Assess leadership at Procter and Gamble.

Procter & Gamble had made several bold, innovative moves over the years to build itself into one of the best-known consumer product firms. However, by the 1990’s, sales on most of P&G’s 18 top brands were slowing as it was being outhustled by more focused rivals such as Kimberly-Clark and Colgate-Palmolive. In January 1999, the firm turned to Durk I. Jaeger to try to create new momentum. Jaeger rolled out many radical changes, most of which resulted in a further deterioration in the profits of the firm. Faced with a growing crisis, the board replaced Jager with Alan G, “A.G.” Lafley, a 23-year P&G veteran. After his appointment in 2000, Lafley implemented a series of changes that were designed to radically alter the firm. Determined to create a more outwardly focused and flexible company, Lafley broke down the walls between management and the employees, and made drastic changes in the organizational structure and workforce of the company.

In order to better focus on serving the needs of the consumers, Lafley put a tremendous amount of emphasis on the firm’s brands. Feeling that P&G had often let technology, rather than consumer needs, dictate its new products, Lafley was intent on shifting the focus of P&G back to its consumers. Lafley also challenged the supremacy of P&G’s research and development operations. Confronting head-on the stubbornly held notion that everything must be invented within P&G, he asserted that half of the firm’s new products should come from the outside. Under his tenure, the percentage of new product ideas coming from outside the firm increased from 10 percent, when he took over, to almost 50 percent.

Lafley had many ideas about how to make P&G relevant in the 21st century. Starting with the costly acquisitions of Clairol and Wella, he shifted the focus of the firm away from its traditional reliance on household care to make aggressive inroads into health and beauty products, including fragrances. Those areas subsequently accounted for about one-quarter of the firm’s total revenues. P&G had also embarked on an ambitious plan to expand into emerging markets. 

In June 2009, Lafley retired and selected Bob McDonald as his successor as CEO of P&G. McDonald had been groomed for this role, having been with P&G since 1980. McDonald’s experience with P&G in emerging markets was expected to aid him in crafting P&G’s future strategy. However, McDonald had replaced Lafley’s clear motto of “The consumer is boss” with his own slogan of “purpose-inspired growth.” This was an undeniably laudable ambition, but many employees simply could not fathom how to translate his rhetoric into action. 

By the middle of 2012, it was becoming obvious that P&G was struggling under McDonald’s leadership. Known for its reliable performance, the firm was forced to lower its profit guidelines three times in six months, frustrating analysts and investors alike. McDonald had found it difficult to establish priorities for P&G. Given the wide range of problems that he faced, in terms of pushing for growth across several different businesses in many markets, he made an effort to try to address all of them at the same time. By 2013 it had become obvious that McDonald would not be able to take the bold moves that might allow the firm to recover from its slump.

In May of 2014 Lafley was asked to step back in and respond to investor concerns that P&G had become too large and bloated to respond quickly to changing consumer demands. In April 2014, Lafley began the process of streamlining the firm. He sold off most of P&G’s pet food brands and then announced that the firm would unload as many as 100 of its brands to better focus on 70 to 80 of its biggest ones – its “core brands” – but this caused critics to charge that P&G, which once was most successful in building and managing brands, had lost its touch. There was still a cumbersome centralized and bureaucratic structure that had developed at P&G, especially around internal R&D, stifling needed innovation. P&G was now struggling with its push to place more emphasis on products that carried higher margins in order to move the firm away from its dependence on household staples. Lafley remained convinced that scaling down the firm would allow it to respond more quickly to changes in the market. Was he correct, and would he be successful this second time around?