Proctor and Gamble 2008 Annual Report Download - page 8

Bydeninginnovationsobroadly—whatitis,whereitcomes
from,who’sresponsibleforit—wecontinuallyexpandand
unleashP&G’sinnovationpotential.Thebestproofofour
innovationcapabilityisthenumberoftop-sellingnewproducts
thatcomefromP&G.TheIRIPacesettersstudytracksand
ranksthemostsuccessfulnewconsumerproductsintroducedin
theU.S.Forthepast13years,one-thirdofthemostsuccessful
Pacesetterproducts,onaverage,havecomefromP&Gand
Gillette—morethanourtopsixcompetitorscombined.In2008,
5ofthe10best-sellingnewproductscamefromP&G,including
TideSimplePleasuresdetergent,FebrezeNoticeablesairfresh-
ener,thenewHerbalEssenceslineofproducts,CrestPro-Health
toothpaste,andOlayDenityskincareproducts.

AnotherpointofdifferenceisP&G’sabilitytoinvestininnovation
atindustry-leadinglevels.Weinvestmorethan$2billionayear
inR&D,nearlytwicethelevelofourclosestcompetitor,Unilever,
androughlyequaltothecombinedtotalofourothermajor
competitors—Avon,Clorox,Colgate,Energizer,Henkel,
KimberlyClark,L’Oreal,andReckittBenckiser.Wealsomaintain
ahighlevelofmarketinginvestmentinourbrands.P&G’s
advertisinginvestmenthasaveragedabout10%ofsalesover
thepast15years.
Wemaintainthisstronglevelofinnovationandmarketing
investment,whilecontinuingtogrowmargins,bycontinually
increasingP&G’sproductivity.Themoreproductivewebecome,
themorewecanredeploypeopleanddollarstoinnovation.
P&Ghasastrongtrackrecordofreliableproductivitygrowth.
Salesperemployeehavegrownmorethanthreefoldandnet
earningsperemployeeareupeightfoldsince1980.Overthe
past10years,P&G’sproductivityonasales-per-employeebasis
hasgrownatanaveragerateof6%ayear.Thisperformanceis
morethantwicetheU.S.averageofroughly2.5%productivity
growthperyear.
P&Ggrowsproductivitysoreliablybecausewetakeavery
systemicapproach.AgoodexampleofthisisGlobalBusiness
Services—P&G’ssharedservicesbusinessmodel.Earlythis
decade,wesignicantlyreducedthecostofbusinessservices
bycentralizingandstandardizingP&Gsystems,infrastructure
andservices.Wethenfocusedonimprovedservicelevelsand
greatervaluecreation,ultimatelycreatingaglobalbusiness
servicesorganizationthathasbeenrecognizedexternallyasthe
bestshared-servicesorganizationintheworld,andwhichhas
deliverednearly$600millionofcumulativecostsavingstodate—
asubstantialportionofwhichwe’vereinvestedininnovation.
Inaddition,GBS—incollaborationwithourR&DandEngineering
functions—ismakingP&Gamoreproductiveandeffective
innovatorbyacceleratingtheuseofvirtualization,computer
modelingandsimulation.VirtualizationisenablingP&Gbrands
toco-designproductswithconsumers.Thesametechnologies
allowustoshowretailersvirtualin-storedisplaysforhalfthe
costandlessthanhalfthetimerequiredforphysicalshelf
designs.ComputermodelingandsimulationsavedP&Gabout
17yearsofdesigntimeinthelastyearalone.
We’reconvincedwecanbecomeevenmoreproductive,
increasingproductivity7–8%ayear.We’remakingourbrand
portfoliomoreproductivebyfocusingevenmoreonourlargest
leadingbrands—the44brandswithsalesof$500millionor
morethatrepresent85%ofsalesandmorethan90%ofprots.
We’regettingmoredisciplinedabouthowtomanagethe
remainingbrandsinP&G’sportfolio,investinginsmallbrands
thathavepotentialtobecomebillion-dollarbrandsofthefuture,
supportingbrandsthatmaynothaveglobalpotentialbutare
localjewelsinsomemarkets,andconsolidatingordivesting
underperformingbrands.And,we’reseizingevenmore
opportunitiestoleverageP&Gscalebyeliminatingduplicative
activities,centralizingmorefunctionalsupport,andconsolidating
somesmallcountriesintoregionalhubs.
We’realsogoingaftercostsavingsthroughouttheCompany.
Wehaveclearlydenedgoalsforcontrollingoverheadspending.
Businessesprojectedtogrowsignicantlyfasterthanthebalance
oftheportfoliohaveanoverheadtargetequaltoorlessthan
halftheirprojectedsalesgrowth;slower-growingbusinesses
andallcorporatefunctionsarecommittedtozerooverhead
growth;businessesgrowingbelowcompanygoalsand/orwith
signicantcost-structureissuesmustreduceoverheadspending
everyyear.Thisdisciplinereectsourcommitmenttoator
decliningheadcountfortheforeseeablefuture.
TheseandothereffortsthroughouttheCompanyarecritical.
Productivityfuelsinnovation.Innovationdrivesgrowth.

ThenextfactorthatsetsP&Gapartasaninnovatorisdiscipline.
Wedon’trelyon“Eureka!”moments;wetakeasystematic
approachtoinnovation.
Forexample,we’rehighlysystematicabouthowweorganize
forinnovation.Wedon’ttakea“one-size-ts-all”approach
butwe’redeliberateaboutcreatingtherightstructurefor
differentkindsofinnovationwork.OurCorporateInnovation
Fund,forexample,specializesinhigh-risk,high-rewardideas;
it’sessentiallyanin-houseventurecapitalrmthatdoesinitial
concept,design,engineering,andqualicationworkandthen
6 TheProcter&GambleCompany