CHAPTER FIVE: Play to Your Strengths

“The roots of the acquisition’s success go back to the initial consideration of the opportunity. As Clayt Daley, who retired as chief financial officer in 2009, explains, P&G had three relevant criteria for any acquisition. First, any acquisition had to be “growth accretive—in a market that was growing (and likely to continue growing) faster than the average in its space and in a category or segment, geography or channel where we thought that we could grow as fast as the market, if not faster.” This was the first, and most obvious, hurdle. Second, the acquisition had to be structurally attractive—a business “that tended to have gross and operating margins above the industry or company average. We were looking for businesses that could generate strong, free cash flow.” Free cash flow was an important driver of value creation for P&G corporately. Once those two hurdles were cleared, there was a final criterion—one that too few companies consider systematically: how the potential acquisition would fit with the company’s strategy—its winning aspiration, its choices about where to play and how to win, its capabilities, and its management systems.

Gillette had powerful brands (like Mach 3, Venus, and Oral B) that would importantly add to the P&G beauty and personal-care businesses. And it contributed significant cash flow.

But, as Daley explains, “then you get into ‘what did P&G bring to the party? How good of a fit are they with our sources of competitive advantage?’” The fit was quite good: in terms of where to play, Gillette provided the leading male and female shaving brands and the leading toothbrush business in the world, all large enough to instantly become core businesses for P&G. Gillette also fit well with the strategic choice to grow in the beauty- care and personal-care categories. Plus, geographically, it offered complementary strengths in emerging markets, providing leadership positions in countries where P&G was building presence (like Brazil, India, and Russia). On how to win, Gillette’s brand-building expertise, product innovation, core technologies, and retail merchandising mastery aligned well with P&G’s company-level choices.

But there was still more to consider. “At the end of the day,” Daley continues, “it really comes down to, are you, as an acquirer, going to bring value to that acquisition or not? The acquisition is only really successful if you’re a better owner of the business than either the previous owner or the company as an independent company. That usually gets down to your capabilities, in our case, your consumer capabilities, your branding capabilities, your R&D capabilities, your go-to-market capabilities, your global infrastructure, your back office. Are the capabilities and strengths that you’re bringing to the business going to improve it, grow it faster, and create more value than it did before?” In short, strategic fit between the new business and P&G capabilities was critical.

As discussed earlier, the five capabilities core to P&G’s where-to-play and how-to-win choices are consumer understanding, brand building, innovation, go-to-market ability, and global scale. The notion of bringing these capabilities to bear on the Gillette business was top of mind. From the first meeting post-acquisition, Bergh set out to incorporate P&G’s strategy framework into the Gillette DNA, working to articulate Gillette’s choice cascade.

Once the where-to-play and how-to-win choices were clear, the team could turn its attention to the capabilities required to deliver on those choices.

At P&G, it boiled down to three themes that would enable the company to win, in the places and ways it had chosen, regardless of the details of individual differences between businesses:

• Make the consumer the boss.

• Win the consumer value equation.

• Win the two most important moments of truth.” (Lafley and Martin, “Playing to Win”,

p.141)

“The first dictum, that the consumer is boss, was a reorientation to the company’s aspiration—to improve the lives of consumers. We wanted everyone focused on the end consumer in all aspects of the business: in innovation, branding, go-to-market strategies, investment choices, and so on. We wanted to be clear about just who the most important stakeholder is and always should be. Not shareholders. Not employees. Not retail customers. But rather the end user: the people who buy and use P&G products. The second crucial theme was to win the consumer value equation. This quickly and unambiguously defined the way that P&G would win: by opening up a bigger gap between

the value it offers to consumers and the cost of delivering that value than competitors’ gaps. This meant providing unique value to consumers (through brand differentiation and innovative products). And it meant maintaining a cost position that would let P&G offer that value to the consumer at an attractive price and still make a healthy profit. This edict turned everyone’s attention toward the where-to-play and how-to-win choices that create sustainable competitive advantage through differentiation.

Communication to the Organization – A.G. Lafley

I prioritized the consumer ahead of all other stakeholders, including customers, shareholders, and employees. I started with consumers, because the purpose of a business is to create consumers and to serve them better than anyone else can. No consumers, no business. I said P&G had to win the consumer value equation and the first two consumer moments of truth. I talked about retail customers and suppliers as partners in serving consumers better...

I really tried to distill things down as a way to get the choices understood. There’s no doubt in my mind that clarity makes a difference. Clear and simple, easily translatable choices were crucial to get 135,000 P&G-ers in ninety countries operating with excellence every

day.

At Gillette, I felt comfortable only about a year after I walked in that we knew exactly what we would need to do over the next five years.

“A leader must take action immediately to fix obvious problems. But developing an insightful strategic plan will take three to five months. There is too much information and too steep a learning curve to try to implement solid strategy in the first thirty to sixty days.” - Jim Kilts.