PROJECT REPORT ON

A Study on the Retrenchment Strategy Adopted by P&G

UNIVERSITY OF MUMBAI

MASTER OF COMMERCE
(Banking & Finance)
SEMESTER I
2015-16

SUBMITTED BY
Name: SAMRIDDHI RAKHECHA

Roll No.: 11

PROJECT GUIDE
Dr. Poonam Kakkad

K.P.B HINDUJA COLLEGE OF COMMERCE

315, NEW CHARNI ROAD, MUMBAI-400 004
M.Com (Banking & Finance)

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1st SEMESTER

A Study on the Retrenchment Strategy Adopted

by P&G

SUBMITTED BY
SAMRIDDHI RAKHECHA
Roll No.: 11
2 | Page

01:2008

Smt. P.D. Hinduja Trusts

K.P.B. HINDUJA COLLEGE OF COMMERCE

315, New Charni Road, Mumbai 400 004 Tel.: 022- 40989000 Fax: 2385 93 97. Email:

NAAC Re-Accredited A

THE BEST COLLEGE OF UNIVERSITY OF MUMBAI FOR THE ACADEMIC YEAR 20

Prin. Dr. Minu Madlani (M. Com., Ph. D.)

CERTIFICATE
This is to certify that Ms. SAMRIDDHI SUSHIL RAKHECHA of
M.Com (Banking & Finance) Semester 1st [2015-2016] has successfully
completed the Project on A Study on the Retrenchment
Strategy Adopted by P&G under the guidance of DR. KULDEEP
SHARMA.

________________
Project Guide

_______________
Co-coordinator

________________

________________

Internal Examiner

External Examiner

________________

________________

Principal

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College Seal

DECLARATION

I Mr. / Ms. SAMRIDDHI SUSHIL RAKHECHA student of M.Com(Banking & Finance), 1st semester (2015-2016), hereby declare that I
have completed the project on A Study on the Retrenchment
Strategy Adopted by P&G

The information submitted is true and original copy to the best of

our knowledge.

Samriddhi Rakhecha
(Signature)
Student

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CONTENTS:
Sr. No.
Chp 1
1.1
1.2
1.3
1.4
1.5

Particulars
Introduction
Objective of the Study
Scope of the Study
Research Methodology
Vision Statement
Values & Principles of P&G

Page No.
6
7
7
7
8
9

Chp 2
2.1
2.2
2.3

Procter & Gamble Co.

History
Product Types
Corporate Structure

12
12
15
16

Chp 3
3.1
3.2
3.3

Retrenchment
Meaning & Definition
Types of Retrenchment
Nature of Retrenchment

17
17
18
20

Chp 4
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4..8

Organization 2005 Programme

SWOT Analysis
Strategy followed by P&G
Nature of the Programme
Details of the Programme
Change in Organization Structure
Evaluation of the Programme
Mistakes Committed
Enter Lafley: Implementing Strategies to Revive
P&G

21
21
23
25
26
27
34
35
37

Chp 5

Conclusion

40

Chp 6

Bibliography

41

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CHAPTER1: INTRODUCTION
Established Year

1837

Head Quarter

Ohio, Cincinnati, USA

Sales Number

About $ 82,559 million ( 2011 fiscal year) CONFIRM

Product Available Area Over 80 countries

Skin care, Hair Care, House Care, Health Care, Oral Care,
Category

foodetc

Brands

About 300 brands

Employee Numbers

About 127,00 employees

Board chairman

A.G. Lafley

CEO

A.G. Lafley

Global Technical
Centers

28

Billion US dollar Brands 24

Procter & Gamble Co., also known as P&G, is an

American multinational consumer
goods company
headquartered
in downtown Cincinnati, Ohio, United States, founded by William
Procter and James Gamble, both from the United Kingdom. Its products
include cleaning agents, and personal care products. Prior to the sale
of Pringles to the Kellogg Company, its product line included foods and
beverages. In 2014, P&G recorded $83.1 billion in sales. On August 1,
2014, P&G announced it was streamlining the company, dropping around
100 brands and concentrating on the remaining 80 brands, which
produced 95 percent of the company's profits. A.G. Lafley, the company's
chairman, president and CEO, said the future P&G would be "a much
simpler, much less complex company of leading brands that's easier to
manage and operate". P&G remains a highly selective employer as less
than 1% of all applicants are hired annually.
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1.1: OBJECTIVE OF THE STUDY

To study the retrenchment strategy adopted by P&G
To understand the background and working of the company.

1.2: SCOPE OF THE STUDY

To understand the retrenchment strategies applied and the changes
brought about by application of such strategies on the company.

