On the day that A.G.
Lafley took the helm at consumer products giant Procter &
Gamble in 2000, the stock dropped by $4. The financial markets were unimpressed with
Lafley's rise to the CEO spot. Lafley, who started out at P&G in 1977 as a brand
assistant for Joy dishwashing liquid, did not seem to have the stuff of which CEO
legends are made. Quiet, understated, and unassuming, with a shock of white hair, wire-
rimmed glasses, and the demeanor of Mr. Rodgers, he looks more like a thoughtfu
college professor than the stereotype of a visionary and dynamic CEO. In a profile, a
Fortune reporter described Lafley as "a listener, not a storyteller. He's likable, not awe-
inspiring. He's the type of guy who gets excited in the mop aisle of a grocery store...
He has rallied his troops not with big speeches and dazzling promises, but by hearing
them out, one at a time. It's a little dull perhaps.'
Dull or not, Lafley had his work cut out for him. His predecessor, Durk Jager, had
lasted just 17 months after failing to improve P&G's lackluster performance. For a
decade P&G had struggled to introduce new brands, considered by many to be the
lifeblood of a large consumer products company. Worse still, half of P&G's 15 top brands
were losing market share, and employee morale was at an all-time low.
Lafley realized that he had to move fast:"I had to move quickly to get people focused.I
didn't want everyone sitting around worrying that the stock price had dropped in half.'
One of Lafley's first acts was to issue a manifesto of "10 things I believe in." At the top of
the list was "lead change," followed by "the consumer is boss." Lafley also signaled that
it was time for P&G to look outside its own organization for new product ideas-
something the company had long resisted.
As Lafley saw it, P&G did not need a radical makeover; it just needed to focus on
selling more of its basic brands, such as Tide and Pampers. He chose P&G's 10 best-
selling brands, each of which generated more than $1 billion in sales, and he told his
managers to focus on selling more. These brands would get the bulk of P&G's
resources. It was a message everyone could understand. Selling more Tide was easier
than inventing the next great brand. For years P&G had been struggling to invent new
brands, but it had not introduced a new blockbuster since 1983 when it had a huge hit
with Always (feminine protection pads). Now, Lafley told his managers, the number one
task w as to sell more of what they had.
Lafley went further, pushing his managers to add value to P&G's established brands by
listening closely to what consumers wanted. This approach worked. For example, by
watching consumers use its diapers, P&G learned that mothers were frustrated by how
long it took to toilet train their children; so P&G developed a new line of its best-selling
Pampers brand-Feel n Lear n Advanced Trainers, which stay wet for two minutes to
alert toddlers to try tinkling in the toilet. He also told managers to focus on telling
customers what the brand could do for them rather than the attributes of the product; so,
the mission for Pampers changed from "making the driest diapers" to "helping moms
with babies' development." The result: Pampers gained market share against longtime
rival Kimberly-Clark.
At the same time Lafley moved to cut costs. Within months he had eliminated some
9,600 jobs, closing down several new product development projects that were
consuming resources and pulling new products from the market that had not generated
significant sales. He also sold off products he did not see as strategic fits, including Jif
and Crisco brands. It was a classic case of triage: Focus on what is selling, pour
resources into those brands, and cut the rest.
Commenting on Lafley's cost cutting, one of P&G' s board members noted,"He knows
how to lay down the rules when he needs to. Quiet people tend to be the toughest."
Indeed, in a culture traditionally characterized by collegiality, Lafley has not been shy
about pushing his managers to improve their performance. Each quarter at a meeting
with top managers, Lafley reveals everyone's financial results. He notes,"It motivates
people who are performance oriented. F or the people that it doesn't' motivate, we are
probably not the right place for them."
Another goal of Lafley's was to break down the barriers within P&G, getting employees
from different divisions to exchange ideas. He emphasized that R&D and marketing
people from different divisions should talk to each other, which they had not traditionally
done. To give the idea teeth, he rewarded business units that shared their ideas with
others. To drive home the importance of removing barriers between units, Lafley
embarked on a highly visible symbolic redesign of the fabled 11th-floor executive suites
at P&G's head office. The oak-paneled walls were torn down; the 19th-century paintings
that once decorated offices were donated to a local art museum; and the CEO and other
top executives were assigned to cubicles on half the floor. The other half was
transformed into a center for employee learning.
Lafley also articulated the need to "reach outside for ideas." His goal is to get half of
P&G's new products from external sources-up from 20 percent when he took over.
P&G has started entering alliances with other companies to develop new products.
including competitor Clorox, with which it codeveloped Glad Press and Seal-a product
that overtook S.C. Johnson's Saran Wrap to become the top-selling food wrap in the
United States.
The results of Lafley's leadership have been impressive. P&G's core brands have
been gaining impetus. In 2005, 19 out of P&G's top-selling 20 brands gained market
share. Costs have fallen, and sales and prof it's have advanced strongly. In 2000 P&G
earned $5.53 billion on sales of $40 billion. In 2005 it earned $10.4 billion on sales of
$57 billion. The stock price doubled over the same period.