Procter & Gamble: Organization 2005

In response to a huge crisis in 2000, the new CEO of Procter & Gamble has to decide whether to continue with an unusual organizational design or to revert to the old matrix organization. Describes all the organizational designs used by Procter & Gamble from the 1920s onward, including geographic, product, and matrix architectures. Market development organizations, global business units, and global business services unit, each of which is heavily interdependent with the others and none of which has a clear decision-making advantage, comprise the unusual organizational design. Examination of the different organizational designs, trade-offs associated with each organizational architecture as well as the accompanying implementation problems

1. Procter & Gamble: Organization 2005 Mikolaj Jan Piskorski Alessandro L Spadini Presented to Dr. Divakaar Kamat

2. 1. History Started in Cincinnati, Ohio by an English and an Irish Immigrant in 1837 They faced close to 14 competitors by 1845 so to differentiate itself, it started a large factory in 1850’s on the rise of the civil war The supplies given to the Union army were tagged as high quality products in unique packaging developed national reputation The key differentiator of P&G from its competitor’s was its inclination towards R&D

3. United States : Product Division Management In order to appropriately manage the growing lines of products, P&G created individual operating divisions with their line and staff organization Divisional Functions transferred best practices and talent across many brands, fostering leading-edge competencies in R&D, manufacturing, etc. This divisional structure do provide flexibility and specialization of competences but there are also disadvantages such as additional cost of the canter and duplication at functional/divisional level 2. Diverging Organization Structures(1948-1987)

4. United States : Advent of Matrix Brands were managed by category general manager as components of category portfolios Every category and brand function (for example: R&D) would finally report to the VP of that function ( for example: R&D VP) Integrate knowledge and flexible are some of advantages but there are also some disadvantages such as ambiguity of responsibilities, authority overlap leading to high degree of conflicts

5. Western Europe In Europe, P&G developed along three dimensions: country, brand and functions New Product Technologies were sourced from U.S. R&D labs and then qualified, tested, adapted by local R&D and manufacturing organizations in the country This structure led to a situation where innovation and brands took a lot of time to globalize, since each country were working in silos To resolve above issue, new structure was implemented where focus was shifted from country management to product management Cross-border cooperation across functions was also one of the feature of this new structure

6. 3. Global Matrix (1987-1995) Challenges with previous organization structures

7. Global Matrix (1987-1995) Structure

8. Global Matrix (1987-1995) Results

9. P&G Net Sales

10. P&G Income Statement

11. P&G Cash Flow Statement

12. Global Matrix running into trouble Global Functional Conflict Each global function tried to maximise its own power within the organisation rather than cooperating Eg - Product supply tried to reduce suppliers globally whereas R&D wanted high performance ingredients irrespective of the source Regional managers got caught in this global functional conflict Global - Regional Conflict Global category leaders & R&D VPs wanted to globalise brands as quickly as possible Whereas, Regional Managers took decisions based on upcoming profit/loss even if a product launch was strategically important for the company This stagnated company’s globalisation track record Each region’s accountability for results led to risk aversion & avoidance of failure Competitors started supply chain consolidation which led to drop in sales growth

13. 4. Organization 2005 September-1998 6-year restricting plan Annual saving of 900 mn Sales growth of 6-8 % and profit growth of 13-15% per year Voluntary separation 15k employees Reduction of 6 management layers (13 to 7) Dismantling matrix structure and adopting amalgam of inter-dependent organization Global Business Units (GBUs) Market Development Organizations (MDOs) Global Business Services (GBSs) To improve speed of innovation and globalization

14. Organization 2005 GBU Focus on Product Development, Brand Design, Business Strategy and New Business Development 7 GBUs Profit responsibility + benchmarked against focused product category competitors Headed by President Member of global leadership council, VPs reported to President Shared innovation R&D divisions share technological innovation, Formation of Technology council Reduction of cost Global standardization of manufacturing process and better coordination of marketing activities. MDO Responsible for Tailoring global program to local markets Developing market strategies using their knowledge of local consumers and retailers Consolidation of Consumer Business Development (previously dispersed) Regionally and converted into line functions 7 MDOs No profit responsibility Compensated on sales growth Reported to president who directly report CEO GBS Standardize, Consolidate, Streamline, and ultimately Strengthen business processes and IT platform Earlier these were duplicated and performed differently across region. Lead to EOS Cost centre Task to move to single shared SAP software. Head of GBS reported directly to CEO but was not member of global leadership council Routines and HR Policies Committee to individual decision making Budgeting streamlined

15. Organization 2005

16. Organization 2005 in Action

17. THANK YOU!