1.3: RESEARCH METHODOLOGY

The data and information used in this project are collected from
secondary sources such as books, magazine articles, internet, etc.

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1.4: VISION STATEMENT

VISION OF P&G
To be a leading consumer goods company and to improve the lives of
world consumers by providing valuable and innovative products. Ten
years ago Procter and Gamble started the journey to improve the lives of
Indian consumers by providing them with world famous quality brands.
P&G want to be an outstanding organization with a passion for winning
that would felt by everyone everyday; in the office, in the field, every
where , P&G vision is to lead business growth by proactively identifying
opportunities and positively contributing to volume growth.
We will provide branded products and services of superior quality and
value that improve the lives of the world's consumers. As a result,
consumers will reward us with leadership sales, profit, and value creation,
allowing our people, our shareholders, and the communities in which we
live and work to prosper.
P&G SLOGAN

Touching Lives, Improving Life

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1.5: VALUES & PRINCIPLES OF P&G

P&G is its people and the values by which we live.
We attract and recruit the finest people in the world. We build our
organization from within, promoting and rewarding people without
regard to any difference unrelated to performance. We act on the
conviction that the men and women of Procter & Gamble will always be
our most important asset.
VALUES
LEADERSHIP:
We are all leaders in our area of responsibility, with a deep
commitment to deliver leadership results.
We have a clear vision of where we are going.
We focus our resources to achieve leadership objectives and
strategies.
We develop the capability to deliver our strategies and
eliminate organizational barriers.
OWNERSHIP:
We accept personal accountability to meet our business
needs, improve our systems, and help others improve their
effectiveness.
We all act like owners, treating the Company's assets as our
own and behaving with the Company's long-term success in
mind.
INTEGRITY:
We always try to do the right thing.
We are honest and straightforward with each other.
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 We operate within the letter and spirit of the law.

We uphold the values and principles of P&G in every action
and decision.
We are data-based and intellectually honest in advocating
proposals, including recognizing risks.
PASSION FOR WINNING:
We are determined to be the best at doing what matters most.
We have a healthy dissatisfaction with the status quo.
We have a compelling desire to improve and to win in the
marketplace.
TRUST:
We respect our P&G colleagues, customers, and consumers,
and treat them as we want to be treated.
We have confidence in each other's capabilities and
intentions.
We believe that people work best when there is a foundation
of trust.
PRINCIPLES
We Show Respect for All Individuals
We believe that all individuals can and want to contribute to
their fullest potential.
We value differences.
We inspire and enable people to achieve high expectations,
standards, and challenging goals.
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 We are honest with people about their performance.

The Interests of the Company and the Individual Are Inseparable
We believe that doing what is right for the business with
integrity will lead to mutual success for both the Company
and the individual. Our quest for mutual success ties us
together.
We encourage stock ownership and ownership behavior.
We Are Strategically Focused in Our Work
We operate against clearly articulated and aligned objectives
and strategies.
We only do work and only ask for work that adds value to
the business.
We simplify, standardize, and streamline our current work
whenever possible.
We Value Personal Mastery
We believe it is the responsibility of all individuals to
continually develop themselves and others.
We encourage and expect outstanding technical mastery and
executional excellence.
We Seek to Be the Best
We strive to be the best in all areas of strategic importance to
the Company.
We benchmark our performance rigorously versus the very
best internally and externally.
We learn from both our successes and our failures.
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Innovation Is the Cornerstone of Our Success

We place great value on big, new consumer innovations.
We challenge convention and reinvent the way we do
business to better win in the marketplace.
Mutual Interdependency Is a Way of Life
We work together with confidence and trust across business
units, functions, categories, and geographies.
We take pride in results from reapplying others' ideas.

We build superior relationships with all the parties who contribute to

fulfilling our Corporate Purpose, including our customers, suppliers,
universities, and governments.

CHAPTER 2: PROCTER & GAMBLE Co.

