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Corporate New Ventures at

Procter & Gamble

International Business Theory

Heiko A. S. Johannsen

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AGENDA

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1.Introduction1.1 Procter and Gamble case study1.2 Procter and Gamble

2. Managerial decision making2.1. Characteristics of managerial decisions

2.2 Identifying and diagnosing the problem2.3 Group decisions & group decision management

3. Assignment Procter and Gamble3.1 History of Procter and Gamble3.2 Cornerstones of the culture3.3 The corporate new ventures team3.4 Functioning of the new ventures team3.5 Key success factors for entrepreneurial spirit3.6 Other approaches for corporate new ventures

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1. INTRODUCTION

Amabile and Whitney - Corporate New Ventures at P & G

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1.1 PROCTER AND GAMBLE CASE STUDY


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1.1 Procter and Gamble Case Study

Confrontation of P&G with the pressing demand to rehabilitate theirproduct innovation

High long term goals to double the business every ten years Establishment of a small Corporate New Ventures team (CNV)

Such approaches need management and good structured decision

making, which will be presented subsequently

What does Procter and Gamble do?

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1.2 PROCTER AND GAMBLE


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2. MANAGERIAL DECISION MAKING

Batemann and Snell 2010: Management - Chapter three

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2. Managerial Decision Making

Agenda

2.1 Characteristics of managerial decisions

2.2 Identifying and diagnosing the problem

2.3 Group Decisions & Group Decision Management

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2.1 CHARACTERISTICS OF MANAGERIAL

DECISIONS


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2.1 Characteristics of Managerial Decisions

Uncertainty

Lack ofstructure

Conflict

Risk

Managerial decisions are influenced

by four different challenging forces

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Lack of Structure

Most decisions are novel and unstructured - not solvableby existing structures or procedures

Divide in

Uncertainty

Lack of structure Conflict

Risk

Programmed decisions Nonprogrammed decisions

Frequent, repetitive, routinethere is certainty regarding cause-and-effect

relationships

Novel, unstructured.there is uncertainty regarding cause-and-

effect relationships

Dependence on policies, rules, andprocedures

Requirement for creativity, creative problemsolving

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2.1 Characteristics of Managerial DecisionsUncertainty


Risk

Examples Programmed decisions

Nonprogrammeddecisions

University How many students will beaccepted

Construction of newclassroom facilities

Private What kind of Noodles to buy Buy a house

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Uncertainty

Manager has insufficient information to know theconsequences of different actions

I.e.:

An Important decision under the circumstancenonprogrammed then uncertainty is almost every time

connected with the outcome

Uncertainty


Risk

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Risk

Exists when the probability of an action being successful isless than 100 percent and losses may occur

Manage risk means willing and able to see and topredict different outcomes of a decision

Managers consider all choices within their scope to

operate the risk and reduce it to the lowest commondenominator

If a manager takes important decisions, which are influencingsubordinates, peers or even superiors, he will face resistance Conflict

Uncertainty


Risk

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Conflict

Individual decision makers experience psychologial

conflict

Managers are exposed to various options

These various options are more or less interesting andalways connected with advantages and disadvantages

A manager must take all of these aspects into

consideration

Uncertainty


Risk

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2.2 IDENTIFYING AND DIAGNOSING THE PROBLEM


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2.2 Identifying and Diagnosing the Problem

Identifying anddiagnosing theproblem

Generatingalternativesolutions

Evaluatingalternatives

Making thechoice

Implementingthe decision

Evaluating thedecision

Identifying and diagnosing the problem Current status differs from future expected, past performance or plans

Generating alternative solutions Ready-made solutions, custom-made solutions

Evaluating alternatives Diagnose problem, awareness of all circumstances - past & present

Making the choice Estimate the effect of the solutions & decide for the best, constant check if main

goals met

Implementing the decision Stay visible, take care, establish action plan (time, HR needed, responsibilities)

Evaluating the decision KPIs clear evidence of success or failure 17

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2.3 Group Decisions & Group Decision

Management


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Management Advantages: Two heads are better than one Is this statement really

valid?

