Breakthrough is the key word at P&G. But can it break through to a more open management culture?
Paul Polman, UK general manager of the consumer goods giant Procter & Gamble, is in ebullient mood. 'How have things been going for you in the New Year?' he breezes. 'For us they are picking up at an accelerated pace - which is what we like.'
Somehow, in a less than fizzy UK market place where every percentage point of sales growth is fought for tooth and nail, P&G has been turning in some spectacular performances. Last year, sales of its Pringles crisps brand rocketed by 61%, making it the nation's second fastest growing brand among the top 100. Add the 22% growth experienced by Always sanitary towels to its recently acquired Tampax brand and it now dominates the sanpro market. Meanwhile it is tightening its grip on the haircare market with three out of the four brands, and sales of Bold, its number two detergent, mushroomed by 28% last year. If Bold carries on this way, it could soon overtake arch-rival Unilever's flagship brand Persil. P&G now commands a 52% share of this core £750 million machine-wash market, compared to rival Lever's paltry 24%, according to market researchers Taylor Nelson AGB: as Management Today reported in its November 1997 issue, Unilever chairman Niall FitzGerald is debating Lever's future.
But compared to the targets P&G is now setting itself, these performances seem modest. 'Break-through' is the word that keeps on popping up in P&G-speak nowadays - breakthroughs in all manner of spheres that will propel this 160-year-old company towards its target of doubling its £22 billion business over the next 10 years. By the new millennium P&G should not only be big in household and paper products but could have broken through in food and beverages, cosmetics, toiletries, fragrances, over-the-counter medicines using 'breakthrough consumer-preferred technologies,' declares John Pepper, P&G's chairman and chief executive. 'We are working at record levels to create totally new categories ... (and) filling the upstream product pipeline with truly breakthrough ideas,' he explains.
Examples include the already launched Olean, a fat-free, calorie-free cooking oil whose fat molecules pass through the body undigested; Febreve, an odour remover which literally absorbs odours (currently on test in Plymouth); Dryel, which enables consumers to do home dry-cleaning using a tumble dryer; Thermacare, an external heat analgesic which relieves back and menstrual pains; and Fit, which rinses bacteria from food. 'Hopefully,' comments Polman, 'they will be global brands: the next Pampers or Always.'
But P&G's search for breakthroughs doesn't stop there. It is going all out to break through to leadership positions in 'white space' markets such as China and eastern Europe, where per capita annual sales are 20 times lower than in western Europe and the US. Meanwhile, in stodgy western markets it's gunning for growth using initiatives like Efficient Consumer Response (ECR) to form win-win partnerships with retailers. These transcend traditional adversarial buyer/ seller haggling to help bake a bigger pie by 'better serving the one customer we both share: the consumer'.
Hoped-for breakthroughs don't stop there either. P&G is also looking for 'breakthrough efficiencies'. Last year it cut $1 billion in operating costs by simplifying product ranges and standardising processes across the globe. It will do the same this year, it promises. Meanwhile, it's halfway through Marketing Breakthrough 2000, a programme which commits itself to 'get out in front and lead ... a world of marketing that is changing very rapidly, particularly for media' and to cut total marketing support from around 25% of net sales to 20% 'so that our premium versus own-label is less of a barrier to the growth of our brands'.
The whole point about this word, 'breakthrough', explains Polman, is that 'if it is breakthrough, it is conceptual and intellectual leadership.
If it is not breakthrough, you are probably in the game of catching up with the competition. If you don't make the dust, you'll end up eating it,' he adds, obviously warming to his theme.
This is all very exciting. But just how big a challenge do these hoped-for breakthroughs represent for P&G managers? Some of them are little more than business as usual. P&G is already adept at bulldozing its way into emerging markets.
And with an reserach and development budget of $1.2 billion and an army of PhD research scientists numbering more than the universities of Harvard, MIT, Stanford, Tokyo and London's Imperial College put together, 'breakthrough products' should never be too far away.
