P&G's Cultural Revolution

Last Updated Aug 17, 2010 6:04 PM EDT

Procter & Gamble makes stuff, most famously Tide laundry
detergent, Crest toothpaste and Pampers diapers. Lafley has devoted enormous
attention to keeping these iconic brands fresh. But his larger achievement,
argues Noel Tichy, director of the Global Leadership Program at the University
of Michigan business school, is a subtler one. Lafley, he says, dragged P&G
out of its insular mindset. Tichy is the author, with Warren Bennis, of Judgment:
How Winning Leaders Make Great Calls (2007)
, in which the authors discuss
AG Lafley's leadership and tenure at P&G.

On judgment

I've written 12 books on leadership and my co-author, Warren Bennis, has written 37. What we've learned after spending all this time with CEOs is that judgment is a process. Business leaders don't make decisions in a blink; that's for firefighters and ER nurses.

There are only three really important buckets for decision-making: (1) who is on (and off) your team, (2) what mountain to climb, and (3) how you act when a storm hits. The most important is the first — God help you if you try to set a strategy with untrustworthy, stupid people.

Once you identify a need, you have to name and frame the decision that is required. Then you need to align key stakeholders, and finally, you must execute. To make a good decision, all three elements must work. In business, there is none of this "the operation was successful but the patient died" thing.

In the case of Clairol, A.G. Lafley identified the need: to fill out the portfolio. Then he made the case to stakeholders, in this case the board and senior leadership, to make the acquisition, rather than try to do it organically. And then the team executed, integrating the brand and creating new value. Clairol was clearly a significant strategic play. Anything you do early on, especially when a company is struggling, is both symbolically and substantively important to the company.

In another case, though, Lafley stumbled in one area — aligning stakeholders — and nearly jeopardized the decision. In 2001, he identified problems in the baby division. So one morning he named Deb Henretta, a marketing person, to take charge of it. By that afternoon, the revolution was on. "How could you turn over our sacred business to this outsider?" asked the veterans, many of who had engineering backgrounds. "What does she know about manufacturing diapers?" In fact, Lafley wanted Henretta there because she was not an engineer; he thought the division needed to think harder about the consumer. But by not aligning with the leadership team, he threatened to undermine the whole decision. After all, Henretta was going to need their help.

So Lafley did what we call a "re-do loop," inviting senior members of the diaper team to a several-hour meeting to discuss the appointment and make the case for their own candidates. In the end, Lafley stuck with Henretta, but by listening and explaining his thinking, he was able to stop the rebellion from becoming destructive. And then they — Lafley, Henretta, and the team — executed, rejuvenating the division, in large part because it got a lot better at listening to consumers and delivering products they wanted.

On Lafley's record as a leader

It is not too much to say that he literally saved the company; there was a lot of discussion back in 2000 about breaking it up. Since Lafley took over, P&G has gone from crisis-driven to consumer driven.

I remember reading studies in the 1970s and '80s about P&G's world-class manufacturing, how it got every penny out of manufacturing, and every penny out of every product. Inward looking and engineering dominated, the company was basically a manufacturing company producing consumer products. From Day 1, Lafley's goal was to make P&G into a consumer-driven organization, and he has done that.

His most important legacy, though, is not how he strategically repositioned the company. That may be irrelevant two, three or five years from now. What is more important is how he has strengthened succession planning and the leadership pipeline; there are leaders in place at all levels. The worst indictment of any company or CEO is that there is no internal successor ready to step up. Lafley has put tremendous rigor, discipline and time into developing leaders. And when he stepped down in 2009, there was a homegrown successor, Robert McDonald, ready to step in to lead a very good company.

On the P&G's culture

In the old days, honest to God, there were these big oak doors and dark halls. You would go in through one oak door, and then there would be a secretary guarding the next oak door. Now it is a really open environment, more campus-like, with the CEO sitting out there and available. Ripping out the oak and opening up the headquarters space really reflects the way Lafley thinks. In the last decade, P&G has become much more outward looking. It is more nimble and responsive to consumers; before, it was more a matter of, "We'll tell you want you want."

I remember being invited to help on leadership development when Ed Artzt was CEO [1990-95]. I was brought in to talk about GE's work at its Crotonville leadership center with the head of human resources and some other leadership development people. Artzt started railing about, "Who's bringing this Steven Covey junk here? What is all this about teamwork? What teams need are leaders!" And so on. That was my introduction to P&G

By contrast, I was recently involved with a project with P&G in which teams from six business schools (Texas, USC, Harvard, Michigan, Duke and Northwestern) were tasked with a real problem. Lafley told them the company would have about $50 billion in sustainable products by 2010. How, he asked, could he get the company's employees engaged in sustainability wherever they are? Then he invited the winning team from each campus to Cincinnati, where they spent half a day with 20 P&G executives. At the end of the session, Lafley summed up and listed what ideas he was taking from each team. And it really happened. I mention this to show how he has a great commitment to getting ideas from anywhere. That is now a big part of the company culture, and it has not always been that way at P&G.

-As told to Cait Murphy

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