Proctor & Gamble

Transforming a global market leader
Peter Fisk

AJ Lafley is in the midst of engineering a remarkable turnaround. The first thing Lafley (Alan is his first name) told his managers when he unexpectedly stepped up to the CEO job in 2000 was just what they wanted to hear: Focus on what you do well -- selling the company's major brands such as Crest, Tide and Pampers -- instead of trying to develop the next big innovation. Now, old staples of the P&G stable have done so well that they are again the envy of the industry. So is the company's share price, which climbed 58%, to $92 a share in the six years since Lafley started, while the overall stock market has declined 32%. Profits are almost $6 billion on sales of $44 billion, having outgrown most rivals for the past five years. Maybe softly-spoken Lafley was the antidote P&G needed after 18 months of Dirk Jager, the previous CEO who had flown into Cincinatti from the Netherlands on a mission to shake up the company. He stuck up “Old World, New World” posters, asking people which world they were in. The share price plummeted. He rammed through an agenda of change, and whilst he was absolutely right that the business need a new, and much more external culture, he ripped apart everything that P&G’s insular culture was built on, and alienated almost everyone. Instead of pushing P&G to excel, his torrent of slogans and initiatives almost brought the company to its knees. Lafley, in his 23rd year at P&G wasn't supposed to be a radical change agent, he was supposed to bring some stability back to the business. Having spent his early years managing Tide, a decade running the Japanese business, he had recently returned to head up North American operations. He recognized the need for change, the need for more speed and agility, a deeper understanding of consumers, and a more radical approach to innovation. But he also understood that P&Gers – some of the best trained, brightest managers in the world would only embrace such change in a P&G way.

www.thegeniusworks.com

© Peter Fisk 2008 

On taking up the job, Lafley pushed through Jager’s agenda even faster and more radically than his predecessor had dared hope. However he did it in a way that engaged people, that built on what they had spent their careers doing, that offered hope and personal gain, rather than despair and pain. In his short time in charge, P&G has not only experienced transformation internally, but has absorbed some of its largest competitors too - buying Clairol for $5 billion in 2001, followed by Wella $7 billion, and Gillette for a huge $54 billion in 2005. He has replaced at least half of his most senior managers top 30 officers, and cut 10,000 jobs. However this is just the beginning. If one unguarded memo is believed, 25,000 more jobs could soon go, based on the idea of turning P&G into a virtual brandowning company, with marketing as a its core business, and most other activities – from innovation to manufacturing - done in partnership with others. Lafley’s rallying call is incredibly simple, almost embarrassingly so, as he reminds people in meeting after meeting that “the consumer is the boss”. With this phrase he is turning P&G inside out – or more precisely, outside in. Symbolically he tore down the walls of the executive offices, including his own. He moved people about, for example seating marketing and finance people together to drive faster, more collaborative, more commercial, much customer-driven ways of working. He spent hours, himself, talking to real consumers in their homes around the world - about how they live, how they cook, how they clean. When his managers came to him with an idea, he was ready to respond with a consumer’s mindset. He is a listener and sponge, and when he communicates, he does it in very simple “Sesame Street” terms, but people love him, because they believe he is trying to do the right thing. He only ever writes one page memos, and most meetings are scheduled for 20 or 30 minutes, rather than conventional one hour. He brought in Meg Whitman, CEO of eBay as a non-executive director, and hung out with GE’s new CEO, Jeff Immelt, and himself joining GE’s board. Innovation, in particular, has come under the microscope. Despite battalions of scientists and engineers, P&G hadn’t delivered a real innovation in decades, despite millions of dotcom-style dollars being pumped into internal ventures. When they tried to innovate, it was always based on a technically-advanced product offer, rather than something consumers actually wanted. He insisted that at least 50% of new products should come from outside, compared to 10% at the time. This would require a seismic culture change, and putting your future in the hands of others would be risky too. The new “connect and develop” approach is about collaboration, with partners who have specialist skills, P&G doesn’t, and with consumers. Lafley’s own eyes were opened to the need for change when he worked in Asia. P&G was a minnow compared to the might of Unilever and Nestle in that market. Brand names long on American heritage and short on real difference just did not sell. Indeed what sold in the American market was never likely to excite the Indian consumer, as even the likes of Coca Cola have found the hard way. P&G lacked insight, relevance, differentiation, and creativity. Performance was respectable, but not sustainable. Changing a huge, global business is not easy. He recognized that he couldn’t do everything. He quickly focused his change agenda on “the core” business – the select few markets, categories, brands and capabilities that defined the business. Core meant being a global leader, leading economics, high growth and strong cashflow. Other areas would have to wait, telling them to “just keep doing a great job”. He was clear and direct with people – “These are our core business – fabric care, baby care, feminine care and hair care” and “Everything is non-core”. He wanted to unclutter the thinking. Whilst his approach was hands-on in the early years, he has increasingly stepped back to become more of a coach and facilitator. He wants his manages to learn to make their own choices - to embrace his passion and focus in their own ways, as he can’t possibly manage everything. However he demands a strategy from every team – including a “to do” and “not to do” list – and every decision must be based on a sound consumer insight, not just some manipulated financial projection.

www.thegeniusworks.com

© Peter Fisk 2008 

Lafley regularly reminds people of the their enduring purpose: “to improve the everyday lives of people around the world with P&G brands and products that deliver better performance, quality and value”. He points out that this has not changed, nor has the values and principles of the business. One thing he has carefully avoided is setting out a vision statement. He doesn’t believe it is necessary, that the purpose of the business is clear and that is sufficient, and otherwise it is about the consumer not the business. He calls it managing from the “future back” – his eyes and ears on today’s world, and his back to the future, believing that the consumer is his best navigator.

© Peter Fisk 2008. This article is extracted from Peter Fisk’s new book Business Genius: a more inspired approach to business growth published by Wiley Capstone in May 2008.

Peter Fisk is an inspirational author and speaker, consultant and entrepreneur. His best-selling book Marketing Genius has been translated into 28 languages, and he was recently described by Business Strategy Review as “one of the best new business thinkers”. His new book Business Genius describes the challenge of sustaining business growth through turbulent times. He has worked internationally with market leaders including British Airways and Coca Cola, Marks & Spencer and Microsoft, Virgin and Vodafone. He was the transforming CEO of the Chartered Institute of Marketing, led the global strategic marketing consulting team of PA Consulting Group, managing director of Brand Finance, and partner of strategic innovators The Foundation. He now leads The Genius Works, helping business leaders to see things differently – to develop and implement more inspired strategies, innovation and marketing. The Genius Lab is an accelerated innovation process. Zoom Ventures brings together business investors and social entrepreneurs. The Fast Track is a practical development programme with workshops and retreats worldwide. For more information visit www.thegeniusworks.com or email peterfisk@peterfisk.com www.thegeniusworks.com © Peter Fisk 2008 

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