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The Game-Changer: How You Can Drive Revenue and Profit Growth with Innovation

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Authors A.G. Lafley and Ram Charan in "The Game-Changer" make the case that innovation - the conversion of a new idea into revenue and profits - does not have to follow conventional wisdom that small companies are better innovators because they are nimbler and have a more coherent sense of purpose. Lafley and Charan alternate throughout the book with Lafley, the operating executive, providing the "how' in how he turned around Proctor & Gamble by operationalizing innovation, and Charan, the organizational and business researcher, providing the "why" of its spectacular success.

Lafley admits to some truth in the small company stereotype but he believes larger companies can be just as innovative as small companies, if not more so. Big companies have significant advantages - scale, management capability, and resources to take risks - that should facilitate innovation. But these advantages are wasted due to layers of management that stretch decision cycle times, internal vested interests to maintain the status quo, and the lack of a growth-through-innovation process.

"Game-Changers" outlines the principles(1) of innovation Lafley developed, the how and why innovation changed P&G's game, and the steps Lafley took to operationalize innovation which has led to the consumer-industry's leading organic sales growth rate. He believes that a disciplined innovation process, like that at P&G, can be central to growth for any company, in any industry. He cautions, though, that one size does not fit all, and each company must adapt the principles to their unique circumstances.

Having spent the past 20 plus years in Silicon Valley shepherding innovative medical technologies to the market, I can personally attest that the acceleration of change today is unprecedented. There are many more opportunities today for teams like mine to disrupt and create obsolescence for larger companies. It appears that Lafley and Charan have got the principles right, and P&G appears to have gotten their application right. The remaining questions are: Will this be sustainable? Transferable? Will game-changers(2) become the next "big thing" in operational excellence?

Footnotes:
1. The principles of innovation include: motivating purpose and values; stretching goals; choiceful strategies; unique core strengths; enabling structures; consistent and reliable systems; a courageous and connected culture; and inspiring leadership.
2. A game-changer is: a visionary strategist who alters the game his business plays or conceives an entirely new game; a creator who uses innovation as the basis for sustaining profitable organic growth and consistently improving margins; a leader who understands that the consumer or customer - not the CEO - is boss; a catalyst who uses innovation to drive every element of business from strategy to organization, and from budgeting and resource allocation to selecting, rewarding, and promoting people; an integrator who sees innovation as an integrated end-to-end process, not a series of discrete steps; a breaker of chains of commoditization who creates differentiated and value-added brands and businesses through innovation; and a hardheaded humanist who sees innovation as a social process and understands that human interaction - how people talk and work together - is the key to innovation, not just technology.

I purchased the audio CDs to listen to in the car. It's a four or five CD set. I stopped after the second CD as it got very repetitve.

Most of it is Business 101. Get close to the customer, enable your org to innovate, leverage the existing brand when innovating.....that's about it. The rest of the book is a good run down on Proctor and Gamble. If you want to learn a lot about consumer marketing and branding then there is some good stuff in it.

I started my career at P&G in brand management. And while the learning was extraordinary, I always felt the company was old, bureaucratic and stodgy. I had the opportunity to work with A.G. Lafley quite a bit in my first assignment, as we were both in laundry brands. He always seemed to me outside the traditional Procter mold--wicked smart but a thoughtful, open-minded and really nice guy.

Fast forward 25 years and what A.G. has done as CEO is incredible. Procter is one battleship that I didn't think could turn, much less on a dime. But reading Game-Changer one begins to appreciate what leadership and commitment can do, even in the largest and most traditional organizations.

Game-Changer is an enlightening read. Lafley and legendary author, consultant and scholar Ram Charan often tag-team the writing, each bringing a unique point of view. Sometimes this gets awkward, as the P&G story is interrupted by examples from other companies (which skew a bit from India, making a noticeably unusual sample). But that's relatively minor criticism compared to the richness of the transformation story at Procter, which has become a leader in commitment to innovation and has reaped significant financial rewards as a result.

The beauty of Game-Changer is that, unlike many business books, it is relevant to both mid-sized companies and corporate giants. For the Fortune 500, P&G's experience is a powerful example that radical and dynamic change is possible (see also GE, Whirlpool and IBM). For smaller companies, change is a lot easier, and the P&G model is full of ideas for potential initiatives.

