Feeding The Pipeline

Feb 23, 2003 (07:02 PM EST)

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They're spoken of in almost reverential tones as the Two Moments of Truth: That moment when a shopper decides what product to purchase, and the one when the consumer first puts that product to use.

Robert Dixon takes the Two Moments very seriously. "They're our primary reason for being," he says. Which would make sense if Dixon were in sales or marketing. But he's VP of IT for Procter & Gamble Co.'s baby, feminine, and family-care business. And he's talking about the role of business technology at the $40 billion-a-year consumer-products manufacturer. Around here, the test of IT is whether it helps build a better diaper.

Somebody at P&G is doing something right. For its fiscal second quarter, ended Dec. 31, the company reported a 15% increase in earnings, to $1.5 billion, on a 5.8% increase in revenue, to $11.0 billion. While company watchers ascribe much of that increased profit to P&G's aggressive restructuring, including layoffs, the company cites "double-digit growth in the health-care and beauty-care businesses, as well as very strong results in the baby and family-care business." Now that's a good reason for being.

Despite its stodgy Midwest image, Procter & Gamble has long been a leader in the innovative use of IT. Still, its technology reputation is built on having killer supply-chain optimization, rather than on driving another key aspect of its business: new product development. In fact, creating new products and getting them quickly to market had been a weak spot for the company, something CEO A.G. Lafley has made a top priority in recent years. As its latest financial results show, P&G's application of IT to product development is paying off.

Steve David, Procter & Gamble's CIO. Photo by Jim Callaway.

Technology people have to be brand managers, CIO David says
Procter & Gamble's IT department has about 4,500 employees, 4% of the company's population. Some 2,800 work in the shared-services group. But 800 IT staffers are assigned to the company's four business units -- health and beauty, baby, snacks and beverages, and fabric and home care -- a deliberate strategy meant to serve the Two Moments. "We've got to take tech people out of IT, make them responsible for brands or marketplaces, then bring them back to IT," CIO Steve David says.

He's talking about people such as Marta Foster, manager of IT for the global beauty-care and health-care unit. Like Dixon, Foster is responsible for the technology and strategies of her business unit's interactive marketing, from Web sites to E-mail newsletters to in-store kiosks. "We use virtual tools and capabilities from ideation to the store," she says.

One such tool is Club Olay, an online community built around the company's venerable skin-care lotion, which Foster says has about 4 million members. The Web site collects information on who customers are and how -- and how much -- they use a product. In return, the site offers beauty tips, coupons, and special offers. Foster says participants in Club Olay are 20% more loyal to the brand and that Club Olay has been "skewing younger." That prompted the company to start a beauty line, called Ohm, specifically for a younger generation that thinks of Olay as something their grandmothers used. "If we can get teens early, we keep them for life," she says.

Foster and other managers use customer-relationship management technology from E.piphany Inc. At the core of P&G's CRM strategy is a customer data mart that spans brands and geographies, says Paul Rodwick, VP of corporate marketing at E.piphany. The system helps managers analyze information from multiple sources: focus groups, surveys, syndicated data, inventory data, and consumer feedback from the Web or call centers.

Foster and her group are experimenting with new marketing techniques, such as putting interactive skin- and hair-analysis systems developed for use in P&G's lab inside stores. "This technology was developed in R&D for R&D," Foster says. The program would commercialize the technology and let P&G "become a beauty-services consulting arm" to retail customers.

Procter & Gamble is also putting technology to work on the idea and research end of the product-development cycle. P&G employs more than 1,200 Ph.D.-level scientists in 18 technical centers in eight countries. To better leverage that community, P&G created InnovationNet, an internal portal for P&G's scientists and research community to share ideas and, it's hoped, create new products. InnovationNet has 18,000 users globally, holds 9 million documents online, and employs customized versions of both Google Inc.'s and AskMe Corp.'s search engines.

But it's not enough. "We continue to struggle to find enough big ideas to fill the pipeline," says Geoffrey Smith, IT director for global consumer applications and IT strategy/architecture. "And we're under pressure to do more with less." That prompted the company two years ago to create a "connect-and-develop" program, inviting outsiders onto its network. P&G gives access to Innocentive and 9Sigma, two far-flung networks of research scientists, as well as about 150 individual entrepreneurs scanning the world for innovative products.

