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August 7, 2008 2:26 PM

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Lafley and P&G Beat the Odds

A. G. Lafley, P&G chairman and chief executive officer For all its methodical planning and granular analytics, Procter & Gamble Co. at its core is a brazen trailblazer. Despite its size, the consumer products giant proved its nimbleness in...


A. G. Lafley, P&G chairman and chief executive officer
For all its methodical planning and granular analytics, Procter & Gamble Co. at its core is a brazen trailblazer.

Despite its size, the consumer products giant proved its nimbleness in the fourth quarter by reporting a 33 percent surge in profits.

As other companies were just starting to gauge the scope of rising commodity and energy costs, P&G had already begun taking price increases on key innovations to help offset the pinch. The bold move helped boost quarterly sales by 10.3 percent to $21.27 billion.
And at a time when consumers -- once happy credit card-wielding shoppers -- are fiercely guarding their wallets, P&G has managed to grab their attention and disposable income with product introductions like the premium-priced hair color Nice 'n Easy Perfect 10.

During the company's earnings call on Aug. 5, you could almost hear the problem-solving dials clicking in chairman and chief executive officer A.G. Lafley's head, as he explained P&G's plan to continue to drive out cost while championing advertising-backed innovation.
His practicality comes off as earnest and thoughtful, but his competitive drive is even more compelling.

As Lafley pointed out during the call, the company more than doubled the size of its business over the last six years. What's more, during the quarter, P&G completed the integration of Gillette, which it acquired in 2005 for a whopping $57 billion. At the time of the purchase, industry watchers doubted P&G's ability to retain the technical edge of the blades and razors business or its penchant for developing into new categories.

They predicted that P&G would soon feel buyer's remorse, particularly in light of the hurdles it faced from previous buys, like Wella and Clairol, which is now benefiting from introductions like Perfect 10 and Nice 'n Easy Root Touch-Up.

On the earnings call, Lafley proudly declared, "We beat the odds, which say large acquisitions fail, by successfully completing the integration of Gillette....Revenue synergies are on target with significant upside over the next three-to-five years. Gillette and Oral-B brands are platforms for innovation, and we've just begun the efforts to fully leverage these equities."

Case in point: The Gillette-born Fusion recently became P&G's 24th billion-dollar brand.

As P&G has added businesses -- for instance, it bought prestige hair care brand Frédéric Fekkai last spring -- it also has shed categories it deemed less attractive (or devoid of innovation).

And as it moves deeper into developing markets and works to understand their nuances -- single-use shampoos are a big seller in lower-income markets in Mexico -- P&G steadfastly works to drive out costs across its business.

In response to an analyst's question about how the company will balance belt-tightening with powering innovation goals, Lafley plainly responded: "I hate to say it, but this is my 32nd year here, and there is still fat to trim. It's not because we don't work at it. It's not because we don't have 138,000 P&Gers working their hardest every day around the world. It's simply because there are always ways to do things more simply, and that's what we're focused on. We're focused on simplicity and productivity."

It may sound simple, but it takes guts and hard work. After all, I can't recall another company that sends its executives around the world to peek inside women's medicine cabinets or laundry rooms for product ideas.
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