We’ve seen a lack of intellectual integrity, and its consequences, in many settings: in large and small businesses, startups, nonprofits, private equity turnarounds, and government agencies. Conversely, we’ve seen integrity—on the part of a CEO or other executive leader—ripple out and deeply affect the culture of an organization. When a leader has intellectual integrity, the people of the enterprise are less likely to be distracted by irrelevant considerations, and more likely to keep focused on the indicators that matter most: those related to customers and competitors. They are more likely to maintain a long-term view when making their decisions, and are less susceptible to the dangers of short-term decisions driven by quarterly financial reporting.
Integrity of this sort is like a muscle. In a healthy organization, it is exercised often. But if it is ignored by an organization, the muscle can atrophy, and the organization becomes more scattered and vulnerable. Such an organization moves in different directions at the same time, subject to the parochial ideas and priorities of individual business units and functions. That is why by the time a CEO is appointed, he or she should have developed his or her intellectual integrity, and should be prepared to help develop it in others.
Coming to Grips with Reality
Many company leaders think their situation is significantly better than it actually is, because they look only for data that confirms their existing view of the world and listen only to those voices that agree with them. By contrast, intellectual integrity requires that one hold oneself and one’s company up to rigorous, challenging examination. That is the only way to learn to anticipate when reality is likely to fall short of expectations.
Failure to come to grips with the reality of the situation led directly to several major competitive losses at Procter & Gamble in the 1990s. For our oral-care products (including Crest toothpaste), we invested heavily in overseas distribution in emerging countries such as Brazil. We thought it would be easy for us to build a business there, on the basis of our strength in innovation and the brand equity we had developed in other markets. We didn’t fully recognize that our largest competitor (Colgate) had far more extensive global distribution, spent twice as much on oral-care R&D as we did, and had already built up great brand loyalty in Brazil and other emerging markets.
Because we were distracted by our expectations, we lost millions of dollars on these investments before we realized that we needed to change our expansion strategy. We decided to retreat from Brazil and get our house in order before returning there. We also saw we needed a broad P&G strategy for scaling up in new markets, building a sustainable business one core brand at a time. In Brazil, this led us to focus on our strengths in laundry products and baby care. For oral care, we explicitly concentrated on winning in North America and China before turning our attention back to Brazil. When we demonstrated that integrity in our strategic decision making, things worked much better for us in Brazil and elsewhere.
Similarly, in our Pampers disposable diaper business, we held a strong belief that the best way to leverage our global scale was to install a single, sophisticated manufacturing system, using state-of-the-art “converters” that could produce all our diapers across all our different markets. To compete with lower-priced rivals in developing markets, we assumed, we needed only to switch to less-expensive materials and remove some of the features. Because, in effect, we let the machines dictate our strategy, we didn’t see that our technology solution failed to address the real needs of emerging market consumers. When this became clear, we began to design new kinds of products, specifically engineered for emerging market consumers—with consumers, and not the machines, in mind. This meant we had to reverse course on some very expensive manufacturing systems, and switch to different machines for different markets.