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P & G

Procter & Gamble case analysis

James Turner

on 26 November 2014

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Transcript of P & G

Procter & Gamble
Proctor & Gamble is a leading consumer goods company based in Cincinnati, OH. Their focus is on building consumer-preferred brands and products that create value for consumers and shareholders.

P&G has more than 300 brands; 23 brands with annual sales of $1 billion to $10 billion, and 14 brands with annual sales of $500 million to $1 billion.

The majority of these brands hold the number one or two position in their category or segment—all of which have significant growth and value creation potential.
Procter & Gamble Company (P&G) has been in business for 177 years.

It's well known and “trusted” brands touch the lives of about 4.2 billion people around the world in 180 countries and territories worldwide, primarily through mass merchandisers, grocery stores, membership club stores, drug stores, department stores, salons, e-commerce, high-frequency stores, and neighborhood stores which serve many consumers in developing markets.

P&G employees represent over 140 nationalities.

P&G's four pillars: Global Business Units, Selling and Market Operations, Global Business Services and Corporate Functions—form the heart of P&G’s organizational structure.
Mission Statement
We will provide branded products and services of superior quality and value that improve the lives of the world’s consumers, now and for generations to come.

Purpose of the company
• Consumer goods company

• Create brands that create value and help humans live better
from beginning, throughout their lives

• Supported by their Corporate Mission statement
Original Structure
Multiple Structures
Multi-brand strategy vs. corporate branding strategy
Multi-brand strategy
• Promoting multiple brands to target different market segments
• P&G to tailor different features that appeal to different consumers
• Long-term relationships are developed with customers by closely satisfying
their wants and needs with products that have a competitive advantage
over their competitors.
• Each brand may only obtain a small market share
• Lack of corporate publicity

Corporate branding strategy
• Raise corporate profile
• Consumers trust and recognize P&G
• Develops deeper consumer relationships
• Willingness to try new brands P&G will launch
• Mothers – a key market segment
Branding Example
Current Affairs
P&G has gone through several different organizational structures over the last century.

In the United States P&G employed a competitive brand-management system from 1931 until 1987.

As product categories began to require more differentiated functional activities, the company moved to a matrix structure. The organizational structure in Europe differed from the U.S. Employing a geographic management system in the years following WWII until the early 1980’s, P&G Europe shifted their focus to product-category management as was used in the US.

When the company began to expand into new markets, the Global Matrix was instated company-wide in 1987.

In 1998 the new CEO, Durk Jager, introduced a restructuring plan called “Organization 2005”:
Quick overview
Question 1
Describe Procter & Gamble’s organization structure in U.S. in the 1950s by answering the following questions.

A. What kind of structure is this?

B. Why this structure? What are the benefits of organizing
this way?

C. Describe the “Competitive brand management (CBM)” at
P&G and explain how P&G’s organization structure made
sense for CBM.
Question 2
Describe Procter & Gamble’s organization structure in Europe in the 1950s by answering the following questions.

A. What kind of structure is this?

B. Why this structure? Why was P&G’s organization
structure in Europe different from that of U.S.?

C. P&G in Europe employed country management system
rather than brand management system, which was used
in U.S. Why?
Question 3
Question 4
Describe P&G’s Global Matrix (GM) structure in the 1990s.

A. What are the key structural changes in the GM

B. How did the GM structure benefit P&G?

C. What were the problems with the GM structure?
P&G’s organization structure shifted from product (U.S.) and geographic (Europe) to the matrix structure with category management in the 1980s.

A. What are key structural differences between the
structure in the 1980s and the earlier structures?

B. Why did P&G change its organizational structure?
Question 5
A. How did P&G’s organization structure evolve
beyond the GM structure in the 1990s?

B. What are the rationales for the change?
Global Matrix
As of June 30, 2014, the Company had five reportable segments: Beauty; Grooming; Health Care; Fabric Care and Home Care, and Baby Care and Family Care.

Sales to Wal-Mart Stores, Inc. and its affiliates represent approximately 14% of its total revenue during the fiscal year ended June 30, 2014 (fiscal 2014).

Current CEO Lafley who served from 2000-2009 then retired in 2010 was asked to rejoin as CEO after firing of Bob McDonald in 2013.

As of 2014 P&G is now seeking new leadership again, Lafley’s return from retirement was only temporary to help P&G with its operations
Net Sales
Organization 2005
Competitive brand management is more than just reacting quickly to consumer demands. Brand managers within the same product division actually competed against each other for market share and profitability, which is why brand management was termed as “competitive.”

Through CBM, P&G focused on building new brands, conquering new markets, and building market share.(Strong internal completion help P&G build strong brands, increase market share and presence.)

