India Head & Shoulders above rest, says Bob McDonald, CEO of P&G



 Bob McDonald, the chairman, president and CEO of P&G remains one of the few global chief executives still brimming with optimism about the India growth story.

MUMBAI: Bob McDonald, the chairman, president and CEO of P&G remains one of the few global chief executives still brimming with optimism about the India growth story. 

Prolonged policy paralysis may have caused several business leaders, both within and outside India, to swing from optimism to unbridled pessimism. But for McDonald and P&G, India ranks among the most important emerging markets to invest in, thanks to a billion-plus population and the quality of local operations. "We have had outstanding year-on-year results. 

It's over a billion-dollar business, and has been growing at 20% a year for more than a decade. We are investing over a billion dollars over five years in terms of capital and marketing," says McDonald. Seven new categories were recently added to the India portfolio of the multinational FMCG giant, bringing the total number of segments it operates in to 14. But given that P&G has a global portfolio of 37 categories, there's obviously scope for expansion. The company has five manufacturing plants, of which one is under construction. 

"We are going to continue to localise supply and bring in those new categories," says McDonald. P&G will have to contend with a very well-entrenched rival in the country, 
Hindustan UnileverBSE 0.28 %, which is four times its size in India. 

Asked if beating 
UnileverBSE 0.28 % is on the agenda, McDonald prefers to say, "Our priority is to win with Indian consumers. We would like to see every one of the over billion people here use a P&G product. We reach around 750 million people right now, and that's a large increase — over the past three years, we have added about 25%." 

McDonald's confidence about the potential of emerging markets has not always been welcomed since some analysts feel it may have resulted in the consumer giant neglecting its core markets in mature economies. About 32% of P&G's revenues came from emerging markets when McDonald took charge on July 1, 2009, and the company has found it hard to make inroads against well-entrenched competitors such as Unilever. 

McDonald succeeded AG Lafly, a legendary leader regarded as one of the most successful in the company's history, under whose watch market capitalisation increased by more than $100 billion and the number of billion-dollar brands doubled. He spearheaded the acquisition of 
BSE 0.00 % in 2006.

According to a report published in Fortune earlier this month, McDonald fell far short of his predicted $102-billion annual revenue for 2012, having to settle instead for $83.7 billion. Several reports in international media through mid-2012 indicated there was a call for him to be replaced. 

He has been criticised for his vision of 'purpose-driven growth', which critics say is abstract compared with his predecessor's simpler vision that regarded the customer as the boss. He has also been panned for introducing complex efficiency studies aimed at measuring actions of employees to reduce the number of processes. 

Asked how he's coping with the pressure, McDonald reaches out for his P&G ID badge and points to the values of the company enlisted there, particularly 'passion for winning'. 

"Every one of our employees likes to win and so we put pressure on ourselves. It's a greater motivator (than external pressures)," he says. P&G's twin objectives are to win with the consumers, but just as importantly to win with shareholders. McDonald would like the company to be in the top third of its peer group in total shareholder return. 

"It's one of the reasons we increase dividend every year; we've paid it for over 120 years and have increased it for 56 consecutive years. The yield on our dividend is about 3%. You can make more money buying our stock just on our dividends. Within the past few weeks, we have had some all-time high share prices too," he says. 

In June 2012, McDonald unveiled the socalled 40/20/10 plan: a sharp focus on 40 of the biggest category and country combinations, 20 biggest innovations and 10 emerging markets. The 40 biggest categories comprises 50% of P&G's sales and 70% of its volumes. Ever since it was implemented, P&G has seen successively better quarters. 

"Over the past month or so, we have seen all-time high share prices. Last quarter, we delivered top of our guidance range in terms of top line growth. We also overdelivered expectations on the bottom line in terms of cash flow which allowed us to raise guidance for the year and increase our share repurchase programme," says McDonald. 

This has been accompanied by a sharp focus on innovation. Key among these are big change innovations on flagship products such as Tide and Ariel. "One of our (Tide and Ariel) pods cleans better than six of the other brands. It's the most concentrated dose of laundry detergent you can buy — better for the environment, better value and better cleaning," McDonald claims. 

There's a special team working on discontinuous innovations that currently fall between P&G's global business units. Research and development has been centrally focussed on nine transformative platform technologies. He describes them as bets so big that none of the individual business units can risk investing in them. 

At a more local level, he points to innovations such as the Gillette Guard, a Rs 15 razor developed by and for India, hoping to wean away at least some of the 50% of Indian population who still shave using a double-edged blade. 

With products such as the Gillette Guard and Tide Naturals, McDonald hopes to overcome the perception that P&G is lacking in pricewarrior brands — a critical element for success in emerging markets. He admits, "There's more work we need to do. We have (such brands) in some of our categories, but need them in others."