For a company to remain superior, quality should be central in every decision to ensure customers stay delighted.

So says P&G’s CEO Jon Moeller, who sees quality as a red line across all decisions — from sustainability to supply chain — to keep customers thrilled with the product they’re using. He believes that path is anchored in the supply chain, where closer quality assessment can catch concerns long before the end result is sitting in a warehouse. The upsides are lowered costs throughout production, a stronger supply chain, and confidence for the company — and from customers — in products on the shelf. 

“I think there’s a huge opportunity here to delight consumers, to delight customers, to operate with lower costs, [and] to have higher quality jobs for our colleagues in supply,” Moeller told Signal360’s John Battelle on the Signal 2023 stage in Cincinnati, Ohio. “I encourage you all to embrace it.”

You can hear more from this conversation between Moeller and Battelle in the video below or read our lightly edited transcript.


John Battelle
This is the 12th year of Signal, a dozen years of Signal, it’s extraordinary. Raise your hand, if you’ve been here. Thank you for coming back. After three years, this is the first year that we have almost every single speaker here on stage. Last year, it was about half virtual and on stage. And we only did about half full in the auditorium. This year, we’re doing full, but we also ‘Hi’ to the 5,500 of you from some 80 plus countries around the world. Thank you for joining us as well, not to mention the hundreds of people at Centrifuge, and the hundreds of interns downstairs in the conference center. And I have to mention everybody, because it’s all a part of the show.

At the back of your badge, you’ll see a QR code. And it’s important that even the folks in the room hit that and download the Hopin application, because that will allow you to put your questions in and comments and thoughts and join the thousands of other folks online in conversation, if you wish to.

Speaking of online, the world is extremely online. Every year, I get to remind all of you of what I like to call “The Wall Street Journal” front page test. If you post something online, make sure you’re cool with it being attributed to you on the front page of “The Wall Street Journal.” We are very interested in the world. being aware of how extraordinary this program is, because every year we work very hard all year to bring these incredible people to you to the stage to help all of us understand and learn what’s going on in business right now and how we can apply those insights over the next 12 months to create positive business outcomes. That is absolutely the focus of this year and every year at Signal. Let’s start with your CEO, Jon Moeller.

Jon, morning, how are you?

Jon Moeller
I’m great. How are you?

Good to see you. I’m well. Have a seat. The hot seat here. Thank you for helping us kick this off.

Happy to do so.

It’s an honor to be able to grill you in early in the morning. So you’ve been the CEO for almost two years now. What’s been the most surprising thing about your tenure so far as CEO?

Many surprising things. I think the most surprising to me, has just been the benefit from and the realization of the incredible talent, creativity and commitment of P&G people. If you look back at the two years that you mentioned, COVID, the largest land war in Europe since World War II, highest consumer inflation in 40 years.

In those two years, the combination of commodities, foreign exchange, transportation costs wiped out 50% of our profit. And what was your response and reaction? You overcame all of it.

We delivered 3% earnings per share growth last year, this year were forecasted deliver earnings per share on par with or ahead of a year ago. You did that while accelerating our top line. That top line growth is very broad. It’s across every category in the company for both of those years. I don’t remember a period of time like that. You did that while investing in innovation and brand building and market growth, so that we hold a stronger hand looking forward than we’ve held in a long time.

So I always knew that P&G people were intelligent, creative committed. But when you raise the bar, I was surprised. I didn’t know that we could do that. The reason I mentioned that is that’s why we’re here today, is to raise the bar again, on the superiority of our products, our packages, our communication or go to market capability, value for consumers and customers. To recommit ourselves to productivity, to continue constructively disrupting our business and our industry. And to do that with an organization and culture that’s ever more effective and efficient.

So I’m excited to see what you can do next. And I hope that these sessions, give you some ideas and inspiration for how that can come to life. That’s the design.

In preparing for this, I was reading a number of talks you’ve given and some articles about you. There was a consistent theme, a phrase that if you unpack it, it’s quite a read. There’s thousands of words, but I’ll let us summarize. The physical laws of the economic universe. In particular, I’m interested in this concept of balance.

