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The organic growth target at P&G: 4% to 6% annually. With P&G's global consumer goods markets expanding only 2% to 3% per year, that's no easy task. Yet P&G has hit or exceeded its goal year after year under Lafley's leadership. How?

The answer starts with focus: Under previous CEO Durk Jager, rapid-fire product launches distracted managers from old-line franchises like Crest and Pampers. Those big brands suffered. "All businesses had equal rights to capital and people," recalls CFO Clayton Daley Jr. Lafley, 58, had a different idea—channeling resources to the company's areas of strength. "What are you really good at?" he asks. "We're good at building great brands, innovating, and leveraging size."

A case in point is P&G's big bet on beauty care. "People were asking, 'How the hell are we going to compete with L'Oréal, Estée Lauder, and Shiseido?'" recalls Lafley. But as a former head of the global beauty business, he knew the margins were sweet and the growth potential high. "Olay was affectionately known as Oil of Old Lady," says Lafley. Today Olay —stodgy and barely profitable when P&G bought it 20 years ago—has emerged as one of the company's fastest-growing brands. Susan Arnold, who runs P&G's health and beauty business, has been aggressive about importing innovation to improve new-product flow: "A.G. wants us to derive 50% [of our new ideas] from outside P&G," she says. A French wound-healing technology in Olay's Regenerist line, for instance, helped pump up Olay's volume 30% in the past year. Health and beauty care today represents 48% of P&G's revenues and 53% of its profits, vs. 36% for both in 2000.

If growth from the core is key, why is P&G acquiring Gillette? "We don't need to," Lafley insists. The $57 billion acquisition makes sense, he says, because it will enhance organic growth going forward. Gillette's market—men's grooming—is expanding faster than P&G's overall market. Plus, he says, P&G can help Gillette's business in China, while Gillette will boost Procter in India and Brazil.