Teaching Note: Case 26 – Proctor & Gamble
Case Objectives
1. To investigate what it means to be a strategic leader.
See the table below to determine where to use this case:
NOTE: There are both PRIMARY and Secondary chapters that can be used for this case. The
Chapter Use Key Concepts Additional Readings or
Exercises
PRIMARY
Leadership
Leadership; barriers to change;
NOTE: embedded video and
SECONDARY
10: Organizational
Design
Organizational structure;
3: Internal
Analysis
Intangible resources
4: Intellectual
Human capital; intellectual
5: Business-Level
Generic strategies NOTE: embedded video and
6: Corporate-Level
Related & unrelated
Case Synopsis
Procter & Gamble had made several bold, innovative moves over the years to build itself into
one of the best-known consumer product firms. However, by the 1990’s, sales on most of P&G’s
18 top brands were slowing as it was being outhustled by more focused rivals such as Kimberly-
Clark and Colgate-Palmolive. In January 1999, the firm turned to Durk I. Jaeger to try to create
In order to better focus on serving the needs of the consumers, Lafley put a tremendous amount
of emphasis on the firm’s brands. Feeling that P&G had often let technology, rather than
consumer needs, dictate its new products, Lafley was intent on shifting the focus of P&G back to
Lafley had many ideas about how to make P&G relevant in the 21st century. Starting with the
costly acquisitions of Clairol and Wella, he shifted the focus of the firm away from its traditional
In June 2009, Lafley retired and selected Bob McDonald as his successor as CEO of P&G.
McDonald had been groomed for this role, having been with P&G since 1980. McDonald’s
By the middle of 2012, it was becoming obvious that P&G was struggling under McDonald’s
leadership. Known for its reliable performance, the firm was forced to lower its profit guidelines
three times in six months, frustrating analysts and investors alike. McDonald had found it
In May of 2014 Lafley was asked to step back in and respond to investor concerns that P&G had
become too large and bloated to respond quickly to changing consumer demands. In April 2014,
Lafley began the process of streamlining the firm. He sold off most of P&G’s pet food brands
and then announced that the firm would unload as many as 100 of its brands to better focus on 70
Teaching Plan
This case is best used to illustrate the concept of strategic leadership, and how a leader needs to
understand the key resources needed to enact change and implement a competitive strategy.
Especially since P&G is a well-known organization, it might capture students’ attention early in
the course, after a discussion of the external environment, to point out how strategy
implementation requires a careful assessment of internal resources, especially intangible ones.
ICEBREAKER
This case can start with an icebreaker. Starting from the perspective of a customer may make it
easier for students to transition to a strategic analysis.
How aware are you of P&G’s brands? Can you name some of them?
Some students may have already known about certain products, like Tide, but, even if they read
the case, many students will not realize the extent of P&G’s brand penetration. Case Exhibit 1
lists P&G’s business segments and “billion-dollar brands,” so students can be reminded of this,
but it might also be interesting to go to P&Gs’ website to look. Go to
Show of hands: How many of you brushed your teeth with Crest today? How many of you used
an Oral B toothbrush? How many of you washed your hair with Pantene shampoo? How many
shaved with a Gillette razor? A Braun electric shaver? How many of you use Tide laundry
detergent? Dawn dishwashing liquid or Febreze air freshener? How many of you have even
needed to use Vicks for your cold symptoms or Pepto-Bismol for an upset stomach?
By the time this list is done, it’s highly probable that EVERYONE in the room will have raised
his or her hand at least once. This illustrates how P&G brands touch lives all over the world.
This exercise may get students in the mindset – how important is it to P&G to protect and grow
these iconic brands? Doesn’t the CEO of P&G have an obligation to the legacy of these products
to craft a successful strategy into the future? If brands need to be removed from this lineup,
which ones, and how does one choose?
Summary of Discussion Questions
Here is a list of the suggested discussion questions. You can decide which questions to assign,
and also which additional readings or exercises to include to augment each discussion. Refer
Discussion Questions:
1. Assess leadership at Procter and Gamble.
2. OPTIONAL QUESTIONS: What were the major organizational changes Lafley made at
P&G, and what challenges does he face now?
3. What intangible resources did P&G have that Lafley and McDonald used to enact
strategies? What competitive strategy do these resources best support now?
Discussion Questions and Responses
1. Assess leadership at Procter and Gamble.
Referencing Chapter 11: Strategic Leadership
To start with, the instructor might want to position the discussion by reviewing what strategic
management really is: Strategy is all about the ideas, decisions, and actions that enable a firm to
succeed. See Chapter 1, Exhibit 1.1: Strategic management consists of the analyses, decisions,
and actions an organization undertakes in order to create and sustain competitive advantages:
●strategy directs the organization toward overall goals and objectives;
●includes multiple stakeholders in decision making;
In doing this, leaders face a large number of complex challenges. Leaders must be proactive,
anticipate change, and continually refine changes to their strategies. This requires a certain level
of “ambidextrous behavior,” where leaders are alert to opportunities beyond the confines of their
See Chapter 1, Exhibit 1.3 for a depiction of the strategic management process. During strategic
analysis, the leader does “advance work” to anticipate unforeseen environmental developments,
identify unanticipated resource constraints, assess changes in his or her preferences for how to
In strategy implementation, depending on the type of organization structure, the leader might
include key individuals in a discussion around selecting which strategies might be best to
Leaders should also be committed to excellence and ethical behavior while promoting learning
The basic question strategic management tries to answer is: How can we create competitive
advantages in the marketplace that are not only unique and valuable but also difficult for
competitors to copy or substitute?
