Stuart Smith's Blog

This week, one of the great captains of industry over the past decade has announced he will soon be stepping aside. Alan (better known as AG) Lafley will remain chairman of Procter & Gamble, but is handing over the management reins to a new chief executive officer, Robert McDonald.

Although Lafley’s relative youth (he is only 62) has raised eyebrows about the timing of the transition, the beneficiary of it is no surprise. McDonald, 55, is chief operating officer and, like Lafley, a P&G veteran – in this case of 29 years. Personal chemistry between the men is good (they both, for example, share a military background) and Lafley has long groomed McDonald as his successor. For the avoidance of any doubt as to who was going to succeed Lafley, the only other competitor – Susan Arnold – announced she was quitting back in March.

Almost without saying, Lafley will be a very hard act to follow. I wouldn’t go quite so far as to say he found some brick rubble and turned it into a marble palace, but not far off. P&G was in a serious mess when he took over in 2000. His predecessor, Durk Jager, had caused near mutiny in the company by attempting to introduce a policy of accelerated corporate transformation while failing to take his team with him. In an unprecedented act at P&G, he was shown the door within 18 months.

Admittedly, it would hard to be less consensual than Jager, but Lafley is certainly a lot more emollient, scoring highly on people skills. That alone wouldn’t account for his reputation. It is the strength of his strategic vision, and the way he has calmly, methodically, implemented it that distinguishes him. To combat the classic problem facing multinational consumer goods companies – declining margins in advanced economies, and increasing competition from own-label – Lafley drew up a multi-layered plan.  One element was to play to P&G’s traditional strengths: enhancement of margin through added-value innovation. Lafley has completely overhauled, and to good effect, P&G’s approach to innovation, opening up closed “Proctoid” culture to outside inventors.

More dramatically, he has sought to boost P&G profits by moving much further into higher-margin areas, such as beauty and male-grooming products, through a series of high-profile acquisitions. Notably, the company acquired Clairol and Wella. However, if there is a single act for which Lafley will be remembered, it has to be the $57bn acquisition of Gillette. This was a headline-catching event in itself, which has played a significant role in underpinning Lafley’s boast that he has more than doubled P&G’s sales during his tenure. But it is more than that. Gillette has given P&G – a company almost exclusively concerned with the female mindset – a strategic insight into male buying behaviour.

At the close of Lafley’s reign, P&G is once again facing some of the problems which beset it at its inception. Consumers in a recession value cheapness over added value and act accordingly. In May, P&G issued a sharply lower earnings forecast for the next fiscal year, starting July 1 – the day Lafley steps down.

As a complement to Lafley’s drive towards higher margins, his successor McDonald has played a major role in shifting P&G’s manufacturing capability to more fruitful, and less expensive, emerging economies. McDonald will no doubt have to tidy up some loose ends, like disposing of the more peripheral Gillette brands, namely Duracell and Braun. But it is doubtful whether he will be deflected from Lafley’s strategy in any major way. Once the recession is over, consumers will come back to the added-value proposition.

If you want a final perspective on Lafley’s tenure, benchmark it with that of Niall Fitzgerald and Patrick Cescau at Unilever during the same period.