Take a disruption lesson from Procter & Gamble

PGPhaseLogoWhat could disrupted legacy media companies possibly have in common with Procter & Gamble — the huge and perennially successful consumer goods manufacturer?

One thing we have in common is that we both need to recognize and plan for the continuous loss of revenue from declining products.

We don’t think of P&G as needing to cope with fading products as an endemic part of its business. But 10 years ago, when I was leading the Newspaper Next project for the American Press Institute, I learned that part of their success lies in the careful planning they do to offset those declines.

We in the media business can take an important lesson from P&G’s approach.

In late 2005, API engaged Innosight, the disruption and innovation consulting firm co-founded by Harvard Business School professor and disruption expert Clayton Christensen. The assignment: to work with us for a year to develop practical ways to combat the oncoming disruption of the newspaper industry.

I managed the project for API, working with Scott Anthony as the project lead for the Innosight team. We worked together almost daily for 12 months, developing the first major Newspaper Next report, Blueprint for Transformation.

At that time, Scott and Innosight had also been working with P&G on innovation practices to help them in the development and/or acquisition of new products.

Scott explained that P&G knew, despite its decades of success with hundreds of widely used products, that it had a never-ending challenge. At any given time, among its huge suite of products, some were in decline, while others were growing and still others had plateaued.

He said P&G had quantified the declines and had focused its planning around them. They had realized they had to replace about $1 billion in revenues that would be lost each year from products in decline.

P&G was a $57 billion a year company at that time, and the company was determined to grow revenues every year. If they didn’t replace the revenue declines — and more — they wouldn’t grow.

So they had to bring new products on-stream at a steady rate each year to drive $1 billion in new revenues. And they needed to allow time for revenue streams to develop in these new products. It wasn’t just a year-at-a-time thing.

They planned for all of this, budgeted for it and devoted heavy resources to achieving it. They used both acquisition and in-house development of new products. They didn’t care which, as long as the new products could achieve the revenue targets.

They were working with Innosight to get better at it. Scott had a great example about the development of the Swiffer that illustrated Christensen’s — and Innosight’s — approach to innovation as applied at P&G. We incorporated that approach into the Newspaper Next innovation method.

For me, though, the biggest takeaway from the P&G story was the realization that newspaper companies needed to learn to think about obsolescence the same way P&G did.

This would be a big leap for us. Our core product, the printed newspaper, had been so successful for so long that our industry had never had to plan for replacing lost revenues. It was a way of thinking, a skill set and an investment pattern we didn’t have.

Our product, thanks to its near-monopoly position in the marketplace, had produced steady revenue growth for decades through incremental product changes and frequent rate increases.

Ten years later, we can see the deadly outcome. We have scrambled on an ad-hoc basis to replace declining revenues as best we can, and it hasn’t been enough. We are much smaller companies today, because we have not succeeded in generating new revenues sufficient to replace the annual declines in our core product.

It should be clear to us by now that the rate of decline is too great to be offset through incremental internal changes. Digital advertising and marketing sales growth hasn’t been enough. Consumer rate increases haven’t been enough.

We need to look to the P&G example and recognize that we need to plan more honestly about the scale of the losses ahead. It’s time for a hefty dose of realism: The added revenues must equal the declines — and more.

And we need to borrow a page from P&G by adding aggressive development and acquisition strategies to the mix, investing significant amounts of our hard-won cash flow to do it.

Jim Moroney at the A.H. Belo / The Dallas Morning News is a newspaper executive who’s thinking this way. He’s been working hard on both sides of the street — internal change and external acquisitions — with a clear goal of fully offsetting the declines in the core business. To his great credit, he’s also been evangelizing in the newspaper industry about this approach.

Some people might say the investments need to be all about digital — advertising, marketing, agencies, etc. And there’s no doubt our industry should be investing heavily in these fast-growing spaces.

But we don’t need to limit ourselves to digital. The broader strategy should be to invest in businesses, products and activities that have positive cash flow today and will produce growing revenues and cash flows in future years. Digital? Yes. Print? Maybe, if there’s a growth track ahead. Non-media? Very possibly.

At heart, local media companies are local companies. They are surrounded by other local opportunities and possibilities, some related to their core business and many not.

While we have positive cash flows — as a large majority of us still do — we need to be putting those profits into the next wave of businesses that can sustain our companies into the future. Incremental change won’t get it done.

 

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Posted on February 22, 2016, in Advertising, Consumer revenue, Digital media sales, Disruption, innovation, investment, management, Media business model, media management, media ownership, Revenue, Sales. Bookmark the permalink. Leave a comment.

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