If there is enough time - groups usually make higher decisionsthan most individuals

Use of more information possible

Different perspectives adoptable to all kinds of problems

Possibility for intellectual exchange and stimulation

Stakeholders

Loyalty and motivation of decision stakeholders kept if part ofthe group discussion

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Management Disadvantages: Domination

A group member influences the group and leads to a decision he wants tohave

Groupthink Every group member tries not to criticize anybody to keep the spirit

Leads to low creativity and hinders the ideal decision making

Satisficing

Choosing an option that is acceptable even if this is not the best possible

solution (due to laziness or time constraints) Goal displacement

Battle between two team members

Both want to win the fight, and the actual target gets out of sight

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Management Group composition Scientists have different opinions about the perfect group

size

The perfect group size is defined by:

The managers ability to manage the communication, tasksand potential conflicts

The group members ability to interact and influence theothers effectively

Bigger group more effective in generating ideas

more difficult to achieve an agreement

Experience showed that a group, composed with people from various

backgrounds, had the highest outcome21

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Management

Effectivegroup decision making

Leadership1.Avoid domination2.Encourage input3.Avoid groupthink and satisficing4.Remember goals

Constructive conflict1.Air legitimate differences2.Stay task related3.Be impersonal4.Play devils advocate

Creativity

1.Brainstorm2.Avoid critizising3.Exhaust ideas4.Combine ideas

(Batemann, Snell; 2010; p. 101) 22

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3. ASSIGNMENT PROCTER AND GAMBLE


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3. Assignment Procter and Gamble

Agenda

3.1 History of Procter and Gamble

3.2 Cornerstones of the Culture

3.3 The Corporate New Ventures Team

3.4 Functioning of the New Ventures Team

3.5 Key Success Factors for entrepreneurial Spirit

3.6 Other approaches for Corporate New Ventures

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3.1 HISTORY OF PROCTER AND GAMBLE


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3.1 History of Procter and Gamble

Founded in 1837

William Procter (candle maker) James Gamble (soap manufacturer)

to ease the purchase of animal fats

AcquisitionsSpic and Span (1945), Duncan Hines (1956)Clorox (1957), Charmin Paper Mills (1957)Folgers Coffee (1963)

Move into the health care businessNorwich-Eaton (1982), Richardson-Vicks (1985), G.D. Searle (1985)

Largest cosmetics company in U.S.Noxell (1989), Max Factor (1991)

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3.2 CORNERSTONES OF THE CULTURE


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What is culture in a company and how is it defined? Underlies a constant dynamic change

Influenced by all people in the company

People bring certain values and behavior to the organization

Values and behaviors change the culture over time & keep it inthe company from generation to generation

Depends on outside influences

laws, regulations, ethical and cultural background

The culture of a company is the collective experience, routines, beliefs,values, goals and the inside informal and formal system of a company

(Howard, 2008) 28

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What are the cornerstones of the culture at Procter &Gamble

Beginning in 1837 - Founders brought strong religious, moraland ethical values into the company

P&G produces every product between toilet paper and fruit juice

P&G is a grown company which is based on a really deep andbreadth competency

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First Cornerstone: Product development and innovation

P&G invested about two billion dollars in 2010 for R&D

50% more than the closest competitor Unilever

Target to double sales every ten years

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Second Cornerstone: Employees

Since the early years: hiring the best and brightest (sharp

examination)

Nearly impossible to access P&G as a high ranking manager fromoutside

Every manager is grown from a lower position.

Guarantees to keep the culture of P&G on a high innovative & constantproductive level with less negative outside influence

Strengthens the satisfaction of the employees & supports the companytargets

Profit sharing plan established in 1892.

