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REVAMPING PROCTER &GAMBLE: ‘‘ORGANIZATION 2005’’
Transcript of REVAMPING PROCTER &GAMBLE: ‘‘ORGANIZATION 2005’’
In 1837 Brothers-in-law William Procter and James Gamble start a partnership, making and selling candles and soap.
Fortune 500, American multinational corporation headquartered in Cincinnati, Ohio, that manufactures a wide range of consumer goods.
P&G has more than 17 billion dollar brands in its portfolio: Charmin, Tide, Pantene, Iams, Folgers, Crest, Olay, Always, Ariel, Bounty, Downy, Pringles, Pampers.
P&G divides its business into three Global Business Units: Beauty (33% of sales, 37% of net income),Health and Well-Being (23% of sales, 25% of net income), and Household Care (46% of sales, 42% of net income)
Procter & Gamble
As of 2008, P&G is the 8th largest corporation in the world by market capitalization and 14th largest US company by profit and the world’s largest household and personal products company:
over $83 billion in sales across the world
26 brands available with $1 billion of sales each.
Procter & Gamble products are available in more than 180 countries worldwide (North America, Latin America, Europe, the Middle East, Africa, Asia, Australia and New Zealand).
More than 135,000 employees.
More than 170 manufacturing facilities in more than 40 countries
Proctor and Gamble’s
In 1999, P&G’s CEO Durk Jager had initiated a major reorganization, “Organization 2005,” a new bold plan to revamp the P&G organization intended to boost sales, profits and create a stimulating work environment for P&G’s employees by
Accelerating innovation (launching an array of new products).
New product development would be more decentralized, conducted in both U.S and foreign market.
revamping the organizational culture in order to embrace change
reduction in hierarchies to enable faster decision-making, and retrenchment of employees to cut costs
redesign P&G’s organization structure, work processes and corporate culture in order to cut costs and improve its efficiency.
Regional business units were replaced with global business units based on product lines.
Mission and objectives of “Organization 2005”
The mission to take P&G’s global turnover from $38 billion to 70 billion dollars.
The objective was to raise profitability by change the work culture.
The change drivers identified were the attributes of Stretch, Innovation, Speed(SIS)
5 important components of P&G’s new structure under Organization 2005
7 global business units based on product lines (devise global
strategies for all P&G’s brands)
Eight market development organization based on region
(adapt global marketing programs to local markets).
Global business service center operated in 3 regions: bring support services (accounting, information technology, and data management..)
Corporate functions (The corporate staff concentrated on improving the functional capabilities of all the operations of the company).
Overhaul of reward systems and training programs.
In 2012, P&G recorded $83.68 billion dollars in sales.
Fortune magazine awarded P&G a top spot on its list of "Global Top Companies for Leaders", and ranked the company at fifth place of the "World's Most Admired Companies" list.
Chief Executive Magazine named P&G the best overall company for leadership development in its list of the "40 Best Companies for Leaders''.
Fast forward to 2012, Warren Buffett, has divested his US $1B stake in P&G, mirroring the sentiment of many common shareholders. Bill Ackman, an activist investor known for shaking up struggling organizations through proxy votes, has taken a $1.8B stake in the firm.
In October 2013, the company was named the 4th most in-demand employer in the world according to analytic data sourced by Linkedin and has rebranded itself as Procter & Gamble Entertainment (PGE) with a new logo and an emphasis on multi-platform entertainment production.
In 2014, Glassdoor placed P&G 34th on their annual Best Places to Work list.
The execution of the plan was a failure. Analysts believed that Jager concentrated more on developing new products rather than on P&G’s well-established brands. Analysts felt, and Jager himself admitted, that he did too many things in too short a time and his plan has been too aggressive resulting in HR problems. Managers had become critical of Jager’s confrontational style. Employees were not happy with the changes made in the company’s organization structure. This resulted in a negative effect on P&G’s financial performance, its share price as well as the revenues and profitability. After a brief stint of 17 months, Jager had to quit his post.
In June 2000, Alan George Lafley took over as the new President & CEO of P&G.
In 2001, Lafley had announced another program which complemented the Organization 2005 program. The new program was expected to save an additional $600-700 million (post-tax) annually by the financial year 2003-04.Under Lafley, P&G seemed to be on the right path. He was able to turn the company around through his excellent planning, execution and focus. With Lafley at the helm, P&G’s financial performance improved significantly.
The GBUs and MDOs worked jointly to promote P&G’s products in 140 countries
economies of scales, and better quality management
1. What went wrong with Organization 2005? Do you agree with Laffey’s comments of ‘‘too much too fast’’?
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 completely ignored P&G’s well-established brands and focused on developing new products,
I personally agree with Laffey’s comments of ‘‘too much too fast’’ because Jager introduced several new products in quick time with the hope of finding P&G’s next billion-dollar product. Since the sales and marketing resources were diverted towards new products, there was a decline in sales and profitability of P&G’s established, best performing brands like Crest, Pampers and Tide.
P&G spent way too much on new products and they lose sight of their core businesses
2. Is Organization 2005 fundamentally right for P&G? Or, should P&G nip Organization 2005 in the bud and if so, why?
Taking into account the disastrous result below, I think that Organization 2005 was a bad idea.
• Missed Earnings in 2000
• In the fourth-quarter profits were flat against the expectation 15-17% increase
• P&G lowered its future quarterly sales growth estimates to 2-3%
• P&G Stock lost 7%, falling to $57 after the announcement
• Loss of US market share in 16 out of 30 categories
• Lack of immediate results, job reductions, reduced employee morale led to reduced profits and stock price.