Strategic Management

(Case 3)
By Group 3
IIM Calcutta
Larunika Gaur (0203/53), Lakshay Pandhi (0201/53),
Manpreet Singh Mokha (0216/53), Keshav Bagri
(0182/53), Himang (0154/53), Kunal Suraiya (0194/53)

Executive Summary
(1/2)

Transition in
organizational
structure

Organization 2005

What actually
happened

Company moved from geographic/category

based org structures to matrix to a mix of
everythingGrowth
in 1999
in product portfolio and need for individual focus for different
Solution 1

categories due to change in market demand propelled P&G to move to

matrix organizational structure

Solution 2

Lack of standardization and coordination led to transition from geographic

to category management in Europe

Solution 3

Conflicting goals among regional/category managers and lack of

cooperation led to movement away from matrix structures in 1990s

Solution 4

Solution 5

Solution 6

Lack of innovation and conflicts propelled P&G to go with organization

2005; formation of different units for marketing and innovation, cost
rationalization some characteristics
Should still go with Organization 2005 but focus on certain main
categories/regions along with proper marketing plan is required
After the whole fiasco of 2000, Lafley was appointed as the CEO; to revive
P&G, he focused on certain categories/regions and optimized spending by
product managers

Executive Summary
(2/2)

XXX
Beauty and PHC
industries form
largest %age sales
for P&G

Bargaining Power of
Suppliers
Low
No direct reliance on specific
suppliers
Standard reputation of P&G
offers advantage

Transition in
organizational
structure

Organization 2005

What actually
happened

Threat of New Entrants

Low-Moderate
High investment
Presence of other Big players
such as Unilever, ColgatePalmolive
Strong R&D capabilities of the
existing firms
Highly Differentiated product is
required
Intensity of Rivalry in
the industry
High
Many Local, Regional &
global competitors-Unilever,
Estee Lauder & CP

Also competes with other

Branded
products
and
retailers private labeled
products

Threat of Substitutes
Low-Moderate
Most products are necessities
Similar kind of products by
different firms

Bargaining Power of Buyers

Moderate-High
15% of P&Gs Sales are to
retailers
Price-sensitive sectors
Low switching costs

Executive Summary

Transition in the US
(1/2)

What actually
happened

Organization 2005

A largely homogenous U.S. market allowed P&G

to operate as a product division and create
nationwide brands
U.S.
Divisional
Structure
- Sharing
of best
Benefits

President
Foods VP

Toilet
Goods VP

Soaps &
Detergent
VP

Basic
Research

R&D

Brand
Managers

Manufacturi
ng

Corporate
Functions

Sales

The 1954 Product Division Model developed along two key

dimensions: functions and brand
Individual operating divisions were created to better manage
growing lines of products, each with its own line and staff
organizations
Profitability>> Responsibility of brand managers

Wind
s of
Chan
ge

practices and talents

across brands
Promoted cutting edge
competencies in R&D,
Manufacturing,
Research
Corporate R&D
fostered innovative
connections eg.
Invention of Fluoride
toothpaste
Greater autonomy to
managers to work as
separate units
Allowed senior
specialists to focus on
corporate issues

By the 1980s product categories changed and required more differentiated

functional activity
Brands had to be run as bigger categories than as differentiated units
The changed necessitated that middle level managers reported both to the
functional leaders as well as to their business leaders

Executive Summary

Transition in the US
(2/2)

Organization 2005

What actually
happened

Growth in product portfolio and need for

individual focus for different categories
propelled movementCentralized
to matrix
Divisions

Household
Cleaning
Division VP

U.S. President

Laundry
Division VP

Functions
Sales VP

R&D VP

Category
Business
Units

Detergent
GM

Sales
Laundry
Director

R&D Laundry
Director

Brands

Tide Brand
Manager

Sales
Detergent

R&D
Detergent

Manufacturin
g VP

Mfg Laundry
Director

Why
Matrix?

