Procter & Gamble, the venerable consumer goods company famous for Crest(TM) toothpaste, Charmin(TM) bath tissue, Tide(TM) laundry detergent and Pringles(TM) potato snacks, got a frightening wake up call in 2000. Their R&D productivity had leveled off and the fraction of new products meeting financial objectives had stagnated at 35%. They were being squeezed by nimble competitors and lackluster new launches, and were missing quarterly earnings goals. Ultimately, P&G saw its stock plunge from $118 per share to $52 per share, a loss of more than half of its market capitalization (1).

That year, the Procter & Gamble Board appointed A.G. Lafley as the new CEO. He, in turn, challenged the staff to re-invent the company's innovation business model. By 2002, Procter & Gamble had re-organized its entire business to focus on the global growth of its famous brands and to add new products ahead of competitors. Today, sales top $38 billion annually (2).

The company re-ignited its growth by pursuing two radical strategies:

To aggressively introduce products into high growth markets far from its traditions, but close to its expertise

To exploit, the new and untested open innovation marketplace.

In 2000, the market for luxury goods was the bastion of a few old, but strong, specialty firms. Procter & Gamble's genius was to recognize that its own expertise in middle market cosmetics and, particularly, fragrances, could be molded into products attractive to the luxury customer. Procter & Gamble understood that they had a unique expertise in fragrance formulation.

The company also astutely recognized that its vast experience in consumer marketing was not going to be helpful in the luxury marketplace. To overcome this challenge, P&G began forging partnerships with some of the world's legendary high fashion houses (3). By late 2007, Procter & Gamble's stable of relationships included fashion icons Giorgio of Beverly Hills, Gucci, Valentino, Dolce and Gabbana, Lacoste, and Hugo Boss. P&G's Prestige Fragrances business was delivering double digit sales growth, too (4).

Andy Grove, Intel's co-founder, recently wrote in Portfolio magazine about some observations he has made concerning hugely successful companies. (5)
There are some successful companies that grew to leviathan sizes only to find that their successes stymied continued growth. The operative question for these leviathans is, what more can you do when you already own 45% market share?

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