p&g
TRANSCRIPT
Who We Are
• Procter & Gamble (P&G) is America’s biggest maker of household products
• Founded in Cincinnati, Ohio in 1837.
• Founded by William Procter (Candle maker from England) & James Gamble (Soap maker from Ireland).
• Emphasizes over Product Innovation.
• One of the very first organization to set up R & D department.
• First one to step into direct sales in 1919.
• Established first market research department in 1924.
• Having 250 brands all over.
• One of the biggest advertisers.
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P&G Products
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LEADERSHIPLEADERSHIP
INTEGRITYINTEGRITY
TRUSTTRUST
PASSION PASSION FOR FOR
WINNINGWINNING
OWNERSHIPOWNERSHIP
PEOPLEPEOPLE
United States Market Product Division Management
• Individual Operating System
• Key Dimensions: Function And Brands
• Decentralized Authority to Brand Managers
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Advent of Matrix
• Categorization of Business Units
• Each unit with its Sales, Product Development, Manufacturing and Finance
Functions
• Dotted Line Reporting system was followed
Old Design
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New Design
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• Attractive expansion opportunities in Japan and developing markets led P&G question its globalization model.
• They wanted to cover more diverse consumer taste and income levels.
• Corporate functions in Brussels still lacked direct control of country functional activities.
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Global Matrix Structure
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P&G started migrating to a global matrix structure Europe’s country functions were consolidated into continental
functions• Characterized by dotted line; (Slide 10)• Global functional SVP’s managed functions across all regions;• P&G created global category presidencies reporting directly to
CEO;• This structure allowed for the creation of global technical centers
in different regions. Each with a core competency in a specific product category.
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Country category GM’s reports to global category president.
Category presidents were given direct responsibility for managing a fully globalised corporate R&D function.
Global R&D vice presidencies were established to manage R&D for a given product division which in turn directly reported to global category presidents.
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The creation of powerful & independent global functions promoted the pooling of knowledge, transfer of best practices, elimination of intra regional redundancies & standardization of activities.
New matrix organization allowed for manufacturing, purchasing, engineering and distribution to be integrated into one global product supply function which managed the supply chain from beginning to end.
In 1993, SGE i.e. Strengthening Global Effectiveness – Restructuring Program allowed for quick rationalizing of acquired assets and smooth integration into the existing manufacturing and distribution network due to which 30 of 147 plants were eliminated.
Stronger Global sales organization with regional leadership was transformed into Customer Business Development (CBD) Function.
CBD’s developed closer global relationship with big customers like Wal-Mart.
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It was never symmetrical Management by functional conflicts led to
poor strategic alignments throughout the company
for e.g. – product supply made global efforts to reduce the number of chemical suppliers whereas, R&D looked for high performance ingredients no matter where they came from. Due to which it was difficult for regional managers to focus on particular countries to address these global conflicts.
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There was tension between product category & regional management though regional managers had responsibility for financial result.
R&D and global category leaders fought hard to globalize new technological and brand innovations quickly.
Due to the internal conflicts the competitors were catching up quickly.
The organizational structure was facing a big question mark whether it is going to sustain for long term or not.
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Organization 2005
• In September 1998, P& G announced a six year restructuring plan,
ORGANIZATION 2005
•Developed by Mr. Durk Jager, former CEO
• Aimed to implement new technologies rather than incremental improvements of
existing products.
• Several new categories and brands were introduced.
• The plan also called to eliminate six management layers.
• It entailed dismantling the matrix organizational structure and replacing it with
an Amalgam of Interdependent organization:
GBU: Global Business Unit
MDO: Market Development Organization
GBS: Global Business Service
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GBU
Global Business Units were responsible for :
• Product Development
• Brand Design
• Business Strategy
• Business Development
Each GBU was led by a president who reported directly to the CEO and was a
member of Global Leadership Council that determined overall company strategy.
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MDO
MDO were designed to take the responsibility for :
• Tailoring the company global programs to local markets.
• Enhance their knowledge of local consumers and retailers.
• Develop market strategy to guide the entire business.
• Unlike the GBU’s they did not have the complete profit responsibility, but were
instead compensated on sales growth.
• Each MDO was lead by a President who directly reported to CEO.
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GBS
GBS was designed to:
• Standardizing Plan of Execution.
• Consolidate
• Stream Line
• Ultimately strengthen business processes.
Before GBS business services and IT systems for processes like A/c
Transaction, Payroll Processes and Facilities management were duplicated and
performed differently across regions.
The task of GBS was to move entire company on to a single share, SAP
software system in order to achieve critical mass in business process execution
and to take the advantage of wage arbitrage.
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Routines & H.R. Policies
• Decision making went from the hands of committee to individuals which helped to
speed up business tasks.
• Budgeting process was streamlined in order to have Single business planning
process and joint approval.
• Overhauled incentive System, while maintaining the promote-from-within policy.
• Performance based compensation figures increased.
• Stock-option compensation also increased.
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Organization 2005 Durk Jager Experience
• Initial fiscal quarter showed acceleration in business & revenue.
• Prior Quarter showed the downfall in total revenue (monthly).
• Increased competition led to lower volume growth and negative currency effects.
• Fourth Quarter showed 7 % decrease in revenue.
Chairman, President & Chief Executive, The Procter & Gamble Company
Knows what he’s doing!
Tried to change conservative slow moving bureaucratic behemoth
to modern fast moving internet savvy organization.
Tried to make better decision and faster.
Cut red tape.
Fuel Innovation.
Set up more aggressive sales goal in order to double its revenue.
In addition, P&G abandon its legacy of secrecy.
Transparent information sharing was followed in order to manage
consumer-friendly relation with full information to job seekers and
investors.
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Profitability
Profit Margin (ttm): 12.81%
Operating Margin (ttm): 19.16%
Management Effectiveness
Return on Assets (ttm): 12.09%
Return on Equity (ttm): 40.18%
PE Ratio: 21.73
Beta: 0.03
Building Global Capabilities
Complexity and Differentiation
Need for IntegrationTransfer of Knowledge and
Innovation
Unilever
Colgate and Palmolive
Kimberly-Clark L’Oreal
Complexity and Differentiation Unilever
◦ utilized a highly decentralized organizational structure
◦ Functional organizations such as manufacturing, R&D, marketing, and sales
◦ regional organization would be split into two divisions: foods and home and personal care (HPC)
Complexity and Differentiation Colgate and Palmolive
◦ CP managed its business through four regional reporting subsidiaries
◦ In a matrix reporting structure similar to P&G’s, general managers of regions were balanced by heads of product-category divisions.
Innovation Kimberly-Clark
◦ KC had the highest operating margin of any paper company (nearly 18 percent, versus the second-highest, P&G Paper, at just over 12 percent)
◦ Huggies had surpassed the category creator, Pampers, in the United States in 1992 and currently held a commanding 15 percent share advantage
Need for Integration L’Oreal
◦ L’Oreal managed its business by distribution channel and geography
◦ Global brand teams were based on the brand’s continent of origin, along with dedicated R&D resources
◦ Regional brand teams negotiated with global brand teams to fine-tune execution locally