P&G CEO A.G. Lafley on Inspiration & Innovation
Tuesday, April 15, 2008STEPHANIE DHUE: The next four weeks are crunch time for college financial aid offices, as students make their plans for the fall. Key lawmakers are urging students not to panic, saying they'll ensure loans are available. Stephanie Dhue, Nightly Business Report, Washington.
PRATT: In the eight years under A.G. Lafley's leadership, Procter & Gamble has made solid progress, and now, the chairman and CEO of the consumer products giant has written a book detailing how he did it. Lafley's book is called "The Game-Changer: How You Can Drive Revenue and Profit Growth With Innovation." Earlier today, I spoke with him about it, and the economy. I began by asking him whether it's harder to innovate during a recession.
A.G. LAFLEY, CHAIRMAN & CEO, PROCTER & GAMBLE: I think it's more essential to innovate through a recession, and certainly what we're trying to do at P&G is to continue to bring sustaining and even disruptive new brands and products for our consumers, to make their lives better, to offer them a little more value.
PRATT: I see. I would like to get your observations about the state of the economy right now and the health of the U.S. consumer. Let me start off by asking you about today we got some additional news that inflation is a very serious problem in the economy. How is inflation and how are rise in commodity prices affecting P&G's business?
LAFLEY: Well, they are affecting our business. They have been affecting our business for now the fourth year in a row. And we believe they will continue to affect our business.
We are trying to do three things in the face of rising energy and commodity costs. One, take out costs whenever and wherever we can, costs that the consumer doesn't want to pay for. Two, price where we have to and where we must. We try to keep our pricing fairly modest, 5 percent or so at a time, and appropriately frequent depending on the cost of the inputs. And thirdly, we keep trying to bring the consumer better products that sort of mix our lines up so they offer better value and they allow us to price a little bit more.
PRATT: What do you think about the health of the U.S. consumer now? Are you seeing evidence that the consumer is pulling back significantly in your business?
LAFLEY: I think there is no doubt that the U.S. consumer is under pressure. In our business, the consumer staples business, as we said, and as we have said, the growth is slowing, but our categories are still growing, albeit modestly.
If you look at what consumers are really doing, they're reducing the number of shopping trips they make in a week or a month. They're trying to stay closer to home because of the price of gasoline. They're eating out a bit less. They will probably be taking fewer and more modest vacations.
But when you turn to everyday household care products or personal care products -- I mean, we are brushing our teeth the same every day; we are bathing the same; we are washing our hair. So most of the basic products that we sell are still being purchased on a weekly basis and consumed on a daily basis.
PRATT: A few months ago, you announced some job cuts to help deal with rising costs. Would you anticipate additional job cuts, or other measures, similar measures in terms of cost cutting, to help deal with rising commodity prices?
LAFLEY: You know, actually, our employment and our hiring should be up this year in the U.S. We are always selectively reducing costs, including the size of our organizations and businesses that are under more pressure, or in businesses where we're trying to transform the business model.
But I would say net this year, despite the slowdown, we'll be a net hirer.
PRATT: And what about evidence in markets outside the U.S.? What are you seeing in those business areas? Are you seeing evidence that the U.S. recession, if in fact we are in a recession, is affecting global markets as well?
LAFLEY: Not yet. In fact, our engine of growth for most of this decade has been emerging markets. They now represent about 28 percent of our total business. In fact, 60 percent of our business is outside the U.S. today. And for us at least, developing markets continue to grow at a healthy rate, and we continue to generate sales and profits from those markets at double digits or better.
PRATT: Is that where you expect to see the best opportunities for growth looking ahead?
LAFLEY: Yes, it is.
PRATT: OK. Let's leave it there. Thank you for joining us.
LAFLEY: Thank you very much.
PRATT: My guest A.G. Lafley, CEO and chairman of Procter & Gamble.
