Procter & Gamble ASSIGNMENT 1 NAME: ZEESHAN A.
WAHAB ID# 17373
Corporate restructuring exercises by Procter & Gamble (P&G)
The case discusses the Organization 2005 program; a six-year long organizational restructuring exercise conducted by the US based Procter & Gamble (P&G), global leader in the fast moving consumer goods industry. The case examines in detail, the important elements of the restructuring program including changing the organizational structure, standardizing the work processes and revamping the corporate culture. The case elaborates on the mistakes committed by Durk Jager, the erstwhile CEO of P&G and examines the reasons as to why Organization 2005 program did not deliver the desired results. Finally, the case discusses how Alan George Lafley, the new CEO, accelerated the initiatives under the Organization 2005 program and revived P&Gs financial performance.
Introduction
The US based Procter and Gamble (P&G), one of the largest fast moving consumer goods (FMCG) companies in the world, was in deep trouble in the first half of 2000. The company, in March 2000, announced that its earnings growth for the financial year 1999-2000 would be 7% instead of 14% as announced earlier. The news led P&Gs stock to lose $27 in one day, wiping out $40 billion in its market capitalization.
The Organization 2005 Program
In January 1999, Jager, a P&G veteran became the new CEO taking charge at a time when P&G was in the midst of a corporate restructuring exercise that started in September 1998. Jager faced the challenging task of revamping P&Gs operations and marketing practices. Soon after taking over as the CEO, Jager told analysts that he would overhaul product development, testing and launch processes. The biggest obstacle for Jager was P&Gs culture. Jager realized the need to change the mindset of the P&G employees who had been used to lifetime employment and a conservative management style. On July 1, 1999, P&G officially launched the Organization 2005 program. It was a program of six-year duration, during which, P&G planned to retrench 15,000 employees globally. The
cost of this program was estimated to be $1.9 billion and it was expected to generate an annual savings (after tax deductions) of approximately $900 million per annum by 2004
Change in Organization Structure:
Till 1998, P&G had been organized along geographic lines with more than 100 profit centers. Under Organization 2005 program, P&G sought to reorganize its organizational structure (Refer Exhibit III and IV) from four geographically-based business units to five product-based global business units Baby, Feminine & Family Care, Beauty Care, Fabric & Home Care, Food & Beverages, and Health Care. The restructuring exercise aimed at boosting P&Gs growth (in terms of sales and profits), speed and innovation and expedition of management decision-making for the companys global-marketing initiatives. It also aimed to fix the strategy-formulation and profit-creation responsibilities on products rather than on regions. The global business units (GBUs) had to devise global strategies for all P&Gs brands and the heads of GBU were held accountable for their units profit. The sourcing, R&D and manufacturing operations were also undertaken by the GBU.
Standardization of Work Processes
One of the major objectives of Organization 2005 program was to significantly improve all inefficient work processes of P&G including its product development, supply chain management and marketing functions. In order to achieve this objective, P&G undertook several IT initiatives including collaborative technologies, B2C e-commerce, web-enabled supply chain and a data warehouse project for supplying timely data to companys various operations located globally.
Revamping the Corporate Culture
The Organization 2005 program made efforts to change P&G from a conservative, lethargic and bureaucratic to modern, quick-moving and internet-savvy organization. The new structure was directed towards revamping the work culture of P&G so as to focus on its new Stretch, Innovation and Speed (SIS) philosophy. Emphasizing on innovation, Jager said, Organization 2005 is focused on one thing: leveraging P&Gs innovative capability.
The Mistakes Committed
The Organization 2005 program faced several problems soon after its launch. Analysts were quick to comment that Jager committed a few mistakes which proved costly for P&G. For instance, Jager had made efforts in January 2000 to acquire Warner-Lambert and American Home Products. Contrary to
P&Gs cautious approach towards acquisitions in the 1990s, this dual acquisition would have been the largest ever in P&Gs history, worth $140 billion. However, the stock market greeted the news of the merger negotiations by selling P&Gs shares, which prompted Jager to exit the deal.
Implementing Strategies to Revive P&G
In June 2000, Alan George Lafley (Lafley), a 23-year P&G veteran popularly known as AG, took over as the new President and CEO of P&G. The major difference between Lafley and Jager was their style of functioning. Soon after becoming CEO, Lafley rebuilt the management team and made efforts to improve P&Gs operations and profitability. Lafley transferred more than half of P&Gs 30 senior most officers, an unprecedented move in P&Gs history. He assigned senior positions and higher roles to women.