2.1: HISTORY
Procter and Gamble Company (P&G) was founded by William Procter
and James Gamble, in 1837. Both men were immigrants to the United
States.
The company began by selling soap and candles, but after the invention
of Edison's electric light bulb in 1850, candle sales were so slow that
they stopped production. Things looked up, however, because the U.S.
Government began to order loads of soap from Procter and Gamble for
Union soldiers during the Civil War.
With the increase of production demands, the company began to
investigate more productive and less time-consuming ways to make
soap. That eventually led the firm to many more innovative ideas and
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many more lines of soap, for hair, laundry, and eventually dishwashers.
Other kinds of products would be born as well.
A company is formed
The two men might not have met had they not married the sisters Olivia
and Elizabeth Norris. Their new father-in-law suggested that they
become business partners. In 1837, the Procter and Gamble Company
was born.
With intentions of heading farther west than they managed, William
Procter (emigrating from England), and James Gamble (emigrating from
Ireland), settled in Cincinnati
"Procter had a sick wife to look after, while Gamble had medical
problems of his own to overcome. Those factors compelled the future
proprietors to "stay put," so that destiny would ensure a great company
in Ohio.
After Proctor's wife died of a terminal illness, he quickly prospered as a
candle maker. Meanwhile, Gamble was making ends meet as an
apprentice soap maker. A few months later, on April 12th, 1837, Procter
and Gamble started to make and sell mass quantities of candles and
soap.
A company built of soap
In 1859, 22 years after the partnership was formed, P&G had reached $1
million in total sales, in spite of declining candle sales. Fortunately,
three years later during the Civil War, Procter and Gamble was awarded
numerous contracts to supply soap and candles to Union armies. Those
orders kept the factory of 80 employees busy day and night. The fact
that P&G supplied soldiers enhanced the company's reputation for
heavy-duty quality. That was reinforced when troops came home from
the war carrying P&G's soap among their belongings.
By the year 1879, a new generation of the company was emerging
while unveiling improved ideas. Founders' sons Harley Procter and
Norris Gamble helped to put a new spark into P&G. Norris Gamble
13 | P a g e

developed an inexpensive white soap equal to the former high-quality,

imported castiles
Inspiration for the soap's name Ivory came to Harley Procter,
where he would place $11,000 towards well-spent advertising. The
name became an ideal match for the soap's virtual purity ("99 and
44/100ths percent pure"), mildness, and long-lasting quality. By 1890,
P&G was selling more than 30 types of soap, including Ivory.
The year 1890 also brought an end to 53 years of the business as a
partnership. The partners incorporated, and raised additional capital for
expansion. William A. Procter, one of two sons of the founder, was then
named the first president. P&G then set up one of the earliest product
research labs in America at Ivorydale (a newly constructed plant in
Cincinnati) to study and improve the soap-making process.
In 1907, following the death of his father, William A. Procter, a new
president was named, William C. Procter.
Expansion and Crisco
The year 1911 saw the introduction of P&G's new Crisco product, and
by 1915, the company built its first manufacturing facility outside of the
United States, in Canada. The plant employed 75 people.
By 1943, following the passing of William C. Procter, new president
Richard R. Deupree continued the company's robust progress. The
introduction of hair products and household cleaning products gained
the growing company even more ground, responding to an increasing
demand for daily consumer products. When Deupree took the helm in
1930, he didn't take long to supply the Far East with such products
by means of the Philippine Manufacturing Company.
Household products and pharmaceuticals
P&G weathered the Great Depression and World War II kept it perking.
Most people who grew accustomed to P&G's convenience products
couldn't put them down. What that allowed was more research and

14 | P a g e

development of past products as well as newly introduced

"conveniences."
By 1978, Procter and Gamble seemed to have covered all bases in
household products. From "Tide" laundry detergent to feminine
products, P&G dominated the industry with company expansions
throughout Japan, China, Europe, and other parts of the world. The
company's introduction of pharmaceuticals in the form of Didronel (a
treatment for Paget's disease), spurred a further upward spiral of
corporate profits.
Still a diverse company
Today, after nearly two centuries of research, development, and
expansion, there are more than 300 P&G products available to the
general public. If you brush your teeth, wash your hair, or take a
prescription drug, chances are good that what you're using originated in
a Procter and Gamble plant.

2.2: PRODUCT TYPES

Fabric Care:
Procter & Gamble has two of its world-leading detergents Tide and
Ariel, in India to cater to the main concerns of the Indian households,
namely, outstanding whiteness and stain-removal.
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Ariel Front-O-Mat
Ariel 2 Fragrances
Tide Detergent
Tide Bar
Hair Care:
P&Gs Beauty Business is over US$ 10 Billion in Global Sales, making it
one of the worlds largest beauty companies. The P&G beauty business
sells more than 50 different beauty brands including Pantene, Olay,
SK-II, Max Factor, Cover Girl, Joy, Hugo Boss, Herbal
Essences and Clairol Nice n Easy. In India, P&Gs beauty care
business comprises of Pantene, the worlds largest selling shampoo, Head
& Shoulders, the worlds No. 1 Anti-dandruff shampoo and Rejoice
Asias No. 1 Shampoo.
Procter & Gamble is committed to making every day in the lives of its
consumers better through the superior quality of its products and services.
Baby Care:
Pampers

