Talk with Procter & Gamble CEO Alan Lafley

By: Mike Dawson
June 13, 2003

With the acquisition of German haircare company Wella fresh under his belt, Alan G. Lafley, Chairman, President & CEO of Procter & Gamble, paid a lightening trip to Germany on his global rounds. Modest almost to the point of shyness, Lafley seemed remarkably relaxed for a man who has turned around the world's second-largest fmcg manufacturer.

Following in the footsteps of a controversial predecessor nicknamed "Dark Vader", mild-mannered "A.G." has successfully refocused the US consumer goods giant on its core brands, countries and markets. To do so within less than three years is nothing short of a feat of arms.

Following the controversial restructuring and cost-cutting programme "Organization 2005" P&G is now a meaner and leaner animal.

As Alan Lafley spoke about marketing billion-dollar brands to a hundred-or-more countries, the quiet American projected the tone: "Nothing much really, all in a day's work." Don't they call this "laid-back" on his side of the Pond?

"I had a lot of help" 

Mr. Lafley, on your promotion two-and-a-half years ago, P&G was in crisis. Why?
At the time, our 166-year-old company was undergoing a major reorganization of its structures. We wanted to be more responsive to retail customers and consumers in a global marketplace, accelerate innovation, get new products to market faster and increase our growth rate.

You make it sound like a cakewalk, but more than 16,000 P&Gers lost their jobs in the process.
Most of these resulted from divestitures and closures of operations when, for example, we spun off the "Jif" peanut butter and "Crisco" cooking oil brands to Smucker's Company who gave virtually every P&Ger a job.

In June 2003, you will end the massive "Organization 2005" restructuring and cost-cutting program more than a year ahead of schedule. In fact, you have revised earnings prospects upwards in each of the past seven quarters. How did you turn the rudder around?
I had a lot of help. Firstly, we focused on the consumer who is the real boss at P&G.

We need to win two moments of truth with the consumer. The first is her purchase decision in the retail store; the second is in the home when our brands are used: they will either satisfy and delight, or they won't.

Secondly, we refocused our strategy in order to play to our strengths. We now concentrate on our core business categories, countries, retail customers and competencies. Thirdly, we reminded ourselves of both our corporate purpose, which is to create brands which make everyday life better, and our values.

Could you be a little more specific as regards what you mean by 'core'?
We have refocused on our baby care, fem-care, and fabric care businesses and have lead innovation in these categories. We have refocused on our $12bn-brands and will have a 13th, i.e., Olay by the end of this fiscal year.

While selling our products in 160 countries, we have refocused on ten core countries, including Germany, where we make 70 per cent of our sales and 90 per cent of our profits. We have refocused on those core retail customers who are really changing the market.

Where are you reaping the real advantages from this corporate refocus?
Our long-term goal was to grow volume and net sales 4 to 6 per cent p.a. In fact we are now growing our top line by 6-8 per cent p.a. even against a weak global economy so we are also building market share.

Some analysts claim that your recovery has been fuelled by the cuts made through your reorganization program and fear that you could run out of steam?
We have been driving our top line. Had we just made cost savings, you would have seen double-digit earnings growth with only modest growth on the top line.

Also, our top line hasn't been driven by dumping prices. P&G still sells most of its brands at a premium, and continues to cover the middle and the upper end of the market. Finally, I should point to our strength in innovation which is the lifeblood of any successful brand manufacturer and its best defense against own label.

According to the American consumer research institute IRI, we are industry leader in delivering new products to the USA and a number of other countries. One example would be the osteoporosis drug we introduced about three years ago which already sells over $600m p.a. and is heading for a billion dollars in sales.

Such innovations reassure analysts because they drive top line in a sustainable way. In our industry good innovation doesn't just hit in one year, it drives your top line for several years.

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