A.G. Lafley - SN Hall of Fame

MARK HAMSTRA

Alan George Lafley has, quite literally, taken Procter & Gamble Co. into the 21st century.

When Lafley was named president and chief executive officer of the Cincinnati-based consumer-products giant in June of 2000, he inherited what many have described as a stodgy, stiff-collared company, bent on growth but with no clear strategy for doing so. It had just warned investors that it would not meet analysts' profit expectations, and its stock was dropping sharply.

A.G. Lafley

But it didn't take long for the 23-year P&G veteran, who had once flirted with the idea of becoming a history professor, to impart a new vision for the company. Lafley refocused the company on serving the consumer and built a corporate culture around a redefined mission of product innovation.

To Lafley, innovation means much more than introducing new products — it is an all-encompassing mind-set that welcomes ideas from outside, understands consumer needs and forges true partnerships with retailers.

“Our goal at P&G is to delight consumers at two ‘moments of truth’: first, when they buy a product, and second, when they use it,” Lafley wrote in “The Game-Changer,” a book he co-authored that was published earlier this year. “To do that, we live with our consumers and see the world and opportunities for new-product initiatives through their eyes. Consumers are now at the center of every key decision we make in a routine and disciplined, and not episodic way.”

Perhaps it is no surprise that Lafley has renewed the company's focus on the point of sale — he is a former retailer of sorts himself. During a stint in the U.S. Navy, he oversaw some retail operations — including grocery and specialty stores — at a military base in Japan. Although he had been pursuing a Ph.D. in medieval and Renaissance European history before he joined the Navy, running the retail businesses in Japan gave him a taste for business, and he decided to shift gears and enroll in Harvard Business School instead, he wrote in “The Game-Changer.”

After graduating, he joined P&G in 1977 as a brand assistant at the Joy dish-soap business, and moved up through a series of positions before becoming president and CEO in 2000. He added the title of chairman in 2002, and he remains chairman and CEO today.

Through a series of acquisitions and divestitures under Lafley's tenure, P&G has evolved into a solid core group of businesses that focuses on genuine innovation and have delivered consistent growth.

The company had $83.5 billion in sales in its most recent fiscal year, a 9% improvement over the prior year, and more than double what the company posted when Lafley took over. It now has 24 brands that each generate $1 billion or more in sales per year, up from just 10 such brands in 2000.

Three years ago, Procter & Gamble undertook the largest acquisition in the company's history with the $57 billion purchase of Gillette. That deal, which strengthened P&G's grooming and personal care portfolio, followed smaller but still significant deals to acquire Clairol in 2001 and Wella in 2003.

“Under current management, P&G has demonstrated its ability to make deals work,” Chuck Carlson, CEO of Horizon Investment Services, Hammond, Ind., told SN at the time of the Gillette acquisition.

For P&G, the mergers brought what Lafley has described as the company's two core assets: talented people and well-known brands. Combined with in-depth knowledge of consumers gleaned through careful research, P&G has created a powerful platform from which it can innovate and expand.

It is Lafley's approach to innovation that has transformed the company, said Jim Hertel, managing partner at consulting firm Willard Bishop, Barrington, Ill., and a former brand manager at P&G.

“They now talk about what happens when the consumer brings the product home, and they are talking about true innovation, as opposed to just line extensions,” he told SN.

Hertel cited the example of Swiffer, a surface-cleaning product that served a consumer need and created a whole new category of product, and Mr. Clean, a brand that P&G has leveraged beyond its origins as a floor-cleaning soap into such areas as car care.

“Those are outstanding examples of the company really extending their innovation capabilities and their research capabilities to provide meaningful, new consumer products,” Hertel said.

In an interview in April with talk-show host Charlie Rose, Lafley said the company defines successful innovations as those that are embraced by the consumer.

“For us, innovation is not the idea,” he said. “It`s not the invention. They're important. That's the first step in the process. Innovation for us is a new or improved product or service that you as a customer can buy, and that we can make some sales and profit on … until the iPod is in your pocket, until the new Herbal Essences shampoo and conditioning line is on the shelf and in your home, we don't have an innovation.”

Lafley was not available for an interview for this article.

In working with retailers as partners, P&G has set a new standard for collaboration that helps all parties involved, Hertel explained.

“They have taken a much more embracing and integrated view of the role of the retailer in their marketing activities,” he said. “At one time, they were saying, ‘We sell to the consumer; we sell through the retailer.’ That was the mantra that was drummed into you from the very beginning.

“They have now integrated or involved the retail perspective, and really thought about reaching the shopper and adding value, both to the retail relationship and to the consumer, and I think that's made a big difference.”

P&G tallies 15% of its business through Bentonville, Ark.-based Wal-Mart Stores, and the two companies have embarked on several groundbreaking innovations together that have driven sales and productivity for both companies. Their collaboration has included continuous-replenishment technology and several initiatives at the point of sale, such as an effort to boost Wal-Mart's share of cough, cold and flu remedies by jointly stressing the need for consumers to be prepared for such illnesses. The effort helped increase Wal-Mart's market share of the products by 30%, Lafley wrote in “The Game-Changer.”

Similarly, P&G worked with Minneapolis-based Target Corp., where P&G generates 7% of its volume, to increase shopping frequency by revamping the layout of certain categories — such as baby care and health and beauty care — that both companies felt could drive increased visits.

“When innovating with retailers, the focus should be on what matters most to the shopper,” Lafley wrote in his book. “Innovations should help retailers differentiate themselves from competitors.”

“While A.G.'s business results speak for themselves, it is his passion for spending time in stores and with our customers to find new ways to better serve their shoppers [that stands out],” said Rob Steele, P&G president, North America, in an interview with SN in 2003.

Serving shoppers, in the end, is what defines how P&G operates.

“P&G has a simple but powerful purpose,” Lafley said in the Charlie Rose interview. “We're in the business of improving your everyday life.”

A.G. Lafley
Chairman and CEO
Procter & Gamble Co.

Lafley reinvented Procter & Gamble when he took over the company in 2000. By focusing sharply on the consumer and engaging retailers as business partners, he created a corporate culture driven by innovation and creativity, and more than doubled the company's size, to $83.5 billion.