Alan G. Lafley, chairman of the board and president and CEO of Procter & Gamble, is often referred to as the man who revitalised this behemoth. P&G's financial performance in recent years supports this and P&G people acknowledge that the change happened since Lafley took over the helm. Lafley, however, stresses that he and his new leadership team elaborate on the work of his predecessors.
Elsevier Food International, Vol. 6, Number 3, September 2003
Pascal Kuipers

Alan G. Lafley always keeps his balance.
"I am an optimist and a realist" is his self-assessment. He is neither exuberant nor assertive but he certainly is not humble. He is modest but determined and since 2000 he has been the right man to lead Procter & Gamble. "Recently our top line has grown by six to eight per cent. This is above our goal of four to six per cent, and well above the market growth, which means that we are growing market share," he says contentedly, but complacency is not his style. "Our market shares are still relatively low in a lot of categories."

After graduating from Hamilton College with a BA in History and from Harvard Business School with a Master's in Business Administration, Alan G. Lafley served in the US Navy for five years. He joined P&G in 1977 in Marketing and held a variety of positions in P&G's laundry and cleaning business before he became group vice president in 1992. In 1999, he was named president of P&G's global beauty care business and the North American market development organisation. In 2000, Alan G. Lafley became president and chief executive and in July 2002 he was elected as P&G's chairman of the board.

How did you manage to turn around a huge company like P&G since 2000 when you succeeded Durk Jager at the helm of this company?
"We built on the cornerstones of the vision that really John Pepper, Durk Jager, Paul Polman, myself and the leadership of the company have set for becoming a more global, a more innovative company. A company closer to its consumers and customers. We built on our new structure which has two business units: market operations per country that work with the customers and global business groups which serve these market operations which are all supported by our global business service operation. We built the company on purpose and values. Very simply, we want to create branded products and services that make your everyday life a little better. We made clear choices about where P&G would play. So strategically we focus on our core and play our strengths. We focus on our core categories of fabric care, feminine care, hair care, and baby care. We also focus on our core leadership brands: those brands that do a billion dollars or more in sales and are leaders in their categories. We focus on our core countries: our top ten countries that make up 80 per cent of sales and 95 per cent of profits. We focus on core retailers: those leading and innovative retailers that are growing and expanding and retail channels that are expanding. And we focus on core technologies, core capabilities and our core systems. We have a great new leadership team. Paul Pol man is a critical member of that team and he leads our European operation, which is huge with over US$10 billion in sales this year. About half of us are new to our jobs within the last three years. Half of us come from outside the US, more than half of us worked in multiple geographies and multiple businesses in developing and developed markets. I think that's very good because we have a feel for the different kinds of marketplaces and consumers."

Turning around the organisation also resulted in job redundancies? Since you have been at the helm, P&G employs some 9,600 people less.
"We have gone through a reduction of force and when we are finished this will add up to some nine to ten thousand people. A big chunk of it was deciding to get out of the businesses that won't be part of our strategic growth in the future. For example, we decided to divest our Jif peanut butter business and all of our Crisco shortenings and oils. Over a thousand people worked in those businesses. They are no longer employees of P&G but are now employees of the J.M. Smucker Company. In manufacturing, we closed some sites where we had either excess capacity or we had uncompetitive capacity. Again we transferred our manufacturing plants and our warehouses and we virtually transferred all of our employees. We've just signed a contract with Hewlett Packard to do all our IT datacentre and IT systems work. We are going to transfer 2,050 P&G employees in innovation in the IT area to Hewlett Packard. So, of those nine to ten thousand jobs we probably saved half to two-thirds by being very creative about how we restructure the system. That comes out of our value system because we have tremendous respect for the individual and we want to try to preserve people's jobs and their opportunities."

How did P&G spur its innovative capabilities?
"We are doing well because consumers are buying more P&G products than four years ago. Why? Because the brands represent a better value. We have brought more product innovation, and we have created more of a relationship and trust with consumers. We opened ourselves up to the marketplace for innovation. More of our inventions come in from outside and we then develop and commercialise them. We brand them and we work with the retailers to bring the new brands, the new products to life. We run our own technological centres and in some of these centres we collaborate with outside universities, with third party suppliers of technology, with young entrepreneurs and inventors. We also license in technology that we think we can transform into a concrete product that we can commercialise.
In the past, some ten to 15 per cent of our discoveries came from outside. I have just completed the R&D and innovation reviews of all of our businesses we look at on a three, five, to ten years term. Our goal now is to first get it to 25 per cent and eventually to have 50 per cent of our discoveries coming in from outside. So we take care of product development and commercialisation, but half of the inventions come in from third parties."

Isn't it dangerous to externalise innovation - such a key factor of existence for P&G?
"It's not a danger if you bring in just invention. It's a great marriage. Our core competence and capability is developing and commercialising innovation to concrete products. Innovation leads to nothing if you can't commercialise it. P&G wants to be the first place where an inventor goes. If you have a new idea and it is in one of our industries we want to be the first stop. The preferred partner. What I worry about is that somebody brings us something and we won't see the possibility it could have of it being a big idea with consumers. So I keep telling our people not to make assumptions, test every idea with the consumers. Let them choose."