In the past, Proctor & Gamble had been known for its superior products, its marketing brilliance,
and the intense loyalty of its employees, all of which were unique, valuable, and therefore
P&G under McDonald had faced recession-battered consumers who abandoned the firm’s
premium-priced products for cheaper alternatives. P&G’s previous strategy under Lafley was to
shake up and expand sales through acquisitions and to innovate around product innovations that
McDonald tired to deal with the reduced margins by focusing on operational efficiency, but
Amid this failure to coordinate and integrate activities within the firm, P&G seemed to have lost
its ability to innovate. Lafley, who had previously doubled sales through a string of acquisitions,
Part of strategy implementation requires leadership to make sure the firm is staying true to its
original vision, mission, and strategic objectives. See the concept of leadership, the process of
transforming organizations from what they are to what the leader would have them become.
Leadership is proactive, goal oriented, and focused on the creation and implementation of the
creative vision. This definition implies dissatisfaction with the status quo, a vision of what
should be, and a process for bringing about change. Leaders are change agents whose success is
measured by how effectively they formulate and implement a strategic vision and mission. See
Chapter 11, Exhibit 11.1. This involves:
●Setting a direction
The interdependent nature of these three activities is self-evident. Consider an organization with
a great mission and a superb organizational structure, but a culture that implicitly encourages
Leaders need to set the direction for the organization by continually scanning the environment to
develop knowledge of all stakeholders and knowledge of salient environmental trends and
When Lafley had originally been elevated to CEO, in 2000, he set direction by involving
external stakeholders, specifically the retailer and the end consumer, in product innovation
Leaders are responsible for designing the organization: a strategic leadership activity of building
structures, teams, systems, and organizational processes that facilitate the implementation of the
Lafley in 2000 made changes to the organizational structure by relocating executive offices,
replacing managers, promoting women, and then tracking and training lower level employees
Leaders play a key role in changing, developing, and sustaining an organization’s culture. An
excellent and ethical organizational culture is an organizational culture focused on core
In nurturing a culture dedicated to excellence and ethical behavior, managers and top executives
must accept personal responsibility for developing and strengthening appropriate behavior;
consistently demonstrate that such behavior is central to the vision and mission; develop and
Cultural difficulties in implementing the leader’s vision and strategies include a lack of
understanding of responsibility and accountability among managers, reward systems that do not
Lafley’s predecessor Jaeger exercised his leadership by pushing through specific organizational
changes without preparing the employees for these, resulting in a great deal of confusion and
In particular, Lafley provided the firm with a broad plan for its future. He established clear
objectives that had to be achieved in order for the firm to remain competitive. He built upon two
In implementing a vision, leaders have to overcome barriers to change. Organizations are prone
Lafley allowed the managers and the employees to participate in and take responsibility for his
proposed changes – thereby addressing the status quo issues. He did not push for specific changes
without giving a chance for the other people in the organization to get involved – proceeding to
The leader also has the responsibility to create successful learning organizations by creating a
proactive, creative approach to the unknown, actively soliciting the involvement of employees at
Lafley tried to develop a stronger orientation for learning within P&G. In particular, he tried to
get his managers and his employees to be more open to ideas, including ones that may come
Lafley also tried to get his firm to focus more on those specific activities in which P&G could
establish excellence. A stronger focus on specific tasks may allow for more learning that is
McDonald tried to continue this idea. Internally, McDonald introduced the concept of “purpose-
inspired growth,” which was meant to help P&G employees believe that they were not merely
Lafley had set the direction and designed the organization, but McDonald was unable to nurture
a culture to sustain the strategy. Now Lafley was back to provide strategic leadership once again,
but the external environment had changed, requiring internal change as well. What could Lafley
do this time?
NOTE – ADDITIONAL READING AND VIDEO VIEWING ON LAFLEY’S
LEADERSHIP –
To provide historical context, CEO A.G. Lafley believed that innovation was key to the success
of P&G brands, and that design, not simply price or technology, should be P&G’s key
differentiator; and that a product’s value, not its price is what people look for. Here’s an
interview from 2005:
http://www.fastcompany.com/magazine/95/design-qa.html. He notes in this 2005 article that not
every one of P&G’s businesses was able to fully embrace this concept. What did Lafley do to
implement his ideas?
This interview from February of 2007 was after Lafley was named one of America’s best leaders
for 2006 by Harvard’s Kennedy School of Government and U.S. News & World Report:
http://www.usatoday.com/money/companies/management/2007-02-19-exec-pandg-usat_x.htm
A.G. Lafley has said innovation is at the core of P&G’s strategy. A.G. Lafley and Ram Charan
wrote the book The Game Changer about how this focus on innovation can help organizations
“change the game” in their respective industries. Here is a video interview of Lafley by Harvard
Business Publishing in 2008 about this subject (14 minutes):
http://www.youtube.com/watch?v=xvIUSxXrffc&feature=related
Regarding Lafley’s approach to the culture change at P&G, in 2007 he describes a management
decision he made unilaterally. Lafley skipped over 78 general managers with more seniority in
making a key staff appointment, a woman, without even consulting the rest of his management
team. Lafley says “there was almost a revolt” over his decision. Read the analysis, where Noel
Tichy explains Lafley’s decision process:
http://www.businessweek.com//careers/content/sep2007/ca20070912_634527.htm. What lessons
can you learn about leadership from this interview and the video?
To contrast styles, see this 8-minute video where McDonald gives a tour of his office at P&G
when he was CEO: http://www.youtube.com/watch?v=c2Paz6EJ7BQ Do you find him
inspiring?