Former P&Ger and Pringles boss takes over Estee Lauder
Former P&Ger and Pringles boss takes over Estee Lauder
When Fabrizio Freda arrived at Estée Lauder two years ago, he was ready for a cautious welcome at the global beauty company.
As chief executive-designate, he was the first “outsider” to be chosen to run a company dominated by members of the founding family since it was founded by Estée and Joseph Lauder in 1946.
He was also a 20-year veteran of Procter & Gamble, the household goods group, where he had most recently been responsible for their Pringles snack business.
“I had to build my credibility,” he says of the months after being hired by William Lauder, the founders’ grandson who was then chief executive. “People were afraid that I would bring in processes instead of creativity.”
Sitting in an executive suite overlooking New York’s Central Park that is decorated with art from the Lauder family collection, the 52-year-old Mr Freda has the handsome polish of a luxury executive, rather than the more utilitarian neatness of a veteran P&G man.
Born and educated in Naples, and speaking with an Italian accent, he wears elegant suits and has the slim build of a man who likes to run, play tennis, ski and scuba-dive.
But it was the core business skills developed at P&G that brought him to Estée Lauder. When he was hired as president and chief operating officer, William Lauder praised him as “strategically focused, financially disciplined” and “results-oriented” – all good, P&G virtues.
This summer, Mr Freda took over as chief executive after having radically reorganised and simplified the company’s business structure, resulting in some of the most drastic job cuts in its history. A newly formed management team has started trimming resources to underperforming brands and has announced plans to wind up Prescriptives, a 30-year-old brand.
Mr Freda says that in his first months, he set out to “make sure that people understood that my respect for the company was enormous” and that he was committed to developing its creativity and entrepreneurial flair.
But, while Lauder had grown to a company with 31,000 employees and annual sales of more than $7bn (€4.7bn, £4.3bn), it had done so as a collection of brands and countries, rather than a single strategic entity. “The company has been growing for years, a very big critical mass, without exploiting scale, without leveraging best practices, without being able to take all the duplicated costs out of the system,” he says.
It is also a company where, according to one former employee, decisions can be complicated by the fact that “the family is everything”. The Lauder family controls 87 per cent of its shares, and there are four family members on the 13-seat board: William, who is now executive chairman; Leonard, his father, now chairman emeritus; and Aerin and Jane, William’s cousins, who are both senior company executives.
Having worked for 18 months in the mid-1980s at Gucci, when it was riven by family tensions, Mr Freda has some experience with the worst complexities of family ownership. But at Lauder, he says, the family’s deep knowledge of the company has been helpful in his efforts to preserve its strengths while making fundamental changes.
William Lauder, he says, “is really my partner”, and the two share responsibility for overseeing human resources and finances. “He helps me make sure that our new direction . . . is never disruptive for the elements of strength of the company.”
That has translated into changes being made while retaining the existing company leadership. Gregory Polcer, who was hired in 2008 from Unilever to direct the company’s global supply chain, is Mr Freda’s only external senior hire. But the existing company leaders, who previously reported separately to the chief executive, have been brought together since July in a new executive committee aimed at taking a broader, company-wide view of resource allocation.
This year’s 6 per cent staff reduction, he says, “was one decision that was only possible by looking at business as a whole in an integrated way”.
This cultural change, he says, needs to be transferred throughout the company’s senior managers and employees. “They need to keep using their strengths . . . and learning to work together in a co-operative way: learn how to work based on strategic priorities that now we have clarified and learn how to work with a more cost-conscious approach.”
Getting these changes accepted, he says, has been helped by being able to demonstrate rapid results, both inside and outside the company. The gains in its 2008 fiscal year, which ended in the summer, included a 25-day reduction in outstanding inventories as a result of tighter management, and market share increases, while sales were only down 2 per cent, excluding currency impact, despite the slump in the economy.
“I think the recession offered us the opportunity to make our ‘burning platform’ better understood,” he says. “It accelerated the acceptance of the changes, and the interest of the organisation in delivering it in time.”
Estée Lauder is now investing some of the saved money into a new approach to innovation based on regional centres that will focus on using local consumer expertise to create products that can then be taken to global consumers.
“We need to go beyond bringing the best of North America to the rest of the globe, which we have done for many years very successfully. We need also to get the best of the world, wherever it is, and bring it globally,” he says.
This, he argues, will build global products developed close to regional consumer expertise, such as Japanese consumers’ expertise in skin whitening, or China’s focus on anti-ageing products.
The global approach to “reverse” innovation might seem to echo his past at P&G. AG Lafley, P&G’s chairman, has argued that global companies should find value in “combining creativity that comes from anywhere and everywhere”.
But Mr Freda argues that by setting up innovation centres around the globe, Estée Lauder is going into new territory. “Many other companies have centralised their innovation; I am speaking about decentralising, so it’s very different from what other consumer goods companies are doing.
“This is very tailored to the Estée Lauder approach,” he says. “Nothing to do with other companies.”