You are on page 1of 14

3301842 Zhangbin 1

Organisational Structure of Procter & Gamble


3301842 Zhangbin 2

Introduction
Procter & Gamble is a Fortune 500 American multinational corporation headquartered
in Downtown Cincinnati, Ohio that manufactures a wide range of consumer goods
(Wikipedia 2010, Procter & Gamble). Procter & Gamble (P&G) is America’s biggest
maker of household products, with at least 250 brands in six main categories: laundry
and cleaning (detergents), paper goods (toilet paper), beauty care (cosmetics,
shampoos), food and beverages (coffee, snacks), feminine care (sanitary towels) and
health care (toothpaste, medicine). P&G’s famous brands include Ariel, Pantene,
Head & Shoulders, Fabreze, Sunny Delight, and Oil of Olaz. About half of P&G's
sales come from its top ten brands. P&G also makes pet food and PUR water filters
and produces the soap operas Guiding Light and As the World Turns (Corporate
Watch, n.d. Procter & Gamble). So what has made P&G become what it is today? The
answer is multiple but apparently its organisational structure has played an important
role, which has necessitated this study.
3301842 Zhangbin 3

P&G’s Structure
An organisation is a consciously coordinated social entity, with a relatively
identifiable boundary, that functions on a relatively continuous basis to achieve a
common goal or set of goals. And organisation structure defines how tasks are to be
allocated, areas of responsibility and authority, who reports to whom, and the formal
coordinating mechanisms and interaction patterns that will be followed (Robbins &
Neil Barwell 2002, pp.6-7).

So far, a great number of theorists have developed their theories as to the


classification of the organisation structure. According to Duncan (1979, cited in
Bartol et al. 2006, p.196), organisation structure is also called departmentalisation
which is defined as grouping individuals into units, and units into departments and
larger units to achieve organisational goals. Different patterns of departmentalisation
are called organisation designs. Functional, divisional, hybrid and matrix are four
common departmentalisation patterns.
Functional structure is a type of departmentalisation where positions are grouped
into functional (or specialization) areas. In other words, positions are combined on the
basis of similarity of expertise, skill and work activity.
Divisional structure is a type of departmentalisation, with positions grouped by
product, service or market similarity.
Hybrid is a form of departmentalisation with both functional and divisional structure
elements at the same management level (Draft 1998, cited in Bartol et al. 2006,
p.202).
Matrix structure is a type of departmentalisation which superimposes divisional
horizontal reporting relationships onto a hierarchical functional structure (Miles &
Snow 1992, cited in Bartol et al.2006, p.204). Thus the structure is both functional
and divisional at once. There are two chains of command, one vertical and one
horizontal.
3301842 Zhangbin 4

P&G has undertaken many structural changes over the past century, but that discussed
in this study is the current structure of P&G. The main structure, partial organisation
structure and specific structure of P&G are shown in Figure 1.1, 1.2 and 1.3.

Figure 1.1 (Corporate culture: Strength in Structure, P&G)


3301842 Zhangbin 5

Figure 1.2 Partial organisation structure of P&G (MIKOŁA J JAN PISKORSKI &
ALESSANDRO L . SPADINI , Procter & Gamble: Organization 2005(A) pdf, p.9)
3301842 Zhangbin 6

Figure 1.3 Organization 2005 Structure, 1999 (MIKOŁA J JAN PISKORSKI &
ALESSANDRO L . SPADINI , Procter & Gamble: Organization 2005(A) pdf, p.15)
3301842 Zhangbin 7

Global Business Units (GBUs)


Global Business Units were responsible for product development, brand design,
business strategy and new business development. In total, there were seven GBUs
(represented by the ellipsis) each with complete profit responsibility, and
benchmarked against focused product-category competitors. Each operated
autonomously focusing on a different product category, such as Fabric and Home
Care or Tissue and Towel (see the middle section of Figure 1.3). Each GBU was led
by a president, who reported directly to the CEO and was a member of the global
leadership council that determined overall company strategy. At a GBU level, Vice
Presidents of Marketing, R&D, Product Supply, New Business Development, and
support functions such as IT implementation reported to the GBU President (see the
middle section of Figure 1.2 ). The new business development function of GBUs was
managed separately from the rest of the GBU.

