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P&G CEO Bob McDonald Tackles Costs, Pushes Purpose-Driven Innovation

Posted by Dale Buss on February 27, 2012 01:31 PM

Stagnation is a dirty word at Procter & Gamble, one of the world's most successful CPG companies. So P&G is making some strategic steps to re-accelerate growth, heighten profitability and combat what at least are perceptions that the company has slowed down as one of the industry's engines of innovation.

P&G CEO Bob McDonald told analysts last week at the annual CAGNY conference that the company will cut costs totaling more than $10 billion over the next five years, including $1 billion in external marketing spending and reduction of more than 4,000 additional jobs in non-manufacturing areas including marketing.

In his presentation, McDonald said the cuts also are meant to address a mismatch between where the company spends much of its money in developed markets such as the United States vs. emerging markets where sales are growing fastest. P&G also has been hit by rising commodities costs and consumer resistance to resulting price increases in some markets.

Appreciative investors immediately bid up P&G stock by more than $2 a share, to close at $66.71 a share on Friday. Among the sources of savings, McDonald said, will be having consolidating its marketing operation and using more lower-cost digital marketing, as well as launching more multibrand marketing initiatives such as a 30-brand P&G effort built around the 2012 Summer Olympics. Even so, McDonald stressed that he expects 2012 marketing spending to be "roughly" in line with the total last year.

At the same time, at least as important is the growing perception that P&G has delivered a dearth of product innovation lately. It has been five years since P&G launched a completely fresh brand in the United States — the probiotic brand Align, for instance.

Ad Age noted that P&G "seems to be divesting or discontiuing more than creating" brands lately, including its recent sale of the Pringles brand to Kellogg. P&G has lost market share in some important categories. Even Tide Pods, the company's long-touted detergent-delivery system that P&G is rolling out now and just promoted with an Oscars commercial, had been delayed amidst hungry competitors.

P&G argues with that interpretation, however, noting among other things that it had eight of the top 25 top-sellng new nonfood products in 2010 in the SymphonyIRI pacesetters list, the most recent year for the compilation.

Product innovation has been the lifeblood of the company's impressive growth of worldwide sales and earnings over the past 15 years, and there's no more important component of P&G's formidable corporate culture. As he has been doing in his recent talks to MBA students, McDonald will continue to emphasize a purpose-driven revitalization of the innovation pipeline at his company even more than cost-cutting.

Hear more of McDonald's big vision via one of his recent b-school talks, at the Tepper School of Business at Carnegie Mellon University, below.

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