SHOP CULTURE

AT PROCTER Gamble (PG), the consumer goods manufacturer, they take getting close to the customer, literally. The multinational's Living It programme involves employees, including senior managers, living with consumers for several days, eating meals and going shopping with families. The purpose is to gain first-hand insights into how consumers spend their time and money, how they interact with others and how products and brands fit with their lives.

A parallel programme, Working it, puts employees behind the counter at a small store, providing them with insights into why shoppers buy or don't buy products.

Put together, the two programmes provide managers with key insights into how the innovations they bring to market may make shopping for a product easier or cause confusion at the store shelf for the shopper, and for the person stacking the shelf.

This level of consumer immersion is crucial if companies want to truly connect with their customers, argues Ram Charan, management consultant and co-author with AG Lafley of The Game Changer, how every leader can drive everyday innovation. Lafley is the chief executive of PG, and the book draws heavily on the experiences of the multinational. PG, it reveals, spent over one billion dollars between 2002 and 2007 on research into understanding consumers and it talks to over four million consumers a year. Around 70 per cent of the company's employees have participated in the immersion programmes, and recognition schemes are in place to reward innovative insights that were discovered from this approach and subsequently successfully commercialised.

Charan likes the notion of "the customer is boss", a key phrase used widely at PG. "Close observation of the boss, and her active participation in the process of innovation, results in a more precise definition of the key needs, the price points, the route to reach her, the business model, the cost structure," he explains.

The results of this approach are evident. Over the last seven years, PG has tripled profits, improved organic growth, cash flow, and operating margins and averaged earnings per share growth of 12 per cent.

Charan can relate personally to the customer immersion experience. Born in India, he spent much of his early years helping out in the family's shoe shop. "These experiences stay with you and help shape your thinking throughout your career," he says.

An engineering degree in India was followed by an MBA and doctorate from Harvard, where he joined the faculty. For over 35 years he has worked behind the scenes with leading corporates and his expertise is acknowledged in the areas of leadership, succession, innovation and corporate governance.

Innovation has been an enduring interest for Charan during this period. Everyone is in favour of it and many companies pay lip-service to it, but implementing it is a challenge for organisations, he says.

"You have to create a culture of innovation - it's not just a process. It has to be embedded in the DNA of the organisation. It has to link with all of the business processes. But more importantly, it's about what people do as a routine. Achieving a culture of innovation has to start somewhere and the best place to start is with the chief executive," he says.

In too many organisations, the innovation process is isolated rather than integrated into the whole organisation. A common example of this, he says, is having technology teams develop ideas that are then "thrown over the wall" to the marketing department. Such a mechanical process means key social interactions that enhance innovation are missed, and in most cases will result in failure. Instead, organisations should have a disciplined, repeatable and scaleable process of innovation connecting different parts of the organisation.

The discipline to convert ideas into profitable products or services involves what Charan describes as "a well-engineered, but flexible social process" that glides the idea step-by-step either into the marketplace or into the bin. Rather than following a linear sequential process, where ideas are passed on, different units work in parallel. The process starts with an idea which can be either incremental or disruptive (such as Apple's iPod and iPhone). These ideas can come from within the organisation or from customers or suppliers.

There should be a process for selecting or "greenlighting" ideas that have potential after which a major dedicated effort is made to nurture the idea to fruition, with a team chosen to guide the project along. A project leader needs to be chosen who takes ownership of it and is responsible for funding it, moving it forward or killing it.

The team leader needs to articulate the most difficult challenges to be overcome, access resources to overcome hurdles, agree milestones with the business unit manager and put flesh on the concept by figuring out practical issues such as price points and margins.

Throughout the process, colleagues are engaged so trade-offs are made during the nurturing process, rather than at the end. "Mastering the human aspects of the process makes all the difference in successfully bringing innovations to market," he says.

Sometimes this results in an early culling of projects. For example, a prototype may work and customers may like it, but a breakthrough in the manufacturing process, such as meeting special tolerances and scaling to meet cost requirements, doesn't happen.

Knowing when to kill a product is a vital aspect of innovation, Charan adds, and project managers need to be brave enough to pull a project and try again. Other major causes of failure include the wrong choice of team leader, poor team composition or performance, not listening closely enough to the customer or poor timing.

While managing the innovation process increases the chances of market success, Charan agrees external factors can also lead to product failure, no matter how clever the innovation appears. Recession, currency volatility or the rise of an unexpected competitor, can all strangle an innovation at birth.

A common error managers make is in perceiving innovation as an expensive process, Charan says. "This is a dangerous myth. The reality is that most of the costs associated with innovation, such as investment in manufacturing and marketing, are made after you commit to launching a product, so in reality the innovation process itself is not expensive at all."

After every innovation project, the team leader should write a postmortem. Toyota, Charan notes, has been doing this for decades in a process it calls hansei, or reflection. The carmaker not only explores why something succeeded, but also what could have been done better. Such reviews should be frank, assessing whether it was carelessness of the individuals, temperament, lack of inclusion or a "know it all" pride that led to failure, he says, and what lessons can be learned to do it better next time.

As someone who has access to many of the key boardrooms in the United States, Charan says he is confident from what he observes that the global economy will recover when the current liquidity crisis is worked through. "It's a manmade problem so, while it may take some time, it will be sorted."

Charan adds that he likes the choices president-elect Barack Obama has made for his new cabinet and he looks forward to a period of change in the country.

Charan says while he does not have a specific knowledge of Ireland, the challenge for a country such as ours is to build our innovation base through investment in knowledge - his message neatly in keeping with that of Forfás. "Low costs are no longer a differentiator. You need to create mental muscles," he says.

PHOTOGRAPH BY ISTOCKPHOTO