P&G's goal is to put out an electronic welcome mat for more ideas like the Crest Spin Brush toothbrush, one of the company's biggest new products in years. P&G acquired the product only after the company that created it, Dr. John, approached P&G about licensing the Crest name. P&G has a reputation for growing its own innovation, so it wants a Web channel that makes it clear it's open to new ideas. With the Spin Brush deal, P&G's marketing machine took an unusually hands-off approach to pitching it. "We bought a product and a mentality of how to market that product," Smith says.

Once P&G has a new product idea, it uses Web technology in testing and marketing, largely replacing live focus groups for early-stage analysis. "We do almost 100% of our concept testing online now, at literally one-hundredth of the cost and one-hundredth of the time," CIO David says. P&G conducts much of its market research online using the zTelligence online survey from MarketTools Inc., in which P&G is an investor.

Anthony Hudnell is section manager of Virtual Learning @ Procter & Gamble, a small IT group that uses the best in graphics technology -- "the same technologies used in Toy Story" -- to develop the concepts, designs, packaging, and marketing of potential products. Hudnell's group includes about a dozen people, who work at P&G's Winton Hills Technical Center on the outskirts of Cincinnati in an old P&G building that they've transformed into a decidedly hip space. The group, which also works with a marketing company called Cre8 in Europe, puts together virtual presentations that can demonstrate new-to-the-world concepts, rapidly prototype new features for current products, even test how consumers react to various shelf-space designs. The process doesn't necessarily pick winners, but it weeds out the duds faster, Hudnell says.

One area in which Procter & Gamble has been particularly aggressive is in using technology for product life-cycle management, the art of creating and nurturing a brand. The reason is simple. "PLM for this industry is life or death," says Kevin O'Marah, research fellow at AMR Research. "These companies live or die by their brands. If they can't get value out of all of their marketing and create new, profitable products, they'll lose their edge."

While something of a moving target, product life-cycle management is "mechanizing and automating the knowledge components, and the flow components, within the bringing-a-product-to-market phases," CIO David says. "We're doing that tremendously well right now."

That's primarily thanks to a system from MatrixOne Inc. P&G started experimenting with the software about three years ago to manage technical specifications. It lets P&G create a single database that holds product specifications used by some 8,000 people across all business units. It includes the work processes necessary for product creation, review, approval, distribution, and storage. Creating such specs can be laborious and complex, since they include everything from packaging and test methods to country-of-sale clearances and raw materials, says Paul Gilmartin, VP of consumer products industries at MatrixOne.

Robert Dixon, VP of IT for Procter & Gamble Co.'s baby, feminine, and family-care business. Photo by Jim Gallaway.

Business technology must align itself with the needs of the consumer, Procter & Gamble VP Dixon says
P&G previously relied on eight IT systems and 29 work processes to manage all that information and workflow. Now the company has cut costs on things such as packaging materials, pigments, and chemicals used across multiple products and divisions. Reusing specs that have already been validated by the Food and Drug Administration chops time out of the development process and gets products to market much faster.

While it's speeding up product development, P&G hasn't stopped honing its vaunted supply chain. "Full data synchronization -- that's the vision," David says. P&G wants to ship products based on actual sale results, not forecasts. To get closer to that kind of real-time business, P&G is working on two fronts. First, it's looking to create electronic product catalogs that suppliers and customers -- the Wal-Marts and Kmarts of the world -- can tap into globally. Second, P&G and David are working with standards bodies such as the UCCNet product-registry system, with the Transora online exchange for consumer goods, and with retailers to advance supply-chain and data-synchronization standards. "We want every kind of transaction we do with our customers pulling through the supply chain to be synchronized," David says. P&G is also an early tester of radio-frequency ID technology, the microchip-sized devices that promise to revolutionize supply-chain systems by letting manufacturers track and manage inventory down to the individual product.

Like everything at P&G, these initiatives come back to understanding the customer. Thirty million times a day, a shopper looks at a P&G product -- then buys it or a rival's. That works out to a million or more Moments of Truth every hour. For Dixon and his IT colleagues, that's a good reason for being.

Photos by Jim Callaway