Procter & Gamble seeks path to future prosperity

• Company, founded in 1837, is one of USA's oldest
• Its products used by 4.5B consumers worldwide
• CEO eyes future strategies, new products

CINCINNATI -- Few companies can boast the staying power or impact of Procter & Gamble.

Of the Fortune 50 firms first named to that acclaimed list in 1955, P&G (PG), which is based here, is among only 10 still in existence today — the others were acquired or out of business altogether.

Globally, P&G's products are used by 4.5 billion consumers. Its 126,000 employees are in 75 countries, and its brands are sold in 105 more.

Through its technology, the company has purified 5 billion liters of drinking water in Third World countries.

Through its social programs, it has eradicated neonatal tetanus in eight countries, with hopes of wiping out the disease by 2015.

"We'd like (P&G) to be around for at least another 175 years, because it's a force for good in the world," CEO Bob McDonald said in an interview to mark the milestone.

As the $84 billion firm pays tribute to its storied history, the memories resonate against the backdrop of thousands of job cuts underway, a $10 billion cost-cutting program, and a strategy to boost lackluster results.

"I always have to remember that this really isn't about me," McDonald said. "I'm CEO right now, but this is about the institution, and I've got to be willing to make the harder right decisions. I've got to be willing to accept the criticism, the praise, that may be unwarranted, in order to make sure this company is stronger when I retire than it is today, that shareholders are rewarded and that we're serving more consumers. Those are the tough decisions."

As the maker of Tide, Pampers and other blockbuster brands looks to its next 175 years, it's with an activist investor looking over its shoulder and a keen eye on make-or-break challenges.

"I think the issue for Procter is that it has to respect its past but be more adaptive to the changing marketplace and be quicker to market," said Matt McCormick, a portfolio manager with Bahl & Gaynor, a large P&G shareholder with nearly 5 million shares. "They're not going to be able to rest on their laurels."

Here are the four biggest challenges facing Procter & Gamble:

Innovate, innovate, innovate

For now, P&G isn't sharing details on the company's latest innovations.

But executives are pressing hard to get the new products out soonest, and put behind them a lull in its innovation pipeline that has lingered without a blockbuster in recent years.

"We've got some outstanding technologies that are going to result in new-to-the-world products very soon," McDonald said. "New categories. New brands. Just some unbelievable new technologies."

P&G's leaders know that some of the company's fastest periods of growth have been driven by innovations that have created its most profitable lines, including Pampers disposable diapers, Tide liquid laundry detergents and home care items such as Febreze.

Those products are examples of "discontinuous innovation," McDonald said, meaning brands or categories that didn't exist on a mass scale until P&G's innovation prowess took hold.

"We're going to want to strengthen our innovation program so that there are no gaps ... so that we're constantly bringing new products, new brands, new categories to market," McDonald said.

P&G ranked eighth last year on a list of top innovators by Booz & Co., a global consulting firm.

Apple and Google took the top two rankings.

Pruning the portfolio

In the past decade, P&G has shed more than 30 brands and completely exited the coffee, pharmaceutical and snacks businesses since 2009.

The company says it reviews the structure of its business constantly and its portfolio annually.

Still, some analysts and investors believe some pruning may be needed in P&G's behemoth box of brands.

Recently, dozens of analysts flocked to Cincinnati to hear an update from P&G's leadership on its best innovations, business strategy and work to cut costs.

Ali Dibadj, an analyst with New York-based Sanford C. Bernstein, said he wanted to hear more about P&G's portfolio mix and whether there were some categories or brands that management would consider divesting.

"Although we do not know of anything imminent, we would welcome changes to the company's portfolio, including Duracell, pet (care), Braun, consumer tissue, and salon," Dibadj wrote in a note to investors.

Pleasing fickle consumers

P&G's longevity has been built on a proven ability to anticipate and create products that consumers want and need.

Globally, it's built a business that has become the biggest and the best at doing just that, boasting 25 brands that crank out more than $1 billion in sales a year.

But it's a business that has only gotten more complicated over time, Bahl & Gaynor's McCormick said.

"You have your stars that are very profitable, and people will continue to purchase regardless of the economy. But you have to have products that are reflective of changing consumer tastes," he said. "There can't be a one-size-fits-all mentality. People are going to be very fickle going forward."

Doing more with less

Core to the changes underway at P&G is a mission by its top leaders to improve productivity. This month, the company created a new executive post: Productivity and Organization Transformation Officer.

The new position comes as P&G's leadership works through a multibillion-dollar cost-cutting program.

Announced in February, the plan aims to cut $10 billion in goods, advertising and overhead by 2016. That effort includes cutting at least 5,700 non-manufacturing jobs by June.

A leaner, more nimble P&G is key to competing short and long-term, said Connie Maneaty, an analyst with BMO Capital Markets, a financial services provider.

"The real risk to Procter is their bureaucracy," Maneaty said. "They're very bureaucratic internally, and that can gum up the work flow. It takes longer for decisions to be made, for new products to get to market, and that's when you run the risk of competitors moving faster than you do."

As he weighs the tough decisions facing P&G today, McDonald said, he's striving for balance.

"Balance is what leadership is all about," he told Wall Street analysts recently.

"We're not going to be able to just use productivity to get to the top tier. The greatest leaders are those who can balance what appears to be a dilemma to other people."