Proctor and Gamble 2007 Annual Report Download - page 7

researchers and entrepreneurs around the world working in areas
that are relevant to our business. We’re establishing P&G as the
preferred commercialization partner for these external innovators,
and it’s making a huge impact. We’re innovating faster, better
and more cost effectively as a result of external partnerships.
More than half of the new products in our pipeline today include
at least one external component.
Our strengthened ability to innovate is most evident in the
net present value of our innovation pipeline and the organic
incremental sales growth generated by innovation. Innovation-
driven value creation for shareholders and incremental sales
growth from innovation have nearly doubled in this same
time period.
These are just two examples of how we have designed an
institutional capability to grow. Our core strengths create
sustainable competitive advantages, and we are continuing
to get stronger in every area.
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The third element of P&G’s design for growth is the disciplined
way we manage our business. Discipline is part of P&G’s DNA
and we apply it to every aspect of the business: strategic,
operational and nancial. We set and stick with clear strategies.
We do our homework before going to market with new products
and ideas, and we sweat the details that determine how well we
execute. Most importantly, we focus on shareholder value creation
as the primary measure of business and nancial performance.
Three examples of P&G’s disciplined approach to value creation
are how we manage our innovation portfolio, the way we reliably
increase margins, and the approach we’ve taken to ongoing,
internally funded restructuring.
growth, and operating TSR well above the cost of capital
becomes a candidate for divestiture. Our portfolio is stronger
today than it was at the beginning of the decade but it’s not as
strong as it will be by the end of the decade. We have more work
to do to strengthen our mix of businesses and we will do it.
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The second element of P&G’s design for growth is our combination
of core strengths. Early in the decade, we determined that P&G
did not have sufcient competitive advantage in the ve areas
that are critical to winning in consumer products: consumer
understanding, brand-building, innovation, go-to-market capability,
and scale. We’ve invested substantially in every area, and it’s
paying off.
For example, we’ve invested more than a billion dollars in consumer
understanding since 2001. We’ve transformed one of the industry’s
more traditional market research organizations into a consumer
understanding powerhouse. Our external benchmarking indicates
that P&G has the industry’s strongest suite of proprietary consumer
research tools and methodologies. These tools help us learn
faster and more effectively, and they help us discover the often-
unarticulated needs and aspirations that lead to breakthrough
innovation.
Innovation has always been P&G’s lifeblood, and we’ve created
signicant advantage in this area. We have best-in-class expertise
in about a dozen technology areas that are the foundation for
innovation in our industry, including enzymes, perfumes and
avors, polymers, structured substrates, and surfactants.
We’ve multiplied this internal capability through an effort we
call “connect + develop,” which is proving to be an enormous
source of innovation and competitive advantage. We have about
8,500 researchers within P&G, but there are another 1.5 million
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The strategic, operational and nancial discipline
that ensures shareholder value creation

The most diverse and experienced
management team in P&G history
A combination of the strengths required to win in consumer
products: consumer understanding, brand-building,
innovation, go-to-market capability, and scale
A diversied mix of businesses that reduces exposure
to single economic and competitive events, and
maximizes future growth opportunities
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

The Procter & Gamble Company 5