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Dialogue: P&G’s Quest for Growth

Posted By Paul Tate, January 04, 2011 at 12:26 PM, in Category: CPG

It’s been more than 170 years since two European immigrants, an English candle-maker and an Irish soap-maker, married two Cincinnati sisters and heeded their  father-in-law’s advice to form a business partnership: Procter &  Gamble. The humble family business they began in 1837 has since become the largest consumer products group in the world. Today, the $77 billion company is on a global mission to reach a billion more customers worldwide and fuel 5% growth every year.

In an interview with Manufacturing Executive, Procter & Gamble’s president of Global Business Services and CIO, Filippo Passerini, tells Executive Editor Paul Tate about digitizing the company, and how combining a revolutionary approach to service-driven IT with a forward-thinking pursuit of innovative, digitally rich, new business models helps support P&G’s quest for growth.

Q: How does P&G’s Business Services group drive market success?

A:  On one hand, we aim to make the company more and more efficient and to operate cost-effectively. On the other hand, we want to create breakthrough opportunities in innovation. So the role of shared services is to  support all the operations of P&G around the world, whatever is shared between all the operating business units. But we’re also responsible for innovation on the technology side and creating new  business models.

In manufacturing, specifically, it is ensuring that technology enables a fast changeover in the production line and captures information to populate decision support systems, which, in turn, allows us to eliminate faults and operate our  manufacturing facilities, manufacturing systems, and processes much more effectively.

Q: What excites you about your role at P&G?

A:  It’s the ability to help the business operate more and more spontaneously, in real time. We are the largest CPG company in the world. We operate in most markets worldwide. We have more product categories than all of our competitors, so the opportunity that we have is to leverage our scale. To do that, we need to digitize the way we work and constantly operate our systems more and more in real time, which means eliminating interfaces, eliminating “sames,” eliminating downtime. That’s what operating in real time is all about. That’s the challenge.

Q: So what keeps you awake at night?

A:  The big challenge is that we are already an $77 billion organization, and we want to continue to grow 4, 5, or 6% per year. That means we need to add $4-5 billion a year to our revenues. And we want to reach more markets worldwide, so we’re on a quest to reach another 1 billion consumers. As you can imagine, technology will play an instrumental role here because we need to be able to provide more and more products through distributors who operate in developing markets. This is certainly a challenge.

The other issue is that although we are an $80 billion company, how can we make it operate like a nimble $10  billion operation? It isn’t either we’re big or we’re flexible. We need to be big because this gives us a lot of scale, but we also want to be agile.

Q: What drives P&G’s technology strategy?

A:  We drive globalization in all that we do. We’re considered one of the most integrated companies from an IT standpoint. For example, we operate all of our money function systems on SAP on one instance. This is very important because the way we manage our product categories is global, so the ability to move finished product worldwide is significantly enabled by SAP standardization. And we’ve done it.

Our warehouse operations, shipping, and supply chain systems are also very standard. And we integrate a lot of technology in our manufacturing, across all production lines, all the way up to top-level systems.

The way to think about it is that we standardize horizontally and integrate vertically.

Q: You renamed P&G’s IT group Information Decision Solutions. Has this made any strategic difference in how it operates?

A:  Yes, very much so. It’s been important from an organizational standpoint. It’s been a cultural change, a cultural shift, so people now feel like they are businesspeople with a background in technology and systems, but  fundamentally they are not IT anymore. They are really people who try to understand what is good for the business, and try to influence and play a leadership role.

We think it is important to de-emphasize the word “technology,” and to focus more on what we want to do, which is really creating information for our company and building solutions. Our focus is on all the business process re-engineering and transformation that can help the company make decisions faster, flatter, and simpler.

We have also created an idea that we call “float the work,” where most of the people don’t operate in organizational silos anymore. We prioritize our portfolio, and then we assign people to the most important opportunities for our business. It has proven a very effective way to operate, both for the business and for our people because they grow and develop professionally much faster.

Q: What kind of new business models are you exploring?

A:  We’re working on technologies and new business models, like simulation, where we aim to visualize as much as we can in all that we do. Take one example: customer focus groups. For decades, we’ve been creating physical mock-ups of new products, showing them to consumers, getting their reaction, then integrating their input and feedback into the next cycle of the mock-up. That can take four, five, or six weeks and has a certain cost involved because we need to build shelf displays to show consumers and retail customers how it would look. By visualizing all this, we’ve been able to do it much, much faster, iterate more times, and get consumer feedback quicker than if we did it physically, saving money and increasing speed to market.

The experience is incredibly cool from a consumer standpoint. It is fascinating how after a few minutes, people don’t distinguish anymore between physical and virtual. They just focus on the feedback they need to provide on the product they are looking at.

The value of bringing virtualization to these processes is the ability to bring innovation to market as fast as possible — to reduce the time of our product lifecycle and reduce cost.  The power here is that it’s a new business model, not just the  application of one technology.

Q: P&G is a leading exponent of IT outsourcing. How do you determine what to outsource?