Yeah, there are two of those that I think unlocked, for many of us, once we embrace them, a very different way of thinking, a different way of working, a different way of viewing success. Those two were balanced, the way it’s articulated is, ‘Better be balanced.’ I’ll come back to that. The second was the importance of being a disproportionate driver of market growth, where that’s articulated as market matters. So creating business versus simply taking business a much more sustainable and profitable way to grow. But back to balance. We weren’t balanced as a company, I was part of that, for a period of years. We careened between the rails of the prioritization of top line growth and bottom line growth and back, neither of those worked.

We started talking with each other about the need for balance across the top and bottom line. And I started that with the kind of trite saying which was, ‘Top line was no bottom line, a waste of time. Bottom line was no top line, just a matter of time.’

That’s the reaction I got people kind of chuckled, they didn’t do anything to change their behavior. So we’ve developed a chart that we’ve used at every leadership team meeting for the last 15 years. They sometimes get tired of it, I don’t. But it attempts to show what you would have to believe if you endeavored to grow total shareholder return on the top third of our peer group, which is our objective, entirely through the top line or entirely through the bottom line. If you endeavor to do it entirely through the top line, you would need to believe that this company can grow organic sales 8% every year. We’ve never done that. Our industry has never done that. So to count on that as a path forward, seems risky.

On the other hand, if you endeavored to do it entirely through the bottom line, you’d have to believe that we could grow about 180 basis points of margin every year. So five years, essentially 10 margin points, in a very competitive industry. As a company, it’s taken us 187 years to grow 22 margin points, I don’t think we’re going to grow 10 margin points in the next five years. So we have to deliver both top and bottom line. That discussion moved the needle a little bit, but there was still disbelief and discomfort with the need to do both of those. The chart actually got referred to as ‘John’s Math’ as though it were fake. So I thought, Okay, one more crack at this.

Let’s look at the voice of the market. And what does the market tell us? If we look at the correlation between our top line growth rate and our stock price, would you think that that’s a tight or high correlation or a low correlation?

What do you think? It’s very low, it’s 11%. So if all we do is grow top line, the markets are unlikely to be very happy with what we’re doing. So therefore, the value creation must be in the bottom line. The correlation between our bottom line than our share price is high or low. Also low, 17%. So delivering just one of those will not move the needle. When we combine them into a measure that you’re familiar with, operating total shareholder return, which requires both top line growth and bottom line growth, the correlation jumps to 67%.

Hopefully, if you haven’t been convinced already, when you come to ask me, which of these is more important? You know the answer. It’s both. So that’s a balance point. One more thing on balance.

We started this discussion, and we’ve had it this morning. with top and bottom line, but the world demands more from us now. We need to delight consumers, customers, each other society and share owners all at the same time. I’m convinced that if we fail to do one of those, we will fail to do all of them. As you approach your work, as you approach raising the bar as we come out of these sessions, please keep that in mind. We have a number of very important constituents, which we’re delighted to serve, and must serve holistically and completely.

I want to ask you about the theme. We’re raising the bar, but we’re resetting it because of the changes, almost constant change and seeming chaos that we have to ask different questions of our business. When you think about that phrase, what comes to mind?

I think about it, certainly that way, but also through a slightly different lens, which is just the incredible opportunity that we have. I talked earlier about the last two years. Let me just briefly go back to the last four years. If we were having a conversation four years ago, and we would have told each other look, here’s what’s going to happen, there’s gonna be a global pandemic, people are going to die, borders are going to be closed. So you’re not going to be able to get to your largest markets, the people in those markets aren’t going to be able to get to you. Supply chains are going to be completely disrupted, people aren’t going to be able to get into the manufacturing facilities into the innovation centers, into the sales offices. As I said earlier, don’t worry, that’s not all that’s going to happen, we’re going to have the largest land war in Europe, since World War II, highest consumer inflation in 40 years, foreign exchange commodities, FX, are going to wipe out 50% of your profits, there’s going to be more divisiveness, to the point that you were alluding to, both within your largest country and across the world than there’s been, again, probably since World War II.

And then all that’s done, no one’s gonna want to come back to work. What do you think? Is this going to end well? Well, thank goodness, I didn’t know about all those things ahead of time, or I don’t think I would have ended well. But what did you do? Again, just like the last two years, and this is relevant to the question that John has asked, you grew $13 billion in incremental sales, 87th percentile, the S&P 500. At the same time, back to balance, you grew $5 billion in incremental profit after tax, 92nd percentile in the S&P 500. As a result, your company became the 12th most valuable publicly traded company in the United States, the 16th most valuable in the world.

