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