Closer to P&G's heart, however, things get a little more difficult. The picture Polman paints of his enterprise is one driven by a 'high-performance culture' where 'creativity can blossom' with 'a healthy appetite to question the status quo', and where risks can be taken and 'everybody can be his own person'. It is a culture which is 'externally focused', open to ideas and influences from outside and, through win-win alliances delivering 'discontinuous step changes' in performance. 'What we are after,' he declares, 'is revolution.' There is, however, just one problem: the contrast with the culture competitors, trading partners and employees know - with what appears to have made it successful in the past - is stunning.
The reality of P&G today is that it is formula-driven and risk-averse.
Its obsession with secrecy rather than openness is well known. Employees who divulge information to outsiders without permission are likely to have their stock options revoked, and in one celebrated case, P&G's senior managers even resorted to tapping employees' phones at its Cincinatti headquarters to find out who was talking to a Wall Street Journal reporter.
Rather than everybody being their own person, P&G employees are best known for being clones. 'If Proctoids were told to wear their underpants outside their trousers they would,' declares one critic. 'From day one you are taught to speak, write and think in a certain way,' recalls a former senior health and beauty brand manager. Far from being a culture that delights in questioning the status quo, it is deeply conservative, he notes. 'I can go along to the P&G Club (a club of former Procter & Gamble brand managers) and sit down next to someone perhaps 30 years older than me, and there will still be plenty to talk about because things haven't moved on that much for 30 years,' he says. A former senior executive with 20 years of line management under his belt agrees: 'P&G is a pretty laced-up company.'
The same goes for risk-taking. Constructing a business case for a new product was 'the most difficult thing to do', remembers another former brand manager from the haircare sector. 'They do not commit any money unless they are absolutely convinced.' No product can be launched until every nook and cranny of its performance - and likely consumer reaction - has been explored and quantified.
Every detail of costs and returns are scrutinised. If there is any doubt at all, the project falls.
Caution also characterises P&G's approach to marketing and advertising.
It is very rare for a new product to hit the market without at least 18 months of rigorous trials. Competitors can sometimes get there in three months. 'You could spend six months writing a price increase recommendation, and it would go backwards and forwards,' remembers P&G alumni Kevin McCarten, now marketing director at J Sainsbury.
P&G's advertising strategy, which resolutely focuses on demonstrating its superior product performance (despite the derision of ad agency creatives) 'may not have ended up with brilliant advertising', concedes Mike Durham, P&G's former head of advertising development in the UK. 'But our whole philosophy also meant we were unlikely to end up with bad advertising.' What P&G was doing, he explains, was 'playing the percentages' - a reference to the American football strategy which rates the chances of winning the game much higher if you advance three yards at a time, rather than making spectacular kicks 50 yards forward. But 'it is the 50 yards touch that gets the crowd on its feet,' notes Durham.
For many, such an environment is stifling, not stimulating, as Polman hopes it to be. 'You paint by numbers at P&G,' says the former brand manager from P&G's health and beauty arm. The former haircare brand manager agrees: 'I really didn't enjoy working there. You had to toe the party line, and I began to question it more and more and more. If I had stayed, I would have become a cog. I felt I was being brainwashed.'
The contrast between P&G's stated wish to build win-win alliances and the attitudes of its trading partners is equally stark. They have long seen P&G as arrogant and pushy, giving it the nickname, Push & Grunt. European president Harald Einsmann - a protege of former P&G chief Ed Artzt (nickname: The Prince of Darkness) - recognised this recently when he opened a speech on the subject of alliances with the following: 'You might think that when we talk about winning, it's P&G wins and everyone else gets beaten up.'
During the war with Persil Power (when P&G successfully unleashed a ferocious PR campaign to force arch-rival Lever to withdraw the product because it 'rotted' some fabrics), P&G's unpopularity with the UK trade meant it could not persuade retailers to withdraw the product. 'The UK trade was disposed to support Lever,' remembers Mike Handley, chief executive of McBride, the firm that supplies the major multiples with their own-label washing powders.
