4: The Design of Procter & Gamble
The chapter opens with a consideration of Proctor & Gamble in the 1990s, when the firm was regarded as being in a restructuring mode: it acquired new businesses, implemented cost-cutting measures, and reorganized its operations by product rather than by geographic markets.
In spite of these efforts, or perhaps because of them, the company was in crisis around the spring of 2000. The cost and difficulty of managing so many moving pieces cause the firm's profit to decline, and created an investor panic that caused the stock to lose nearly half its value. The once-reliable giant was regarded as being "no longer a sure bet for long-term growth."
The board replaced the CEO, and the new leader recognized that the firm was lacking in innovation: there were fewer new products or even brand extensions, it they were taking longer to produce profit, while R&D costs were "soaring." Moreover, the companies to which it was losing market share were not discount brands, but premium ones - an indication that customers didn't want cheaper products, but better ones.
The company set out to build a design function into the organization - but rather than creating a separate unit, they assigned designers to business teams. This unusual step was undertaken to ensure that design thinking was not a separate special-purpose function, but built into the culture of the business. Design would have a voice in every business decision, and it was hoped that the business would learn from the designers.
SIDEBAR: Building a Design Thinking Organization
Regarding the P&G design initiative, it's noted that the executive who was eventually hired for the job turned it down twice. She was wary of the proposition, knowing that the task before her would be a major cultural shift, and doubtful that they had the seriousness and stamina to see it through. In an interview, she cited some of the things that were critical to making the transition:
- Ensure the support of senior management. The organization follows its leadership, and if the top leaders aren't behind an idea - and genuinely so, rather than merely paying lip-service - the organization would not accept it.
- Set expectations clearly. Vague expectations lead to vague support that tends to evaporate - you need a firm sense of what you are doing, how long it will take, and how you will recognize success along the way. For P&G, she set a ten-year timeline with specific milestones.
- Tackle the tough parts first. Rather than taking the safe path of finding "low hanging fruit" to score "quick wins" to build support, she looked to the toughest groups within the company, figuring that winning them would make the rest easier, but it would be a long and hard fight.
- Get help from outside. Especially for a long-standing organization with a proud history and established traditions, many of the insiders are institutionalized. They brought in designers from other industries and hired a lot of talent fresh out of colleges rather than using insiders to create change.
- Expect obstacles. A significant change is not going to be welcomed in a large organization, and there will be many obstacles. Be conservative about how much you will accomplish and how fast, because the existing organization is going to be working against you.
- Show, don't tell. Speeches about what might possibly be accomplished are less compelling than real business results. Be transparent about the process, and the results it achieves, and others will get on board more readily.
Building Design into the Company's DNA
Back to the P&G example, their goal was to create a design-thinking company, not a company with a design department, which tends to become an ivory tower, removed from the world. This involved three components:
- A deep and holistic understanding of the customer
- Visualization of new possibilities (prototyping)
- Flexible operations that can bring ideas into reality
This resulted in changing processes for product development and manufacturing teams, which in turn required a reorganization of the company with units based on products rather than geographic areas. This also made it possible to roll out the new methodology incrementally, one product team at a time.
They created a kind of college, which would be used to instruct teams in design thinking, with "courses" that consisted of a number of exercises that could also be run independently (so a team with a problem in one area could take a course to remediate or refresh their skills), along with creating a team of over 150 facilitators, who would monitor and mentor teams in the process.
One interesting technique is ethnography: sending tea members to a styling salon to observe how women actually used products in the hair-care category, and bringing these observations back for discussion. This put teams in touch with real-world behavior and gave them something other than speculation to develop ideas: seeing the way the customer actually uses products trumps anyone's suggestion of how they imagine the customer behaves.
Martin claims that teams were rather reluctant at first, feeling a certain arrogant certainty that they knew the customer without ever having observed them in the wild. But after a few sessions people began to recognize the value of observation over speculation and adopted a more customer-oriented mentality.
Encouraging Innovation
There's a brief description of changes that were initiated to support design thinking at P&G.
The "strategy review" of proposed operations had previously been largely focused on the data that used historical performance to predict trends in presentations that were lengthy and overwhelming: this was a recipe for producing reliability rather than validity. So these were changed to brief reviews in which presenters were allowed to bring only three pieces of paper and the reviewers asked questions - this put the emphasis on the quality of thinking rather than the quality of data.
Of course, this meant that those who reviewed data could not expect a great deal of data to support an idea, and had to consider the merits of a proposal based on non-numerical logic. This, it is implied, encouraged them to think in less rigid terms and take on greater challenges.
The rewards system for product teams was also changed to reward growth instead of stability - such that those teams that grew new products or resurrected those in decline were at least as well-rewarded as those who merely maintained the performance of stable and successful lines.
Converting Mysteries to Heuristics
Continuing with the P&G case study, Martin observes that their "mammoth" research and development organization was not particularly good at converting mysteries into heuristics. In fact, the R&D department wasn't focused on solving problems, but merely making marginal improvements to existing products.
For example, the original disposable diaper was a genuine breakthrough, a solution to the problem of diaper washing which was a innovation for the firm: instead of creating a washing powder specially formulated to wash diapers, the firm came up with a use-and-toss diaper. But since then, the firm merely focused on making the diaper better.
