Source: Digital 36Kr (ID: digital36kr) Author: Pan Cheng What does digitalization reshape? In 1837, when the soap and candle factory of Procter & Gamble was born in Cincinnati, it certainly did not anticipate that this simple business would survive through the long river of history, crossing the Civil War, the Second Industrial Revolution, the Third Technological Revolution... and exist to this day. Nor did it anticipate that over 185 years, it would own more than 300 brands including Head & Shoulders, Rejoice, Safeguard, and Crest, with operations spanning six regions: North America, Europe, Asia Pacific, Greater China, Latin America, and IMEA (India, Middle East, and Africa). It would also make history in designing profit-sharing systems, multi-brand strategies, consumer research, and digital transformation. However, P&G has not always been favored by fortune. Historical financial reports show that after reaching net sales of $76.118 billion in fiscal 2012, P&G began to show signs of fatigue. From net sales of $73.9 billion in fiscal 2013, to $74.4 billion in fiscal 2014, and then to $65.1 billion in fiscal 2017, its performance fluctuated but overall trended downward over five years. It was not until fiscal 2021 that P&G achieved net sales of $76.118 billion and net income of $14.306 billion, marking its best performance in nearly a decade. Under the Fourth Industrial Revolution, P&G seems to have found its rhythm again through digital transformation. Two digital factories, P&G (Czech Republic) Rakona Plant and P&G (China) Taicang Plant, have been selected as 'Lighthouse Factories' (a term for exemplars of 'digital manufacturing' and 'Globalization 4.0' jointly selected by the World Economic Forum and McKinsey & Company). Internal systems, including working methods, R&D testing, and user research, have been transformed digitally. Focusing on P&G's 'longevity' and 'transformation', this article centers on two major questions:
- What is the secret behind P&G's sustained vitality?
- How has P&G adapted to the times in the 'digital revolution'? P&G's Ambition If we trace back to P&G's founding, this factory was no different from other ordinary factories. It had no foresight; after Polish inventor Ignacy Lukasiewicz invented and popularized kerosene lamps in 1853, P&G could not save its candle sales from decline. It had no grand ambition to envision a blueprint for long-term legacy. But founders William Procter and James Gamble left behind a series of 'spiritual traditions' that could be perpetuated. In the company biography 'Looking Ahead', P&G's spiritual tradition is described as 'an inseparable part of American history', with 'spiritual inheritance' and 'an always stable character... This character is based on the principles, ethics, and morals repeatedly proclaimed by the founders, and has become an enduring legacy.' Specifically, it is P&G's current purpose, values, and principles. In the purpose section, it is described as follows: 'To provide branded products and services of superior quality and value that improve the lives of the world's consumers, now and for generations to come. As a result, consumers will reward us with leadership sales, profit and value creation, allowing our people, our shareholders, and the communities in which we live and work to prosper.' If we borrow Zhuangzi's wisdom of 'the Way governs techniques, and techniques will surely succeed' to understand this passage, long-term survival and providing long-term value are P&G's 'Way', as well as its eternal core value and ambition. Driven by such a 'Way', P&G can effectively take a long-term view and avoid being limited by short-term interests in decision-making. It can also enhance team cohesion through the inheritance of 'spiritual traditions', avoiding reliance on the charisma of any single leader. P&G's Digitalization Globally From the 'Way' level down to the 'technique' level, how P&G adapts to changes in the volatile business world is particularly important. In the book 'Built to Last', the author suggests that one of the secrets to a company's enduring success is having the 'ability to embrace change'. Even Ichak Adizes, one of America's most influential management scholars, once quoted Darwin: 'It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.' Entering the Industry 4.0 era, this ability to adapt is inevitably linked to actively promoting corporate digital transformation. Theoretically, P&G operates in six regions globally, reaching 4.2 billion customers daily, accumulating vast amounts of customer feedback data, making it undoubtedly one of the most suitable enterprises for digital transformation. Therefore, how P&G takes the lead in digital transformation globally is particularly noteworthy. Twelve years ago, when then-CEO Bob McDonald wrote the goal of 'becoming the world's most technology-enabled company and the first fully digital company' into the 2010 annual report to shareholders, it marked the true beginning of P&G's digital transformation journey on a global