This is a quick and easy read that never comes across as arrogant or self-serving. It does present itself as an arresting example of a new era in corporate management. I would have never guessed that would have come from Procter & Gamble. In fact, here's the thing. P&G has had a legendary track record over its 170-year history. But frankly, it was never considered a great place to work, at least for the brand management folks. Even more impressive than the reignited financials, the company's commitment to innovation and change make it sound like a really terrific place for a smart marketer to ply his/her trade. Now that's an innovation that will pay long-term dividends.
Bill Aho, www.atclevel.typepad.com

In the early years of business on the web, I was on a panel that addressed marketing in the then mostly new Digital Age. There was a senior executive from Proctor and Gamble on that panel who told the assembled marketers that P & G wasn't going to change because "we've got it all figured out."

As we were packing up, one of the other panelists said, "I don't know about you guys but I'm going home and sell my P & G stock. Any company with an executive that high up who thinks they've got it all figured out is going to go down sooner or later."

I remembered that incident while reading Game-Changer: How you can drive revenue and profit growth with innovation by A. G. Lafley and Ram Charan.

Lafley is the Chairman and CEO of Proctor and Gamble. Charan is neck-and-neck in the race with Warren Bennis for "Most Books Co-Authored by a Guru." Each writes parts of the book in his own voice. They are very different voices.

Lafley's voice is practical and down to earth. Here's a quote from chapter 1. "The Game-Changer is about what I have learned over the course of a lifetime in business, but particularly since I became CEO of P & G."

Charan has a more buzzword-rich style. "P & G is one of the few companies that has been able to break the chains of commoditization and create organic growth on a sustainable basis through implementing and managing the integrated process of innovation."

This is a book about the turnaround at P & G. Since Lafley took over, in June of 2000, the company has tripled profits, and improved revenue growth, cash flow, and operating margins. The stock price has more than doubled.

A significant part of the turnaround was the development of a process for managing innovation at P & G. This book is about that process and how it works.

Those are both Lafley's stories. But this is a better book because Ram Charan adds commentary and examples from other firms.

If you want to learn the back story, chapter one will set the stage for you. After Charan's comments in chapter two, Game-Changer is organized into three parts.

Drawing the Big Picture sets the stage for the other parts. The chapter titled The Customer is Boss is one of those chapters you copy so you can re-read it often.

Every company says they are customer-focused. P & G has been known as a customer-focused company for most of its history. And yet it was easy for the customer to slide from the center of the business to periphery.

Chapter three is the best explanation I've seen of what it means to put the customer at the center of your company. I'd love to see P & G or the publisher put this chapter out as a pamphlet.

Part Two is about the innovation process itself. It begins with a chapter on organizing for innovation. This chapter is one of several that include excellent material on innovation at other companies.

If you're not at a consumer products company, you'll get ideas about how innovation looks in other industries. If you don't think a P & G practice will work at your company, the book gives you some other models.

The next chapter, on integrating innovation into your routine, is one of the best in the book because it concentrates on a key point. For innovation to be a real game-changer, it can't be bolted on to day-to-day operations and responsibilities. It has to be part of the routine, even as it challenges the routine. There's great material here on how ideas get killed and the importance of a regular, social mechanism for approving ideas.

After a chapter on the risks of innovation, the authors move to the final part of the book which discusses the culture of innovation. You'll learn how innovation is a team sport and how a leader's job should include innovation.

This is an idea book, not a how-to book. If you want an innovation manual, pass this book by.

But if you want lots of ideas and examples to hold up against the way you do business now, plunk down your money. Even if you only read the chapter on putting the customer at the center, you'll get lots of return on your investment in this book.

Reading his every book, one can observe that Ram Charan is a very passionate advocate of organic growth of businesses through operational efficiency and healthy cash flow. Each one of his books takes up a specific management concept to explain how excelling in that area can lead to profitable growth. For example in "Execution" (Co-authored with Larry Bossidy & Charles Burck), Charan has very eloquently explained the role of flawless planning and execution of strategy in healthy business growth. In "The Leadership Pipeline" (Co-authored with Stephen Drotter, and James Noel), Charan spotlighted the role of leadership in making businesses profitable. Similarly, "Know-How" described how a business can make efficient use of knowledge to stay ahead of competition and witness faster and profitable expansion. Charan's book "The Game Changer" (Co-authored with A G Lafley) focuses on innovation as a core competency in the business world. Reading the book twice and hearing it a few times, I have optimistically mixed feelings about different aspects of this book.