- Focus on differentiated
market demand
- Growth in the amount
of brands and products
- Change in the market
demand
- Improve integration and
decision efficiency

Threats
Mfg
Detergent

- Problem of coordination
- Defining product
managers authority
over staff
- Gaining support of other
functional managers

Product categories required more differentiated

functional activities but at the same time required P&G
US to retain its functional strengths
With the advent of matrix, brands were now managed as components of
category portfolios by category general managers
The
39 category business units were created which were run by a general manager
Transiti
to whom both brand and functional managers would report
on
Functional leaders reported directly to their business leadership and also to
their functional leadership (as indicated by the dotted lines)

Executive Summary

Transition in Europe
(1/2)

What actually
happened

Organization 2005

Lack of standardization and coordination led to

transition from geographic to category
management in Europe
Initial Structure

Dimensions
Country,
function and
brand
Mini U.S.es in
each country
Portfolio of self
managed
subsidiaries
Country
managers
responsible for
profitability

Transition

Non US
importance
growing
significantly
Regional
Committees
Large country
managers and
corporate function
leaders
Europe split into
three regions
Faced objection
from smallcountry managers
Lack of typical
European
consumer would
defeat the
purpose of
standardization

Benefits

The strategy
adopted was a
huge success
Eliminated
needless
country-wise
product
variations
Made competitive
responses across
regions possible
Acted as a
deterrent to
competition and
hopefuls

Executive Summary

Transition in Europe
(2/2)

What actually
happened

Organization 2005

A graphical representation of the shift in the

organizational structure in Europe
1960 1980
President,
Overseas
Operations

Country
Managers

Country Specific
Function

Geographic Line
Management

Long time
Problems
interval
for
brand
globalization
European
corporate
functions
disconnected from
US operations
Focus on product
and brand
fragmented by
country No
possibility of
region-wide
category or brand
strategy
Lack of coordination and
difficulty in
scaling up
Lack of
standardization in
products and
packaging led to

From 1980s
President,
Europe

Europe Product
VPs

Country
Categories

Country Brand
Management

Brussels
Corporate
Functions

Transition to a global
cube (1/2)

Executive Summary

What actually
happened

Organization 2005

As P&G expanded, it realized the importance of

having a scalable, standardized model to
achieve
rapid globalization
Why
Global
Global
CEO

Categories
Global

detergent
Category
Leader

Europe
President
(Brussels)

R&D SVP

Sales SVP
(Cincinnati)

functions

Product
supply SVP
(Cincinnati)

Europe
Detergent GM
Regional
Categories

Detergent
Germany
GM

Country
Categories

Ariel Brand
Manager,
Germany

Mfg
Laundry
Director

R&D Global
Detergent VP
(Cincinnati)
Detergent
R&D
Director,
Europe
(Brussels)

Detergent
Sales
Director,
R&D
Europe

Detergent

Detergent
Product
Supply
Director,
Europe

Detergent
Sales
Manager,
Germany

Global expansion opportunities called for a structure

that was universally adaptable, promoted leanness and
improved coordination
The
Transiti
on

Global
Matrix?
Better coordinate
strategies
Quick replication of
product category
platform tech.
Bring standardization,
eliminate redundancy
Improve supply chain
integration
Threats
Power concentrated
within functions;
complex structures
Conflicting goals
amongst functions
causing strategic
misalignment
Rollout decisions hinged
upon regional managers

Global category presidencies were created which reported to the Global CEO
Global R&D functional VPs reported to category presidents. Functional VPs
reported to their functional SVPs additionally
Global category presidents collaborated with R&D category VPs to create
scalable platform tech.
Four regions created in 95: LATAM, EAME, North America and Asia, each with

Executive Summary

Transition to a global
cube (2/2)

Organization 2005

What actually
happened

A Global Matrix structure eventually led to

conflicting goals, poor cooperation and
unsustainable profits
tio
c
n

Category
A
Ge
hy ogr Geograph
Category
ap
y1
A
Function
GeographCategory
1
y1
A
FunctionGeograph
1
Category
y2
B
Function
Category
Geograph
1
B
y1
Function Geograph
y2
1
Function
1

