On Course for Innovation

Procter & Gamble stays innovative by committing to its core goal of improving people’s lives, says its CEO, Bob McDonald.
On Course for Innovation

By all accounts, the past few years have been a tough time to be the CEO of a publicly held company. That’s just as true for Bob McDonald, who in 2009 took the helm of Procter& Gamble, headquartered in Cincinnati, Ohio. Prior to becoming CEO, McDonald held a variety of positions within the company, including brand manager for its Tide laundry detergent, vice president of global operations, and chief operating officer. Although McDonald has led the company through a massive financial downturn, he has faced some criticism that, while the company remained profitable, its profits haven’t been as high as some investors had hoped.

That, he says, is part of being CEO of a 175-year-old business giant, whose brands—which range from Pampers diapers to luxury perfumes like Dolce & Gabbana—are used by consumers worldwide. McDonald notes that P&G weathered the recession by staying true to its emphasis on broad-based innovation and to its overarching mission: to touch and improve the lives of people every day.

For his business and managerial leadership, McDonald will receive Beta Gamma Sigma’s 2013 International Honoree Award at AACSB International’s conference and annual meeting in April in Chicago, Illinois. Here, we ask McDonald about his role at the company, his approach to mentoring, and his perspective on innovation.

You became P&G’s CEO after serving in the military, earning your MBA, and then moving up within the ranks of the company. Which of these experiences have been most valuable in developing yourself as a leader?
They were all valuable, but often I did not recognize at the time just how valuable they were going to become. For example, when I joined the company, most of our business was in North America, and almost every senior leader was based in Cincinnati. When I was asked to move to Canada and then later to Asia, my first reaction was that I had done something wrong! My managers recognized how important Asia would become for P&G, and they wanted to ensure that future managers like me had firsthand experience of these dynamic markets.

You succeeded A.G. Lafley in 2009. Did you feel more pressure to carry on his legacy or to follow your own brand of leadership?
My most important consideration is to ensure that the organization is stronger after my tenure than it was before I accepted this role. That has been the duty of every CEO in our company - including great leaders like John Smale, John Pepper, and A.G. Lafley. They understood the fundamental importance of listening and constantly asking “why?” until they uncovered the essential insights they were looking for.

P&G is known for its approach to innovation. How do you structure operations to ensure that P&G’s employees stay innovative, particularly during financial downturns like the one we just experienced?
Innovation has always been a critical driver of the company’s growth. Many of our innovations have been what we call “discontinuous”— in other words, totally new to the world. Despite these successes, we recognized in the early 2000s that only 15 percent of the company’s innovations were meeting their expected revenue and profit targets. We recognized that we needed to create a structure that systematized innovation and enabled us to produce a reliable, repeatable stream of breakthrough or discontinuous innovation.

One part of that strategy is P&G’s Connect + Develop initiative, which invites people inside and outside the company to submit their best ideas.
P&G started its Connect + Develop open innovation program more than a decade ago, when we saw that collaboration outside our company would enable us to accelerate our innovation and deliver breakthroughs. At the same time, we knew that some of our innovations might reach more consumers if we shared them with partners who were better suited to maximize the benefit of what we’d developed.

We set a company goal—to have at least 50 percent of our innovations come, in a key way, from external collaboration. That goal helped drive our internal culture from one of “invented here” to one of broadscale collaboration. Today, more than 50 percent of our innovations are done with partners from all over the world, from academia, research facilities, SMEs, other global companies, individual entrepreneurs, and even some competitors.

How do you manage this initiative?
We manage the C+D program on three key fronts. First, we have a Web site that accepts innovation submissions from anyone, anywhere. All submissions are reviewed by a team of experts. Second, we have an internal C+D team that works hand-in-hand with the company’s top leadership to understand what each business requires to meet existing or emerging consumer needs. That C+D team then works with established global networks—including academia, current partners, and innovators—to find innovations to fulfill those key business needs. Third, our teams around the world are continually looking for emerging innovations or developed solutions that might accelerate our work in all areas of innovation, from packaging and processes to new business models, technology, and in-market products.

Why do you think C+D works? What have been some of the best ideas to come from it?
C+D works because it’s rooted in, and continues to develop from, the core belief that together we can do more than any of us can alone. Coupled with that is a commitment to develop partnerships that deliver a three-way win: for the consumer, the partner, and P&G. Several examples of products that have resulted from C+D work include Mr. Clean Magic Eraser, Olay Regenerist, Swiffer Dusters, and Tide PODS.

What do you think business students should most understand about the nature of innovation?
That innovations are based on insights. Today’s students cannot gain insights unless they can make connections, both inside and outside the classroom, inside and outside the business. They should never stop asking “Why?” because that will lead them to those insights. They need to have the mindset that there is a better way and try to approach life in a state of constructive dissatisfaction.

Students need to have the mindset that there is a better way. they need to try to approach life in a State of constructive dissatisfaction.

When you were hired at P&G in 1980, A.G. Lafley became your sponsor and acted as a mentor to you. If you were guiding someone coming into P&G today who could potentially become its CEO 30 years from now, what advice would you offer that person?
am a mentor to a number of people both inside and outside the company, because I too benefited from the counsel of others during my career. My advice to others at the beginning of their careers—either at P&G or another company—is to engage fully. Be part of the conversation and listen carefully. You should never stop learning and trying to search for answers, and you should realize that those answers could come from anywhere and anyone. That’s why it is so important to create and foster connections and networks. We are much stronger as a team than we are as individuals. We all have unique qualities that we can bring to a discussion. A diversity of experiences, skills, and perspectives is critical to problem solving.

If you were designing a business course today to help develop those skills, what content or assignments would you be sure to include?
That is a very difficult question, and I’m not sure that I’m truly qualified to answer it. But I can tell you what I say to students at our management colleges and what I share in presentations around the world. First, know that our world is changing, so embrace change and use it as a source of inspiration. Second, have a passion for learning, and nurture it for your entire life. Third, truly understand your audiences, spend as much time with them as you can, and listen intently to what they tell you. Fourth, treat people the way they want to be treated, not the way you would like to be treated. Finally, always choose the harder right rather than the easier wrong because that will define you and your work.

In a video with Cincinnati. com, you noted that the company now receives 1 million applications for 5,000 jobs. What sets apart the candidates you end up hiring?
Those candidates are looking for a meaning to their lives. Yes, they want to work and earn a good living, but they also want to know that what they do has a purpose greater than themselves. At P&G, our goal is to touch and improve lives, whether through creating a new product, building a new school in China, or helping to provide clean drinking water to an African village. We are constantly searching for individuals who share that same purpose. It was that purpose that brought me to this company more than 30 years ago, and it is that purpose I have tried to live every day since.