P&G Will Cut More Staff To Help Fund Innovation
This article was originally published in The Tan Sheet
Executive Summary
During its annual meeting with analysts, Procter & Gamble announces it will continue cutting staff to help finance new innovations, and plans to introduce three times more “breakthrough” innovations in the next five years than were achieved in the previous five years.
Procter & Gamble Co. adjusted its overhead-reduction goal to better balance the business and help fund an initiative to deliver triple the number of “breakthrough” innovations, according to the firm.
P&G says it is well ahead of its goal of cutting 10% of non-manufacturing jobs this year, having already eliminated 4,700 of its targeted 5,700 positions for the year. It will look to trim non-manufacturing employment by an additional 2% to 4% per year from fiscal 2014 through 2016.
During the firm’s annual meeting with analysts Nov. 15, CFO Jon Moeller said P&G aims to reduce core selling, general and administrative expenses to roughly 12% to 13% of sales. “To reach this goal, we know we need to do more than the 10% of [staff] reductions we've already announced,” he said.
To lead the effort, the Cincinnati-based company appointed Jorge Uribe, currently group president of Latin America, to the new position of global officer of productivity and organization transformation. His appointment is effective Dec. 1.
P&G announced the position during its fiscal 2013 first-quarter conference call Oct. 25 when it first reported it was ahead of its productivity goals (Also see "P&G Cost-Cutting Successes Spark Productivity Strategy Changes" - Pink Sheet, 29 Oct, 2012.).
Uribe was chosen for the post because for the past eight years he successfully created a strong culture of innovation in Latin America, driven by growth and productivity, said Moeller.
“Over those eight years, Latin American sales have tripled on a local currency basis, growing faster than our competitive peer group,” Moeller noted, pointing out that the momentum was achieved even as Uribe and his team reduced non-manufacturing staffing by more than 15%.
Uribe said he would work with P&G's productivity council of senior managers to “identify productivity improvement opportunities, create a design, drive the alignment and lead the execution of this improvement.”
“This work is a process of asking provocative and challenging questions about what works and what is [the optimal] staffing,” he said. “We need to be thinking: Do our consumers benefit from these expenses?”
He noted that cutting staff is not easy, “but it's work that I'm very confident will change the very nature of our company [and], therefore, will help define and establish lucrative activity and cost savings culture” to benefit P&G for decades to come.
Uribe also will look to drive savings in other areas of business, including packaging, where the firm spends about $20 billion each year on raw materials and $6 billion on other packaging elements.
P&G has indicated it intends to cut those costs by about $1 billion each year.
Savings will come in part from collaborations with materials suppliers, P&G Global Supply Officer Yannis Skoufalos said during the meeting.
For example, in blades and razors, P&G teamed with one of its molded fiber suppliers to co-develop an improved package for certain Fusion ProGlide razors, the executive noted. The effort aligns with P&G’s goal of reducing plastics in packaging by 25% by 2020 (Also see "P&G/Pantene Debuts Plant-Based Hair-Care Packaging In Sustainability Race" - HBW Insight, 2 May, 2011.).
Outlining its productivity plans earlier this year, P&G said its ultimate goal is to slash costs by $10 billion by October 2016 through savings in cost of goods sold, marketing efficiencies and overhead (Also see "P&G Targets $10 Billion In Cost Savings In Four Years" - Pink Sheet, 5 Mar, 2012.).
Innovations That “Redefine” Categories
P&G's cost savings will be used in part to fund more breakthrough innovations – three times more over the next five years than were achieved in the previous five years, Chief Technology Officer Bruce Brown said.
Many launches will have the potential to “completely redefine” categories in which the firm competes,” Brown said, noting the company currently earmarks $2 billion a year for R&D.
He discussed innovation coming out of P&G's “transformative platform technology” teams, which work across product categories to create “game-changing technology capabilities.”
“Breakthroughs in how we deposit ingredients can deliver 10 times the benefit at half the cost for businesses like home, beauty and fabric,” Brown said. “There's no other company in our industry whose portfolio of businesses and brands, sciences and technologies, is as deep or as diverse as P&G's.”
Transformative platform technologies enabled the firm to cross a bleach technology into its health and beauty products, including Crest Whitestrips, Nice and Easy Perfect 10 hair color and Olay Daily Facials.
In the “life sciences” arena, P&G has found that an antibacterial molecule could have applications for its hair, skin, oral care, home and pet care businesses, according to Brown.
Additionally, “breakthroughs in smart products or electronic devices can be leveraged across categories that include oral care, shave care, home care and beauty,” he said.