Catego
ry

Fu
n

A functional manager within a

geography was expected to report to
the country category head, as well as
the global functional head
This structure often leads to conflicting
goals. For example, the functional head
might focus on cost efficiency while the
category head may favor increased top
line through stimulating investments
Competitors quickly imitated supply
chain consolidation, which indicated an
unsustainable competitive advantage
This structure leads issues of
cooperation and coordination
Complexity of authority structures led
to opportunity losses and slow decision
making

Executive Summary

Transition in
organizational
structure

Organization 2005
(1/2)

What actually
happened

Lack of innovation & conflicts among

regional/category heads propelled P&G to come
up
with Organization
2005
Organization
2005 Characteristics
and Need

Setting up of GBUs, MDOs

Cost savings by workforce
and GBS where they are
rationalization and
Responsible for innovation,
reduction in management
marketing and systems
layers through product-s
management, respectively
supply consolidations

Lack of cooperation between

category and regional managers
Lack of cooperation between
different functions
Increasing competitive pressures

Change in routine
Overhauling the performance
activities and movement
appraisal system with the
To individual decision
contribution of performmaking from committees
ance based pay increasing

Sources: Own Analysis; Case

Low focus on innovation in

products
Inability of the organization to
assign accountability to profit
centers

Executive Summary

Transition in
organizational
structure

Organization 2005
(2/2)

What actually
happened

Proper marketing and focus on certain

categories/regions could have helped Lafley
make
Organization
2005 a success Lafley should continue
Organization
2005 -

Negative
Positive
Impact on Profitability

Assessment

Cost rationalization
in the form of
employee layoffs and
leaner hierarchy

Development of new
brands and
categories

Focusing on GBUs alone

and ignoring MBOs and
GBS
Ignoring existing weak spots

Low
High
Impact on Sales
Sources: Own Analysis; Case

with Organization
2005 as the thinking
behind the program
was right. However,
focus should be
improved by investing
in major categories
and paying special
attention to the weak
geographies.
Development of new
products without
understanding the
markets led to build up
pipeline.
Loss of market share in
major product categories
and regional disparities

Executive Summary

Transition in
organizational
structure

Organization 2005

What actually
happened

A focus on bigger businesses and products, and

rationing of costs set the ball rolling for P&G
turnaround
in 2000
Corrective Measures
Concentrate
Concentrate on
on the
the four
four
biggest
biggest businesses
businesses

laundry,
laundry, baby
baby care,
care, hair
hair
care
care and
and feminine
feminine care
care

and
and prevent
prevent fall
fall in
in the
the
market
market share
share

Paying
Paying special
special attention
attention to
to
troubled
markets,
such
as
troubled markets, such as
Japan
Japan and
and Western
Western Europe
Europe

Sell
Sell products
products which
which did
did not
not
align
with
companys
align with companys
broader
broader focus
focus (eg.
(eg. Clearsil)
Clearsil)
and
focus
energies
and focus energies on
on
products
where
the
products where the
company
company possessed
possessed
advantage
advantage

Click here for the

trend in sales and
profits
Sources:Enquirer.com

Rationing
Rationing of
of funds
funds given
given to
to
the
managers

an
the managers an
aberration
aberration from
from Jagers
Jagers rule
rule

who
allowed
them
to
who allowed them to
spend
spend according
according to
to
stretched
sales
forecasts
stretched sales forecasts
Helping
Helping in
in reviving
reviving the
the
strength
strength of
of the
the marketing
marketing
training
training department
department which
which
was
was overlooked
overlooked by
by the
the
previous
previous CEO
CEO

Click here for the

trend in costs post
the restructuring

Appendix Chart 1
105.0%

P&G Expenses as a % of sales

(Year ending 19932009)

99.1%
100.0%

95.0%
92.6%

91.4%

91.1%

90.1%
90.0%

88.0%

87.2%

86.5%

85.0%
83.0%

80.0%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Click here to go
back to the slide

Appendix Chart 2
110,000

90,000

P&G Revenues and Net Profit %

($ millions, %, Year ending
19932009)

20.0%
18.0%
16.0%
14.0%

70,000

12.0%
50,000

10.0%
8.0%

30,000

6.0%
4.0%

10,000

2.0%
-10,000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Net sales

0.0%

Net Profit %

Click here to go
back to the slide