Jim Citrin Leadership by Example

One of only 13 women to head a Fortune 500 company, Andrea Jung became president of the product marketing group for Avon in the United States in 1994, and in 1999 became president and chief executive officer. She was elected chairman in 2001.

Over the past eight years, she's led an effort to revamp the company's product line and advertising, and has improved its legendary direct-selling business model -- the memorable "Avon lady."

Ensuring Relevance

In late 2005, Jung unveiled a multiyear, $500 million restructuring plan after the company's global sales slowed. The plan involved job cuts, the elimination of management layers, and the realignment of manufacturing centers and other work from higher- to lower-cost labor markets. The company's shareholder value performance has responded well, rising over 150 percent to today's $15.9 billion and outperforming the S&P 500 by six-fold.

I recently spoke to Jung about the major priorities facing Avon, and how her leadership style has evolved over the years. Here are some highlights:

Q: What's the most important issue confronting Avon today?

A: [I]f I had to pick just one, it's channel competitiveness. It's at the very heart of Avon's leadership challenge and opportunity.

Avon is a 121-year-hopefully-young company. Since our founding and up to now, our direct-selling model and representative proposition has been the cornerstone of our business and our competitive advantage. We believe that we have to continue to modernize and keep it efficient and effective. To be competitive in the 21st century, we have to combine what has always been a high-touch model with high-tech.

We have nearly 6 million independent Avon sales representatives and we've had to morph our organization and consumer perception away from the 1960s "ding-dong, Avon calling" persona to make it more modern and relevant. The good news is that the Avon lady is ubiquitous around the world -- we're in over 140 countries. But the associated challenge is how we make that contemporary and relevant both for our reps our ultimate customers.

So we have had to modernize everything from her earnings structure -- i.e., can she make enough money doing this versus whatever else she could do to earn a living? -- to how she markets, sells, orders, and fulfills product taking advantage of technology.

Door-to-Door Gone High-Tech

Q: Can you elaborate on how technology has changed the work of the Avon rep?

A: We've used the web to change completely the seller and the consumer experience. And we had to figure out how to do that without the disintermediation of the channel. So web technology was designed to give the rep the tools she needed to do her business with the company and serve her customers better. Things that she used to have to do on the phone or on paper, whether placing an order to working with customer service, have been or are being completely transformed to operate on the web.

It also reduces the cost to both the seller and Avon. The rep was buying catalogs, filling in a 48-page purchase order with a No. 2 pencil, and then we had to process that order. Our order processing for an online-submitted order is less than one-tenth of the cost of phone and paper orders.

For the seller, we've not only reduced their cost, but with all the necessary information readily available onscreen, we've also reduced the time she's had to spend on the phone with customer service or with fax or mail. She also has the benefit of online training materials, which used to be available only through paper-based training or in meetings held in hotel rooms. Now all our product and product-launch information is online.

Today, more than 70 percent of our business is done outside of the U.S., with especially rapid growth in emerging markets, where there's still relatively low household Internet usage. Nonetheless, we've worked on taking the technology that we developed over the past few years and applying it across the world to really transform the business of our sellers. ... I think that's been a very important part of keeping the channel not only relevant, but competitive.

Sticking to Principles

Q: Avon's mission extends beyond marketing beauty products to women. How did this come to be?

A: The company was actually founded on creating earnings opportunities for women, even before it went into skincare, lipstick, and fragrance. The founding Avon principle, before women could vote and when basically only men were working, was to allow women to get out of their homes and to create an entrepreneurship opportunity for them.

That was very much ahead of its time back in the 1880s and, not surprisingly, it was met with some resistance. [I]f you fast forward to today and the fact that we're the single largest source of employment for women (broadly speaking, as the reps are independent contractors), we've been an important creator of entrepreneurship for women.

Retention Is Crucial

Q: The productivity of your reps is the key leverage point to Avon's business model. How are you working on that?

A: The economic engine for Avon is the recruiting, retention, and productivity of our reps. Our issue has never been, and it's still not, recruiting. Our ability to recruit has remained strong because of the recognition and strength of the Avon brand and the fact that Avon is a quality company that you love and trust.

Let me give you one quick example -- China. We were given a license to open a direct-sales business by the Chinese government which had been banned for the decade prior to 2006. We were the first and only company to be granted a license, and we went out and recruited 700,000 people in China in 11 months. So bringing women in hasn't been a major strategic challenge. Retention and the productivity of our reps have been our management team's big focus. We've wanted to really nail what tools and what opportunities would enhance the model.

With more than a million recruits a year, improving our retention rate by a point is huge. And if you can also add productivity, that is obviously enormous leverage. You just have to look at the average increase per order of a representative that we've trained to add product categories and sell across product lines to see how powerful the model is. We can see as much as 20 to 30 percent improvements for those who are really getting and using the power of the technology.

Having the Internet-based tools to be able to increase order sizes and improving retention is a game-changer, and something that hasn't existed for the lion's share of our history.