Well-balanced plan allows P&G to soar

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Procter & Gamble Co. had hit a wall at the dawn of the 21st century. The company missed earnings, and its stock price was nearly halved. In a first for P&G, the CEO resigned unexpectedly less than a year into what was to be the transformation of the "old economy" dinosaur.

"Does P&G still matter?" Advertising Age asked in 2000. The answer seemed obvious, if politely dodged. Yes, to P&Gers and new CEO A.G. Lafley, who put the question up on his wall for inspiration that year. No, to many observers of business history, who've seen the likes of Sears, AT&T and General Motors fall without ever really getting back up.

REMARKABLE EFFORT

That's what makes P&G's sustained turnaround so remarkable-and worthy of a Marketer of the Year. No one did a better job overall of marketing brands in 2005 than P&G, but its story has legs that stretch beyond a year. Now, entering a fourth fiscal year of solid organic sales and earnings growth, P&G has been strong enough to acquire its best-performing rival in Gillette Co.

It has weathered, without missing earnings numbers or even the obligatory penny above consensus earnings estimates, an energy shock bigger than what felled it five years earlier and a hurricane that nearly shut down one of its billion-dollar brands. It has outperformed a top rival, L'Oreal, which posted disappointing first-half earnings.

Such modern powerhouses as Wal-Mart Stores and Microsoft Corp. face growing questions about whether they can keep dominating.

But P&G, the legacy behemoth many wrote off years ago, has never been stronger. Perhaps most remarkable is the balance that has fostered the turnaround. P&G has gained sales and market share the last three years across all of its major businesses and geographies. In the U.S. last year, sales rose 7%, more than double the pace of P&G's categories.

That's not bad, but what really pushed the company to its third consecutive year of double-digit top-line growth were developing markets, where P&G once lagged major rivals but posted an 18% growth rate in the year ended June 30. China, with three years of 20%-plus growth, now is P&G's No. 2 market by volume and fifth by sales.

Accomplishing that record has come from creating a single marketing culture from among more than 200 brands and 3,500 marketers, no small feat. Nor is it ever over. When P&G gathered its 600 associate marketing directors and marketing directors in Cincinnati for the first time in November, Global Marketing Officer Jim Stengel outlined his Marketing Framework 3.0, his latest stab at building a common marketing language around the "who, what and how" of every brand.

"So many things have changed in the marketplace the last three years with the rise of new forms of communications," Mr. Stengel says. "Obviously, consumers have changed a lot. We're trying to capture all that and integrate it."

Analysts say the clear key to P&G's success has been the matrix organization put in place in the late 1990s under then Chairman-CEO Durk Jager, even if the pain of implementing it may have led to his early exit.

WIDE AUTHORITY

Global business units got authority to develop new products, plot rollouts globally and develop the marketing programs around them, eliminating the need to get signoffs from regional bosses at every turn. Brands that were low priorities in the 1990s such as Crest and Mr. Clean suddenly flourished under global senior-management champions.

Regional market development organizations were charged with leveraging P&G's massive scale through a single sales force, multibrand marketing efforts, and consolidated media and communications planning and buying.

Along with the new system, however, came complexity and rising costs, which increasingly were pricing P&G out of many developing markets. An emphasis on new brands and rapid global expansion of old ones produced big hits-like Swiffer and Olay-but also costly misses like Dryel and expansion of Bounty and Charmin overseas.

Under Mr. Lafley, P&G made more of a commitment to win "with all the consumers of the world," Mr. Stengel says. "We had kind of gotten ourselves into a strategy where we were focused more on high end and more on pretty amazing technological things like Dryel and Febreze and Swiffer. And we weren't really thinking about what it would take as a company to be the best brand builder with low-income consumers in countries like China and India ... And that is a profound change. ... I think it shifted our consumer research, changed our mentality, challenged our paradigms."

"Stengel went in with a dream of turning P&G into the best marketing company in the world," says Kevin Roberts, CEO of Publicis Groupe's Saatchi & Saatchi and a point man on P&G's global relationship with the holding company. "He put in place a ton of dreams, a ton of processes, a ton of initiatives and a lot of focus. He moved a lot of people into the right jobs, and he really inspired belief in his 3,000-plus marketing people."

Through all that, a company prone to complexity suddenly focused on simplicity. Mr. Lafley brought with him such chestnuts as "the consumer is boss" and his two moments of truth (the first in the store, the second when the consumer uses the product at home). He shifted focus first to big brands and countries, expanding down the list as things got fixed. Within five years, he had more big brands, with the billion-dollar portfolio expanding from 10 to 17.

"They've had some clear-cut strategies ... articulated in a way that every single discipline within P&G can rally around ... understood by everyone from product supply to purchasing, and a management style that's encouraging ... while being challenging," says Neil Kreisberg, group exec VP of WPP Group's Grey Global Group, which handles about 20% of P&G's global advertising.

Just as the old complexity was easy to dismiss as obtuse, the new simplicity was easy to dismiss as glittering generalities. Yet it worked, perhaps because managers walk what Mr. Lafley has called the "baby talk." He required his top 50 managers to spend time in homes or stores with consumers quarterly.

"We certainly do that much more today than we did when I was a young marketer," says Regi Aalstad, general manager-marketing, for P&G's Central & Eastern Europe, Middle East and Africa region, which has produced media honors at Cannes the past two years, including a Grand Prix in 2005. She recounts a new director of consumer and market knowledge (market research in global Procter-speak), who spent her first year on the job living with consumers in Morocco.

Though P&G always had an amazing knack for getting its marketers moving in the same direction, it has accelerated such efforts under yet another P&G-ism, "search and reapply," using such tools as its global marketing intranet and an ever-expanding array of internal awards.

"After we won those awards in Cannes, we took those best practice examples on tour around the world," says Bernhard Glock, manager-global media and marketing.

FIVE YEARS OUT

"When I started in this business 17 years ago, we were lucky if we got called the day before to write a press release," says Charlotte Otto, global external relations officer. "We're now in the planning meetings designing the plans three to five years out."

Though marketing has long been a core part of the brand manager's job and a springboard to general management at P&G, the company also is making parallel efforts to develop more career marketing experts, too. As his global marketing directors gathered last month, Mr. Stengel cited that as one of the key modern updates of the 1931 memo that launched brand management.

P&G will still have people on the brand management-general management "up or out" track, he says. But he adds: "With the complexity of communications today ... we certainly need more [marketing] mastery."

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