Back on Track?

P&G has been plunged into transformational chaos. It has suffered a leadership crisis and lost the trust of its shareholders. In an exclusive interview, new boss Alan Lafley speaks frankly about its massive problems, and explains why the only

Storm in a tea cup? Or a squall that’s blown one of the world’s most admired marketing companies off-course? That’s the question Procter & Gamble (P&G) insiders, competitors and marketers want answered after the recent ousting of its chief executive Durk Jager and a humiliating collapse in its share price.

The answer from Alan Lafley, P&G’s new boss, in his first face-to-face interview since his appointment, is unequivocal. It’s an “over-reaction”, he says. This year, he claims, P&G will report record unit volumes, sales and profits, even with its second half troubles.

And the last thing Lafley intends to do is abandon the path set by his predecessor (MW last week). “I have been joined at the hip with the guy for the past dozen years,” he remarks. The only thing that is really going to change now, he insists, is that “we are going to try to strike a balance and make a few choices”.

According to Lafley, P&G’s biggest mistake recently was to take its eye off its core brands – which account for more than 50 per cent of its profits – and to pour too much enthusiasm into building new brands and businesses.

If rectifying this imbalance were his only challenge, his problems would be short-lived. But that’s unlikely.

P&G is still reeling from the effects of its forced march to a completely new organisational structure, built around category-based global business units rather than geographic regions.

With changes like these, comments Chris de la Peunte, who now heads P&G’s UK Market Development Organisation, “you need a lot of clarity about what you do – and what you don’t”.

He adds: “There are a lot of people who are slow to let go, and there are new people who are really committed but still have to pick up the knowledge and skills and the pace. That’s what we’re going through.”

Meanwhile, P&G’s leadership has committed itself to a far-reaching culture change programme, intended to make the organisation less risk averse and much faster on its feet. “P&G tends to be fairly linear, analytical, predictable,” concedes Lafley. “We want to be less predictable, more discontinuous, more capable of creating a business strategy that is breakthrough.”

He adds: “We are also looking for ways to speed up the development of, and the execution of, our technologies, our new business and our established business innovation: to shorten and accelerate our learning cycle.”

The trouble is, practical attempts to drive such culture change – by recasting reporting procedures, pushing decision-making down the ranks, and loosening budgetary controls, for example – are bound to create a degree of chaos, especially within such a deeply conservative company as P&G. And that’s dangerous, especially when you are in the middle of a far-reaching organisational overhaul.

Yet, the company is still asking more of its people. They can’t simply rely on P&G’s brand management manuals any more, because it is ripping those up too.

One size no longer fits all

In the face of accelerating fragmentation and segmentation of consumer markets, rising retail power, media inflation and the Internet, “we have to reinvent branding, we have to reinvent marketing, we have to reinvent marketing with the customer [i.e. retailer],” declares Lafley. “In the past, it was mass marketing and it was push, basically. Push packaged product, push the advertising on to the TV: turn it on as loud as you can, keep it on as long as you can, sample as broadly as you can for as long as you can.”

But in future, he adds: “It won’t be one size fits all, any more. What we are trying to do now is find different business models, different launch models, different branding and marketing models.”

Yet the original pioneer of mass marketing has not found these new models yet. Lafley cautions: “The thing you need to take away, or that we need to be clear about, is we don’t have the answers. We just know that the Fifties/Sixties mass push big-bang model is not as effective as it used to be, and it certainly isn’t as efficient.”

Overhauling its approach to innovation

P&G is, meanwhile, also trying to overhaul its approach to innovation. In the search for a new set of blockbuster global brands such as Pampers, the goal it set itself – even before Jager took over – was not only to accelerate the pace of new product and new brand introductions but to “create entirely new product categories with innovative technologies”.

Lafley adds: “We are looking for technologies that create an ‘S’ curve: the next generation of products that will be tomorrow’s core businesses.” But so far, first attempts with new products such as Febreze, Dryel, Swiffer, Net ventures such as – and a massive investment in pharmaceutical products such as osteoporosis drug Actonel – fall far short of that goal.

And on top of all this upheaval, P&G has been setting itself – and failing to meet – ambitious “stretch” financial and sales targets.

The past few years have been engrossing – the challenge of globalisation; reinventing consumer goods branding and marketing; the search for breakthrough products and technologies; ambitious growth targets; the construction of an organisational design to promote all these things plus the biggest cultural change in its history.

P&G has taken them all on, simultaneously. And the reward so far? An internal leadership crisis and an external crisis of confidence among investors.

Yet Lafley appears determined to press on. P&G is in the middle of “transformational change, not just dial turning”, he insists. “Are we going forward? Yes. Is the vision the same? Yes. Is the strategy the same? Yes.

“We knew it was a journey,” he continues. “We didn’t pick 2005 [from Organisation 2005] by mistake. We picked 2005 because that is when we thought we would have reached a certain state of becoming – where we would look more like how we would be in the new world.”

So by his own timetable, he’s got five years to sort things out. But then, that’s how long Jager had, too.

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