I know that you, we, are capable of amazing things. That’s the reason that I want us to spend time together, thinking about the next chapter and what’s possible, raising the bar.

I appreciate that. By the way, I should say congratulations. Because every time I have a conversation, particularly with a public company, a CEO, I stare at the stock chart for a good long time and I read the financials, it’s something I’ve done for 35 years now. And it’s, ‘Well, this is gonna be an easier conversation than I thought.’ So congratulations to all of you.

Absolutely, to all of them.

We have four core programming pillars here at Signal. They are digital acumen, which is where we started 12 years ago, the supply chain, the employee value equation, and sustainability. I want to dive into a couple of those. But I want to start with sort of my favorite, which is the supply chain.

You gave a talk at MIT, where you focused on the supply chain. You spoke about how it was a key element in growth and sustainability? Can you unpack that for us?

Sure, I want to start with something that’s very important. We have one of the best supply chains in the world, our supply organization. We talk about all the challenges we’ve been through, we would not have gotten through that without the incredible effort, work and commitment of our supply colleagues. So I hold them in the highest esteem. But you have to ask yourself, you know, across our value chain, are there opportunities. There are many opportunities. During COVID in the US, there were weeks and months and I would venture to guess years, where 24% of our SKUs, we’re on allocation. Meaning we weren’t meeting demand. Think about the opportunity if we hadn’t been constrained like that, and the reasons behind that were were very understandable, very explainable, but nonetheless, we missed an opportunity. At the intersection of some of these things like digital acumen, supply chain, there are huge opportunities.

I’ll just give you one. If you think about quality, which I’m obsessed with, because if we are truly going to be superior, it’s hard for me to understand how quality isn’t right at the center of that equation. Today largely, not entirely, we assess quality, either at the end of the line, or in a warehouse after a product’s been produced. If we encounter an issue, we have to deal with all the product that we’ve produced since that issue occurred that’s sitting in the warehouse or sitting at the end of the line. Instead, if we could assess quality, ideally, with every ingredient as it comes into our supply chain, and then on the line with cameras and sensors, we’d have a much lower cost cost quality assessment operation, that would be much better. We’d have much more confidence in the quality of our products, and we’d be able to address any issues, real time. That’s just one example of the opportunity that exists in supply chain. So we talked about supply 3.0. It includes many other items, but I’m excited about it. I think there’s just huge opportunity here to delight consumers to delight customers, to operate with lower costs, to have higher quality jobs for our colleagues in supply. I just encourage you all to embrace it.

When we spoke earlier, and I think this relates to what you just said, when we talked about sustainability. One of the sort of aha moments for me last year was how connected that is to supply chain efficiency. And supply chain means being more sustainable, and being more sustainable means a better business outcome. Can you talk a bit about the commitment to sustainability here at P&G?

I think it’s critical. Actually, I don’t think, I know, it’s critical as do you. But like with everything, it can’t be pursued in isolation. For example, we’ve chosen to concentrate our portfolio and daily use categories where performance drives brand choice. We cannot compromise on performance. We have to continue to increase our performance advantage as a way to further delight consumers and customers. And we need to do it in a more sustainable way. So I’m not interested in sustainability in a vacuum, because that’s exactly what it will be, it will be a vacuum. Because nobody in performance-based categories will buy our products if they don’t perform. So we have to deliver both. Certainly, there are aspects of that contained with us in the supply chain. But when I look at sustainability and the opportunities in front of us, I think they’re massive.

There are three areas that I think about when I think about sustainability. The first is our own footprint, and a significant part of that is our supply chain. We’ve done a great job on that already. Our emissions are down 57% since 2010, when we started measuring. We have plans to eliminate on a net basis, all of them.

If you look at recycled packaging material, our use of recycled materials to construct our packages has doubled in the last two years, it’ll double again in the next two years. By 2030, it’ll be 10 times the level that it was not many years ago. We’re now in 100% recycled packaging in Europe and our shampoo, Head & Shoulders and Pantene. Many of you are familiar with the new Gillette packaging, with the ECOCLIC packaging on Ariel. These are all tremendous in terms of enabling us to reduce our footprint and do it in a way that improves superiority doesn’t denigrate it doesn’t compromise it.