Market Development Organizations (MDOs)


Market Development Organizations (MDOs) were designed to take responsibility
for “tailoring the company’s global programs to local markets and for using their
knowledge of local consumers and retailers to help P&G develop market strategies to
guide the entire business.” In total, there were seven MDOs represented by the ellipsis
(see the top part of Figure 1.3). Unlike the GBUs, they did not have complete profit
responsibility, but were instead compensated on sales growth. Each MDO was led by
a president who reported directly to the CEO and, like the GBU presidents, sat on the
global leadership council.

Global Business Services (GBS)


The third leg of the new organizational structure, Global Business Services (GBS)
unit was given an ambitious plan to standardize, consolidate, streamline, and
ultimately strengthen business processes and IT platforms across GBUs and MDOs
3301842 Zhangbin 8

around the world. GBS was organized as a cost center. The head of GBS reported
directly to the CEO, but was not a member of the global leadership council.
As shown in Figure 1.2 and Figure 1.3, corporate new ventures president, chief
financial officer and other presidents or officers make up the functional structure,
while seven MDOS and GBUS who are responsible for different areas and different
products make up the divisional structure. Thus the structure is both functional and
divisional at once, so P&G’ organisation structure should be a matrix structure as per
the classification of organisation structure.

Contingency Factors of P&G’s Current Structure


The mostly adopted theory in deciding an organisation’s structure is contingency
theory. This viewpoint argues that appropriate managerial action depends on a
situation’s parameters. The best structure for a firm was seen to depend on
contingency factors such as strategy, technology, size and environment (Bartol et
al.2006, p. 219).
Miller (1986; 1998, cited in Bartol et al. 2006, p.220) matched strategies with
appropriate structures. And in terms of his theory, P&G’s strategy is similar to
innovative differentiation which is to distinguish one’s products and services from
those of competitors by leading in complex product or service innovations. As in
P&G’s case, it has diversified its products into many types (cleaners, shampoos,
toothpaste) and into hundreds of brands. A matrix structure fits with an innovative
differentiation strategy.
Another factor determines P&G’s current structure is partly owing to technology.
Woodward (1958; 1965, cited in Bartol et al. 2006, p.221) found three different
technology types often predicted structural firm’s practices, and P&G should be of
continuous-process production that makes products of liquids solids or gases through
a continuous process. Therefore, by Woodward’s theory, P&G should have low
formalization and centralisation.
It is known for sure that size has played a critical part in the formation of P&G’s
3301842 Zhangbin 9

current structure. As organisations grow, departments and levels need to be added, and
structures grow more complex. With functional forms, this drives a change to
divisional structure (Astley 1985; Cullen, Anderson & Baker 1986, cited in Bartol et
al. 2006, p. 222). As organisations grow, decentralizations increases. This is probably
due to the rules and regulation guiding lower level decision making (Robbins 1990,
cited in Bartol et al. 2006, p.222).
Burns and Stalker (1961, cited in Bartol et al. 2006, p.223) studied the effects of
environment on organisation structure. They found different structural characteristics,
depending on whether the environment was stable with little change or unstable with
rapid change and uncertainty. P&G has been classified as a downstream company,
originating as a marketer distributor (Galbraith, 1991, cited in Leadership &
Organisation Development Journal. Vol. 15. No.2, 1994, pp.24-28). Downstream
companies, like P&G, have multiple products and multiple markets. They are also
customer oriented and concerned with tailoring their products to meet target market
needs. Thus they need to be more flexible and adaptable than traditional
manufacturing companies (Leadership & Organisation Development Journal. Vol. 15.
No.2, 1994, pp.24-28). In highly unstable and uncertain environments, by contrast,
firms had more organic characteristics, decentralized decision making, few rules and
regulations, with hierarchical considerable delegation between levels, which is also
applicable to P&G.

Another Perspective to Analyze P&G’ s Structure


Henry Mintzberg (1983, cited in Stephen P. Robbins & Neil Barnwell, 2002, p.111)
argues that there are five basic parts to any organisation. They are defined as follows:
1. The operating core—employees, who perform the basic work related to the
production of products and services.
2. The strategic apex—top-level managers,who are charged with the overall
responsibility for the organisation.
3. The middle line—managers, who connect the operating core to the strategic apex.
4. The technostructure—analysts, who have the responsibility for effecting certain
3301842 Zhangbin 10

forms of standardization in the organisation.