This is not uncommon for large organizations: they tend to fall into the rut of improving what they already make instead of coming up with new product ideas. This seems profitable given the economies of scale (a small improvement on a product that is sold by the tens of millions adds up), but it is far less efficient than the practice of smaller and more inventive firms, which have fewer resources to devote to doing genuine invention - though they do bear the greater risk of working on ideas that do not translate into products.
The decision P&G made was to outsource half of its product information to sources outside the company, smaller labs that were more interested in exploring new mysteries and developing truly innovative products, while continuing to keep its internal staff occupied with optimizing existing products as well as evaluating the new products that were coming in - because while their own people were no good at innovating, they were aces at making an existing idea commercially viable, which is precisely the discipline that small companies and independent inventors lack.
Martin lists a few successful products that have emerged from this partnership, such as the "magic eraser" sponge (eliminating the need for detergent) and the "stain pen" (a portable stain remover that could be carried with a person to spot-treat stains on clothing).
Driving Heuristics to Algorithms
A heuristic process solve a single mystery, and can only solve that mystery until it is translated into an algorithm that cane be applied as a general principle to a broader array.
The majority of individuals, particular corporate employees earning six figures are more, are one-trick ponies: they have discovered a personal heuristic that works, and apply it over and over. In fact, maintaining a heuristic is in their interest - as if they convert it to an algorithm it can be understood and practiced by much cheaper human resources, so many employees (particularly those such as salesmen, whose personal rewards are closely tied to performance in competition with others) keep their success secrets to themselves.
(EN: As an aside, this is one of the reasons "knowledge management" had such difficulty: employees would be asked to share their success secrets with no incentive, or perhaps a token reward, enabling their firms to make millions while making them less valuable as the custodians of secret knowledge. Thus the fear, and justifiably so, that an employee who gave up his secrets would be considered worthless thereafter.)
In the case of P&G, their expertise at building brands was largely a heuristic that was safeguarded by their best brand managers - who did a remarkable job of building consumer brands, but had no documented process for doing so. Moreover, its best brand managers often took the knowledge they gained off to other firms. Martin names high-profile executives of other firmst (Microsoft, eBay, General Electric, Steelcase, and Intuit) who cut their teeth at Proctor and Gamble.
By observing and recording the activities of some of their best brand bulders, the company began to create a "brand building framework" that documented best practices, and iterated through the model. The result was a process that could be replicated, and gave junior marketers a detailed blueprint for building brands, rather than spending years in apprenticeship to the masters and learning their craft haphazardly by observation and inference.
This is not to say that the process was entirely automated - as much about branding remains highly idiosyncratic - but it did allow its senior brand builders to hand off much of the routine aspects of their work to junior staff and tackle some of the more complex brand mysteries.
SIDEBAR: Wicked Problems
Lost of problems are described as "hard" simply because the solution is laborious and complex - which makes it difficult to see the path to the solution from the onset. However, hard problems are solvable with effort and the individual who is working on them knows what he needs to do to solve them from the onset.
And so, the term "wicked" was coined (EN: by Horst Rittel, a mathematician) to describe problems that are not simply hard, but seemingly unsolvable because it's not a matter of doing a lot of work to solve them, but not having a clear sense of what to do at all.
There are four indicators of a wicket problem:
- The cause of the problem is ambiguous. You can't tell why things are happening the way they are and what causes the problem to occur.
- The problem is unfamiliar. It doesn't fit into any category that you are used to encountering, and your existing problem-solving techniques are inapplicable.
- Complexity increases as you try to solve it. The more you think about it, the more convoluted it becomes, and your perspective must change with each new discovery
- There is no clear solution. Particularly when different stakeholders are involved, each has a different idea of success, and solving for one does not solve for another (and may make things worse)
The traditional problem-solving approach of analytical thinking is impotent in the face of wicked problems, because it relies upon existing knowledge and practices. To solve a wicked problem you have to innovate, and speculate about the possible future rather than relying on past observation.
Designers are often faced with wicked problems. If it were simply a matter of modifying the problem to address a known issue, the engineers would handle it because it merely requires the application of existing principles to arrive at a solution. So when the engineers are stumped, they call in a designer to apply creative thinking.
Martin asserts that "in a world rife with wicked problems" the firms that adopt design thinking tend to succeed where others fail. The struggle for scarce resources, the competition for talent, determining what customers need, and the like are all wicked problems that businesses routinely attempt to solve, and many routinely fail.
Design in Unlikely Places
The practice of design is most commonly associated to new product development and marketing - but it can render benefits in a much broader range of places.
Corporate strategy is an excellent place to apply design thinking. No analytical approach could have guided Proctor and Gamble to reorganize the firm based on product lines instead of geographic territories, nor decentralized the development of new products, two maneuvers which made the firm more effective and nimble in a competitive marketplace.
Design thinking has reengineered the way in which partnerships are managed, financing is allocated, goods are distributed, manufacturing facilities are located, and many other aspects of business.
(EN: In essence, "design thinking" is a function of entrepreneurship, which is a subject that's on the fringes of traditional business education. Per the author's earlier point, managers are trained to maintain business as usual and implement minor process improvements, not to rethink the way business is done, so you need a different kind of brain at the table.)
Martin goes on to cite various results that P&G achieved by becoming a design-thinking organization, but his bottom line is that within three years the company emerged from the morass of being stodgy and outdated - it doubled revenues, slashed costs, and became one of the ten most valuable companies in the world. Such a dramatic transformation should be an effective argument for the power of design thinking.