scale. Filippo Passerini, known as P&G's 'first person in information technology', became the first architect of the company's full digitalization. It is reported that his Global Business Services (GBS, the only horizontal department in P&G's digital global pilot that runs through all digital deployments) made progress in leading the reengineering of work methods, digital modeling in R&D, and the development of 'Consumer Pulse' software, laying the foundation for P&G's continued digitalization. Representative cases include: Work Method Reengineering – Improving Efficiency and Flattening the Organization. This was an early exploration in the digital strategy by McDonald and Passerini. They redefined 88 different business processes and analyzed in detail the time required for each process 'from the moment data is generated to when it can be applied to the business.' Then, they developed digital predictive models to optimize decision-making processes and focused on shortening the time spent on certain steps. For example, in meetings, P&G configured a real-time display 'wall' (internally called 'Business Sphere') in conference rooms, 8 feet high and 32 feet wide, where various operational data needed for meetings are visually displayed in graphs or tables. These data are collected and organized in real-time by IDS (Information Decision Solutions, a department under GBS) from nearly 90 major basic business processes within P&G through a business analytics decision system. They not only greatly save time in explaining 'what' during meeting discussions but, more importantly, can predict market changes a week or even a month in advance, helping decision-makers respond quickly. (Image note: 'Business Sphere' in P&G's conference room) Digital Modeling and Virtualization in R&D – Shortening R&D Cycles and Saving R&D Costs. In the new product development stage, time-consuming and costly processes are common pain points for traditional enterprises. P&G thus explored digital modeling and simulation to optimize R&D. For example, in developing new diapers, digital modeling and simulation can complete thousands of simulations of how the diaper fits the body during crawling and walking in one second. In developing new dishwashing liquids, researchers can use digital models to predict how humidity stimulates different fragrance molecules, designing how to achieve the right fragrance at the right time during the dishwashing process. In the testing and modification phase before new product launch, IDS used a digital workflow system to create a 'virtual model' instead of a physical prototype, helping R&D departments modify products in real-time based on consumer feedback. Consumer Pulse Software – More Precise Actions. After P&G products are launched, consumers can comment on the official website or Amazon online store. P&G developed the 'Consumer Pulse' software, using specialized mathematical analysis methods, setting keywords, to collect and review all customer comments. It categorizes these real-time data reports by product brand and connects them to relevant employees in R&D, production, sales, and marketing, helping them make more precise decisions and actions promptly. While one generation laid the foundation for P&G's global digitalization, P&G's factories also embarked on comprehensive digital exploration, with the most representative being the P&G (Czech Republic) Rakona Plant, selected as a 'Lighthouse Factory'. Within three years, it demonstrated the tangible results of digital transformation: Productivity increased by 160%Customer satisfaction increased by 116%Customer complaints decreased by 63%Overall plant costs decreased by 20%Inventory decreased by 43%Non-conforming products decreased by 42%Changeover time decreased by 36% From the specific actions of digital transformation, P&G Rakona Plant has a clear vision: 'We are Rakona, we create the future.' Under this direction, the plant attempts to leverage the external digital environment to acquire more digital and automation knowledge, including direct connections with universities in Prague, collaboration with startups, and student exchange programs where digital education students work alongside Rakona employees. Additionally, the plant developed a program open to all employees to deepen their understanding of technologies such as digital analytics, intelligent robotics, and additive manufacturing. Once this inclusive innovation culture was built, P&G Rakona Plant began implementing specific practices in five areas: digital direction setting, in-process quality control, unified packaging system, end-to-end supply chain synchronization, and modeling and simulation. Digital Direction Setting. This is a digital performance management system that addresses both the difficult and time-consuming process of digital data collection and avoids decisions based on imprecise data points. The system displays real-time KPIs on touchscreens directly on the production floor, helping employees study data from multiple