A Healthy Gamble

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With the SpinBrush, P&G showed that it no longer suffers from the Not-Invented-Here syndrome. Making a bet on a small Cleveland, Ohio, start-up called Dr. John's and its invention of an ingenious battery-powered toothbrush that could be sold at a profit for roughly $6, Crest bought the firm at the beginning of last year and, by applying its marketing and distribution muscle, has turned it into a $200 million category killer. Lafley hopes it can be a model for the future. "I'd love to see a third to half of 'discovery' come from outside," he says. "I really want the doors open."

If anybody can keep them that way at P&G, it's Lafley. Though he has been with the company for a quarter-century, he didn't sign on fresh out of college, as many of his cohorts did. After studying history at Hamilton College in upstate New York, he joined the Navy, where he gained his first merchandising experience as a supply officer during the Vietnam War. He made his mark at P&G overseeing the successful launch of Liquid Tide in 1984, and made an even bigger impression during his three-year stint in Asia in the mid-'90s, building the company's now booming business in China almost from the ground up and resuscitating its faltering cosmetics business in Japan.

A long-suffering Red Sox fan with a vast baseball-card collection (including every complete Topps set from 1952 to the present and a prized Fleer Ted Williams card), Lafley swims, bikes and works out several times a week. In recent years, he has spent downtime learning to play the guitar along with the younger of his two sons, who is in high school. Even as a member of a fraternity at Hamilton, Lafley was known as a consummate consensus builder. Around P&G, he is admired for being unusually approachable and a great listener. Unlike Jager, who alienated his top managers so much that they stopped keeping him in the loop, Lafley "wants to hear any bad news — and as a result, he hears far less of it," says Gary Stibel, CEO of the New England Consulting Group and a longtime P&G watcher.

Though he has firmly held opinions — and is crisply decisive once he makes up his mind — Lafley isn't afraid to give everyone a fair hearing. At a board meeting, he took the unusual step of having separate teams come in and vehemently make their case for and against the idea of outsourcing many of P&G's back-office operations, a controversial proposal that the once rigidly controlled organization is seriously considering. "Boards typically don't see that level of debate. They're usually hidden by the CEOs," says director Scott Cook, a former P&G brand manager and co-founder of financial software firm Intuit.

Lafley has urged employees as well as board members to make more frequent store visits. He wants the company to work more closely with powerful retailers like Wal-Mart and CVS to reach consumers at what he calls the "first moment of truth" in the store. (There's a reason so many snazzy new graphics and displays are showing up in the aisles.) He has sold off underperforming products that don't fit the new mix, like Jif peanut butter and Crisco shortening.

Thanks to his easygoing demeanor and natural curiosity, he has begun to achieve what all of Jager's bluster could not: a transformation of the insular, arrogant culture that plagued P&G for decades. Once firm in the belief it needed to go it alone on everything, P&G is much more open to partnering with and learning from outsiders. One of Lafley's chief lieutenants, global-marketing officer James Stengel, occasionally meets with his peers at a range of other companies, from Kraft and Nestle to Toyota and Gucci, to keep abreast of new marketing trends — something that would not have happened at Procter just a few years ago. "In the old days, they kept us almost entirely in the dark," says Tom Kelley, general manager of leading design firm IDEO, which is studying people's bathroom-cleaning habits for P&G.

For all his focus on line extensions, Lafley knows that P&G can live off its existing brands for only so long without developing a new blockbuster product, the kind it hasn't had since the Always feminine pad debuted in 1983. The Swiffer electrostatic mop and ThermaCare heat wraps have been only modest successes. And despite the early encouraging reception for Actonel — and the prospect of promising future treatments for diabetes and female sexual dysfunction — the relatively small, billion-dollar pharmaceutical division is still a major question mark. As Duke University business professor Kevin Schulman argues, consumer products and drugs "have very different product life cycles. Compared with P&G's core business, pharmaceuticals is very risky." Some observers think Procter should stick to the over-the-counter business, leveraging its marketing savvy and retail relationships to help bigger pharma companies roll out nonprescription versions of their drugs, as it is doing with Astra Zeneca for its heartburn medication, Prilosec. Fortunately, at least for the moment, Lafley shouldn't have much need for that kind of remedy.