Transcript of Procter & Gamble

What are the main features of the Organization 2005 initiative? What is their rationale? Jagers
Response: ambitious, 6-year program of organizational restructuring-Organization 2005-
(announced in 1999)
Jager define success as growth at an acceptable rate/consistently higher level &
profitablysustain organization
Without growth cant produce resources and capability to invest, take risks, seize new
opportunities

Best way to accelerate growth is to innovate bigger & move faster consistently and across entire
company Rationale
The primary purpose of the reorganization was to boost product innovation and facilitate the
global rollout of new products.
Jager believes slow growth & sales of P&G products in the 1990s was primarily due to lack of
innovation
P&Gs expansion in the past has been based on innovation: synthetic detergents, fluoride
toothpaste, disposable diapers etc
Even when new products were introduced, weak coordination among P&Gs complex regional
and country organizationsslow global rollout
Ex: pampers disposable diaper introduced to US in 1961, Germany(1973), France
(1978)competitors able to launch imitative products in international markets before P&G
Hence need to bureaucracy & accountability by ing number of hierarchical levels between
the CEO and front line managers (by decision making authority of front-line
managers)Decision making will become faster & lag between decisions & their implementation
would be Rationale Present role of GBU president:
developing + rolling out new products/responsible for profit & loss ultimately responsible for
the whole range of functions within their business
efficiency through greater cross-border integration (by standardizing manufacturing processes,
simplifying brand portfolios & coordinating marketing activities) Organizational Structure
Central feature of Organization 2005 is a fundamental redesign of P&Gs organizational
structure, from one based primarily on regional and national units to one based upon global
product divisions.
Primary profit responsibility shifted from P&Gs 4 regional organizations to 7 Global Business
Units (GBU)
GBUs were given worldwide responsibility for product development, manufacturing &
marketing of products within their categories
The regional organizations were transformed into 7 market development organizations (MDO)-
responsibility was the local implementation of the GBUs global strategies
Functional services: including accounting, HR, Payroll & IT, were organized into a new global
business service unit (GBS) Organizational Structure P&G Organizational Structure in 1999
Goals of greater innovation & responsiveness will require cultural revolution.
Pressuring organization to increase rate of new product introductions and speed of rollouts will
shake up the organization & drive out inertia
To decrease risk aversion will put stronger emphasis on performance by increasing importance
of performance pay
For senior management, performance related variation in annual compensation will change from
20% to 80%
Stock options were extended from top management teams to include middle managers
P&Gs complex and tedious budget-setting process was organized into a single integrated
business-planning process, built around the agreement of stretch performance targets Rationale
What factors should Lafley take into account in determining whether to continue or to abandon
Organization 2005? Decision for new CEO A.G. Lafley

1. Abandon Organization 2005?
2. Continue Organization 2005?
3. Continue Organization 2005 while making changes to the organization structure? Factors to
Consider Cost of project
$1.9 billion

Overall success of project
Initial stock followed by 50%
Innovation - rate of new product introduction
Jagers management style - company morale

Organization 2005 unfinished in 2000
18 months into 6 year project Factors to Consider Company Morale
Organization 2005 biggest upheaval in P&G history
Plant closures job losses
bureaucracy & accountability
cultural revolution
162 year old firm known for traditional, conservative management
Resistant to change
Jager not afraid to make enemies
Successful? TBD
Difficult to determine within 18 month time frame Factors to Consider Innovation
Lack of innovation was driving force behind Organization 2005
P&G enjoyed considerable success in rate of new product introduction
Successful? TBD
Difficult to determine within 18 month time frame
rate of new product introduction Factors to Consider Goal of firm shareholder value
maximization
P&Gs Recent Performance
Following the introduction of Organization 2005, P&G stock price hit all-time high in Jan. 2000
March 2000 P&G revised its quarterly earnings
By March 7th stock price 30%
By March 31st stock price 50% from its peak
January stock price - $116 per share
March 31st stock price - $60 per share Factors to Consider Advise Lafley (a) on whether to
proceed with or cancel
Organization 2005 Our Advice Advise Lafley (b) whether changes need to be made in the
organization structure adopted under
Organization 2005 Organization 2005 Structure Organization 2005 Structure Changes Primary
Strategic Mandate for GBU presidents:
Emphasis:
Develop and rollout new products
Increase efficiency through cross-border integration
Standardize manufacturing processes
Simplify brand portfolios
Coordinate marketing activities

Extending Core Brands
Crest Toothpaste extends into Crest Whitestripes
Olay Lotion extends into Olay Body Wash
Introduction of Liquid Tide Functional Strategy
After Organization 2005 Emphasis:
New Products
Radical Innovation

Corporate Supply Function
Manufacturing
Purchasing
Engineering
Distribution
Facilitate end-to-end integration of P&Gs global product-supply

