>>James Fallows: And we're very privileged to have here A.G. Lafley, who I often think
of as what business people would want to be when they grow up.
After graduating from college in the late 1960s, Mr. Lafley had a stint in the U.S.
Navy and then joined Proctor & Gamble for a 32-year career which had every accomplishment
anyone could want, including president and chairman. And during the last, I think, 10
years of your stint here revenues doubled from 39 billion to 79 billion. Is that approximately
right? >>A.G. Lafley: That's approximately right.
>>James Fallows: That's approximately right. But who's counting?
And along the way, he's had a reputation for talking about civic responsibility of his
corporation, the values within his corporation. So leadership is something you have thought
about during your entire career. We are nearing -- there's a political connection I'm going
to make here. We're nearing the 50th anniversary of Dwight
Eisenhower's famous farewell address when he left the presidency, that I think, as a
one-time speech writer myself, is probably the finest example of political -- serious
political rhetoric in the United States. You recently gave your version of that, a valedictory
on leaving Proctor & Gamble, when you talked about the values you learned in your long
career of leadership, of citizenship. Would you give us what you think is the most distilled
and extrapolatable version of that message for corporations beyond yours?
>>A.G. Lafley: We must have had a leak. Well, I think, as I recall, I tried to distill 32
to 33 years into a sort of handful of principles. And the first one was see things as they are,
not as you want them to be. Come to grips with reality.
And I think, in my experience and listening to my predecessors, one of the things that
distinguishes optimists and leaders is they come to grips with reality. They see it sooner.
They express it more clearly. The second thing is -- and this is no surprise
-- I am first, last, and always customer centric. I was supposedly, in what -- had
spent 22 years at one of the most successful consumer products companies in the world.
And, frankly, our biggest problem in 2000 was we were nowhere near close enough to the
consumer. And I would suggest the whole discussion about open versus disclosed systems will be
resolved based on what in the end the customer wants. So does she or he want -- will the
open system or the closed system deliver better value? Will it deliver a better experience?
Will it deliver the relationship that she wants in her brand and her product and her
service? Third thing was I'm a huge believer in innovation.
I know I'm in a very dull, very mundane industry. We do toilet paper and deodorants and feminine
hygiene and lots of exciting stuff like that. But what distinguishes us and when we've been
the best, we've been in the innovation leaders in that industry. We spend $2 billion a year
in innovation. I think we hold 40,000 patents in the U.S. I think we have 20,000 pending.
So it is an innovation business. The fourth thing was everybody's a leader, and I expected
we have a leadership culture. And we have a system that's driven by purpose and values,
strategy and principles. And all I did was try to express what I'd learned, where I thought
we were. And I didn't think we had made as much progress as a lot of others thought we
had made in the last decade. So I said there was plenty of things to do in the decade ahead.
I think that was it. >>James Fallows: And I say this -- I ask this
question with great respect. It would be possible to list all the qualities you mentioned in
a platitudinous way. We should be close to the customer. We should be innovative. Can
you give us some specific illustrations of what it took to impose or evoke these values
inside the company? >>A.G. Lafley: Okay. The objective with a
customer is to be so close that you understand -- in my case, most of the time, her needs
and wants, even the ones that she can't articulate. I was probably five years in the company,
and we had run some consumer research on laundry detergent packaging. And Tide packaging was
rated 4.9 on a 5.0 scale. And I had been out in homes, and I had watched women struggle
with our packaging. How do women open a laundry detergent box? None of them use their hands.
Why? How much did they spend on the manicure? How much time did they put into the manicure?
So they've got screwdrivers and pliers and all kinds of paraphernalia out in the laundry
room. And we're getting a 4.9 out of 5 rating, and we think we're making the best package
in the laundry detergent agency. And I can go through hundreds of examples
like that where I sat and watched a woman in Japan do her morning skin care ritual.
I heard people tell me that something was great. And then, you know, it clearly delivered
a subpar performance. So there's a big difference between saying
you're going to be close to customers. One other thing, not to belabor this point.
