Turning the Tide at P&G
How's this for the KISS principle of leadership? "The consumer is boss," Procter & Gamble Chief Executive A. G. Lafley says simply of the business mantra he endlessly repeats to his employees.
It might seem a fool's errand to try to boil down the marching orders for 138,000 workers in more than 80 countries to a simple cliché. But those four words-which might as well be tattooed on Lafley's forehead-speak volumes about his keep-it-simple strategy for leading the world's largest consumer products company: Find out what the consumer wants, and give it to her.
It's an approach straight from the playbook of Lafley's mentor, Peter Drucker, the late management guru who argued that companies tend to overcomplicate their businesses, creating too many products, hiring too many employees, and generally distracting themselves from what made them successful in the first place: pleasing their customers.
That was precisely what Lafley concluded when he was promoted to the top job at P&G in 2000. With sales growth slowing, market share shrinking, and the next big thing nowhere in sight, his predecessor, Durk Jager, had tried to turn the company around, in part, by pushing dozens of new products through the R&D pipeline, while at the same time pursuing an "if it ain't broke, break it" reorganization to shake up P&G's famously insular culture.
The result, however, was sinking morale, escalating costs, and an earnings shortfall that soon cut the company's stock price in half.
Lafley, a 59-year-old P&G lifer who had first made his mark simplifying life in the laundry room (he led the launch of Liquid Tide), instead applied Drucker's back-to-basics approach to clean up P&G's house. He narrowed the company's focus on its top-selling brands, threw out more than a dozen others, and stocked the shelves with bigger, better ones, like those from P&G's recent $57 billion acquisition of Gillette.
Meanwhile, he de-emphasized traditional R&D spending in favor of product ideas culled from outside the company. He slashed the number of projects under development by two thirds, increased collaborations with outside partners, and outsourced what were once thought to be core operations, like the manufacturing of Ivory bar soap, P&G's oldest brand.
He did much the same with P&G's workforce: reorganizing its divisions to encourage more collaboration, targeting top-priority countries, and eliminating about 20,000 jobs, including more than half of P&G's top brass.
All who remain are focused squarely on the goal of winning what Lafley calls the "two consumer moments of truth"-first, buying P&G products and then, liking them so much that it's "memorable-at least satisfying and ideally delighting."
Repeat after me. If that sounds simplistic, Lafley is the first to admit that it is. Yet in a company where more than half the employees don't speak English as their first language, he says his Sesame Street- simple slogans, repeated over and over, keep everyone trained on what's important. Human beings "don't want to stay focused," he says. "So my job is to get them to focus their creativity around the focus; focus their productivity around the focus; focus their efficiency or effectiveness around the focus."
Lafley seizes on everyday "teachable moments." Take, for example, a recent meeting he had with his executive speechwriter, Greg Icenhower. The two got together to complete an unfinished paper by Drucker.
"Greg was immediately thinking about all the usual stuff," recalls Lafley. "Where should we publish? When should we publish? How should we organize the piece?"
"So I said, 'Greg, let's begin at the beginning. Who is the piece for?'"
Drucker would surely have chuckled. He would also nod approvingly at another Lafley tactic for keeping his people tuned in to what's important: the simple act of listening, especially to P&G's customers.
For Lafley, that doesn't mean poring over market research reports and lining up focus groups, which he frankly avoids. Instead, he visits dozens of everyday consumers each year, sitting down in their homes or walking with them through their local grocery store. A housekeeper from Venezuela tells him why she uses five different skin lotions for her feet, face, body, and hands. In Vietnam, a homemaker explains why she uses the competitor's laundry detergent. "I know it's not quantitative research that's representative ... it's mother-in-law [research]," Lafley says of pearls he gets from customers he meets, almost always women. "It's keeping you in touch with the qualitative side."
It's akin to the way Lafley first found success in the merchandising world, as a junior Navy supply officer in 1969. Put in charge of a military department store on his base in Japan, he held monthly meetings with the military wives who shopped there. He took their suggestions to heart and stocked the aisles with Japanese pachinko pinball machines, Oriental rugs, and painted ceramic elephants, which promptly sold out.
No big wow. Lafley joined P&G soon after graduation from business school, signing on in 1977 as a brand assistant for Joy dishwashing liquid.
Not that his ascension to CEO was a fait accompli. So soft-spoken that his demeanor has been compared with Mr. Rogers, Lafley "isn't the sort of guy you meet and think, 'Wow,'" Norman Augustine, a P&G board member, says of his first unmemorable interactions with Lafley. "But he wears well."
Augustine says Lafley is as good a listener to colleagues as to customers. "Normally, a new CEO would come in and say, 'Here's the 20 things I'm going to do by next Tuesday,'" Augustine recalls of their first meeting after Lafley's promotion. "But just like [with] the little woman in the hut in Vietnam, he'd come to listen."
That said, Lafley isn't a pushover, and he uses his "consumer is boss" mantra to divine what's negotiable and what's not. An example is his decision in 2000 to cut R&D spending and rely more on outside partnerships, which he believed would better connect P&G with customers and improve the company's lackluster 20 percent product hit rate. The idea, since dubbed "connect and develop," was a radical departure from P&G's invent-it-ourselves culture, which relied mostly on 7,500 company scientists to churn out new products. Instead, Lafley set a goal of obtaining 50 percent of new product ideas from outside, while dramatically reducing the number of inventions P&G patents.
"The first time we talked about it, we totally bombed," Lafley recalls of his initial meeting with top P&G scientists. "They said, 'You're outsourcing R&D! That's ridiculous.'"
Lafley knew the effort would never succeed without their buy-in. So he and Chief Technology Officer Gil Cloyd convened a series of meetings to address the scientists' concerns. Making the case that "more of the things you thought up are going to happen," they laid out a plan to reward employees regardless of where a new product idea originates-particularly because outside ideas often get to market faster.
Take, for example, a stain-removing sponge one P&G-er found selling in a market in Osaka, Japan, in 2001. He sent a sample to R&D researchers in Cincinnati and posted an evaluation of its market potential on an internal website known as the "eureka" catalog. P&G soon purchased the technology from German chemical giant BASF, whose researchers collaborated with P&G scientists on future versions of the product. Brought to market in just two years (less than half P&G's traditional product development cycle), the result was the Mr. Clean Magic Eraser, one of P&G's hottest new products.
The proof of Lafley's approach is plain enough. Since he took the helm, P&G has not only doubled the number of new products with elements originated outside the company but also more than doubled its portfolio of billion-dollar brands-and its stock price.
How's that for a simple recipe for success?
This story appears in the October 30, 2006 print edition of U.S. News & World Report.