By A.G. Lafley
Since its beginning as a partnership between a candle maker and a soap manufacturer in 1837, Procter & Gamble has been a product innovator. Ivory ("the soap that floats") was invented in 1879; Dreft, the first synthetic laundry detergent, in the depths of the Depression in 1933; Tide, the first heavy-duty laundry detergent, in 1946; Crest, the first ADA-approved fluoride toothpaste, in 1955. Pampers, the first disposable diaper, was introduced in 1961; Pert Plus, the first combined shampoo and conditioner, in 1986; the Febreze fabric freshner and Swiffer mop in 1998; Crest Whitestrips, the first mass-market in-home tooth-whitening system, in 2001.
So it's not surprising that most people think the secret to P&G's success has been steady product innovation. But to grow on the scale that P&G does for as long we have requires more than steady growth in core markets. It requires changes to what Mark Johnson calls in this book "something more core than core." It requires innovation in P&G's basic business models – that is, changes to the way we turn a profit, to the value propositions we offer our customers, to the way we combine our internal and external processes to go to market. Innovations like those we made in 1919, when we hired 450 sales representatives to sell directly to retailers rather than through wholesalers; or in 1924, when we set up the first market research department to understand changing trends in consumer demand; or in 1931, when we introduced the notion of fielding competing brands in the same category; or today, as we move into high-frequency stores in developing countries.
Over its history, in fact, P&G has reinvented itself about once a decade to respond to changes in consumer and market realities and to tackle barriers to realizing transformational growth opportunities. Innovation was among my top priorities during the nine years I served as P&G's CEO, and it remains a critical priority for Bob McDonald, who succeeded me. Over the course of my career, I've come to see business model innovation not as a static process but as a systemic, repeatable, and reliable capability, one that leaders need to build, strengthen, and eventually turn into sustainable competitive advantage.