"Innovation leads to nothing if you can’t commercialise it. P&G want to be the first place where an inventor goes." Alan G. Lafley

Recently P&G made some huge acquisitions: Clairol in 2001 and Wella last March. Are acquisitions of increasing importance in P&G's growth strategy?
"In the last four years acquisitions, including Clairol, only accounted for less than one point of top line growth per year. Net of divestitures. We try to be a very strategic acquirer. An acquisition must build our core. Clairol and Wella are clearly understandable as hair care is one of our core businesses. These companies allow us to obtain a stronger position in colorants and styling, complementary geographies and technology and complementary brands. We don't set the timing for acquisitions. We are not a hostile takeover company. The only acquisitions we have ever made, have been acquisitions of companies that have been offered for sale. Usually the company itself calls us directly and then we have a list of industries and companies that we might be interested in if they became available. The timing of Clairol was determined by Bristol Myers Squibb deciding they were going to focus on the health industry and get out of the other businesses. The timing of Wella was determined by the family who decided that now the time was right to sell the business."

If acquisitions contribute to less than one per cent of top line growth, is it then not an extremely expensive way of growing?
"It depends on the price you pay. With Clairol we are a/ready well ahead of our acquisition economics because in the price we paid we didn't assume any growth beyond the markets that/hey were already in. And we valued Clairol on the basis of their colorants businesses and their Herbal Essence brand. We didn't put any value on anything else. So while the acquired amount of business is less than one per cent, the real key lies in what we can make it develop into. We bought the Richardson- Vicks company in 1985. When we bought it, we knew we were going to get the Vicks brand which is nearly a billion-dollar-business for us. We bought the small Olay/Olaz brand and that will reach one billion in sales this year. We bought another tiny little brand, Pantene, which was only sold in department stores and did about US$30 to 40 million in sales. This year it will do US$1.8 billion in sales. So we have bought something at Clairol and at Wella that will be another Pantene, I can't tell you what it is, but there will be some little jewel in there that we will learn about and that we will turn into a big business."

Is this based on gut feeling? Such a transaction?
"We are strategic acquirers so nothing happens by coincidence. It's been our history. Our experience. We bought the lams pet nutrition business. When we bought it, it was US$700 to 800 million in sales. Three years later, we have almost doubled the business and we are now the number one pet nutrition brand in Canada and the US. The ones that we do really well with are the ones where we can expand the distribution quickly. Either into new channels or new markets. Or they're underbranded and undermarketed. A little neglected. So we acquire them and breathe some branding and marketing life into them. Or we have the technology to put into the product resulting in increased consumer acceptance and preference. But if we can't grow an acquisition we are practical and sell the acquired brand. I think in every case we sold the acquired brand at a profit."

What is your opinion about retailer-manufacturer collaboration in different regions of the world?
"In Europe, North America and other parts of the world, the more sophisticated, the more successful, the more strategic retailers and manufacturers understand that ECR is really about serving the consumer better. They also understand that it is a balanced approach to demand creation and supply chain efficiency. You can't just drive cost out of the supply chain forever. You have to turn around and reinvest that money in serving your consumer better. In Europe, I can sense that the industry is coming together. I just wish we'd had all of the leaders from the industry attending the ECR Europe conference last May in Berlin. I am disappointed that in the US, the ECR movement has lost some of its steam. There has been way too much focus on the supply side and not much talk of the demand side. And too much arguing about share of the pie. Share of the savings. My point of view is that if you do ECR well, the pie gets bigger and then nobody argues about that. In fact, the consumer should get the biggest part of the pie."

When it comes to future retail developments, what value can a manufacturer add?
"Many retailers - especially those in Europe ¬who have had loyalty cards and customer cards for years, have the data to segment and understand the shopping behaviour. But what they don't have are the human resources, time, tools and techniques to sort out all that data. We have all the data on attitudes and behaviour, in-home habits and practises and usage. Combined we can put the pieces of the puzzle together and figure out where the little jewels are hidden in the databanks.
P&G is also one of the founders and initial investors of the RFlD movement, because we knew something beyond barcodes is needed. Yes, it will reduce shrinkage and yes, it will support inventory management. But it also allows efficient management of environmental issues. Recyclable packages can be followed throughout the whole system and it helps securing sustainability of materials and resources. There are so many benefits to RFID that are just beginning to be identified."

And P&G did foresee this? Did it have this vision while investing in RFID?
"Oh no. The original vision was to integrate and really bring ECR to life in the supply chain. And many of the retailers want to move fast since their first need is to shrink reduction. Beyond these initial needs we will experience that RFID will be a tremendous technology. It will take us ten, 20 or even 30 years to figure out how to get the full value out of this.
Future retailing will always be about differentiation. You shop in different environments because you want a different experience and you shop for different occasions and categories in different ways. In the end, retailers and manufacturers will try to serve the desires and wants of the consumers. It will get better. More choice, innovation, better value. It's going to be only better..."