Sales Function
Organized as Customer Business Development
Develop closer ties with P&Gs largest customers Functional Strategy
Before Organization 2005 Seven Global Business Units (GBU)
Fabric & Home Care, Baby Care, Family Care, Feminine Care, Beauty Care, Health Care, Food
& Beverage
Responsible For:
Profit & Loss
Product development, Manufacturing and Marketing


Regional Organizations transformed into 7 Market Development Organizations (MDO)
N America, Western Europe, Latin America, North-East Asia, Africa & Middle East, Greater
China, Central & Eastern Europe
Responsible for Local Implementation of Global Strategies Structure
After Organization 2005 Primary profit responsibility is in 4 Regional Organizations
N. America, Europe, Latin America, Asia/Pacific
Regional Organizations contained Country Organizations
Country General Managers:
Profit and Loss
HR Reporting and Career Management

4 Global Category Executives
Fabric Care, Baby Care, Beauty Care, Other
Direct Control over R&D for the category, worldwide Structure
Before Organization 2005 Top Leadership: AG Lafley:
Customer is boss
Billion-Dollar Brands
Share price doubled, including a 2:1 split Culture
After Organization 2005 Top Leadership: Durk Jager:
Dictatorial
Not collaborative
Set unachievable goals
Share price fell by 50% Culture
Before Organization 2005 Concentration on Developing Global vs. Local Brands
Reduced Bureaucracy
Enhanced Accountability
Reducing the Number of Hierarchical Levels Between the CEO and Front-Line Managers
Decision Making Becomes Faster
Lag Between Decisions and their Implementation is Reduced
Increased Decision-Making Authority of Middle-Managers Systems
After Organization 2005 Weak Coordination Among P&Gs Regional & Country Organizations:
Pampers Diapers
Launched in the U.S. in 1961
European Introduction:
Germany 1973
France 1978
United Kingdom - 1981 Systems
Before Organization 2005 How Procter & Gambles:
Systems
Culture
Structure
Functional Strategy

Support the Implementation Procter & Gamble
Organization 2005 Chris Ballesteros | David Dawes | Dan Earley | Olutobi Tele-Ekundayo |
Brandon Wilson Successful Innovations Free Cash Flow Sales/Capital Employed ROCE One
cannot manage change. One can only be ahead of itIn a period of upheavals, such as the one
we are living, change is the norm. To be sure, it is painful and risky, and above all it requires a
great deal of very hard work. But unless it is seen as the task of the organization to lead change,
the organizationwill not survive Peter Drucker Leadership Postscript News Analysis Do
you agree with the firms current systems, processes, culture?
Is it consistent with your analysis?
Any recommendation for the firms top managers? Postscript News Analysis Postscript News
Analysis Do you agree with the firms current systems, processes, culture? Yes! Lafley
provided a successful leadership of the values of the organization that help promote
accountability, innovation, and growth.
Is it consistent with your analysis? Yes! This can be seen from review of financials and our
analysis of Organization 2005.
Any recommendation for the firms top managers? Stick with the core values and purpose of the
P&G, continue to innovate, and provide the customer with what they need and want the
customer is the boss. Commercial Success Disaggregation of Return on
Sales & Sales/Capital Employed Return On Sales Net Sales Postscript News Analysis 1.
Leadership
2. Financial Review
3. Successful Innovations *Adj. for Stock Split (2:1) Stock Price We have a very simple
business modelwe try to create a brand that makes a promise that youre interested in and a
promise that will make you life a little bit better
Lafley All innovation comes from people and you have to open them up and you have to open
up to the world around you
Lafley Our believe is that innovation is the way for a sustainable competitive advantage and
business growth
Chris Thoen, former Direct of Innovation, P&G Quotes Lafleys Leadership Main Strategy
Decreased technology outside mainstream businesses
Pull/Push
Focus on Consumes:
Who are they?
What do they want?
Consumer is the boss
Externally focused innovation
Develop external relationships (designers)
Global product development
Consult with outside talent (i.e. John Osher Spinbrush)
Acquisitions Focus on Innovation Act as Role Model Culture embraced P&G culture, reversed
predecessor critique
Defined change/not-changing:
Not Changing:
Purpose improve lives
Value System integrity, trust, ownership, leadership, and passion for service and winning
Changing:
Strategy Lafleys Leadership Empowered Managers to:
Take on responsibility
Make strategic choices
Not-do-List
Challenge assumptions
Ex. Meeting with Cosmetics Mgr.
Know the consumer
Understand needs & wants
Give them the brands and products they want and need Coaching and Coaxing Achievable
Aspirations Set realistic goals
Focused on the Core:
Markets,
Categories,
Brands (billion-dollar,
Technologies, and
Capabilities