I now work in private equity. We have 15 companies. And one of the questions I always ask is who
is your customer? Who is your current customer? You would be astounded by the number of companies
that cannot describe clearly who their current customer is. Innovation, the big breakthrough
for us in innovation was we were great at patenting. We weren't getting it commercialized.
We weren't connecting it to consumers and markets.
So we went to an open innovation system, called it "connect and develop."
10 or 15 years ago maybe 10% of our new brands and products were partnered with at least
one outside innovation partner. Last year over half were partnered. And I believe there's
no reason why virtually all innovation shouldn't be patented. Fundamentally, it's about association.
It's about connection. It's about combining unlikely things. And I could go on for each
one. So yes, it sounds like a platitude. But, if you dig and you dig and you dig and you
get it under your fingernails and you get into it every day, it's really important.
>>James Fallows: You mentioned earlier I might have had a leak to some of your utterances
inside the company. In fact, we talked about a week or so ago. Something you said then
that was fascinating to me is, as you mentioned, you come from an industry which is seen as
traditional, stolid, people would assume it to be lower technology than, say, Google or
QualComm or Motorola or whatever. But you said there were dangers of complacency
coming into this high-tech industry. Share with the audience what we were discussing
a week ago. >>A.G. Lafley: Well, I think we were talking
about the worst thing that can happen is that you're successful. And the absolute worst
thing that can happen is you're wildly successful, because then you become content. Okay? You
become complacent. You can become even a bit arrogant. And all of a sudden blind spots
develop all around you. They can be blind spots around your technology. They can be
blind spots around your business model. They can be blind spots around your real relationship
with your customer. And often times you don't even see the new
competitor coming because they're not an expected competitor. They're coming up from underneath.
They're coming from the side. So we've gotten waxed a number of times -- okay? -- in the
33 years I was at P&G by success. You know, by success.
And we blew up -- we created the disposable baby diaper business with Pampers in the early
'60s. I think Google's share of searches is somewhere around 64%. We had a 99% share in
that business. When I joined the company, we had an 85% share in that business. And
we introduced a new shaped diaper technology. And, instead of putting it on Pampers, we
introduced a new brand called Luv's. And what do you think happened? We split the business
in two. So we took Pampers and reduced it to a 45 share. We had a 40 share Luv's brand.
And Kimberly Clark came right up the center with a new technology. And they, in the U.S.
at least, they had the leading baby diaper brand. I've seen so many times in so many
businesses that you can lose it because of something you did, because you didn't see
something coming, because you didn't have your eyes open, because you became too complacent.
>>James Fallows: And is there any particular way -- suppose you were a dominant search
company, how would you apply the logic of what you're saying?
>>A.G. Lafley: There is no perfect defense. But I believe the best defense is offense.
If you don't create the future, you know, you don't want to leave that to your competitor.
The second thing you have to do is attack. You have to be willing to attack yourself.
What's one of the biggest reasons that you don't attack yourself? You don't attack yourself
because the economics aren't as good, and they're never going to be as good. You're
going to be dealing with maybe higher capital, for sure lower margins, all the costs of startup,
whatever they are in your industry. So you have to be willing to do that.
And then I think the third thing is I'm a huge believer in open innovation, and I'm
a huge believer in partnerships. We talked a lot about our billion-dollar brand
businesses. One of the ones I'm most proud of is not on the list. It is with Clorox who
is a fierce competitor in one industry and who is a big partner in the wraps and bags
industry, another very mundane industry. We took their Glad brand which was a few hundred
million dollars, invested three technologies into it, and it is now a well over a billion-dollar
business. I have to tell you, very few people at P & G
wanted to do a partnership with Clorox when the idea was initially raised.
I would say that would be a good place to start.
>>James Fallows: One of the questions I wanted to ask you about is a big theme of all the
presentations so far of the conference has been about learning skills, learning traits
that you might naively think are just inborn. People are either leaders or not. They are
innovators or not. We have talked about ways you can develop these skills.
