May 20, 2008
"Fail earlier, fail faster"
Posted by Gordon Smith

That's the innovation strategy adopted by A.G. Lafley, CEO of Procter & Gamble. It's a small part of his interview with Kai Ryssdal at Marketplace. Here is a bigger snippet:

Lafley: First of all, we would get a look at a lot more early stage innovation and early stage product prototypes. When we started in '99, 2000, maybe 10 to 15% of the products we brought to market that were new every year, had an external partner. Last year, for the first time, half of all the new products innovations we brought to market had one or more external partners. So we've almost doubled our "at bats." O.K. And in the innovation game, which is a risky game, more "at bats" leads to more "hits". It's sort of the Pete Rose approach to innovation. You get up more times, you get to swing the bat a few more times, you get a few more hits. That's point number one, and that's the biggest motivator. The second biggest motivator was, when we stepped back and thought about it, what we're really good at is connecting new products and new product ideas to consumer needs and then developing those products and qualifying and commercializing them for the market. We're probably not all that much better at inventing or creating the ideas, so this opened us up to all kinds of idea sources. And we said, "O.K. Let's bring in the ideas from anywhere and everywhere and then we'll do what we do best. We'll play the game we play best."

Ryssdal: Let me continue the baseball analogy here, right. What you're doing in essence by outsourcing all this innovation, is your buying innovation. Sort of like the New York Yankees buy hits, right?

Lafley: I don't know. I'll have to think about that analogy. I think what we're doing is we're running a continual tryout camp and they can be veteran ball players or they could be young ball players. But what we're trying to do is, I don't know how many we look at a day, we can double check this and get back to you, but I'm sure we look at several new product prototypes literally every day. And from those our innovation leaders and our businesses choose some that they then try to co-develop. And that's what we're really trying to do. We're trying to get a lot of players in the game. We're trying to get these players a lot of "at bats" and we think we'll get more hits with more players in the game.

Ryssdal: You write actually, in your book that about half of your product innovations fail.

Lafley: That's right.

Ryssdal: That's not so good.

Lafley: That's the game. That's the game and in fact, in our industry, about 80 to 85% of new products fail in the sense that they're no longer on store shelves, you know, 3 to 5 years after they're introduced. There is a museum in up-state New York that is full of failed consumer products, and we have our fair share there. So, I think we know we're in a game where you fail a lot. Innovation is that kind of a game, and what we are trying to do is improve our success rate. And what we are also trying to do is fail earlier, fail faster and reallocate the resources from the failures . . . the humans, the human capital and the financial capital, so we can put the money against innovations that have a chance to make consumers lives better and become a commercial success.

Ryssdal: You've said that you want innovation at Proctor and Gamble to be a routine and methodical thing that everybody does every day, not just you as the C.E.O. making pronouncements. How does it follow then, that what is routine and methodical continues to be innovation, right? I mean, it's sort of a ...

Lafley: Yeah, it sounds like an oxymoron. The first step or the front end of the innovation process is all about ideation and creativity. That's the idea stage. That's when a new technology is invented or created. But once you have even the crudest of prototypes, once you have a hypothesis of who the consumer target might be for that new brand or product prototype, then we believe you're in a process that you can manage for consistency and reliability, and frankly for higher levels of output. And that's what we try to do. Once we have the innovation and what we call the development stage and the qualification stage, we try to be very disciplined and manage that innovation in a way in that we know whether it really connects with the intended consumer and we determine whether it's feasible, whether it's affordable and whether we can turn it into a commercially viable new brand or product line.

So what do you think of Lafley's "Pete Rose approach to innovation"? By the way, would anyone outside of Cincinnati use Pete Rose in a metaphor like this? Don't you immediately think, "Are they gambling?"

Anyway, while the Pete Rose approach has some intuitive appeal, it reminded me of my experience choosing a casebook publisher. When I was talking to Aspen about publishing Business Organizations (with Cindy Williams), one of my mentors presented me with a fairly stark contrast between Aspen and one of it's competitors. The competitor, he said, publishes a large number of first edition casebooks without much editorial investment, going to a second edition only with those that find an audience. Aspen, by contrast, invests heavily in the first edition, and has a higher success rate, in terms of producing books with multiple editions.

From the standpoint of an author, the difference is very meaningful. And I think the resulting products are different, too. If you are a professor, you may be too knowledgeable of particular books to take this test, but ask a law student sometime to look at a bookshelf with law school casebooks and explain which ones they associate with high quality: the reds, the blue-reds, the blue-golds, the browns, or the maroons. At the time I was negotiating with Aspen, the test was a bit simpler (reds, blues, and browns), but I was surprised by the lopsided results in favor of the reds.

Maybe P&G isn't enough of a brand on its own that it cares about this. After all, I suspect that most of us don't go into a store and think, "Oh, there's a new product from P&G." We think, "Hmm, that Metamucil is now offered in a family size." Or whatever. Still, the Pete Rose strategy seems to contemplate less investment in particular products, so "fail earlier, fail faster" becomes self-fulfilling, doesn't it?

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