"The Game Changer" is a well-written, well-narrated and well-organized book in describing the academic concepts of innovation and correlating them to the success cases from leading companies like 3M, Nokia, and Allied Signals. The most appealing phrase to me in the whole book had been the description of difference between performance review meeting and innovation review meeting; the former being "a review of past" while latter being "a review of future". If someone wants to promote and manage a cutting-edge innovation program in his / her organization, then this is the book to read, especially the second half. The authors explain every aspect of innovation management from risk & reward to sources of funding, to selling the idea to top management and at marketplace; it covers the whole gamut of innovation in a very articulate way. "The Game Changer" is a book worth reading (or listening).

On the miniscule downside of "The Game Changer"; the boundaries of innovative concepts have been stretched too far citing Proctor & Gamble cases. I had a few soliloquies listening to this book on "a dark desert highway" and asked myself several times if feature enhancement or repositioning a product to attract younger population could be considered innovation.

In a case of innovation at P&G, disinfectants were added to feminine hygiene products to protect against infections, but is it true innovation? If I were to judge this change by Akao's standards (Dr. Yoji Akao of Voice of Customer - VOC fame), it is simply fulfilling an unmet customer need. That reminds me of a very similar case from Toyota; when Toyota introduced ionic breezer in Toyota Camry's air-conditioning system in 2006 and touted it to be an innovation in automotive architecture; they were vehemently rebuked by Asahi Shimbun (leading Japanese Daily) on the grounds that use of a better air treatment system in a car could not be considered innovation.

In another case of innovation about a skincare product, the "Oil of Olay" or the "Oil of Old Lady" as the authors call it. P&G redefined Oil of Olay to appeal to younger women and enlarge the population of women using it. I wondered again if repositioning the product to appeal to more people could be called innovation. Ironically, a very similar example can be cited from Toyota again. Historically, Toyota Avalon is considered an AARP car and the median age of an Avalon buyer in US had been 62 years. In 2003, the Chief Engineer of Avalon program Shigeki Terashi was asked to add some flare to Avalon styling and bring the median age of Avalon buyer down to 46 years. When Toyota ran the ad about re-birth of 2005 Avalon through "innovation" they faced very harsh criticism from Yomiuri Shimbun (another respected Japanese Daily) for misusing the term "Innovation".

VERDICT - "The Game Changer" is worth buying and reading / listening book when you have time!

The best way to win in the world is through innovation. However, you can't wait for a light bulb to go off in some-one's head - it has to be central to goals, strategy, structure, systems, etc. of your business. "The Game Change" is P&G's experience down this path, as well as short vignettes from other firms within Ram Charan's experience. "The Game-Changer" is a book you will want to keep in your business library as an on-going aid.

The first move Lafely made upon becoming P&R CEO was to improve execution - eg. cut incomplete shipments from 3% to 0.4%, and cut prices about 2% from 2000-02. Also moved out of areas without potential for growth or competitive advantage (eg. food and beverage), and into higher margin areas and new markets (especially lower-income consumers in developing markets). P&Gs products were being increasingly challenged by private labels, and becoming commodities.

Lafely began his innovation crusade by establishing a goal that half of new product and technology innovations come from outside P&G (broaden its source of ideas, and break down the "not invented here" problem); at the time it was only 15%. He further focused more on organic (not acquired) growth - less risky. Within that Lafley focused on current consumers, retailers, wholesalers, and distributors. Realistic stretch goals were set (eg. growing 2X the rate of the market or GDP). Segmentation, finding unarticulated needs (eg. reduce the number of rinses required for Mexican users), listening to customers/watching them (immersion) were important tools. P&G served about 2 billion in 2000, 3 billion in 2007 - most of the growth was in developing nations.

Innovations with Tide include becoming a liquid (1984), adding bleach ('89), adding a touch of softener, improved cold water performance, and reducing the amount of water contained. Doubled market share from 1980s (20%) to 40%.

