Ceo A.G. Lafley and Procter and Gamble - Effective Leadership

Once America’s most innovative consumer products company, Procter and Gamble (P&G) started by selling soaps and candles in a small Cincinnati storefront in 1837 (Procter and Gamble, 2008). After a hundred and seventy-one years P&G has grown to over one hundred household brands in over eighty countries (Markels 2006). Their products range from air fresheners to prescription drugs. However, as P&G headed into the twenty-first century they announced that they would not be meeting their 1st quarter earnings forecast [Lafley, 2003]. Revenue margins were dropping and P&G was quickly losing market share to Kimberly Clark and Johnson & Johnson. After missed earnings P&G’s stock price fell from $59.18 to $26.50 between January 2000 and March 2000 (PG). Upset, the board of directors pressured then CEO Durk Jager to resign after a lack luster attempt at turning P&G around and replaced him A.G Lafley, an unproven CEO, whom analysts felt lacked the experience to give P&G a much needed clean up (Lafley, 2003).

Before Lafley took over for Jager, P&G was stretched to the max, haplessly wasting away resources and opportunities with an overcomplicated business strategy. P&G was raising prices on their best selling brands to cover for missed sales and high production costs for new brands that failed to be a successful [Lafley, 2003]. They had hired too many employees and were involved in several investments that were unprofitable. P&G had not had a hit product since the launch of ALWAYS feminine products in the 1980’s and each additional product flop only stretched their recourses thinner and thinner. Costs were high and moral low with employees not afraid to voice their lacking confidence with P&G’s leadership and direction. Subsidiaries were blaming corporate for their missed earnings and visa versa [Lafley, 2003]. Strategies between the brands at P&G clashed and each were out to safe guard their own interests. The prices of their consumer products were too high while the company failed to deliver customer satisfaction. These factors distracted them from what had originally made them successful – being an industry leader in innovation (Markels, 2006).

Seeing the downward spiral P&G was quickly ascending into, Lafley knew he had to act fast. He had to provide direction that was needed for a turn around. He started internally breaking the company down from the inside out and then rebuilding it. He had a plan to change P&G and was quoted as saying, “We accepted change, and rather than trying to resist it, we committed to leading it. We started making choices – clear choices – about what P&G would do and not do.” [Lafley, 2003]. Being a very goal driven individual, Lafley knew that until he got his employees focused and on the same page that neither change nor innovation would take place. P&G’s workforce was very vocal in their wavering confidence and so Lafley went to work setting up clear goals, expectations, and checkpoints to establish organization and accountability. One of his first act’s as CEO was issuing a manifesto called 10 Things I Believe In which addressed being a leader in innovation and paying attention to the customers needs [Charles, p. 421]. So everyone at P&G new what his values and expectations were.

Lafley could see the big picture, which was reflected in his decision to reorganize the company with interdependent business units, market shares, and global shared services; not the original geographic profit centers, which could be best described as smaller businesses running independently underneath the P&G umbrella. He understood that keeping the businesses separate within P&G would only add more to the blame game that had engulfed its corporate office and subsidiaries. So he interlinked and made them one big company with many smaller interlinked subsidiaries, all with the same vision and goals as P&G’s corporate office. He offered incentives for different brands to share ideas between their R&D departments and rewarded those that did [Charles p.422]. He also knew that without changing the way the corporate office operated and top management was structured that attempts for turnaround would be ineffective, so he did a major redesign of the corporate office. No longer were top executives confined to their lush private offices but put to work in a cubicle farm where open communication and interaction were encouraged, while the rest of the space was dedicated to a center for employee learning [Charles p.422]. Which reflects his understanding that change flows from above and that being an effective leader means modeling desired behaviors.

Lafley instructed top management to focus on selling the company’s core 20 brands in an effort to regain market share. He didn’t feel that