It may seem paradoxical that a 167-year-old bastion of American marketing could so quickly go from feast to famine to feast. But paradox is the name of the game at the P&G of A.G. Lafley.
The new millennium started ominously. Amid a massive global revamp, P&G missed two quarterly earnings numbers in early 2000, cutting its stock price in half and hastening Chairman-CEO Durk Jager out the door. Mr. Lafley took over a company bleeding talent to dot-coms and market share to competitors.
Today, P&G's sales and profits are growing by double digits and its stock is back in triple digits. Some of its rivals are missing numbers, changing managements and rearranging organization charts. A reorganization that looked like it might wreck P&G ended up saving it--one of many paradoxes behind this remarkable comeback.
THE NEW PARADOX
The man most responsible for P&G's turnaround, Mr. Lafley, is as complex as the reasons for his success.
He has been, on one hand, a radical-for-P&G change agent. Along with Global Human Resources Officer Dick Antoine and Global External Relations Officer Charlotte Otto, Mr. Lafley championed dismantling P&G's 11th floor executive suites. He sent most line bosses to bivouac with their subordinates in business units. He remade half the executive floor into a state-of-the art training room and the rest into a modern, open area mainly for functional chiefs who report directly to him.
Most other senior managers weren't keen on the remodeling, Mr. Antoine said during a tour of the new space in December. "But A.G.," he said, "had more votes than the rest of us combined."
Yet, while shaking things up, Mr. Lafley also has been as disciplined a P&G manager as there ever was. He has for years kept notes and clippings outlining and supporting his most fundamental business philosophy in a manila folder labeled "AGL Beliefs."
Soon after becoming CEO, he advocated a return to P&G's "good old-fashioned discipline," embodied by use of "proven volume-building vehicles" such as TV and "comprehensive assumption testing," including copy tests and data to back almost every decision.
Despite what might appear at times to be mixed messages, Mr. Lafley has drummed hard on three simple rules that have become something of a modern P&G catechism: "The Consumer is Boss," and the boss speaks during the "two moments of truth," when consumers decide whether to buy a P&G product in the store and when they use it.
Beyond such simplicity lie numerous paradoxes that have helped P&G navigate an increasingly complex marketing world. Under Mr. Lafley, the company has become:
* More attuned to creativity, thanks in part to last year's trip to the International Advertising Festival in Cannes by Global Marketing Officer James Stengel. Yet it also uses comparative demos as much as ever and stepped up use of no-frills direct-response TV.
* Bigger and stronger, but with a group of senior managers who often bring a fighter mentality from years as underdogs in such overseas markets as India, Greece or Turkey where P&G is weaker.
* Reliant on a cadre of top managers who first met Mr. Lafley in P&G's detergent marketing group, yet increasingly focused on beauty and healthcare.
* A bigger spender on advertising than it has been in years both absolutely and as a percent of sales, but also far more willing to go tactical against competitors with promotion.
Such management by paradox isn't necessarily intentional, Mr. Lafley said in an interview with Ad Age. But it's sometimes necessary.
"The questions I get the most from all levels in the organization are about consistency," he said. "One of my smiling rejoinders is that consistency is the hobgoblin of little minds. And we don't have little minds at P&G.
CONNECTING THE DOTS
"But once I get through that throwaway, I try to connect the dots for them. Because what might seem paradoxical or inconsistent really isn't. We're doing what we need to do to serve the consumer ... to work with the retailer ... to win against the competitor. ... So I think that's part of being flexible and practical."
P&G often wasn't those things when he took over, Mr. Lafley said.
"I knew we had to be faster and more flexible and more practical ... less theoretical," he said. "Durk and I worked on a lot of this stuff together--the whole idea of make a little, sell a little, learn a lot. ... But if you really looked at what we did, it was still pretty slow."
Another reason P&G may not always appear to be moving in lockstep is a far more diverse management and less of a "command and control" style.
When managing in Japan and China starting in the mid-'90s, Mr. Lafley said, dealing with younger executive ranks than he had in the U.S. changed his outlook on management. "I was totally convinced," he said, "that whether you're in Asia or the U.S. or Europe, Generation X and Generation Y were not going to respond to command and control. So the choice I made [upon becoming CEO was a style called] `focus and unleash.' The strategy choices we made were very focused ... and then [I] turned everybody else loose ... to figure out the hows."
UNDERDOGS AND OVERDOGS
Mr. Lafley also worked to shake up P&G's executive ranks without doing away with its steadfast promote-from-within culture. More than half of the top 50 managers are new to their jobs since Mr. Lafley took charge; many loyalists of both Mr. Jager and his chairman-CEO predecessor, John Pepper, have left.
