Michael Porter

How chewy cookies altered P&G's destiny

February 13, 2013: 9:34 AM ET

If not for the Duncan Hines packaged chocolate chip cookie, A.G. Lafley's life story, the wealth of P&G shareholders, and even our understanding of corporate strategy might have been very different.

By Geoff Colvin, senior editor-at-large

130213093131-cookie-jar-340xaFORTUNE -- Until now, the role of chewy cookies in A.G. Lafley's standout success as Procter & Gamble's CEO from 2000 to 2009 has not been disclosed. Yet if not for the Duncan Hines packaged chocolate chip cookie, Lafley's life story, the wealth of P&G shareholders, and even our understanding of corporate strategy might have been very different.

P&G shook the cookie trade in the mid-'80s by introducing products with a crispy outside and a chewy inside. Major competitors -- Nabisco, Keebler, Frito-Lay -- immediately flooded the market with copies and crushed P&G's (PG) early dominance of the category. Whether those competitors knew they were violating P&G's chewy-cookie technology patents has never been established, but they eventually paid $125 million, a record at the time, to settle a P&G patent-infringement lawsuit.

Victory for P&G? Not exactly. Chewy cookies were not the next big thing. P&G's cookie business crumbled (for many reasons). The company wrote down its value and eventually sold it, while those competitors are still giants in the industry.

MORE: Can Procter & Gamble CEO Bob McDonald hang on?

P&G clearly needed help with competitive strategy. "John Smale [CEO at the time] got so frustrated that he called in Michael Porter," Lafley recalls. Porter was, and is, a Harvard Business School professor and the world's top expert on the subject. Smale hired him to teach it to P&G executives. And Lafley, then a 39-year-old manager in laundry products, was in Porter's first class.

Lafley learned from the master what is still the most rigorous and deeply grounded approach to corporate strategy, and he never forgot it. He also got to know Porter's consulting firm, Monitor Group, and one of its stars, Roger Martin, and never forgot him either. They formed a business relationship that continued through Lafley's time as CEO, even after Martin left Monitor to become dean of the University of Toronto's Rotman School of Business.

The Porter-Monitor approach to strategy "didn't take" at P&G, Lafley says, but it took with him. He brought it back 14 years later when he was suddenly made CEO after Durk Jager got fired, with the company's stock in free fall. Lafley's groundbreaking redirection of P&G's strategy was critical to the company's success during his tenure; market cap doubled in a decade during which the S&P declined. More

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