P&G does after-action reports on failed innovation initiatives - usually the problem is failure to pinpoint the target consumer or insufficient market size. Delays in development usually due to not enough assigned engineers. Reports are shared with others.

Improved market research was probably "the" game-changer. P&G went from focus-groups to immersion - eg. working at a store, living within a target group family, building an intense focus on the customer.

P&G uses an organization (FutureWorks) separate from the business units, with a business unit sponsor, for its minor/medium innovations. The sponsor brings pragmatism and takes responsibility for commercialization. The New Business Development organization in each business unit focuses on more substantive new ideas, products, and processes. Most innovations come out of the business unit; sometimes they involved buying new ingredients or licensing, learning from competitors. P&G reinforces innovation with its reward system.

Sometimes advertising/presentation of a new idea is a problem - eg. advertising technology instead of results, combining Downy fabric softner with Tide in a manner resulting in buyers thinking it was only a softner.

I have read all the book reviews about "Game-Changer" on Amazon and the most recent contribution of Mr. Lafley in the Harvard Business Review "What only the CEO can do" (May, 2009). Mr. Lafley wants to make us believe that he has been able to change the rules of the game. Did he really?

As this sounds all too great to be true it has encouraged me to look behind the curtain for search for the real hard performance facts. All I have found so far in my analysis are indications of an excellently run managerial company, but not necessarily undisputable signs of a state of the art innovative company. Over the last 10 years the R&D expenses of P&G have remained flat in real money terms despite the tremendous growth through organic and inorganic growth (esp. Gillette in 2005). The reasons are explained in the Annual Report 2008. It refers to great improvements in R&D productivity - the implicit compounded improvement rate must have been around 5 % p.a. over the last 10 years. And what is more irritating that one has to dig deep into the Annual Report to locate the figures for R&D expenses as they are not shown as a separate line items in the income statement since 2005!

Of course, one needs to consider that the sequential approach of innovation centered primarily in the R&D function could have been changed to a more integrative innovation approach which is engrained into other business functions (boundaryless company). In addition, there may have been a structural shift in the R&D function from (cost-intensive) primary research to (less expensive) application-driven research. Therefore, the pure mathematical calculation of relating R&D expenses to net sales may be somewhat misleading to judge the true long-term innovation effectiveness of P&G.

However, this would all have been quite a feat, which I could even more believe, if we could witness the same improvement rate in marketing and sales expenses. And marketing and sales expenses are 4 times R&D expenses! But to the contrary, marketing and sales expenses have remained a constant percentage of sales revenue: approx. 10 % over the last 10 years! No gains in productivity, but surely a significant increase in distribution power and leverage over the consumer and retailers alike which may have contributed to the margin increase over the years.

In addition, I can see a lot of potential earnings management tools through significant restructuring expenses prior and post to the Gillette acquisition (in total > $ 6 billions) and the Gillette deal itself - worth $ 57 billions. Did P&G overpay in this transaction by issuing a lot of equity? Please note that the ROE of P&G has suffered dramatically post Gillette acquisition. A lot of the acquired goodwill is still sitting in the P&G books (in total $ 60 billions) and post 2006 US GAAP requires only (subjective) annual impairment tests, but no mandatory depreciations of goodwill. And how about the significant stock repurchase program of > $ 20 billions to boost earnings per share (this is the equivalent amount of 10 years of corporate R&D expenses!) Is P&G running out of ideas to innovate?

My comments should not be construed as discrediting Mr. Lafley's achievements in the turn-around of P&G. These comments are more related to the overarching question: How great are those touted achievements - in relation to the company and to the society? How sustainable will the future development of P&G be? Is P&G a truly sustainable and resilient company? Or have the last few years only been great marketing and impression management - managing for the short-term?

In sum: Where is the beef that can be relished by future generations? What are your thoughts? Did I miss something? Over to you!

This book is definitely something... It is very well organized and interesting. I learned a lot about Procter & Gamble's history and achievements. I even learned about John Pepper's call to A. G. asking him whether he's prepared to be CEO. It was a quick phone call. Moreover, I learned about other companies' innovation initiatives that allowed them to be successful. Learning these is very helpful to my work.

Innovation is the center theme of this book. And it's very interesting how simple improvements can provide a huge impact to the business. The book is very informative and it motivated me to do better at work.

