When Alan G Lafley became CEO at Proctor & Gamble (P&G) in June 2000, the company was in turmoil. Lafley, who approached the challenge with characteristic grace and humility, turned the titan around in record time. In the midst of engineering a remarkable turnaround, the first thing Lafley told his managers when he took the job was just what they wanted to hear: focus on what you do well - selling the company’s major brands such as Tide, Pampers, and Crest - instead of trying to develop the next big thing.
Lafley wasn’t supposed to bring about fundamental change; he was asked to simply restore the company’s equilibrium. He listens more than he talks. Lafley is living proof that the messenger is just as important as the message. As Lafley says, "I’m not a screamer, not a yeller. But don’t get confused by my style. I am very decisive." His vision was that P&G should do only what it does best and nothing more. He wants a more outwardly focused, flexible company. That has implications for every facet of the business, from manufacturing to innovation. For example, he turned over all bar-soap manufacturing, including Ivory, P&G’s oldest surviving brand, to a Canadian contractor. The following month, he outsourced P&G’s information-technology operation to Hewlett-Packard Co.
Over time, however, the desire to compete in this way can erode into complacency, which Lafley has consciously tried to avoid. "You can get used to being a player without being a winner. There’s a big difference between the two. So I became interested in transforming players into winners." Once a company’s culture has changed so much that being a mere player is acceptable, Lafley argues, the culture must be transformed. At that stage, just trying to improve the numbers isn’t enough. Deeper change is required.
As a new CEO, Lafley took P&G company goals down to 4 to 6 percent top-line growth, which still required them to innovate to the tune of one to two points of new sales growth a year, as well as some market share growth and, on average, a point of growth from acquisitions. "And then I committed to stretching but achievable double-digit earnings-per-share growth."
Nonetheless, these were indeed stretch goals, Lafley believes, because he had still publicly committed the company to growing faster than it had in recent years and faster than the industry as well. Moreover, he and his leadership team set internal goals higher than those announced externally.
Lafley reined in the company’s aspirations in a second, more subtle way: he defined what he calls "the core" - core markets, categories, brands, technologies, and capabilities - and focused his near-term efforts entirely on that. P&G’s markets and operations, he determined, were too vast and diverse to be turned around all at once.
While management literature has emphasized the necessity of defining the core, Lafley underscores the importance of actually communicating the definition clearly. Indeed, he says that the need to communicate at a Sesame Street level of simplicity was one of his most important discoveries as CEO.
Lafley demands that his managers take on the responsibility of making tough strategic choices. "Most human beings and most companies don’t like to make choices. And they particularly don’t like to make a few choices that they really have to live with. They argue, "It’s much better to have lots of options, right?" | Being a role model is of course especially important when a CEO makes tough demands on managers. P&G’s managers expect Lafley not only to make the same kinds of strategic choices he requires of them but also to act consistently on those choices. Lafley therefore recognizes that he must be ready for moments of truth that can alert the organization to his own deep commitment to P&G’s aspirations.
"I started with P&G values and said: Here’s what’s not going to change. This is our purpose - to improve the everyday lives of people around the world with P&G brands and products that deliver better performance, quality, and value. That’s not going to change. The value system - integrity, trust, ownership, leadership, and a passion for service and winning: that’s not going to change. The six guiding principles, respect for the individual, and so on: that’s not going to change. OK, so here’s the stuff that will change. Any business that doesn’t have a strategy is going to develop one; any business that has a strategy that’s not winning in the marketplace is either going to change its strategy or improve its execution." And so on. "So I was very clear about what was safe and what wasn’t."
This reassurance, like the intensive coaching about strategic choice and its consequences, was certainly a positive factor. Both helped the company raise its sights again.
Lafley describes that approach as "forward to the future," which he contrasts with his own "back to the future" mind-set: "I wanted to put consumers front and center and get back to asking, ‘Who are they and what do they want?’ Find out what they want and give it to them. Delight them with P&G products. So I have this incredibly simple saying: ‘The consumer is the boss.’ And there are two moments of truth " when consumers make their purchase decision, and when they use the product. If they’re delighted at the second moment of truth, they’ll repurchase our brands and hopefully begin to use our products regularly."
His coaching role has also shown him the importance of his own learning experiences. The first months after Lafley’s appointment as CEO were particularly difficult in this respect: although he had experience selling the full range of P&G products during his stint as leader of the North American market-development operation, he lacked a deep understanding of about half of the company’s businesses. Some things he learned during this period were bracing: "I discovered that the cupboard was bare on the technology side in one business, that we didn’t have the leadership we needed in another business, and that we didn’t know what the strategy was going to be in a third business." He was learning, in effect, what was needed to coach the organization.
Lafley credits his experience with giving him insights into ways of transforming the company. "You need to understand how to enroll a leadership team and then an organization, how to operationalize the strategy, how to get the accountability that you want all the way down the organization. The more deeply you understand something, the more willing you are to take risks and the more intelligent those risks are." His deep knowledge of the company, he says, "meant I knew how and when we could take risks and stretch ourselves to go for peak performance" without breaking down."
Extracted from the book, Leadership Power Plays
Reference: www.mckinseyquarterly.com |