CEO A.G. Lafley’s Transformation of P&G
I n 2000, A. G. Lafley was appointed CEO and Chairman of Procter & Gamble at a time when the company was undergoing some serious crises. Under the leadership of the previous CEO (Durk Jager), whose tenure lasted for only 17 months (the shortest in P&G’s 171-year history), the company lost $50 billion in market capitalization, its stock price declined 50 percent, half of its brands were losing market share, and the firm was struggling with morale problems. Since 2000, Lafley has led P&G to an impressive turnaround. The company has delivered consistent double-digit earnings-per-share growth, grown its market capitalization to over $200 billion, and diversified into beauty and personal care with the mega-acquisitions of Wella and Gillette.121 Lafley’s leadership style is a marked contrast to Jager’s. While Jager had questioned the competence of many P&G employees, Lafley assured them that he knew they were capable of restoring the marketing powerhouse to its former greatness. Whereas Jager has been described as gruff and confrontational, Lafley is relentlessly inquisitive in a calm, respectful manner that builds trust with employees. The most striking aspect of Lafley’s leadership approach has been his decision to turn P&G into a learning organization. To accomplish this, he instituted a number of things:122
• He set a goal to improve the flow of knowledge throughout P&G.
• He emphasized listening more than lecturing. Listening is what facilitates knowledge flow in an organization, and knowledge flow is one of the elements in an engaging work environment that unlocks organizational productivity and innovation.
• Lafley requires regular interactions between managers and non-managers. In his opinion, getting employees to learn from each other helps them concentrate on the human dimension of understanding consumers.
• At P&G’s corporate headquarters, Lafley transformed the 11th floor where senior executives maintained plush offices. Art was donated to a museum, oak walls were torn down, and 11 of the executives were moved to be closer to the people they lead.
• Lafley believes that P&G’s employees are at the core of the company’s success. To make his point, he has instituted a variety of programs to recognize and tangibly reward P&G’s frontline employees. Lafley’s order to “tear down the walls” on P&G’s executive floor was both pragmatic and symbolic. These actions signaled his intention to tear down “the walls” that prevented knowledge, the lifeblood of every organization, from flowing throughout P&G. A part of that symbolism was the transformation of P&G into a team culture. Lafley has had a long-standing reputation for delegating responsibility. He is known as a consensus builder. His personality is that of a soft-spoken, easygoing, and down-to-earth individual. He is described as calm and quiet, direct, decisive, and tough. It is because of Lafley’s deep commitment to serving customers that he was named Chief Executive Magazine’s CEO of the Year in 2006. In accepting the honor, Lafley joined a list of notable CEOs such as Jack Welch of GE, Andy Grove of Intel, Herb Kelleher of Southwest Airlines, and Bill Gates of Microsoft.123 In P&G’s 2007 annual report, Lafley reminded shareholders that over the past six years, annual sales more than doubled from $30 billion to $76 billion; the number of brands with more that $1 billion in annual sales more than doubled to a total of 23 brands; the number of brands with annual sales between $500 million and $1 billion more than quadrupled to a total of 18 brands; the number of retail customers that do $1 billion or more in annual sales more than with P&G jumped from two to seven; $43 billion in net earnings and $50 billion in free cash flow were generated; and P&G’s market capitalization increased to more than $200 billion, making it the seventh most valuable company in the United States and the thirteenth most valuable in the world. Asked what has contributed to P&G’s remarkable turnaround and sustainable growth, Lafley highlighted P&G’s focus on eight key factors: purpose and values, goals, strategies, strengths, organizational structure, innovation, leadership and people, and culture. GO TO THE INTERNET: To learn more about A. G. Lafley and Procter & Gamble, visit their Web site (http://www. pg.com). Support your answers to the following questions with specific information from the case and text or with other information you get from the Web or other sources.
- Under Durk Jager, would you describe P&G as being more of a traditional organization or a learning organization?
- In what ways has A. G. Lafley demonstrated his effectiveness as a crisis leader?
- What actions and decisions did Lafley take in his efforts to transform P&G into a learning and knowledge-driven organization?
- Find specific evidence from P&G’s Web site that Lafley’s emphasis on knowledge creation and innovation is working or not working. Report your findings.
- The text discusses that, in the learning organization, there are external and internal sources of learning. What type of learning source prevailed at P&G prior to A. G. Lafley’s appointment, and what type of learning source did he prefer when he became CEO?
- Describe Lafley’s personality and leadership style. How did it foster or hinder his efforts to transform P&G into a learning organization? CUMULATIVE CASE QUESTIONS
- What is CEO Lafley’s source of power? Also, what type of power and influencing tactics has he used, and is it the appropriate power type? If not, which power type should he be using (Chapter 4)?
- Based on the description of A. G. Lafley’s personality and leadership style, in your opinion, is he more of a charismatic leader, a transformational leader, or both (Chapter 9)? Support your answer.
- A. G. Lafley seemed to have encountered little or no resistance in his efforts to change P&G into a learning organization. Review the guidelines for minimizing resistance to change and describe the extent to which Lafley employed all or some of the guidelines (Chapter 11).
CAS E EX E R C IS E AN D RO LE -P LAY Preparation: Put yourself in the role of the head of the crisis management team. There has been an accident at
one of P&G’s manufacturing plants resulting in a number of fatalities and injured personnel. You and Mr. Lafley are getting ready for a news conference with the media on the crisis. Prepare a list of questions you anticipate the media will be asking and what you or CEO Lafley’s response should be. Decide who will speak first and why. Who else from the crisis management team will you bring along to the news conference, and what role will they be playing? In-Class Groups: Break into groups of 4 to 6 members, and discuss the preparation questions. Role-Play: Taking turns, one group will represent the crisis management team, led by Mr. Lafley or the crisis leader. Each team will have to decide what role Mr. Lafley will play during the news conference. Let another group play the role of the media. They should select no more than three questions from their prepared list to ask. The rest of the class should listen and judge the performance of the P&G crisis management team in addressing the media. Each group should take turns role-playing the media, the P&G crisis management team, or the judges. Each team playing the role of the media should ask a different set of three questions, so the same questions are not repeated during each round. Observer Role: As the rest of the class members watch the role-play, they should judge (1) the opening remarks of the crisis management team—-their demeanor, body language, tone, style, and substance; (2) the quality of questions that the media team asked; and (3) the quality of responses given by the P&G team—-how honest and truthful they are with their answers. Use the guidelines for effective crisis communication as the tool to judge P&G’s crisis management team performance during the news conference. Look for things that the person playing Mr. Lafley did well or did not do well during the news conference. Discussion: After the role-plays, the class votes for the crisis management team that did the best job addressing the news media with its opening remarks and responding to questions. The instructor should weigh in with his or her opinion on which team did the best job in the questioning and which team did the best job in responding to the questions. Which team member playing Mr. Lafley did the best job and why? Where did the others fall short?