levels, understand the drivers behind performance, and identify root causes of deviations. Furthermore, this tool can schedule and track frontline employees, making execution more rigorous, thereby improving process reliability and Overall Equipment Effectiveness (OEE). In-Process Quality Control. This system addresses the pain point that traditional sampling inspection cannot guarantee that every product in a batch meets quality standards, and it also resolves delays in product release associated with laboratory analysis. With the support of the in-process quality control system, quality control has evolved into real-time analysis of multiple data sources. These data come from multiple sensors that monitor pH, color, viscosity, flow, and other information. If a deviation is detected, the corresponding production line stops, and frontline employees investigate batch quality and write reports. From the results, rework and complaint rates have been halved, and scrap and quality inspections have also been significantly reduced. UPack – Unified Packaging System. This is a system that can easily implement any packaging change, solving the previous dilemma where production lines had to be completely shut down to switch between different packaging formats. The system integrates sensors, cameras, scanners, and packaging materials to inspect and verify the status of each area. With automated production line inspection technology, each area of the packaging line can be at different stages (e.g., startup, production, idle, or changeover). Based on stored recipe data and in-process quality checks, UPack can also automatically configure machines. As a result, this system helps frontline employees reduce handover time by 50% and reduces minimum order quantity by 40%. End-to-End Supply Chain Synchronization. This approach has solved several issues, including scrapping excess products after each campaign, inventory capital constraints, slow time-to-market, and difficult and time-consuming manual supply chain analysis. This tool can simulate the entire supply chain under different scenarios, identify problems, and thereby improve supply chain agility. It also serves as a benchmark between different P&G plants and production lines for mutual comparison. Modeling and Simulation. This tool addresses issues such as understanding the impact of production line changes, reducing testing costs for production setups, and identifying new product defects before operations to avoid costly correction expenses. This use case involves various descriptive and diagnostic modeling applications at scale, as well as some predictive modeling pilot applications. Sample modeling applications include manufacturing output related to new product launches (e.g., recommending SKU allocation, storage tank quantities to production lines), selecting optimal conveyor belt speeds, determining ideal packaging sizes, simulating production line changes before actual execution, predicting failures in advance, and identifying unresolved root causes. From the results, this approach can nip failures in the bud, thereby improving product design, refining problem statements, and optimizing testing methods. Furthermore, with the succession of CIOs/CDOs, P&G's digital transformation has evolved from data analysis to intelligent applications. After Passerini, Linda Clement-Holmes pushed P&G's business architecture fully to the cloud, deploying P&G's Internet of Things (IoT) business ahead of time. Although both Pollet and Vickery were externally hired CIOs, they both emphasized the application of machine learning in P&G's various businesses; Vickery worked to use data and AI to reinvent every business process at P&G, maximizing the value of data. In 2020, amid the global COVID-19 pandemic, P&G, to meet surging demand, on one hand promoted intelligent manufacturing, including intelligent mobile robots (AGVs) and automated equipment, using more advanced IoT technology to improve labor productivity; On the other hand, it used artificial intelligence to determine the number and location of supply chain network nodes, rebuilt the supply chain network, and used data algorithms to guide vehicle allocation and transportation routes, thereby creating excellent performance. P&G's Digitalization in China Turning attention to the Chinese market, more than 95% of households use P&G products annually. As an important region supporting P&G's performance growth, P&G Greater China's digital exploration shares commonalities with P&G's global digitalization, but also has characteristics shaped by differences in China's consumer market, innovative technology, and user needs. Six years ago, P&G China truly began its digital transformation journey, aiming to promote brand building and business growth through changes in business processes, business models, and corporate culture. 