You have placed a lot of emphasis inside the company on training leadership skills. Tell
us more about that, if you would. >>A.G. Lafley: I think I may have mentioned
I really don't believe leaders are born. I believe they make a choice to lead. You know,
in my own case, I was an accidental CEO, probably --
>>James Fallows: Just a country boy. >>A.G. Lafley: No, no. Probably the clearest
article written about me was "The un-CEO." But sometimes circumstances -- and they can
be a cause you care about, they can be something you have passion for, they can be something
in your community, wherever, cause you to want to make a difference. And so I believe
there's this little spark. Second thing I'm relatively sure of is that
there are some leadership tasks, engaging and envisioning, it's part of the responsibility;
empowering and enabling; and in the end, getting it done, okay, executing.
We have a fair amount of evidence that we can take new hires, we can take 20-year veterans
and we can put them through two-day, three-day, five-day courses and we can inspire leadership.
We don't have a style we're selling. We want you to be yourself.
But we have -- probably not unlike what the professor was talking about, we have sort
of a set of skills and some basic principles. And I think they work.
And I guess the last thing I would say is we're on the ground in 100 countries. We're
selling in over 160. We're in probably 25 different industries now. There is no way
you can survive in this kind of an industry or world unless you have distributed networked
leadership. Command and control are over with. >>James Fallows: You mentioned the term "responsibility"
in the answer. You gave that, which is another theme which has run through all the presentations
so far. We heard from Ted Turner about things he thought the media needed to do differently
and citizens need to do and civic leaders and philanthropists needed to do.
We heard from Professor Seligman again about ways to develop the right kind of traits.
We heard in the first session about ways the Western world needs to shore up various of
its traits if it is going to restore its economic fundamentals.
This is an audience that is largely, although not exclusively, tech industry people. The
tech industry world has been so far still largely in the Libertarian phase of its development
of thinking, "We'll just have our innovations and the outside world will take care of it."
What message would you give to a tech-world audience about responsibilities they have
in their products, in their own personal lives? >>A.G. Lafley: I start small, all right? I
think your basic -- your first responsibility is to serve a customer, right? I'm a big fan
of Peter Drucker. He said the first purpose of a business is to create a customer and
then keep that customer for life. So, I think your first responsibility is to
really serve your customer. So that means a better value, a better experience, a better
product and service. The second thing, I think, very -- I believe
very strongly is you have a responsibility to your critical stakeholders. One of the
things I did, frankly, was put the shareholder, you know, at the bottom of the pyramid, not
because the shareholder wasn't important but if I didn't have it right for the customer,
if I didn't have it right with our innovation partners, and I didn't have it right with
our employees, we weren't going to deliver for the shareholders. So I just changed the
mix. The third thing is you have a responsibility
beyond your technology, beyond your business, and that's to the communities in which you
work and live. And our responsibility in Mandideep in India
is different from our responsibility in Lagos, Nigeria, is different from our responsibility
in Cincinnati, Ohio. And then lastly, you know, I really believe
you have a responsibility to the sustainability of our planet. And, you know, we -- we tried
to work on our responsibilities and concentric circles. We try to work on them in an integrated
way. So, we're not fixing technologies and products
that are ill-conceived and ill-designed, although we have had to do some of that. And we don't
-- I mean, we don't get it right most of the time. But we try to get it right a little
more often. And I think those are some of the responsibilities that we have.
>>James Fallows: We have only two minutes left here. So here's a final question: In
retrospect as you think about your business career at Procter & Gamble, what do you think
is the worst decision you made and what we can learn from it and in retrospect the best
decision and what we can learn from it? >>A.G. Lafley: I think the best decision was
to -- was really to refocus on the customer, okay, and just to put the customer at the
center. And we have the customer in most of our buildings every day, okay? And we're in
customer homes, living it and working it. The worst decisions were I should have divested
-- you know, you are always slow to -- Capitalism is about creative destruction. And while you
create on the one hand, you have to destroy with the other hand.
And I always felt that we were quicker to create than we were to destroy. And I should
have divested or gotten rid of businesses that either were non-strategic, non-performing
or just weren't going to fit. And my biggest miss by far is we got the Prilosec
switch. We lost the Claritin switch. And I had it in my hand and I deferred to the individual
that was running the health care business at the time. And I knew in my tummy that I
shouldn't have, but we would have had probably the two biggest switches in the last decade,
if I had made a good decision there. >>James Fallows: Great. Well, with that, thank
you very much.