If you look at the ECOCLIC package, 70% of consumers who use liquid laundry after they have the ECOCLIC experience want to convert. We’re not denigrating performance or delight at use, we’re improving it. So that’s one column, the second column is enabling consumers to reduce their footprint. That’s where the largest part of our total footprint actually happens. We talk a lot, for example, about l the laundry experience. And 70%, roughly, of the footprint of doing a load of the environmental footprint of a load of laundry comes from heating the water to do the wash. If we can develop detergents that wash as well, or ideally better again, back back to not denigrating, but do a better job in cold water than our competitors do in warm water, we then have the license to encourage consumers to turn that dial on their washing machine. We then have the ability to talk to washing machine manufacturers and say, ‘The default setting when this comes out of your factory should be cold.’ We have an objective of reducing the average water temperature of a load of laundry in Europe by five degrees centigrade over the next couple of years. We’re already down two degrees. So we know that this can work. There are opportunities across the majority of our categories to help consumers reduce their footprint.

The last one is very important. We’re not going to solve these problems on a global basis through our traditional approach. There is no company on the planet that can solve these problems by themselves or instead capture these opportunities by themselves. We’ve innovated for years, for 85 plus, with what I refer to as closed arms. Everything’s been focused on propriety, having something that others don’t. I think that has to end, in the area of sustainability, for sure.

One example, polypropylene recycling. Polypropylene recycling exists today, but the standard process doesn’t remove odor or pigment. So what comes out of the recycling process is not terribly usable for many manufacturers. I’m sure many of you seen if you walk, walk along a river or lake somewhere, you’ll see those grey plastic park benches? That’s recycled polypropylene. Our scientists have created a process that removes odor, removes pigment, and yields 99% virgin-quality resin at the end of the process. We can’t justify, economically, construction of a facility to do that. So we’ve licensed that to a company called Pure Cycle, who is now building their first full scale production site. It’s sold out for the next five years, and they will make it available, across our industry and across other industries, carpark manufacturers, health devices and hospitals, you name it. Working together with arms open, sharing innovation with the rest of the world, we can do amazing things. We now have a process that allows us to do the same with polyethylene. Think about plastic film.

Two others real quick, but this is exciting.

We can now embed and we’re working with a consortium of 170 companies to embed a watermark and a piece of plastic that’s not visible to the human eye, but that is visible to an automatic sorter at the front end of a recycling, operation. Sorting and the cost that goes with it, in terms of what’s largely a manual process today is one of the biggest disablers for more recycling. When you start combining these things, reducing the cost at the front end of the recycling operation, improving the yield and quality on the back end of the operation, the world changes. Now we can start attracting capital from the capital markets because people want to invest in this because there’s opportunity. Last one, we announced I think it was last week, it might have been earlier this week, a new partnership with Dow, one of our longtime suppliers in China, to produce packaging to be used in e-commerce and social selling direct to consumer delivery. It’s cell-based packaging, it’s not corrugated. It does a better job of protecting the product by the quality. It is produced, importantly, with a monomer. So one input to the packaging. The reason that’s important is that makes it much easier to recycle, because you’re not having to separate components. And it scores off the charts in terms of consumer delight. We have a big opportunity to reduce our footprint, we have a big opportunity to help consumers reduce their footprint, and we have a big opportunity to contribute on a global basis to a more sustainable world. I ask that you join me in that endeavor.

Last point, I’ve talked several times about not compromising superiority, not compromising quality. That’s a red line. We’re not gonna do that. Because again, we won’t contribute anything to sustainability. We’ll lose our business in the process. So please keep that in mind as we work together on the nature of this.

We are out of time, unfortunately. I mean, you’re in charge. So if you want. But there were a few things I was hoping to ask you. But I’m going to secure a confirmation for you to come back, so I can continue this conversation with you next time. But I’ll close with this question. What are you looking forward to in today’s program? And what would you like this group including the thousands and thousands online and downstairs and across the town to take away from this?

I’d like you to open your minds. Look to be inspired. But be objective. The things you’re going to hear are not answers. They’re not directions. There are thoughts and examples that have worked for other people that I hope have merit in the work we do. But again, don’t view them as direction or answers. View them as input to your own thinking on what the biggest opportunities are for us. And importantly, enjoy the time with each other. It’s great to be able to do this again.

Yes, it really is. Jon Moeller. Thank you so much for being here.