Every employee gets benefit if P&G is successful 1996: about 25% of P&G owned b the em lo ees 32

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Third Cornerstone: Single brands

Brands managed by responsibility of one brand manager (since 1930)

Keeps the competition in the different categories

Expertise tied to brands through marketing, management & single brandtargets

Company stays proficient and focused to its allover targets

Internal competition between different brands is effective and biasingregarding the culture behavior

Competition led to a protective culture

Information i.e. brand strategy only shared with people who need to know

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Fourth Cornerstone: Knowledge

Not shared with everyone

P&G has humongous databases of knowledge

Used to shape the future of the company and to keep it in motion

Cross communication between the divided sectors of specificbusinesses

Fifth Cornerstone: Commitment to the customer Extensive product & market testing before any product gets on the

market

Established products are tested for years to ascertain that it isbetter than competing (Customer satisfaction)

Testing led to an issue connected to the culture in the 1970s34

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3.3 THE CORPORATE NEW VENTURES TEAM


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Lack of innovation:

The Corporate New Venture Teams (CNV) were

establishedto bring back the innovation which was the leading virtueof

P&G

Within every sector one New Venture team wasestablished to explore the different expertise in the divisionand to create new products and categories

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CNV Teams:

Controlled by an Innovation Leadership Team (ILT)

Based on seven main officers of the company(independence of the former sector support systems)

ILT had undergone an examination of the structural issuesof the company and established a Corporate Innovation

Fund to support the NVs

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Problems:

Innovation did not fit within a special sector

Communication between different departments created problems

New CNV team was established (focus on reliable innovationprocess)

ILT

Sector A

NV

Sector B

NV

Sector C

NV

Sector D

NV

FundCNV

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Focusing on reliable innovation process

Consisted of different members from different company sectors

Developed a system of best practices in new product development

Support of external and internal consultants

Able to connect the technical core competencies with a system to generate andselect new product concepts

People with particular knowledge were concentrated in one group, not divided by

sectors or any borders

Report directly to the head of the North American business

CNV External & InternalConsultants

Management

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3.4 FUNCTIONING OF THE NEW VENTURES TEAM


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3.4 Functioning of the Corporate New Ventures

Team

Main goal:

Develop one major new business every year and to createa process for innovation

They established technological and business successcriteria for new product innovations

Work as a contract between management and the team

Regarding the subordinate New Venture Teams

If a team meets the previous set goals they were able toproceed with the project in line with the management

Motivation is promoted - No lack of information

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Team

Small Team:

Brand management, R&D, finance, market research andproduct supply and support

Due to various backgrounds & small number ofmembers

High outcome is reasonable

Ideas are systematic driven:

Understand the technological capabilities of P&G Find hidden consumer needs

Team members have to understand the functions of aproduct by themselves - not with the support of plenty ofscientists

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Team

Support by:

Location and environment

Airy space with plenty of snacks, coffee and inspiring magazines

Advanced information search system

People should go for ideas which they think are interesting

No assigned ideas

Investigation of ideas trough:

Traditional sectors: society science, cultural exploration,demographics

New paths: watching newest blockbuster, go for a walk

Key factor: Identify intersections between various trends

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TeamIdea Evaluation: six stage discipline to refine & create ideas

1. Identify Driving Trends

Supported by international leaders and world experts, who are

able to recognize potential connections between trends andshow product opportunities

Arranged into different trend areas:

Consumer/Demographic; Social/Cultural;

Technological; Regulatory/Environmental;

Political/Economic; Industrial/Business

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2. Identify Opportunity Buckets

Result of the trend analysis

Provided the framework to guide the CNV team to identify theconsumer needs and trends

3. Application Areas

Supported by the consumers: buckets led to usage

possibilities in different areas

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4. Concept Development

Meet the needs in identified application areas

5. Concept Selection Concept selection by the consumers and the evaluation of

potential refinement

6. Establish Priorites

Ideas were put into standard measures to determine possiblesuccess and then presented to the management

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Team

Idea Evaluation:

Idea judgment was influenced by an outside agency

Receive an outside look not connected to the P&G opinions

First time that at this early stage of concepts the consumer

point of view was included

Three main factors:

