P&G's A.G. Lafley on Leadership, Brands, and InnovationPublished: September 14, 2006 in Knowledge@Emory
Integrity. Trust. A passion for service. These are just a few of the characteristics of great leaders according to A.G. Lafley, who recently spoke to a standing-room-only crowd in Boynton Auditorium as part of the Leadership Speaker Series at Emory University’s Goizueta Business School.
As Procter & Gamble’s (P&G) chairman of the board, president and chief executive, Lafley knows a thing or two about the subject of leadership, and he most engagingly shared his insights. Among his offerings: leadership involves a lifelong learning process, and good leaders can take their lessons from a variety of places.
“You might learn more from an awful leader,” notes Lafley, who after receiving an MBA joined P&G as a brand assistant in 1977. “You might just not want to learn for too long.”
Indeed Lafley is the antithesis of a bad leader. Since taking over as P&G’s president and CEO in 2000 (the chairman title was added two years later), the company has rebounded from a down cycle and reclaimed its place among this country’s most successful businesses.
“My thesis today is that leadership makes all the difference,” notes Lafley, whose first name is Alan, although he is generally identified by initials. “I’m going to talk about leadership in the context of my industry and my company, but I would argue that leadership makes a difference at an educational institution like Emory, leadership makes the difference in a government situation like the city of Atlanta or the state of Georgia, or in the United States of America.
“Here is the dilemma,” he continues. “On the one hand, leadership is critically important. On the other hand, there’s never enough of it. I would argue that it’s the scarcest resource in the world. And we scramble very hard to hire, develop and train leaders all around the world.”
Lafley says a value system that includes qualities such as integrity and trust are non-negotiable in a leader. Leaders don’t have to have identical beliefs, he adds, but a common value system is what binds people across cultures. Often that requires a lot of professional nurturing.
“I don’t believe leaders are born,” contends Lafley. “I believe people choose to become leaders. Something happens in your life and you’re moved by a purpose, mission or a course. Then you make a choice to commit and get involved.
“We try to find people with the potential and interest in leading,” Lafley continues. “Then we try to give them lots of experience and training so they can reach their full potential.”
Lafley cut a disarming persona throughout his 70-minute appearance. He admitted to pursuing an MBA rather than a law degree because he’d have to spend one less year in school. Prior to that, Lafley earned a teaching fellowship in history although he didn’t finish because he was drafted into the Navy. He spent five years in the service, where he got his first taste of management.
At the age of 30, in 1977, he joined Cincinnati, Ohio-based P&G and began a steady rise through the ranks, which included 18 years of working his way through P&G’s household products division. His resume is dotted with brand manager responsibilities for products that are familiar to millions in American homes—Dawn and Joy dishwashing liquids and Tide and Cheer detergents, for example. As group vice president of P&G’s Laundry and Cleaning business, Lafley delivered record sales and profits through the introduction of major product innovations, including Liquid Tide and Tide with Bleach, and by focusing on building strong brand franchises.
Lafley led P&G’s business in Asia during the mid-‘90s. He laid the foundation for a return to growth in Japan, helped build the business in China from less than $90 million to nearly $1 billion, and successfully led the Asia business through major currency and economic upheaval, as well as the impact of the Kobe, Japan earthquake. In the late ‘90s, he took the helm of P&G’s Beauty business, where he and his team created the comprehensive global strategy that has made P&G the world’s leading beauty company today.
After his election as P&G’s president and chief executive in 2000, he lowered the company’s earnings goals to what he considered realistic levels and, as he wryly noted, P&G stock prices immediately fell. Things didn’t get any easier for him.
As a leader, he says, it’s necessary to make tough choices. Indeed, Lafley has had more than his fair share. P&G made the tough choice to divest some assets, including facilities and some familiar brands (Jif and Crisco, for instance, were sold). In addition, Lafley made the “tough, emotional, but necessary choice” to reduce the size of P&G’s organization. But he is proud of the creative choices he and his team made that helped ensure the vast majority of jobs were preserved; the vast majority of employees whose jobs were affected by the company’s right-sizing moved into comparable positions at companies such as IBM, Hewlett-Packard, Jones Lang LaSalle, and others. Protecting those jobs while also keeping P&G’s costs at competitive levels was a top priority for Lafley.
A new corporate strategy was developed, and Lafley detailed it. P&G focused on growing its core business (leading brands, top countries, winning retail customers), accelerating the growth of faster-growing, higher-margin businesses such as beauty and health care, and winning with low-income consumers in developing markets.
The changes worked. Stock prices rebounded dramatically, the company’s revenues increased by nearly $30 billion annually. This year P&G is celebrating its 169th year in business, and boasts more than 130,000 employees worldwide, its products are sold in more than 160 countries around the globe and 22 of its brands (five of them coming with P&G’s recent acquisition of Gillette) top $1 billion in sales. Business experts also have noticed the upswing. Chief Executive Magazine named Lafley its “2006 CEO of the Year.”
Although Lafley’s lecture centered on leadership, he discussed the value of brands. In fact, Lafley notes Procter & Gamble has roughly $43 billion in assets. Its market cap, though, is around $200 billion. The value of the $157 billion difference, he is quick to add, reflects Procter & Gamble’s brands—some of the most recognizable in this country and around the world, ranging from Tide detergent to Pampers diapers to Folgers coffee -- and P&G people.
“We are a company that is built on intangible assets,” says Lafley. “The intangible assets are the brands and under those brands are the people who created the brand and breathed life into it. They keep it alive and keep it growing.”
During the question and answer segment, Lafley expanded on P&G’s commercial innovations. He discussed the company’s use of soccer stars to advertise products during the World Cup tournament. This gives P&G exposure in several countries but predominantly in Latin America. The company also has produced innovative websites, such as www.beinggirl.com, which helps introduce P&G feminine products to teenage and pre-teen girls.
Other questions ranged from how P&G maintains a successful business in developing nations (the company is apolitical, Lafley says, and in many cases provides basic home products at affordable prices, which makes citizens’ lives easier and, therefore, promotes stability) to the business practices of supermarkets in the United States.
Lafley’s response was typically strategic. He said because P&G was a major supplier to retailers including big-box stores, the company had some leverage in several areas. Still, while he acknowledged the growth of retailer store brands, he underscored P&G’s approach to low-cost alternatives. “The most important thing we can do to stimulate growth in our categories, to enable differentiation of our brands, and to prevent commoditization of our categories,” he says, “is to lead innovation and to stay sharply focused on winning the consumer value equation.”
One of Lafley’s favorite stories reveals the quick wit that characterized his address. He recalls telling a group of P&G laundry executives the key to success: “The simple principle of life is to find out what women want and give it to them. It's worked in my marriage for 35 years and it works in laundry."