How Procter and Gamble to Cean Up

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The consumer-products giant Procter & Gamble is investing in game-changing innovations even amid the recession, says CEO A.G. Lafley Since becoming chief executive of Procter & Gamble (PG) in 2000, A.G. Lafley has never had it tougher. Shares of the world's biggest consumer-products company have lost a third of their value since last fall. U.S. shoppers are trading down to private-label products from premium-priced brands such as P&G's Tide, Gillette, and Pampers. And the economic downturn is spilling into developing nations where P&G has notched its best growth. Lafley, nonetheless, seems undaunted. The 61-year-old sat down in his Cincinnati office with BusinessWeek's Roger O. Crockett to talk about managing through the recession. Here are edited excerpts: ON SPENDING PRIORITIES

We continue to invest in our core strengths. First, we don't skimp in understanding the consumer. Second is innovation. Our capital spending will go up in 2009 for new engineering and manufacturing technology. And third is branding. Although we actually are spending fewer dollars on advertising because the price of media has gone down, we're delivering more messages to our consumers. ON PRODUCT FAILURES

In our industry only 15% to 20% of new products succeed. P&G's success rate is a little over 50%. But we were at that industry average in the '90s. We improved our batting average by clarifying and simplifying the innovation process. We set checkpoints with clear measures for each phase of the process from ideation through development and commercialization. If a project looks like it will not make it, we drop it. You learn more from failure than you do from success but the key is to fail early, fail cheaply, and don't make the same mistake twice. ON PREMIUM PRICING

The key thing to understand is that we're not in the commodity business. We're not selling items that fluctuate based on the price of the input materials. We're selling a brand. We can create better value...
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