Of P&G's top 200 managers, 65% now are from outside the U.S., Mr. Antoine said. And of the top 50, about half are from outside the U.S. The goal, he said, is for two-thirds of the top 50 to come from overseas as well.
While P&G's long history of tapping Canadian management talent accounts for some of the number, the company also increasingly turns to managers from Europe, Asia and Latin America--markets where P&G is often an underdog.
"I definitely was looking for a next generation," Mr. Lafley said. "I find that individuals who work in countries where P&G is not the leader, where P&G is struggling, or businesses where P&G is not the leader or is struggling, are tested a little more and learn in the cauldron of the marketplace."
Ravi Chaturvedi is one example. He started his career in 1983 in his native India at a time when P&G's business there was almost non-existent and dwarfed by Unilever. From there, he moved on to the fledgling business in Thailand before coming to the U.S. in August 2000 as VP-haircare, where he looked to jump-start a business that had stalled. Late last year, Mr. Chaturvedi moved on to become VP-health and beauty in a China market where P&G dominates most global rivals but faces a looming threat from L'Oreal and Unilever.
Coaching a group of young assistant brand managers in a 2002 training session, Mr. Chaturvedi encouraged the inclination for scrappiness they showed in a mock marketing plan. "Not everyone thinks about being small," he said. "Everyone wants to be a market leader. ... There's an amazing amount of power you can unleash for yourselves if you say, `I can be small, but I know how to be profitable. And I know how to grow while being small.' "
Yet, while managers like Mr. Chaturvedi have been rising up the ranks quickly, many of the senior-most managers elevated by Mr. Lafley came up, just like him, in the innermost core of P&G's operations--its U.S. laundry detergent business.
During his days in the U.S. laundry business in the late 1980s and early '90s, Mr. Lafley crossed paths with current Co-Chairmen Kerry Clark and Bruce Byrnes, President-Global Laundry and Cleaning Bob McDonald, President-Global Personal Beauty Care and Feminine Care Susan Arnold, President-Global Baby Care Deb Henretta, President-Global Family Care Charles Pierce and President-North America Rob Steele. Each of them has gotten key promotions since Mr. Lafley became CEO in June 2000.
"I think one of the reasons why a number of us came out of that fabric and homecare business is because it's the company's biggest business," Mr. Lafley said. "It's the place where a lot of development people are sent to learn. And also, it's been I'd have to say consistently our most successful business over the last 20 years."
The unlikely mix of senior executives used to being top dog and global up-and-comers used to being underdogs mirrors in some ways the basic paradox in the structural change started by Mr. Jager in 1999 but ultimately implemented successfully by Mr. Lafley.
P&G went from managing each of its far-flung businesses regionally, or sometimes on a country-by-country basis, to putting global bosses in charge of each major business area, including baby care, fabric care, haircare and healthcare. Regional managers for North America or other regions report to the heads of the global units and still make most marketing decisions. But, particularly for P&G's billion-dollar global brands, global presidents make key strategic choices.
Mr. Lafley has focused largely on big brands. But he told investors last December that one reason the new structure has worked is that smaller brands and businesses, such as P&G's household cleaning business, now have managers who make their growth a priority. In the old regional structure, such brands as cleaners and toothpaste tended to get less management attention and spending because they were low priorities everywhere, he said.
Adding local flavor to the global marketing are Market Development Organizations (MDOs), which include sales teams, media managers who help develop communication plans for each country and marketing executives who develop multibrand programs.
Getting shipped out to the MDOs wasn't always a welcome move at the outset of the reorganization. MDO marketers made media decisions and developed multibrand consumer and trade promotions, but had little or no control over the advertising or strategic direction of individual brands, which had long been the core work of P&G marketers.
But Messrs. Lafley and Stengel have both made efforts to raise the profile of the MDOs both literally and figuratively. Mr. Lafley has spoken often of the MDOs as a "secret ingredient" in the company's turnaround and ultimate success of its reorganization. He also gave them profit-and-loss responsibility, along with the Global Business Units.
The separation of duties hasn't always been clear-cut. While multibrand initiatives are generally the responsibility of the MDOs, GBUs have taken the initiative and kept control in some cases in the U.S., such as with P&G's "Cat in the Hat" effort last year or its ongoing HomeMade-Simple relationship marketing program. But other key multibrand programs, such as the P&G BrandSaver coupon and online relationship marketing program, are MDO projects.
Overseas, the structure tends to adapt as needed depending on local conditions.
"I always try to drive decision-making down to the level where the knowledge is," Paul Polman, president of the Western Europe MDO, said in a Cincinnati interview. "If you're here in the U.S., all the knowledge can be in this building. In Europe, that's not always the case."
For many retail and multibrand programs, that means pushing decisions down to the country level in Western Europe, where P&G operates in 17 nations, Mr. Polman said.
