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P & G Case Analysis

Prepared by :Group 2
F014 Mayur Dadia
F016 Smruti Ranjan
F032 Tania Mallik
F038 Yash Mukhi
F042 Aastha Narayan
F046 Prathap P S
F060 Sohil Singh
F065 Shantanu Tammewar

U.S DIVISIONAL
STRUCTURE
Headquarters: Cincinnati, OH
Market: Homogeneous market driven initially by brand
and product division management
The US organizational structure for P & G was
developed in two dimensions: 1) function
2) brand
P & G began expanding globally after World War II. In
US, it created individual operating divisions to manage
growing line of products
Brand managers focused on matching company
strategy with product-category dynamics.
Brand managers in the same product division shared
access to strong divisional functions

Initial Model
Product Centric

Outcome

Brand managers had the


responsibility for bottom lines
and marketing strategies

High paced growth in the


industry coupled with
technological advancements

Brand managers were held


responsible for profitability

Brand managers in the same


product division competed at
the marketplace

Learning, best practices from


divisional and cross divisional
R&D were shared across
brands.

Leading edge competencies


in then rapidly developing
consumer-products industry

The New Model 1980s


Category Management

Outcome

Brands managed under


category portfolios by Category
general managers
Product categories required
differentiated functional activities

Category Business Units were


run by general managers to
whom brand and dedicated
functional managers would report

Matrix reporting structure was


setup whereby functional leaders
reported directly to business
leadership and also had a dottedline reporting leadership to their
functional leadership

Functional strengths were


retained in spite of the
decentralised functional teams
across multiple categories.

EUROPEAN STRUCTURE
Western Europe represented a lions share of P&Gs
overseas divisions
Headquarters: Brussels
Market: Heterogeneous with different languages, cultures
and law.
The Europe organizational structure for P & G was
developed in three dimensions: 1)country,
2) function, and
3) brand.
P & G began expanding globally after World War II. But
the company was creating mini -Uses in each country
P&G took substantial steps to appropriately respond to
local tastes and norms.
A portfolio of self sufficient subsidiaries were led by
country general managers who adapted P&G technology &
marketing expertise to local markets
In 1963, the European Technical Centre (ETC) in Brussels
was inaugurated to house a European corporate R&D and
process-engineering function.

Initial Model
Geographic Centric

Outcome

Country managers not brand


managers, had the
responsibility for bottom lines
and marketing strategies

Innovation was very slow and


brands took above ten years
to globalize (E.g The case of
Pampers)

ETC developed products &


manufacturing processes that
the Country Managers could
choose to adapt to & launch in
their own countries

European functional
organizations were embedded
in country silos and European
corporate functions were also
completely disconnected from
the US operations

Brussels regional headquarter


was serving mostly as a legal,
tax-accounting and public
relations entity

The focus on product


categories and brands was
fragmented by country

European globalization model did not seem very effective


Unstandardized and subscale manufacturing operations were
expensive and unreliable
Tweaking products and creating pack-size and formulation
variations added no value to customers and bore needless costs
Complicated supply chain
Reinventing the wheel with each new product initiative, the
country R&Ds proved to be very expensive

The New Model 1980s


Category Management
Regional committees composed
of large-country managers and
corporate functional leaders
Europe was split into three subregions
Product category vice president
VP positions were established
Country GMs were replaced with
multiple-country product-category
GMs who reported to the division
VPs

Outcome
Eliminated needless product
variations, co-ordinated
marketing communications,
prioritized product launches
Promoted cross-border
cooperation across functions
Europe was fully restructured
around product categories
Leaders were given secondary
responsibilities for coordinating
particular product categories
across the entire continent
Continent-wide divisional profitand-loss responsibility entrusted
to VP
Objections:
Typecasting of European Customers
Neglecting Local preferences of the
customers

1990s structure
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Organization 2005

Global Business Units


Global Business Units were responsible for product development,
brand design, business strategy and new business development.
Autonomous based on a different product category and 7 GBUs
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 .
The new business development function of GBUs was managed
separately from the rest of the GBU. To assure that the R&D
divisions of different GBUs would share technological
innovations, a technology council composed of the GBU R&D VPs
would be formed to cross-pollinate ideas.

Global Business Units

Market Development
Organization

Market Development Organizations (MDOs) were designed to take


responsibility for tailoring the companys 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.
They were consolidated regionally and converted into the line
functions in each MDO.
Consumer Market Knowledge, field sales, and support functions
would report to CBD in new structure.
In total, there were seven MDOs.
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

Global Business Services (GBS) unit standardized,


consolidated, streamlined, and ultimately strengthened
business processes and IT platforms across GBUs and MDOs
around the world.
This lead to economies of scale, while at same time allowed
GBUs and MDOs to focus on their core competencies.
It was a cost center.
The head of GBS reported directly to the CEO, but was not a
member of the global leadership council.
The first task of GBS was to move the entire company onto
a single shared SAP software system, which would require
re-engineering 70 percent of the companys IT systems.

Routines and HR Policies

Many decisions that had once been made by committee


were now assigned to individuals. Hence, Business tasks
and decisions were speeded up.
A single marketing, payroll and initiative budegets was
prepared to streamline budgeting processes which was
reviewed and approved jointly.
P&G also overhauled its incentive system, while
maintaining the promote-from-within policy.
The performance-based portion of compensation for upperlevel executives increased from 20 percent (10 percent up
or down) to 80 percent (40 percent up or down) of base pay.
Stock-option compensation, formerly limited to 9000
employees, was extended to 100,000.

Why P&G adopted this


structure?
Due to key challenges and problem occurring in the
Global Matrix during 1995-1998
The matrix structure retained a high degree of de-facto
control because it determined career paths and
promotion for its employees
Each function had determined its own power base and
strategic agenda rather than co - operating with other
functions and business units to win in the market place
The focus was based on aiming for their own
maximization of particular parameters rather than an
optimal trade-off.
Tension between regional and product category
management.

Why P&G adopted this


structure?
Conflict between R&D
division and regional manager to
launch new technological innovations even if it made sense
for P&G strategically because it could weaken their
upcoming profit and loss statement.
The company's reputation of being a global leader in
innovation and brands went down
Share price dropped by 3.3% since 1993 and the sales
growth slowed down to 2.6% in 1997 and 1998 in contrast to
8.5% on average in the 1980s.
Question of scalability over long term for matrix structure.
This structure had created a culture of risk aversion and
avoidance of failure
Too many GMs making decisions that were moving the
company away from its intended objectives.

Q6 Should Lafley continue


with this model?
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