Retailer suspicion of P&G remains, despite its pioneering of win-win ECR philosophies. With ECR, 'P&G is clearly choosing to play the power game,' says one still-sceptical source close to ECR Europe, the body leading the European ECR industry initiative. 'On the surface, they are choosing the co-operative way but only for their self interest. They are surfing on the common language, making use of the transparencies and using all the new insight to play the power play more fiercely.'
How do such character traits square with P&G's vision of a breakthrough future? Most of the time, insists Polman, critics simply misunderstand the strength and wisdom of P&G's approach. And where they do have a point, P&G is already changing - or accepts the need to. If P&G seems hidebound by a formulaic approach to business, it is because it works so well. 'They (P&G) have always had absolute clarity,' notes Paul Edwards, chairman of the Henley Centre and a former Unilever brand manager. 'They really do know what they are doing, and everyone there knows why they are doing it. X washes whiter because of ingredient Z. So the R&D people know they have got to have an ingredient Z, the factory people know that Z has got to go in, in the right quantities, marketing people know they have to communicate that X is all about washing whiter because of ingredient Z - it goes through the whole company. People bang on about making marketing the responsibility of the whole company. P&G have always done it.'
Likewise, you can be innovative and risk-averse, insists Polman. 'In the interests of maximising shareholder value, you need to be sure that the initiatives that you do are well researched,' he says. Often competitors have been faster, but 'the thing is not to be there first, the thing is to get it right first'. Likewise, in advertising. In categories such as cosmetics and fragrances, where demonstrable product superiority isn't so relevant, P&G is on a learning curve, says Polman. 'Don't forget it was less than 10 years ago that we went into a lot of these areas.'
But in its core business, P&G's strategy of relentlessly 'playing the percentages' has proved itself time and time again, he adds. 'We are more a technology company than a marketing company,' explains Polman, and P&G's advertising reflects that. 'If you can create a big enough technology win versus competitors, then there is nothing wrong with communicating it. It might not be emotional, but it is certainly very effective.' Andrew Czarnowski, a client services director at market researchers Taylor Nelson AGB, who tracks the performance of P&G and its competitors, agrees. In market after market, 'they have done that P&G type thing. They have added another share point each year. You don't notice them. But 20 years on, suddenly they have got more than half the market.'
Critics of P&G's internal culture also miss the point, insists Polman.
Its whole approach to people development is what makes it so strong. P&G's policy of promoting only from within means that for it, 'people development is equally important as business development', he argues. 'It puts an incredible premium on people. When we hire people we literally go out there with the mind-set that we might be hiring the next CEO.' In contrast, 'if you look at some other companies, where people come in from the outside, they might have different agendas, taking their own interests ahead of the company's interests. In the P&G culture, people will be working together for a long time to come. For example, I have worked in six countries in the last 17 years with P&G, and when I came to the UK I met again people I was working with five to 10 years ago. So you invest in relationships.'
This 'all in the same boat' atmosphere is enhanced by P&G's remuneration practices. It was the first company ever to introduce profit-sharing (in 1887) and to offer stock to its employees (in 1892).
Today, 26% of P&G stock is owned by its employees, and even a line operator with 30 years' service in the US (where pension regulations are different) can retire as a millionaire.
Says Polman: 'We are driven by a firm belief that the interests of the company and its employees are inseparable.'
Even ex-employees who couldn't hack P&G's cult-like culture are prepared to admit its power. 'In retrospect,' admits the haircare brand manager, 'I have to give them respect.' In comparison, 'other companies are very open'. But the very fact everyone was 'toeing the party line' - along with the P&G practice of promoting senior managers partly on the basis of the success of their subordinates - 'really did harness people's energy.
If you had a proposal, people would treat it seriously. You always felt quite safe.' Members of the graduate entry scheme were 'like the chosen people', she adds. 'They were really treated like stars. P&G made them feel like very special people capable of doing anything - and they then went on to prove P&G right.'