Easing any friction that might develop from overlapping duties, Mr. Lafley has largely changed the tone of an organization where internal rivalry grew to what some executives inside and outside the company saw as unhealthy levels. The competition started at the top, with a rivalry between Messrs. Jager and Pepper that never was fully resolved until Mr. Jager left. After Mr. Lafley took charge, the biggest change noted by one longtime agency executive was: "Now they're fighting their competitors instead of each other."
Dimitri Panayatopoulos, president-Central Europe, Middle East and Africa, credits Mr. Lafley with instilling a greater sense of teamwork to the company's crew of top global managers. "We see ourselves as a team," he said in a Cincinnati interview. "As time goes on, we've become much more interdependent."
Another big change from the era of Messrs. Pepper and Jager has been a shift from a technology-driven company to one where general managers and marketers call more shots.
P&G's research & development group long had budgets that could only be changed by senior regional managers. General managers and marketing executives often had little say over the initiatives developed by the R&D group. Mr. Lafley's goal is to get more concepts out the door faster, and concepts that appeal to consumers, not just to engineers.
"We had one innovation model," Mr. Lafley said. "It was technology out. And I wanted to look at all the innovation models, and I deeply believed in `consumer in,' [product development] or at least consumer[s] connecting with technology."
That was long a point of contention with Mr. Jager, Mr. Lafley acknowledged. "Durk was a big believer in innovation, but he was a big believer in technology push," he said. "I'm a big believer in innovation, but I'm a big believer in consumer pull."
P&G's product initiatives had long been slowed by exhaustive pre-market testing, sometimes made more exhaustive when executives wouldn't take no for an answer from consumers. Today, P&G still tests product launches but tends to do so in smaller countries or in research simulations. And it takes no for an answer more readily.
"I'll lose patience with a product development if the consumer has rejected it a few times," Mr. Lafley said. "As far as I'm concerned, she knows what she wants. She knows it when she sees it. And we should move on."
Another departure from P&G tradition is a movement toward what Mr. Lafley terms "commercial innovation," which need not involve technology at all.
As Mr. Stengel describes it, the term is about "How do we take these wonderful [brand] equities we have, this wonderful consumer understanding ... and innovate more without technology changes?"
Commercial innovation can be anything from Charmin's Super Bowl ad to Swiffer's tie-in with the Discovery Networks' "Trading Spaces," Mr. Stengel said.
P&G's Head & Shoulders, which is on the verge of becoming its 15th billion-dollar brand this year, is one example. Geneva-based VP-Haircare Robert Jongstra has set a goal for the brand of having a new marketing initiative every six months in every country, regardless of whether it's a new product.
The turnaround of Crest toothpaste in the U.S. is another example. In the past five years, Crest has yet to overcome rival Colgate's patented technological edge with gingivitis-fighting Total toothpaste. But it has scored big the past three years with flavor- and design-based offerings.
The brand in early 2002 dusted off a Crest Plus Scope co-branded concept that had been gathering dust in P&G files for years, then launched cinnamon- and vanilla-flavor Rejuvenating Effects later the same year, targeted at women. Last September, Crest unveiled Whitening Expressions, based on new flavors and backed by ads featuring Chef Emeril Lagasse. Publicis Groupe's Saatchi & Saatchi, New York, handles Crest.
Whitening Expressions pushed Crest past Colgate for leadership in the U.S. scanner-measured market (excluding Wal-Mart Stores, and club and dollar outlets) for fourth quarter 2003 for the first time since 1998 (though Crest had claimed all-outlet leadership before that). Colgate, with its only launch of Simply White whitening toothpaste, reclaimed the lead for the month of January 2004, Colgate-Palmolive Co. claimed earlier this month. But either way, P&G is back in contention for the toothpaste title without a Total-style technology breakthrough.
"Great marketers build great brands without technological breakthroughs," Mr. Stengel said. "It's great when you have them. I don't want to minimize that. ... But when you don't, we need to raise our game there, too."
Procter & Gamble Co.'s ad and marketing services agencies, which include:
* Grey Global Group units Grey Worldwide, MediaCom, Grey Interactive, Wing Latino Group, Alliance, J. Brown Agency, GCI and Beyond Interactive.
* Dentsu in Japan.
A.G. Lafley's career path at P&G:
1977 Joined P&G as brand assistant on Joy
1980 Brand manager-Dawn and Ivory Snow
1983 Associate advertising manager-laundry and soap division
1986 Advertising manager-laundry and soap division
1988 General manager-laundry products
1991 VP-laundry and cleaning products, U.S.
1992 Group VP-laundry and cleaning products, U.S.
1994 Group VP-Far East
1995 Exec VP-Far East
1998 Exec VP-North America
1999 President-global beauty care and North America
2002 Adds chairman title