2.3: CORPORATE STRUCTURE

P&Gs corporate structure contains four pillars which are as follows:

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Four pillars Global Business Units, Market Development

Organizations, Global Business Services and Corporate Functions
form the heart of P&G's organizational structure.
Global Business Units (GBU) build major global brands with
robust business strategies.
Market Development Organizations (MDO) build
understanding as a foundation for marketing campaigns.

local

Global Business Services (GBS) provide business technology and

services that drive business success.
Corporate Functions (CF) work to maintain our place as a leader of
our industries.
P&G approaches business knowing that we need to Think Globally
(GBU) and Act Locally (MDO). This approach is supported by our
commitment to operate efficiently (GBS) and our constant striving to be
the best at what we do (CF). This streamlined structure allows us to get to
market faster.

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CHAPTER 3: RETRENCHMENT
3.1:MEANING & DEFINITION
A strategy used by corporations to reduce the diversity or the overall
size of the operations of the company"
This strategy is often used in order to cut expenses with the goal of
becoming a more financially stable business"
Typically the strategy involves withdrawing from certain markets or the
discontinuation of selling certain products or service in order to make a
beneficial turnaround"
A retrenchment grand strategy is followed when an organization
aims at a contraction of its activities through substantial reduction or the
elimination
of
the
scope
of
one
or
more
of
its
businesses in terms of their respective customer groups,
customer
functions, or alternative technologies either singly or jointly in order to
improve its overall performance.
DEFINITION
A strategy used by corporations to reduce the diversity or the
overall size of the operations of the company. This strategy is
often used in order to cut expenses with the goal of becoming
a more financial stable business. Typically the strategy involves
withdrawing

from

certain markets or

of selling certain products or service in

the
order

discontinuation
to

make

beneficial turnaround
Section 2(oo) the id act, 1947, defines Retrenchment as:
The termination by the employer of the service of a workman for any reason
whatsoever, otherwise than as a punishment i n f l i cted
by way of disciplinary action,
But does not include Voluntary retirement of the workman
Retirement of the workman on reaching the age of superannuation
Termination of the service of the workman as a result of the nonrenewal of the contract of employment between the employer and the
workman concerned on its expiry.Termination of the service of workman
on the ground of continued ill- health
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3.2: TYPES OF RETRENCHMENT

1. Turnaround Strategies
Turn around strategies derives their name from the actioninvolved that is
reversing a negative trend. There are certainconditions or indicators whic
h point out that a turnaround isneeded for an organization to survive.
They are: Persistent Negative cash flows. Negative profits declining
market share deterioration in physical facilities. Over manning, high
turnover of employees, and low morale. Uncompetitive products or
services,
Mismanagement
An organization which faces one or more of these issues is referred to as
a sick company. There are three ways in which turnarounds can be
managed

The existing chief executive and management team handles the

entire turnaround strategy with the advisory support of a
external consultant.
In another case the existing team withdraws temporarilyand an exe
cutive consultant or turnaround specialist isemployed to do the
job.
The last method involves the replacement of the existingteam spec
ially the chief executive, or merging the sick organization with a
healthy one.
2. Divestment Strategies
A divestment strategy involves the sale or liquidation of a portion of
business, or a major division. Profit centre or SBU.
Divestmentis usually a part of rehabilitation or restructuring plan and isad
opted when a turnaround has been attempted but has
provedto be unsuccessful. Harvesting strategies a variant of thedivestmen
t strategies, involve a process of gradually letting acompany
business
wither away in a carefully controlled manner.

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Eg:
TATA group is a highly diversified entity with a range of businesses unde
r its fold. They identified their non corebusinesses for divestment. TOM
CO was divested and sold toHindustan Levers as soaps and a detergent
was
not
considered
acore business for the Tatas. Similarly, the pharmaceuticalscompanies of
the Tatas- Merind and Tata pharma were divested to Wockhardt. The
cosmetics company Lakme was divested and sold to Hindustan Levers, as
besides being a non core business, it was found to be a non- competitive
and would have required substantial investment to be sustained.

3. Liquidation Strategies
A retrenchment strategy which is considered the most
extremeand unattractive is the liquidation strategy, which involvesclosing
down a firm and selling its assets. It is considered as the last resort
because it leads to serious consequences such as loss of employment for
workers and other employees, termination of opportunities where a firm
could pursue any future activities and the stigma of failure The
psychological implications.

