How P&G Uses The Possibilities Method To Solve Big Problems

AG Lafley of Procter and Gamble reached back 500 years to reinvent strategy development. He discovered a method that can help us make better decisions in all walks of life.

“When we are too critical, it restricts creative thinking, and we neglect less obvious but brilliant ideas.” — A.G. Lafley

In the 1990s, Art Lafley came down with a severe headache. The cause turned out to be philosophical, the worst kind. He was a promising star product manager at P&G, the company that launched a mind-boggling array of brands from Tide to Pampers, Crest, and Pantene. But what it didn’t have was a skincare brand, the fastest-growing beauty segment.

P&G’s Problem

The job of a product manager is to keep shelves stocked, but when it came to skincare, P&G’s products were nowhere.

In the segment of skincare, the company had a has-been brand called Oil of Olay, invented in South Africa in 1952. Perhaps it’s time had come and gone, as most of the brand team believed? Although it competed against L’Oreal and Neutrogena, the industry called it “Oil for Old Ladies.” The bottle sported a tagline, “beauty liquid,” but to today’s savvy consumers, it sounded like something bought on QVC. Lafley thought P&G could do better.

He put together a team. Then he created a protocol for strategy debate. Finally, he developed a plan to surface the best ideas and make sure they survived conference room discord, which is usually about ego more than excellence.

As he wrote in Harvard Business Review, his choice was to “dramatically transform Oil of Olay into a worthy competitor of brands like L’Oréal, Clarins, and La Prairie, or spend billions of dollars to buy a major existing skincare brand.” The process was the key to making the right decision. What was different was that no one considered a possibilities approach before.

Sir Francis Bacon, founder of the Scientific Method

The method Lafley used had been around for five centuries. It was called “the scientific method.” In 1620, it was invented by Sir Francis Bacon, a Renaissance philosopher, to help from mistaking the cause of contagions. The American founding fathers were particuarly enthused about Bacon’s rationale approach to problem solving, and Thomas Jefferson would hang his portrait wherever he happened to live. Bacon used the scientific method to discover the cause of disease was unsanitary conditions and not witches. It saved millions of lives and prevented needless agony for those falsely blamed. The scientific method required that people follow five steps before arriving at a conclusion: state the problem, form a hypothesis, test, analyze, then conclude.

Lafley thought about he could use the process to make strategy. He believed the scientific method could weed out bad and protect “good ideas.”

Strategy Teams

AG Lafley (former CEO P&G)

Lafley knew that over his years at P&G, he participated in umpteen sessions where decision-makers go offsite to review thick binders while eyes glaze over. He believed that this ends up as “negotiations between powerful executives with strong preconceptions,” and kills good ideas in the process. Lafley understood all teams suffer from biases, so his first goal was to change this so they wouldn’t miss the possibilities. He identified four key factors in a fruitful strategy debate.

Lafely considers the biggest problem is the lack of diversity on the team. By that, he does not mean the populist version of the term. He was referring to open-minded thinking, which is enhanced by the diversity factors of background, age, culture, race, and experience. He felt a diverse team would encourage disagreements that would lead to better answers. His second problem was that groups tended to be overly critical. He felt the proper time for dissent is later when the pros and cons can be judged alongside key conditions.

These are P&G’s suggestions for effective teams:

1. Small: I like to remember this as “four is a bore, eight is great.” Small enough to connect but large sufficient for variations in opinion. If you must have a larger group, rely on breakout sessions, as groups tend to censor comments.
2. Diversity: Oddballs to oracles. Include people who worked in unusual environments, and mix them with operational types, a poet or two, and people from outside the firm’s culture. And yes, diversity in race and cultural demographics matters.
3. Expertise: Gray hairs and nose rings. The outspokenness of the novice can be as helpful as the skepticism of the experienced hand. Cut across generations. A team of experts age 40 or younger is a blueprint for an echo-chamber.
4. Leader: Bosslessness. Choose a respected problem solver or an expert outsider as a leader, but never the team’s boss.

Debate Ground Rules

Strategy debate should be a “slow brain” process like a stew. Get people out of the company location and into stimulating, relaxed environments with breaks for walks and talks between sessions. Plan on meeting over subsequent weeks because the in-between periods distill the best ideas into solid concepts.

1. Accept all possibilities without debate.
2. Some ideas will make people uncomfortable.
3. No one dominates, especially the idea proposer.
4. Conditions pass the “must-have” test.
5. Ask questions, not demand explanations.
6. Consensus moves the debate forward (does not limit)
7. Truth is about discovery, not opinion.
8. No bosses — teams run the show.

