subtitle (How You Can Drive Revenue and Profit Growth) of The Game-Changer indicates, this recent volume by A. G. Lafley and Ram Charan is meant more as a business book, even a business how-to manual, than as an economics text. The stature of the two authors may make this a moot point; Charan is a highly influential analyst of corporate America, corporate consultant and author of books such as Boards That Deliver (2005) and Execution (2002), while Lafley is chairman and CEO of Proctor & Gamble (P & G). Between the two of them, these men regularly make decisions that fundamentally affect the economy. However, that’s not why this book was selected. Rather, The Game-Changer will be discussed for what it shows about the nature of the corporation in a changing economy.

The Game-Changer blends two distinct purposes. It tells how Lafley turned Proctor & Gamble around after being appointed CEO in 2000. The Game-Changer also explains how to innovate, and, as the subtitle suggests, how to use innovation to transform a business and make it more profitable. Since Lafley sees innovation as central to the transformation executed, these two purposes are definitely linked. Often, a challenge at P & G is used as a platform to develop general principles of innovation. What’s more, since Lafley is exceptionally open about how decisions were made, how ideas are developed and what mistakes were made, the sections on P & G are a worthy extended case study in themselves.

The Game-Changer has a number of strengths and weaknesses; like its purposes, these are often interwoven. The co-authorship provides an example. On one hand, it provides opportunities to switch perspectives usefully, moving from inside P & G to outside. On the other, switching points of view from chapter to chapter can be jarring, and it isn’t always clear why the switches occur as they do. (In some cases, I was more interested in the other perspective than the one given. This is especially true when Lafley was discussing things like P & G’s values; he was so caught up in emotionally charged language that he drifted away from reality.) The text doesn’t limit itself to P & G but gives examples from numerous companies—a definite plus. On the other hand, they aren’t as fully realized, and so they become mere sketches or hints at times.Central to the multi-faceted value The Game-Changer offers readers are two definitions. The first is the definition of “game-changer” itself, found on page vii. “Game-changer” is defined seven different ways. All are positive, and it’s clear the definition is meant to be sweeping. However, it also reveals the many potential paradoxes in their endeavor. Are these authors discussing the work of “a visionary strategist” who would reshape things unilaterally? Or the “hardheaded humanist” of the seventh definition “who sees innovation as a social process”? The tension between these two is part of what fascinates about this book and about innovation today; who controls the changing game? The economy?

The second essential definition is of innovation: “An innovation is the conversion of a new idea into revenues and profits” (21). The book goes to draw the distinction between invention and innovation and to explain that, without customers and success in the market, an innovation “is, at best, a curiosity.” From a business standpoint, that sounds pragmatic and perhaps even self-evident. However, notice what this does; it focuses solely on the successful innovations. It removes the learning process, and, because no time scale is provided, is likely to pressure firms to focus on the short-term.

Other tensions define the book and P & G’s struggle. On one hand, Lafley can sum up situations simply, saying, “P & G prices were too high” (9). On another hand, he can discuss his organization’s corporate cultures with phrases that are so cliché they are almost dim. What does it mean to say “P & G is purpose-lead and values-driven” (11)? Seriously. Are their organizations out there that are saying, “We’re proudly purpose-free”? And yet, there’s the much needed third hand on which we must recount the intense complexity of reorganizing an entire corporation, one with highly profitable brands, and realigning how business is done. There is a tremendous gap between the overly simple statements and the deeply complicated information sorting P & G, or any innovative company, must engage in. If you read The Game-Changer, you won’t just be studying Proctor & Gamble or innovation. You’ll get a glimpse at how an organization, even an immensely successful organization, must redefine itself as the economy shifts.

Two details of this redefinition deserve special attention, both for their centrality to the process and because the authors deal with them explicitly: unlike many of us, Lafley & Charan recognize the forces at work on them. The first is a push towards commoditization, a transformation that has blindsided too many firms who thought they’d differentiated themselves in the market. The Game-Changer explains how P & G used innovation to differentiate themselves in a market defined by commoditization. Second, and perhaps the most fascinating part of the book, Lafley describes the lengths to which researchers at P & G go to understand their customers. My favorite is “Living It,” a program developed after 2001 as part of P & G’s “consumer closeness program” (38), in which employees actually live with customers. The description of what they learned from living with lower-income customers in Mexico is striking, and it’s hard to imagine learning such a visceral respect for these specific values any other way. It’s clear that in an information economy, successful organizations may have to become economic anthropologists to get the information they need, and that is changing the game indeed.

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