Determining of basic consumer needs

Evaluation of technological possibilities to provide the product

Determine the business opportunity

After idea approval hand over to the responsible sectors

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Team

Challenges

Ideas did not fit perfectly into a special sector

No involvement of the different sectors to create an ownership

CNV team was not the only creative team

CNV reported to the top management, other groups wereseparating their ideas from the CNV team

Key: the systematic approach to be disciplined during the idea

finding process Important to run the ongoing business and to come up with a

high level of entrepreneurship at the same time

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3.5 KEY SUCCESS FACTORS FOR ENTREPRENEURIALSPIRIT


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3.5 Key Success Factors for entrepreneurial

Spirit

Key success factors:

The right people on the right place

Constant connection to external knowledge databases

Universities, stakeholders, customers from competing

companies

Listening to the market

Motivated and reliable employees (Screening of theemployees)

Internal competition between the different brands Communication (cross connection of different innovation

segments)

I.e.: rotating meetings and communication databases

Managing authority which is responsible of the whole

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3.6 OTHER APPROACHES FOR CORPORATE NEWVENTURES

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3.6 Other approaches for Corporate New

Ventures

Unilever: One of the biggest competitors of P&G

Production of a wide range of food, home and personal careproducts (Magnum ice cream, Lipton or Knorr)

Two global divisions Food and Home & Personal care Organized in business groups - all products organized in

categories

R&D process is organized on a product category base

Category base had the authorization to direct and managethe corporate R&D resources

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Ventures

Innovation process based on an IT tool Developed to facilitate the knowledge process across the products

and business groups

Designed to increase the transparency and the innovation process

for all Unilever employees

Knowledge Management Group (KPMG) Responsible for the implementation of innovation network

Coordination of innovations on the product category level

Group shifted the former divided R&D process from a global, regional andlocal perception to a European point of view in the Food category

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Ventures Problems

Communication between the different units

Cooperation only common within the units and not on a corporatelevel

IT tool bridge the knowledge between the units

Fear of the local organizations to lose control over local power

Important to set a clear structure and goals of the innovationnetwork

Innovation Process Management (IPM) program was established toclearly clarify the tasks

Establish certain rules of communication and behavior to besuccessful

Management to be aware of the innovation process in line with 54

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3.6 OTHER APPROACHES FOR CORPORATE NEWVENTURES

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Ventures Consumer goods player on the global market

Clear defined Innovation process

Innovation culture

based on an internal openinformation exchange

network

Innovative

processes and tools

learning and adapting frombest practice methods

Innovative Partnerships

establishing of networkswith the customers and

stakeholders

Vision and the strategy

target: innovation leader

Innovation organization

innovation teams

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Ventures

Target:

Establish regional organizational units to gain better knowledg& connection to regional and local customer needs

Regional units act independent in sales, marketing, R&D andsupply chains

Information is delivered to the headquarter in Dsseldorf

Basis of the market research are home visits all over the

world Scientists & marketing specialist go into average householdsand observe customers to identify trends and behavior bymonitoring housework and the usage of Henkel or competitorproducts

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Ventures

Interface between information and innovation

Inno-Power-Teams

Every product category Henkel has its own innovation team

Teams are located below the supervisor of a product category

Three to seven members from different company parts

Task

Scan the environment through eight different topics

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Ventures

Topics get presented through regular meetings

Evaluation and weight of topics

Information gets connected and assigned to different years to establish along term five year view

Roadmaps get established

Indication of important strategic fields Clarify where search for innovation should be focused

The puzzle of single information is not useful. Only the linkage of modulesand information leads to success

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Conclusion

Innovation is not based on

I have an idea-light bulb approach

Structured centralized or decentralized

managed system to drive a companysbusiness

Communication, the constant learning processand the linkage of different thinking people is

hereby an important key success factor as wellas the collecting of data from surrounding andinside forces

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Conclusion

The management of all these factors willalways be an important part to get futurebusinesses and brands into the market

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Thank you for your attention!

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