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When it comes to modern business, ensuring that your business delivers growth and profitability today while still preparing for the future is much like juggling one too many balls. Disruptive competition is an ever-present threat, but shareholders expect their dividends. The development of the first synthetic detergent, at the expense of another beloved product, gives an insight into how P&G juggled those balls.
By the 1930s, P&G had perfected its manufacturing processes but remained a traditional soap producer, employing the same ingredients and methods it had since the 1800s. However, there were clear shortfalls in their soap products – they could not effectively clean in hard water and left residues. It was a nuisance to their consumers and a constant worry for their company’s engineers.
They began research on synthetic alternatives. But inside P&G, a convulsive worry over research on synthetic detergents had historically been pervasive. Managers feared that the new products might cannibalize their much-cherished Ivory soap.
Yet, Chairman William Cooper Procter, the last family manager of P&G, was a staunch supporter of the work on synthetic detergents. In a memorable remark addressed to his staff, he said, “This [synthetic detergent] may ruin the soap business. But if anybody is going to ruin the soap business, it had better be Procter & Gamble.”
Management doubled down on its investment, and the technical center at Ivorydale effectively became one of the first analytical labs in the field of consumer goods. A family firm whose founders stirred cauldrons by hand had now become an enterprise built on three knowledge foundations: mechanical engineering, consumer psychology, and organic chemistry. And it was that combination—the totality of three knowledge disciplines—that had created the unstoppable Tide.
When the first boxes of P&G’s Tide detergent went on sale in 1946, it was the first synthetic detergent that could deep-clean clothing—removing mud, grass, and mustard stains “without making colors dull or dingy.”
The benefits of a synthetic detergent that makes “white clothes look whiter” were so apparent that Tide outstripped all brands in the market and became the number one detergent in 1949. In the wake of Tide’s entry to the market, P&G would “no longer be a soap company” but “would become an industrial corporation with its future based on technology,” with the number of technical staff tripling that of the pre-Tide year of 1945.
To an outside observer, one form of managerial behavior that was salient throughout the long history of P&G was apparent: the willingness to embrace self-cannibalization.
Resistance to this counterintuitive strategy is natural. Managers often fear that a company’s new products and services with lower profit margins may directly cut into the sales of existing products.
Money should be invested in products that are clearly most profitable without lowering overall profitability. But to reference a Steve Jobs almost cliché, “If you don’t cannibalize yourself, someone else will.”
As I argue in my book Leap, from P&G to Novartis, from Apple to Amazon, forward-looking incumbents recognize the need to cannibalize their own products rather than leave them to copycat competitors who are more than happy to take on the challenge.
Outlasting the competition is difficult: learn to leap and master the art of delivering today while building for the future with IMD’s Advanced Management Program.