Competitive brand management increased P&G’s cost structure, as different brands were not cooperating. However, P&G did not care much about minimizing cost as the market was not so saturated prior to the 1950s. Efficiency was less of an issue during this period. P&G just focused on establishing strong brands.

Homogeneous Market
Transfer best practices and talent across many brands
Foster leading edge competencies in R&D, manufacturing and market research
Innovative connections across divisions, leading to inventions
Excellent cross-functional coordination in support of products.
Responsiveness to customer
Developing competitive advantages in product lines
Product customization and innovation

• Responsible for profitability
• Matching strategy with
product category dynamics
• Compete against other

• Cross brand knowledge
and talent sharing
• Fostering best
competencies in R&D,
manufacturing and market
The geographic structure allowed P&G Europe to be more responsive to the different needs of each country market.

• Heterogeneous market in Europe in contrast to homogeneous market in the U.S.
• Each geographic unit had its own culture and policies that were tailored to fit local
workers and local markets.
Different languages
Different preferences and habits
Different retail structures

• Taxation and duty regulations were different in each country, providing further
rationale to adopt this type of structure.

Post-war time period

• When P&G expanded into Western Europe countries were still recovering from WWII.
Each country was managing individual social, political, and economic shifts. Many of the countries in which P&G operated were reluctant to become “Americanized”.
Geographic model was established by the President of Overseas Operations (Walter Lingle) to tailor products and processes to local tastes and norms.

• P&G created ‘mini-U.S.es’ in each country.
• Product categories and brands were fragmented by country.
• Each subsidiary was self-sufficient and adapted P&G technology and marketing
expertise to local markets.
• Corporate R&D in Europe had minimal contact with R&D in the U.S.
• Because country managers were held responsible for profitability, the country
management system allowed for a lower cost structure and economies of scale
within each country.
• Performance measurements—revenues, profit margins, costs, and performance
improvements—were more accurate with each country being responsible for itself.
• The country management system allowed for better communication between
representatives of the different business functions within the region rather than
establishing working relationships with representatives on the other side of the
• To reduce the possibility that the brand
managers would just focus on easiest
countries with the highest earning potential.

• Geography focused management ensured
that P&G established a broad presence in
many markets.

U.S. Matrix Structure

• 1987, US made historic shift away from the
competitive brand-mgt style put in place in 1931
• Creation of Category Business Units
Brands now managed as components of category portfolios vs product only
39 U.S. CBUs created, managed by category general managers
Both brand and dedicated functional managers reported to the general managers
• Creation of new centralized functions at the
corporate level
Each CBU had its own sales, R&D, manufacturing, and finance functions
Matrix reporting set up whereby functional leaders reported directly to their business leadership
Created a dotted-line reporting relationship to their functional leadership filtering up to the VP of that function for the U.S.
European Category Management

• By early 1980s P&G operated in 27 countries
• HQ in Brussels encouraged regional committees
composed of large-country mgt and corporate
functional leaders
• Eliminated needless product variations and helped
coordinate marketing communications
• Small-country managers objected that there was no
“typical” European consumer and that it would lead to
neglect of local consumer preferences, yet the strategy
was successful
• Europe split into three sub regions, leaders given
secondary responsibilities for coordinating specific
product categories across Europe
• Early 1980s, Europe was fully restructured around
product categories
• Product-category division VPs established, responsible
for continent-wide profit-and-loss
• Country GMs replaced with multiple-country product
category GMs who reported to the division VP
• For example GM responsible for Detergent or Fabric
Softener reported to the Laundry Division VP
• Product categories were beginning to require more differentiated functional
• Matrix structure promotes innovation, P&G shifted to the matrix structure with
category management in the 1980s to realize economies of scope
• P&G wanted to better leverage resources across different brands and
products in the U.S. and across geographic borders in Europe
• Leveraging would allow them to be more responsive to regional customer
needs and adopt a lower cost structure
• P&G had a new challenge of appealing to more diverse consumer tastes and
income levels
• Expensive and unreliable manufacturing operations in overseas countries
• Products being tweaked unnecessarily which added no value for consumer
yet cost and complexity to supply chain
• Country R&D labs expensive to maintain and only reinvented the wheel

P&G's GM structure was created with expansion in mind. It was created in anticipation of globally diverse consumer taste and income levels, and was intended to allow the flexibility needed to meet new demand.
Added a new layer of category presidencies

Divided the globe into four regions (North America, Latin America, Europe/Middle East/Africa, Asia)

Took the organizational structure back to the
[market --> product --> function] structure
that the company was used to.

