Friday, May 24, 2013

What Should Lafley Do Now?

Yesterday, we learned the shocking news that embattled P&G CEO Bob McDonald had resigned abruptly, and that former CEO A.G. Lafley had been hired to replace him.  P&G's performance had lagged investor expectations during much of McDonald's tenure.   Activist investor Bill Ackman had been pressuring the company to make significant changes.  

What should Lafley do as he resumes command of the company he led successfully for many years?

First, he has to streamline his other professional commitments, accumulated since he left P&G.  Why?  Ackman criticized McDonald heavily for holding many board seats at other organizations.  Ackman claimed that McDonald held more than 20 board positions at other institutions!  P&G claimed that Ackman was incorrect.  Yet, the company admitted that McDonald held 7 other board positions. Yikes! Even 7 board positions sounds very, very high to me, particularly for a CEO whose company is not performing as well as expected.   Lafley has to show his people and outside investors that he is giving P&G his undivided attention.  

Second, Lafley should consider streamlining the P&G portfolio.  During his tenure, he divested a number of brands that he considered non-core products or businesses.   More work needs to be done.  I believe two strong candidates for divestment are IAMS (pet food business) and Duracell (battery business).  Why?  P&G has divested nearly all of its food brands over the past decade or so.   IAMS is an anomaly.   In fact, if you go to the company website, IAMS falls under the category of "household brands" - along with the company's large stable of soaps, detergents, and household cleaners.  How does dog food fit in that category?   The US pet food industry is less consolidated than the European market.  It could consolidate further.  Lafley ought to seek a buyer for the business.    He also ought to consider divesting the Duracell business.   It also seems like an outlier amidst the company's other household care brands.  Duracell is a leading brand in its category and surely would fit better at a company selling other similar products.  Having divested these brands, Lafley can reinvest in innovation efforts to ignite more top line growth in P&G's core categories. 

Finally, Lafley has to make a decision about the competitive positioning of the company's portfolio of brands.  During his first tenure as CEO, Lafley divested many low cost brands and focused heavily on products with a differentiated, premium position in the market (think Gillette, Braun, and many high-end fragrances, for instance).   During the recession, the company found itself struggling in some categories, as customers opted for lower price alternatives.   Pressure built to offer lower-priced options.  Meanwhile, Ackman pressured the firm to cut costs.  There's danger in this situation.  Is P&G determined to be a differentiated player in many markets or a low cost player?  Or, is it stuck in the middle, muddling along with an unclear position between the high and low ends of many markets?  Lafley needs to make some tough decisions about the firm's competitive positioning.  

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