1. Business Process Transformation In business process transformation, P&G China believes it should be done in three steps. The first step is process digitalization, where the company moves offline processes that are not in the system or are disconnected from the system online, achieving system integration and full digital connectivity of all business. The second step is process optimization, which not only optimizes existing digital processes but, more importantly, uses AI to optimize process decisions. The third step is process automation. As AI becomes more mature, robotic automatic decision-making systems can be deployed. From specific implementation results, P&G China believes that 'labor-intensive processes' and 'highly complex processes' have the most significant effects. Among them, the digital transformation of 'highly complex processes' yields the greatest benefits. For example, when making media placement decisions, P&G China broke away from the traditional 'people + Excel' decision-making method, introducing big data algorithms to quickly combine different placement strategies and help decision-makers find the optimal solution. As a result, this decision-making approach improved media placement efficiency by 10%, effectiveness by 5%, and also saved significant costs monthly. 2. Business Model Transformation In the digital transformation of the business model, P&G China focuses on three aspects: first, new products and services; second, new touchpoints and channels; third, new supply chains. In terms of new products and services, P&G China uses big data for more precise consumer insights, overturning the previous one-on-one user survey model. In new products, Oral-B launched the iO electric toothbrush with built-in smart tools, which can help users monitor and control oral health through features like real-time coaching and brushing timers. In terms of new touchpoints and channels, P&G China broke the dilemma of being unable to directly connect with consumers, investing heavily in establishing interactions with users at touchpoints such as media, products, and shelves, and building long-term connections through methods like membership recruitment. In terms of new supply chains, P&G China not only focuses on traditional B2B supply chains but also established a B2C supply chain. This B2C supply chain effectively reduces the intermediate links in the traditional model of 'factory – P&G China Distribution Center – distributor warehouse – e-commerce central warehouse – distribution sub-warehouse – consumer'. It not only saves costs for distributors but, more importantly, improves supply chain efficiency and provides better service to consumers. 3. Corporate Culture Transformation A crucial factor determining whether a company's digital transformation succeeds is corporate culture transformation. This transformation is not just about having the leadership team continuously preach the benefits of digital transformation, but also about using more flexible methods to enable every employee to truly embrace digital transformation and enhance their digital skills. P&G China even believes that in the future, every employee's DQ (Digital Quotient) will be as important as IQ and EQ. From the practice of corporate culture transformation and promotion, P&G China uses methods like Digital Technology Festivals, where numerous digital experts are invited to share the most cutting-edge applications. It also organizes activities like Innovation Journeys, leading employees to different innovation centers to more intuitively understand the specific applications of digital transformation. Over the past six years, with the support of P&G China's comprehensive digital transformation, P&G (China) Taicang Plant has built P&G's second 'Lighthouse Factory' and Asia's first 'lights-out' factory. Its innovative internal departments, such as the End-to-End Supply Chain Planning Department, End-to-End Supply Chain War Room, Production Department Lights-Out Workshop, and Transparent Distribution Center, have helped the plant achieve comprehensive digitalization. (Image source: 'Global Lighthouse Network: Insights from the Frontier of the Fourth Industrial Revolution') From the results, P&G Taicang Plant has made progress in improving production efficiency, reducing product conversion costs, and enhancing services. From the above exploration of P&G's digital transformation, it is clear that digital transformation is not just about digitally transforming a few links, nor is it as simple as moving all offline business online. It is a comprehensive transformation of a company from corporate culture to business processes and business models, and it is a long-term, sustained process that requires continuous effort until a new technological revolution emerges. References: 1. McKinsey: 'The Fourth Industrial Revolution: The Light of Manufacturing Technology Innovation' 2. McKinsey: 'Global Lighthouse Network: Insights from the Frontier of the Fourth Industrial Revolution' 3. P&G China Official Website: https://www.pg.com.cn/ 4. Zhao Jiankai: 'P&G: Digital Reshaping' 5. Video: P&G Says | Lin Li: P&G China's Digital Transformation Are you 'watching' me?