A:  We’ve done some major outsourcing of our technology infrastructure with companies like Hewlett-Packard and others. We differentiated between the outsourced commodity operations, which we want to operate more and more efficiently and lower our operating cost, and we retained what we believe is strategic for our business and distinctive in the way we operate. So we have retained system design, architecture, and big project management. And we have retained development of new functionalities, like in SAP, but we have farmed out applications support, communications, computer center operations — the whole IT infrastructure.

I find it difficult to talk percentages, but one way to think about it is in terms of the number of people, and it’s about half. We now have around 3,000 IT people in P&G around the world.

Q: What is revolutionary about this outsourcing approach?

A:  People normally think of outsourcing in terms of cost reduction, and certainly we have reduced costs significantly. You can never separate out outsourcing from all the other interventions we’ve made to increase efficiency, but we’re looking at several hundred million dollars. But this is just the base. There is another level, which is equally or more important: to increase service quality. We’ve seen our service levels increase by around 15% over the last few years, a significant improvement, because these people do it for a living.

There is also a third level, which is really what counts. It is the strategic flexibility it creates in the organization to respond to a surge in demand and to focus our people away from operational matters, where we don’t have any competitive advantage, like running servers, switches, or computer centers. Now we can focus them on new technologies, like virtualization, visualization, simulation, modeling, digitization, and so on.

Also, when we acquired Wella, Gillette, and other big companies, we were able to integrate these much faster as a result of the outsourcing model because, again, we’ve been able to augment our capacity on the fly, which would have been impossible to do with just our own people.

I think all manufacturing will require new models in the future that allow for more agility. This is really what’s strategic about the whole outsourcing idea.

Q:  Are there still aspects that need to be improved to make outsourcing a more secure and viable option for manufacturers in the future?

A:  It is certainly a model that is much more effective for our business: lower cost, better service levels, and more flexibility to respond to business needs. But to be honest, it is a less easy model to operate. If you have a captive organization, you manage people by performance, evaluation, and salary  increases for merit. It is easier to manage. With outsourcing, there is more of a requirement for managing and creating new processes. We need  to continue to look at that.

Q: So how do you manage things like the innovation process with so much outsourced activity?

A:  This is one of the pillars of our business model, and probably the reason we are considered innovative or progressive in the way we operate. I don’t like the model where you create a team of ideas people who do just that, and then there are other people who just operate. That way you limit the power and intellectual capabilities of all the people in the company. We believe in a model where each one of us is accountable to come up with  ideas.

We have also created strategic alliances with several companies, including Cisco, HP, SAP, Infosys, and a few others, and with these people, we co-innovate. Not only do they support our operations, but also we invent together.

Take one example, with Cisco. We were the first company to deploy their high-resolution video-conferencing technology on such a large scale and so fast: more than 40 installations worldwide in just six months. We worked hand-in-hand with Cisco, who put their best engineers onto the P&G account, so we were able to do it very effectively for the business. We now have more than 70 installed.

Q:  P&G plans to open several new manufacturing plants around the world to drive growth. How does innovative technology make that task easier?

A:  The time we have to build any manufacturing facility is very different today because the business is moving so fast. Where we had maybe a year to implement systems five or 10 years ago, now we need to do it in two or three months. So we use standardization as a winning strategy. We go in with a clear template, and we plug and play as much as possible. We have solutions that allow us, for example, to implement warehouse management systems dramatically faster. We recently worked on a breakthrough project to implement warehouse management systems in one-third of the time, one-third of the cost, and one-third of the complexity involved — and we succeeded.

Q: Are you using social networking tools?

A:  As you would expect, social networking technology is very active. About a third of our people are Generation Y and these people bring a lot of interest in leveraging social network tools, such as dialogue forums, blogs, and wikis. Importantly, we are now bringing in a lot of video technologies because we believe that if people talk in person, it is a more effective way to cooperate.

Q: What other new technologies excite you for the future?

A:  I am excited by all the technology that allows us to operate faster, flatter, and simpler as a company, especially technologies that will help us simulate and visualize. To give you an idea, we have eliminated thousands and  thousands of legacy reports and we’re moving everything to visual cockpits where you can drill down with alerts, color coding, etc. This makes the business flow much more fluid, much more dynamic, much more in  touch. Instead of reading what happened yesterday, last week, or a month ago, we are trying to anticipate what is coming, staying in control and staying relevant. That is really what excites me, new upstream technologies, which, blended with the business processes, can transform the way we operate.

Q: Has your background playing competitive chess helped you in your current role?

A:  I believe chess is a simulation of life. The more you anticipate the future, the more you stay in control, and the more you can develop strategic wins. The challenge is that there’s a time factor. You cannot think forever about developing better ways to play the game, because at some point, you need to move. It’s the same in business. You need to balance constantly how fast you move with how long you want to think. If you think too long, then by the time you come out with your new ideas, it could be too late.

You cannot think forever these days; sometimes you just have to move.

Category: CPG
Written by Paul Tate

Paul Tate is Research Director and Executive Editor with Frost & Sullivan's Manufacturing Leadership Council. He also directs the Manufacturing Leadership Council's Board of Governors, the Council's annual Critical Issues Agenda, and the Manufacturing Leadership Research Panel. Follow us on Twitter: @MfgExecutive

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