Operators directly reported to their regional category managers and dotted line reported to their functional regional managers.
It allowed for the pooling of knowledge, transfer of best practices, elimination of intraregional redundancies and standardization of activities.

Allowed for quick acquisitions and assimilation of other companies.

Customer Business Development (CBD) unit was able to build relationships that allowed P&G to move lock step with large retailers like Wal-Mart. Giving it first mover advantage in certain categories.

Allowed the company to standardize and accelerate global product launches. From ten years down to four years to roll out a global initiative.
Functional divisions began to have tunnel vision, focusing on their own self interest and causing conflicts between performance and cost.

Over time, tension between regional and product category managers created selfishness and slowed down the globalization of the companies innovations. Which led to the company losing some of its first movers advantage to fast following competitors.

Scalability of the Global Matrix structure over the long term came into question. Some people believed that it created a culture of risk aversion, avoidance of failure above all else and that there were too many cooks in the kitchen.

The organizational structure evolved into a more consolidated structure with a blend of three interdependent organizations that focused on products, markets, and internal business processes.

This structure was designed to improve the speed with which P&G innovated and globalized the innovations.

It contained Global Business Units (GBUs), Market Development Organizations (MDOs), and Global Business Services (GBS).
• The matrix structure became increasingly difficult to manage as the product line
continued to expand. It was becoming less internally coherent and less scalable
over the long term.

• The symmetry that a global matrix requires was not achieved because the functions
developed their own strategic agendas.
Functional units did not seek optimal tradeoff between performance and cost
Each function tried to maximize its particular function.

• Tensions between regional and product-category management.
R&D divisions and global category leaders were aligned globally by product category and fought hard to globalize new innovations quickly, but had to obtain agreement from each regional manager to launch a product in a given area.
Risk aversion by regional managers—even if the innovation was strategically important for the company—hindered new product launches.

• Increased competition from: Unilever, Colgate-Palmolive, Kimberly-Clark, L’Oreal
• Prior to 1980s P&G allowed their brands to compete, resulting in lower
efficiency in overall operations
• Innovation of brands took years to globalize; Pampers, 1961 in U.S. –1973 in
Germany – 1978 in France
• In Europe, P&G attempted to shift focus from country management to product
category management to promote cross-border cooperation across functions
• Ineffective European globalization model with only a quarter of $11 billion in
revenues from overseas operations
• Older structure had several pitfalls and externally and competitors were
catching up quickly challenging P&G’s first mover strategy and related
• Situational factors such as P&Gs age, larger size, type of production, and R&D
created a need for org change
• P&G introduced CBU in to achieve higher level of coordination across different
brands due to increased competition in the market since the 1980s
• Responsible for product development, brand design, business strategy and new business development
and had complete profit responsibility.
• Each of the 7 GBUs operated autonomously and focused on a different product category.
• Each was led by a president who reported to the CEO and was a member of the global leadership
council that determined the overall company strategy.
• At the GBU level each VP of Marketing, R&D, Product Supply, New Business, and support functions
reported to the GBU president.
• A technology council composed of GBU VPs of R&D was formed to share technological innovations
cross-pollinate ideas.
• Responsible for localization: tailoring P&Gs global programs to local markets; leverage their knowledge
of local consumers and retailers to help P&G develop market strategies to guide the entire business.
• Each of the 7 MDOs did not have complete profit responsibility, but were compensated on sales growth.
• Each was led by a president who reported to the CEO and was a member of the global leadership
• Responsible for standardizing, consolidating, streamlining, and strengthening business processes and
IT platforms across the GBUs and MDOs.
• Centralized responsibility for managing these processes could lead to economies of scale and allowed
the GBUs and MDOs to focus on their core competencies.
• Achieved critical mass in business-process execution and took advantage of wage arbitrage.
• The head of the GBS reported directly to the CEO.
How they relate to each other and function together:
• GBS support the MDOs and GBUs with business processes and IT platforms
• MDOs profitability depends on sales growth linked to the performance of GBUs
• GBUs success is dependent upon the value added by both the MDOs and GBS
Geographic Structure
• Tasks were arranged by country.
• This structure allowed management to analyze and respond to the needs of the different country markets.

Flat Structure
• European functional organizations were embedded in country silos which kept the span of control limited to that country.

Limited-Vertical Decentralization
• Managers of market-based units were delegated the power to control most of the decisions concerning their line units.
 The more diversified an organization’s markets, the greater the propensity to split into market-based or geographic units.
 This type of structure is predisposed to split and give each country division a good deal of control over its own operations.

Product structure with a functional structure at the second level
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