Procter & Gamble’s CEO on the most important things to focus on, wherever you are in the business cycle.
I became Procter & Gamble’s CEO in June 2000, in the midst of a crisis. On March 7 of that year the company had announced that it would not meet its projected third-quarter earnings, and the stock price plummeted from $86 to $60 in one day, leading the Dow Jones Industrial Average to a 374-point decline.
The price dropped another 11% during the week my appointment was announced. A number of factors had contributed to the mess we were in, chief among them an overly ambitious organizational transformation in which we tried to change too much too fast and which distracted us from running the everyday business with excellence. But our biggest problem in the summer of 2000 was not the loss of $85 billion in market capitalization. It was a crisis of confidence. Many of P&G’s leaders had retreated to their bunkers. Business units were blaming headquarters for poor results, and headquarters was blaming the units. Investors and financial analysts were surprised and angry. Employees were calling for heads to roll. Retirees, whose profit-sharing nest eggs had been cut in half, were even angrier.
The news media chronicled the drama with headlines ranging from “P&G Investor Confidence Shot” to “Trouble in Brand City: We love their products. But in a tech-crazed market, we hate their stocks.” The most painful one was in a major industry publication: “Does P&G Still Matter?”
At 6:00 PM on my first day as CEO, I stood in a TV studio, a deer in the headlights, being grilled about what had gone wrong and how we were going to fix it. Everyone was looking to me for answers, but the truth was that I did not yet know what it would take to get P&G back on track. Welcome to the job of CEO—a job I’d never done before.
The Work of the CEO
In October 2004 I looked back on that first day and the even more difficult weeks that followed as I sat with Peter Drucker and several other CEOs and management scholars who had come together to ask, “What is the work of the CEO?” (Most of the quotations in this article come from Drucker’s notes for the remarks he made on that occasion.)
It seemed an odd question, because enormous attention has been paid to CEOs, who are alternately revered as corporate saviors and reviled as corporate scoundrels. Yet the question remained: Do we really understand the role and the unique work of the chief executive? Drucker believed the answer was no. He argued that people wrongly view CEOs as coaches and utility infielders who jump in to solve problems as needed, and that CEOs indeed have work that is their own. On his death, in November 2005, Drucker left behind an outline of his emerging thoughts on the role. (The Wall Street Journal had published a portion of it as “The American CEO” in January 2005.) In 2004 Drucker said, “The CEO is the link between the Inside that is ‘the organization,’ and the Outside of society, economy, technology, markets, and customers. Inside there are only costs. Results are only on the outside.”
My experience validates Drucker’s observations, and my actions since those early days and weeks have been consistent with them. I’ve gone back to his unfinished draft time and again, reflecting on his central question: What is the unique work of CEOs—work that only they can do and that they must do? Over time I’ve come to see the power in Drucker’s words about linking the outside to the inside. The CEO alone experiences the meaningful outside at an enterprise level and is responsible for understanding it, interpreting it, advocating for it, and presenting it so that the company can respond in a way that enables sustainable sales, profit, and total shareholder return (TSR) growth.
It’s a job that only CEOs can do because everybody else in the organization is focused much more narrowly and, for the most part, in one direction: Salespeople are externally focused; just about everyone else is inwardly focused. Integrating the outside and the inside is hard; it’s far easier to pick one. The CEO can see opportunities that others don’t see and, as the one person whose boss isn’t another company employee, make the judgments and the tough calls others are unable to make. The CEO is the only one held accountable for the performance and results of the company—according not just to its own goals but also to the measures and standards of diverse and often competing external stakeholders.
And it’s a job that CEOs must do because without the outside, there is no inside. The sustainable growth of the institution is the CEO’s responsibility and legacy, and inward focus is the enemy of growth. At P&G our goals are 4% to 6% organic sales growth and 10% or better earnings-per-share growth. To achieve 4% sales growth, we need to add the equivalent of a new Tide brand; to achieve 6%, the equivalent of a new P&G Latin American business. Every year. We won’t succeed without a deep understanding of external stakeholders and their competing interests, and how those interests correspond with the capabilities and limitations of the organization.
But if linking the outside to the inside is the role of the CEO, what is the actual work? I think it comes down to four fundamental tasks, drawn from Drucker’s observations:
1. Defining and interpreting the meaningful outside
2. Answering, time and again, the two-part question, What business are we in and what business are we not in?
3. Balancing sufficient yield in the present with necessary investment in the future
4. Shaping the values and standards of the organization
The simplicity and clarity of these tasks is their strength, but their simplicity is also deceptive, because the work is more demanding than an observer might suspect. The challenge is to resist getting pulled into other work that is not the unique responsibility of the CEO.
