By focusing on brand and marketing innovation, CEO A.G. Lafley has elevated the visibility of P&G's 300+ products as well as the company's bottom line. Here he tells Peter Lawrence, chairman of Corporate Design Foundation, why design is a core competency at P&G.

Is it true that you once spoke to a group of Wall Street analysts on the importance of design?

Yes. I believe that design is as important as the materials that go into a new product and is critical to innovation and building brand equity. It is part of the communication of a brand name and brand promise. Design is an area where we have to have core capability. We want to elevate it, invest in it and make it a core competence.

P&G's 166-year success record is convincing. Products like Tide, Crest, Pampers, Charmin and Ivory are more than brands; they are consumer icons. Is there a secret to gaining such strong brand recognition?

I wish there were. We have 13 brands that do over one billion dollars a year in sales. That's extraordinary when you consider that most of our brands sell for $2-$5 per unit in the store. We are very attentive to brand creation and innovation. We also, generally, have enough sense not to change a brand identity when we think we've got it right. If you look at a Tide package from 1946, it was orange with a bull's eye graphic and the Tide name in block letters. While we have continuously improved and refreshed the package design, the primary elements are the same. When the consumer is responding in a very positive way, we try to identify the design elements that have equity and keep them.

P&G was the first to introduce brand management in the 1930s. Is this how you continue to work?

Yes, we are in the business of creating and building brands, so we have kept the brand management system intact. Basically, P&G is a collection of brands. In the U.S. we are known more by our brands than we are as a company. A major change over the years is that our brand teams are way more cross-disciplinary. We still have strong functional disciplines, but they are highly integrated into brand teams - and, yes, design does have an important place at the table. Another significant change is that we are now a worldwide business. Half of our sales come from outside the U.S., so we have global business units that have categories and brand groups within them.

Does P&G market products differently overseas?

The retailing environment is different. The media we use can be different, but fundamentally our global brands like Pantene look the same pretty much everywhere. We try to have the brand design equity be the same worldwide. We adapt the execution to the marketplace. Keep in mind that only 12 to 15 of our brands are truly global; most of our brands are only sold domestically.

Most P&G products are sold in supermarkets and drugstores where the shelves are packed. How do you get shoppers to notice and buy your brand?

It's a huge challenge because the proliferation of brands, products and SKUs makes it difficult for the retailers to execute. These stores also have a predominantly temporary workforce and high turnover. That puts a lot more pressure on package design to project an instantly recognizable brand with a clear brand promise. Consumers must clearly see who we are and what we can do for them. To do that, we try to create a category language and architecture so the shopping experience is ordered, patterned and intuitive. We spend a lot of time on that and work with our retail partners to make sure that our understanding and research are consistent with theirs. We've seen that by changing the way a product category is laid out, some retailers are realizing pretty sizable lifts in their total category business because shoppers are finding the experience easier and more intuitive.

How can design make a difference to a brand and innovation company like P&G?

Design is critical to the creation of brand equity. There are instances where we had great technology, great chemistry, but we did not get the product design or package design or the design of the delivery system right, and the consumer couldn't appreciate what the product had to offer. We have other examples where we got the design right and won instant appreciation. That is the case with our new Swiffer duster product. It is an example of simple, but basic, good, intuitive design, and it is flying off the shelf.

What kind of consumer research methods do you use?

Whatever works. We are relatively light users of focus groups. We prefer understanding real-world experiences. We would rather do shop-along or shopper simulations to get close to the real shopping experience. We like to get in the homes and get involved in the usage experience.

P&G has been masterful at keeping brands contemporary while extending the line. An example is Crest.

Crest is an interesting example because it was introduced in 1955 as a therapeutic dentifrice. It took off when we offered cavity prevention in the '60s and continued to grow when we added tartar control. Our more recent effort to improve the consumer experience led us to redefine Crest as "home oral care" and that opened us up to new kinds of dentrifice - flavors, forms and whitening. We had been selling manual toothbrushes and thought it would be great to offer an electric toothbrush-like experience. We got into the SpinBrush for a $3-$7 price point. Obviously we want it all to look like one Crest brand on the shelf and in the home. We work hard on the architecture because these products all have different shapes and are shelved in different places in the store.

Since you joined P&G in 1977, how has the marketplace changed?

First, the power has shifted from the manufacturer and the retailer to the consumer. Consumers are now the boss. They have an incredible amount of choice-innovations, great values, price competition. The marketplace is pretty transparent. It is a great time to be a consumer. Second, the choice of retail experiences is greater. When I was growing up, there was a Woolworth's, a Grand Union and maybe a corner drugstore. Now consider all the choices we have in retail format and experience. In our industry, it is very Darwinian. The successful retailers are winning big and the weak retailers are going bankrupt. There is a concentration of retailing power. Third, innovation, including design, is increasingly important because technologies can be copied so easily. When I joined P&G, if we had a new technology, we could ride it for a decade and be pretty sure that our competitors would not be able to imitate it or come close to it. In today's global marketplace, your competitor can get hold of or copy the technology quickly. What really differentiates you in the end is the design and the brand. So while we have improved Tide 50 or so times in 50 years, with new chemistry and technologies, what has built the promise and trust is the Tide brand and design equity.

Does P&G have any sort of environmental philosophy?

We have a sustainability strategy, which is posted on our website. We are leaders in that area and we definitely pay a lot of attention to the recyclability of our packaging, for example.

After you became CEO, why did you have the executive floor completely redesigned to an open office plan?

Three reasons. First, I wanted an environment that would be more collaborative, more in touch, more designed to bring human beings together. P&G executives travel a lot and there is plenty of communication via cell phone and email. I wanted a place that was low tech and high touch. Second, after the 1995 earthquake in Kobe, Japan, which occurred while I was in charge of Asian operations, I became a big believer in open offices. When we redid the damaged office building and technical center there, we went to open offices everywhere, and I believe the arrangement promoted creativity, collaboration, flexibility and speed. Third, I wanted to make a statement that the P&G leadership was going to lead by example. We put the Learning Center on the same floor as the executive offices because I wanted to send the message that learning is so important that the center is right next to the 12 executives that lead this $45 billion worldwide company, and we expect the executives to be in the Learning Center every week or two teaching and coaching.

How large is your in-house design staff?

We have about 80 inside designers, about a third to a half of them we hired from outside design agencies and great design programs. We are also using more outside design agencies then we ever have before, most of the best ones in the world.

Why are you using a mix of inside and outside designers?

Well, it is just like our advertising and public relations agencies. Although we are one of the world's largest branding companies, we will never do our own advertising. An agency is going to attract world-class creatives. It is harder for us to do that because world-class creatives want to work across industries, across companies and across brands. The same is true in the design world. Great designers like to design across different industries and across different brands, so design firms will attract the best designers in the world.

What is the role of the in-house design staff?

In-house, we are recruiting people who have design experience and skills and who can be good design facilitators for us to connect the right outside design firm with the right brand and get the right strategy in place. Our in-house designers are also "apostles"- individual design leaders who carry the crusade across our 100,000-person company.

I've heard that you have also established an outside design board at P&G.

Yes, we meet with the board three times a year. They help to evaluate and critique where we are going with design in our established businesses and with upstream innovation.

You also launched a new design award within P&G last year, didn't you?

Yes. We try to find ways to support, encourage and direct our businesses. I wanted to make a statement that design was important. I wanted all of the business units to become capable and best-in-class in design. So we gave an award to the brand that had built its business significantly over the previous year, with great design as a critical element in its performance. The brand that won had done a terrific job and it was showing up in great marketplace and financial results.