Investing in Innovation

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 significantly 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 profits. 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 defined goals for controlling overhead spending. Businesses projected to grow significantly 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 significant cost-structure issues must reduce overhead spending every year. This discipline reflects our commitment to flat or declining headcount for the foreseeable future.

These and other efforts throughout the Company are critical. Productivity fuels innovation. Innovation drives growth.