5. The support staff—people who fill the staff units that provide indirect support
services for the organisation.

Any one of these five parts can dominate an organisation and where each dominates, a
different organisational form emerges. Moreover, a given structural configuration is
likely to be used depending on which part is in control. As a result, there are five
distinct design configurations and each one is associated with the domination by one
of the five basic parts.

After comparison P&G’ structure with Mintzberg’s theorem, we can draw a


conclusion that P&G should be of machine bureaucracy with a horizontal divisional
structure. The machine bureaucracy has highly routine operating tasks, formalised
rules and regulations, tasks that are grouped into functional departments, centralized
authority and a decision making that follows the chain of command. And the
divisional structure is a set of autonomous self-contained units, each typically
configured as a machine bureaucracy. The dominant part of the divisional structure
lies with middle management. They report to, and are administered by, a central
headquarters. (Stephen P. Robbins & Neil Barnwell, 2002, p.114-117) In P&G’s case,
the functional departments are engineering, financial, human resources, technology
and other departments, and divisions are seven MDOS and GBUS which perform
different function and are in charge of different regions and different products.

What Makes P&G’ Current Structure Stand Out?


The market and industry P&G lies in have determined P&G’s present structure, as
P&G must focus on two things, one is means (processes) in order to make excellent
product quality and minimize the cost, the other is ends (outcomes) to yield profits
and satisfy the shareholders, stakeholders, customers and so on. And this structure
overtly has its manifold merits than P&G’s former structure, mainly are as follows:
First it created a clear balance between these two key dimensions – customer focus
3301842 Zhangbin 11

and product focus; second it presented a unified sales contact for customers that is
focused on sales growth of all products; third the product-category business units with
profit and loss responsibility have full control over their key functions; and fourth the
service functions and corporate functions formed a third and fourth dimensions in
matrix structures over the two key dimensions. The new structure is a four-dimension
front-back hybrid matrix with a top leader, a coordination council to define priorities
and solve disputes, matrix leaders, and subordinates with the need to coordinate and
balance four influences structure as shown in Figure1.2.
The routines and policies that had created problems to the proper functioning of
the matrix organization also streamlined and adapted to the new structure. A single
business-planning process was created whereby all budget elements could be
reviewed and approved jointly by the various matrix leaders (Ronald Jean Degen,
2009, pp.34-35).

Examination of Organisational Effectiveness


Centring around organisational effectiveness, there have appeared diverse
approaches trying to measure it, the most common ones are the goal-attainment
approach, systems approach, strategic-constituencies approach and the balanced
scorecard approach.
First the definition of organisational effectiveness must be presented despite that
effectiveness is conceptually complex. Organisational effectiveness can be defined as
the degree to which an organisation attains its short-(ends) and long-term (means)
goals, the selection of which reflects strategic constituencies, the self-interest of the
evaluator and the life stage of the organisation (Stephen P. Robbins & Neil Barnwell
2002, p.87).
(1) The goal-attainment approach states that an organisation’s effectiveness must
be appraised in terms of the accomplishment of ends rather than means. Put another
way, it should be judged by whether it has achieved what it set out to achieve, rather
than how it got there. Popular goal-attainment criteria include achieving profit
3301842 Zhangbin 12

objectives or meeting budgets, achieving certain quality outcomes, helping a certain