The Game-Changer is a 300-page book that contains at least 400-pages-worth of information, which is to say: it doesn't waste words; it overflows with insight; and, it's tightly structured.

The material itself is non-technical and easy to grasp. It de-mystifies innovation, framing it as a manageable process that, among other things, "takes advantage of the capabilities of ordinary people" and happens in companies "as small as my [Dr. Charan's] father's shoe store in India."

Nevertheless - and this isn't a criticism - it's not hard to imagine owners of smaller businesses being somewhat at a loss, upon finishing, about how to put the book's lessons into practice.

Why?

Mostly because the supporting evidence therein stems so much from the authors' experiences with P&G and others like it: companies with multi-billion dollar business units (with "new business development organizations" inside); companies with their own venture capital wings to fund innovation efforts...

The evidence is unquestionably is strong. And impelling. I just think it's removed from Main Street - where even the word "innovation" doesn't usually register.

To the authors' great credit, they've come up with a guide for any business to follow. The general principles and step-by-steps are all in there. It's just that the reader I have in mind may have to do some weeding to get to the actionable parts. For me, the questions to ASK YOURSELF MONDAY MORNING at the end of each chapter are really powerful. I'd like to see a next edition of this excellent "work in progress" (Mr. Lafley's phrase) play up those questions and become even more of a fieldbook - with added tools, stories, and practical tips for the little guys.

In the early 1990's P&G was the number two laundry company in the world with a 19 per cent share. Today, it has a 34 share - nearly double its next competitor. Not bad, not bad at all. This book will help you understand how this consumer behemoth was able to achieve this result and many others.

I will be very surprised if THE GAMECHANGER does not become required reading in many Fortune 500 executive suites. It is not because there is anything dramatically new in it, but because it provides a good look at how Proctor & Gamble turned itself around from being a slow moving organization, poorly rated by analysts to one of the most respected consumer goods companies on the planet.

Credit for much of this turnaround goes to Chairman and CEO A.G. Lafley who took office in June 2000.

The co-authors, Lafley and Charan are corporate superstars. Lafley's contributions to the book are particularly interesting as he provides some excellent case study material on how innovation drove growth for key P&G brands.

The most consistently captivating theme is the reference to "The Boss." No, not Bruce Springsteen, good and all as he is. The Boss is the consumer and if Lafley is to be believed, Proctor & Gamble spends its life trying to satisfy the Boss. I particularly like his phrase of placing a "laser-sharp focus on consumers."

The authors tell us that Innovation is an integrated management process with the customer absolutely at the center. Eight drivers work together to fuel profitable, customer oriented growth. These are
Motivating Purpose and Values
Stretching Goals
Choiceful Strategies
Unique Core Strengths
Enabling Structures
Consistent and Reliable systems
Courageous and Connected Culture
Inspiring Leadership

These eight drivers have fueled P&G's growth as the company focused on two "moments of truth," (Interestingly, no acknowledgement to former SAS CEO Jan Carlzon whom I thought was responsible for popularizing this concept in a book of the same name). These are at time of purchase and time of usage.

Appropriately, as one of the most global of companies, P&G examples come from many different countries and product categories. Immersive in-store and in-home research has gained in popularity at the expense of the standard focus group. This deep dive research allowed P&G to dramatically grow share for Downy Single Rinse (fabric softener) in Mexico, Hugo Boss fragrances and SK-II skin care brand in Japan. I write about the Toyota concept of Genchi Genbutsu (Go to the source and learn) in my book Why Ireland Never Invaded America

One of the underlying themes throughout the book is that Innovation is cultural. You either live it or you don't. P&G's commitment to innovation has even seen it create a joint venture with a major competitior - Clorox. The two got together to create improved product performance for the Glad brand of household bags.

This book is not just about P&G. Other companies referenced in some detail include Nokia, Marico India, Best Buy, Lego, Honeywell and HP. Charan devotes a full chapter to "How Jeff Immelt made Innovation a way of life at GE." Given GE's ongoing struggles, the most apt sentence in this chapter is "It has taken time for GE's people and investors to be convinced." Ya think! Maybe the key lesson in this chapter is Innovation is not easy, no matter what your financial and commercial muscle is.

Overall, a very good read. Whether it will change your company and business depends on you and how aggressively you buy into the cultural aspects of creating an innovative company.