Five Steps to Strategy Making

There were five steps in P&G’s strategy, just as Bacon proposed, and Lafley changed the terminology to reflect a modern view: establish possibilities, frame conditions, test conditions, analyze results, and the final choice.

1. Identify Challenge

Lafley said teams often substitute a motto like “go global,” “be number one” and think that is strategy. It is not. What he was looking for were strategic possibilities.

He instructed the team to “specify in detail the advantage they aim to achieve, the scope, and the activities that deliver the advantage.

In Lafley’s words, we must ask, “what does this company do well that the market might value? What are the underserved needs that competitors have left for us? Also, what would it take to be the Google, the Apple, or the Walmart of this market?”

2. List Possibilities

The possibilities framing stage requires uncritical acceptance of ideas.

As you come up with the list of possibilities, a good exercise will reveal three things: the current approach should seem like not such a good idea; one should make the group question why they are wasting time on anything else; a third idea makes people uncomfortable.

After they are on the table, the team forms a consensus around the winners. Lafley added, “it should be a broad list.” Time to refine comes later in the process.

Lafley’s team came up with three scenarios, abandon, transform, and maintain, and broke them down into five possibilities:

1. Buy a competing global brand like Nivea or Clinique.
2. Reinvent Olay as a prestige brand that would appeal more broadly to younger women (age 35 to 50) but sell in the traditional mass channels.
3. Replace with P&G’s successful cosmetics brand, Cover Girl, and build a global brand on that platform.
4. Transform Oil of Olay into an upscale brand and competitor of L’Oréal, Clarins, and La Prairie and take it into the prestige distribution channel like department stores.
5. Maintain Olay as an entry-priced, mass-market brand, and strengthen its appeal to its current older women demo by leveraging R&D capabilities to improve its wrinkle-reduction performance.

3. Set Conditions

The team should review a list of market conditions required for success and test each before deciding on a final list of possibilities. The way to think about it is to ask what will make each one work. If you are going upmarket, you need an affluent audience. You aren’t questioning the logic (that comes later).

The group should agree on all “must-have” conditions. Then the group prioritizes them based on a level of high confidence. If the possibility is to “acquire Nivea,” and the group feels this is challenging because Nivea is not for sale, it drops off.

The P&G team uncovered nine possibilities that met four conditions:

1. The potential segment was worth targeting.
2. P&G could produce the product at a lower price than competitors.
3. Competitors could not easily copy the strategy.

4. Evaluate and Analyze

Evaluations should be by outside experts or internal people who do not play a role in the strategy debate. If testing is accurate, the results are final.

Lafley applied what he calls the “lazy man’s” approach. He likes to test conditions in reverse order of confidence, that is, testing the ideas that you find least appealing. This way, if plans don’t pass the test, they are tossed.

The Olay test dwelled on price points. Lafley writes:

1. At $12.99, there was a positive response and a reasonably good rate of purchase. But very few department store shoppers were interested at that price point. It was trading people up from within the channel, not new customers.
2. At $15.99, purchase intent dropped. The price point was in no-man’s land — expensive without signaling differentiation, and for a prestige shopper, not fancy enough.
3. At $18.99, the team learned that consumers were crossing over from prestige department and specialty stores to buy Olay in discount, drug, and grocery stores. That price point sent precisely the right message.

5. Choose Probability

After arriving at a final set of possibilities that meet all critical conditions, the group tests results, and the best turns into the final probability.

Olay chose to go with “an upmarket product called Olay Total Effects for $18.99. The brand dismissed as “Oil for Old Ladies” was transformed into a prestige-like product line at a price point close to that of department store brands. Mass-retail partners loved the product and saw new shoppers buying at new price points in their stores. Beauty magazine editors and dermatologists saw real value in the well-priced product line.”

It succeeded beyond all expectations.

P&G might have hoped for ‘a billion-dollar global skincare brand. But in less than a decade, the Olay brand surpassed $2.5 billion in annual sales by spawning a series of “boutique” product lines — starting with Total Effects and following with Regenerist, Definity, and Pro-X — that attracted more prestige shoppers and commanded prices eventually exceeding $50.

CODA

Although most people believe P&G creates strategy in its sleep, the company goes out of its way to show when it is asleep. According to P.R. Week, a display at P&G headquarters called a “wall of failure” is a veritable timeline of products that bombed. It includes a porky like Febreze Scentstories, the air freshener that looked like a CD player. When the brand team decided to have Shania Twain sing in the commercial, it only added to the confusion.

When he wrote Playing To Win: How Strategy Really Works, AG Lafley made it clear that our biggest problem is rejecting good ideas because we think we have all the answers. Yet, it is often crazy, out of the box ideas that lead to solutions.