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 Case Study: Group-II
P&G Products

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 PEOPLE
LEADERSHIP OWNERSHIP

PASSION
INTEGRITY FOR
WINNING
TRUST
 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

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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.

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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 PE Ratio: 21.73
(ttm): 19.16%
Management Effectiveness
Return on Assets Beta: 0.03
(ttm): 12.09%
Return on Equity
(ttm): 40.18%
Building Global Capabilities
Complexity and Differentiation

Colgate and Palmolive

Unilever

Kimberly-Clark L’Oreal

Transfer of Knowledge and

Need for Integration
Innovation
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