Painting by numbers doesn't necessarily stifle creativity; it can channel it, adds the former health and beauty brand manager. It means that no time is wasted trying to re-invent the wheel.
At P&G 'some incredibly bright people set the bible of marketing and have refined it over time,' he notes. 'They provide a very good academy for young people to come through and take over the stewardship of relatively large businesses - without the company taking on a particularly large level of risk.' Adds Durham: 'People talk of 'Proctoids'. But believe me, there is no cookie-cutter mentality. I am still amazed and gratified at the differences individuals can make.'
But what Durham is talking about is creativity within the system. What P&G now needs, is to change that system itself. Through a remarkable set of innovations such as the brand management system and the soap opera - an advertiser-funded editorial environment to create mass audiences for advertisements - 70 years ago Procter & Gamble acted as the midwife of modern mass marketing. The 'painting by numbers' culture that it developed perfectly suited this environment.
Today, P&G is having to rethink the principles it pioneered so long ago. P&G now needs an externally focused - as opposed to internally focused - culture to keep pace with sweeping transformations of technology, consumer attitudes and globalisation, argues Polman. 'The explosion in technology in and outside the home is just exponential,' he notes. And consumers are changing rapidly.
They are more sceptical, more analytical, more aware of different options. They want to be in control.
In such circumstances the 'push' marketing strategies which the company traditionally excelled in are becoming less appropriate. Polman describes P&G's traditional approach as 'put a lot of media out there, put a good product out there, and tell them to buy it'. Now, it recognises the need for 'a fundamental change in the way consumer products are introduced, marketed, shipped, and sold to consumers'. It is having to search for different ways of 'bonding' with consumers, different ways of reaching them, using more 'individualised marketing (based on) interactive relationships of mutual respect', he notes. 'And that requires quite dramatic changes in the way we go to market.'
At the same time, P&G's new intakes of IT-literate graduates expect to work in a different environment, one that 'requires less hierarchy, a high degree of autonomy, and empowerment in decision-making which is much lower down the organisation', he notes. 'The old command-and-control environment that existed when the world wasn't moving so fast really has to be changed.'
Achieving both, simultaneously, in a way which keeps pace with the rate of change outside and doesn't undermine its traditional strengths, is now the challenge facing P&G. The old ways of working are now deeply embedded in its processes, skills and mind-set. As one former senior employee remarks: 'Their weakness is the other side of their strength. They are not going to make any big mistakes but they are going to have to step-change to make a brighter P&G.' And step-changes are exactly what breakthroughs are about.
P&G's core value set will probably stay the same, insists Polman, 'what is changing is the way we make those values come alive.' But making that change won't be easy. 'In my view, you should not follow a path, because that probably brings you to where someone else is,' comments Polman. 'You should make your own trail and explore new territory.' Now, in the search for a New! Improved! company, P&G is having to do just that.
What counts for would-be managers
The formulaic approach to business is the hallmark of P&G's overall style, pervading everything it does. P&Gers only write memos, for example, on one sheet of paper. Every business proposal (on that one piece of paper) follows the same format: the key element of the proposal and its rationale; why it is in line with strategy; why it is proven it will work (it must produce a pay-back within three years); and why this proposal amounts to the most cost effective use of P&G money.
P&Gs detailed brand management manuals are legendary. Marketing support comes in at 25% of sales, with a rule-of-thumb breakdown that 50% will go on TV advertising, 25% on promotions, and 25% on indirect brand support, and so on.
Even recruitment processes follow the same formulaic approach. P&G has developed a list of six 'What counts' factors for would-be managers, such as thinking and problem solving skills, leadership skills, creativity, interpersonal skills and so on. Interviews are conducted on the assumption that what the individual did in the past is a good guide to the future.
So the interview focuses on scoring the individual's former life against each 'what counts' factor: strong, weak or indifferent. 'You match experience statements to the what counts factors, then you quantitatively add up how many points they've got. It is very data-driven, and quite extraordinary' explains one former P&Ger who was closely involved in the process.