number of disadvantaged people, attaining health objectives or winning a sports
competition. Goal attainment approach allows for better concentration on and
dedication to certain objectives of an organisation and easier assessment of its
performance because the number of goals of the organisation is usually small and
countable.
(2) Systems approach is to evaluate an organisation’s effectiveness by its ability to
acquire inputs, process the inputs, channel the outputs and maintain stability and
balance. Systems models emphasise criteria that will increase the long-term survival
of the organisation, such as the organisation’s ability to acquire resources, maintain
itself internally as a social organisation and interact successfully with its external
environment.
Therefore, systems approach has such advantages: it allows managers to make
decisions that will benefit the organisation’s long-term health and survival rather than
short-goals; besides, the systems approach increases the manager’s awareness of the
interdependence of organisational activities; moreover, systems approach has higher
applicability where end goals either are very vague or defy measurement.
(3) Strategic-constituencies approach proposes that an effective organisation is one
that satisfies the demands of those constituencies in its environment from which it
requires support for its continued existence. This approach is similar to the systems
view, yet it has a different emphasis. Both consider interdependencies, but the
strategic-constituencies view is not concerned with all the organisation’s environment.
It seeks to appease only those in the environment who can threaten the organisation’s
survival—that is, the strategic constituencies. Strategic-constituencies approach
enables managers to decrease the chance that they might ignore or severely upset a
group whose power could significantly hinder the organisation’s operations as well as
to modify its preference ordering of goals as necessary to reflect the changing power
relationships with its strategic constituencies (Robbins & Barnwell, 2002, p. 81).
(4)Balanced scorecard approach seeks to balance the various demands on the
3301842 Zhangbin 13

organisation with its capabilities by use of balanced scorecard. The balanced


scorecard encompasses four basic components or perspectives that any organisation
needs to consider: financial perspective, customer perspective, internal business
perspective and innovation & learning perspective. The first advantage of the
balanced scorecard is that it brings together in a single report many areas of
importance to an organisation’s competitiveness. Second is that the scorecard acts to
guard against suboptimisation. Third it also has the advantage of involving a
reasonably wide range of managers and stakeholders in the process of nominating
what is important for the organisation.
After introducing the four current approaches to examine the organisational
effectiveness, a question that what is the appropriate approach for the assessment of
P&G’s organisational effectiveness needs to be answered. Because of the complexity
and vastness of P&G’s structure and a demanding environment where it operates, goal
attainment, systems, strategic-constituencies approaches are all inappropriate for the
assessment of P&G’s organisational effectiveness. The P&G’s management must look
into every perspective and identify just a few goals for each of the four perspectives
and reach the final decision which should be balanced in terms of every perspective
rather than contributing to one particular perspective.

Inherent Structural Problems and Better Option


Though P&G has started its restructuring plan since 1998 and gone to as far as
today, there are still some inherent structural problems. As its matrix structure has
added a layer of category managers, brand managers and service staffs to a functional
hierarchy, costs grow. Also, matrix designs can also encourage group decision making
until groups make even minor decisions, which can seriously erode productivity.
Finally, while a matrix can adapt to change, this can be slow if members have poor
interpersonal skills, or senior management tries to keep control (Bartol et al. 2006, p.
206); in other words it means slow responsiveness and low flexibility. Could there be
a better option for P&G? Boundaryless structure may be the answer. A contemporary
3301842 Zhangbin 14

organisational design is the idea of the Boundaryless organisation, an organisation


whose design is not defined by, or limited to, the horizontal, vertical or external
boundaries imposed by a predefined structure. Also named as “barrier-free”
organisation by Gregory G. Dess et al.(1995, pp. 7-20), a Boundaryless organisation
enables a firm to bridge real differences in culture, function, and goals to find
common ground that facilitates cooperative behaviour. Boundaryless organizing is to
remove vertical boundaries through such structural approaches as cross-hierarchical
teams (which include top-level managers, middle managers, supervisors and
employees) and participative decision-making, the hierarchy is flattened. Managers
can remove horizontal boundaries by using cross-functional teams and organizing
work activities around work processes instead of around functional departments. And
external boundaries can be minimized or eliminated by using strategic alliances with
suppliers, or value chain management customer-organisation linkages. Ideally,
through all these restructuring, P&G can streamline its work activities so that it can
respond quickly to the tumultuous and fast moving marketplace.

Conclusion
Through this study, we have looked into the P&G’s organisation matrix structure and
how does its structure facilitate the achievement of its goals and to some extent, this
structure is effective. However, in a context of complex, rapidly changing and highly
competitive global environments, an organisation has to adapt quickly in order to take
advantage of opportunities that arise anywhere in the world. And the need for rapid
innovation cannot be ignored as well. So turning to a boundaryless structure which
has higher environmental responsiveness may be a better option for P&G.

You might also like