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3.3: NATURE OF RETRENCHMENT

1) General:
Retrenchment generally means "discharge of surplus labour or staff
"By the employer on account of long period of lay-off or rationalization or
production process or improved machinery or similar other reasons.
It is adopted as an economy measure.
2) Retrenchment and Lockout
3) Retrenchment and Lay-off
4) Retrenchment and Closure of business

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CHAPTER 4: ORGANISATION 2005 PROGRAM

4.1: SWOT ANALYSIS
STRENGTH:
New Management
Gross Margin 15 Times the Industry Average
One of the best marketers in the world
Diversified brand portfolio: more than 300 brands with more than
79 billion in Revenue
Tightly integrated with the largest retailers in the US and around
the world
Product innovation
Talented management
Distribute to 80 Countries
Distribution channels all over the world
New Billion Dollar brands
WEAKNESS:
Top Brands Losing Market Share
Health and Beauty Women Only
Lagging behind in online media presence & leadership
Missing opportunity: Refuses to manufacture private label products
for its retail customers

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 Slow Process Heavy Culture

Views Product Performance only
Expansion for brands is limited

THREATS:
Substitute brands that have a cheaper price
Private label growth
Slowdown in consumer spending in the US & globally
Key competitors expanding their product portfolios through
acquisitions

Increase in raw material price.

OPPORTUNITIES:
Health and Beauty for Men
Doubling Environmental Goals for 2012
Adding Value for the Conspiracy
Utilizing online social networks
Going Green/Eco Friendly
Capitalizing on online media
Continue to divest brands that don't align with the company's longterm goals (i.e., Folgers)
Emerging markets
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 New acquisition opportunities

Selling directly to consumers
Design for better product experience

4.2: STRATEGY FOLLOWED BY P&G

Changes in the business arena are very common, especially for
those companies which wants their business to stay in the competition
and sustain their competitive advantage among their rivals. In this regard,
companies are trying to consider change management approach to cope
with the new business trends and protect their competitive position
(2000; 2003). It is mentioned that in order to adjust with the changing
market environment, companies must create breakthroughs by
considering changes in their strategic management approach or
innovation (1996) and Procter & Gamble is never an exemption.

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In order to initiate the strategic change effectively, Procter &

gamble has been able to use various approaches and strategies which they
follow. The strategy that P&G have used two of the three general change
management approaches also known as meta-strategies (2000) which is
the empirical-rational approach and the normative-reductive approach. In
the first approach, staffs and employees are being considered as a rational
being and follow their self-interest once it has been revealed. The key
aspect of the rational-empirical strategy for strategic changes is
information through the use of new technology which fits the aim of
Organization 2005. By considering technological approach, the company
may be able to disseminate important information within and outside the
company. With this approach the increased capability of the management
to assure that all the stakeholder of the organization have access to new
systems information as it becomes obtainable provide a latest and
immediate mechanism that sustains the changes that will be done in the
organization. These technological instruments also allow the basic
principle of the empirical-rational strategy to transform the organization
with sufficient and effective information.
On the other hand, the secondary strategy followed by Procter &
Gamble is the normative-reductive strategy. Herein, the people in P&G
have been considered as social beings attached to unique cultural norms
and values. Such approach is based on the notion that various people are
inevitably active in order to satisfy their needs. In the P&G, this change
strategy has been utilized appropriately, when the employees or the
people in the organization have identified dissatisfaction due to different
cultures and values. The key aspect of its use is that, this strategy focuses
on not finding the best information to provide guidance on the rational
process but to seek an effective and efficient relationship between the
value of the whole system imposed by the organization including the
stakeholder and the values of the internal or external environment of the
organization. The changes that has been done by the company in their
Organization 2005 strategic change is their redeployment or
reorganization, and redefining of the existing norms and values of the
organizations as well as adapting to new development brought by
changes.

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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. The program worked towards speeding up decision making to
enable
the
company
innovate
and
bring
new products to the market as early as possible. It also aimed at creating a
stimulating workenvironment for P&Gs employees. The program aimed
to redesign P&Gs organization structure, work processes and corporate
culture in order to cut costs and improve its efficiency.

4.3: NATURE OF THE PROGRAMME

The growth and success of an industry now depends on its ability to
innovate to execute new business strategy effectively. Many organizations
see that changing the business strategy must become a part of the core
competency of every part of the organization and its network of business
partners. It is noted that management adheres to different changes
because of some factors. Like any other organizations or industries,
Procter & Gamble has also been able to initiate change in their business
strategy. In order to address the companys problems due to the changes
26 | P a g e

in the industry, P&G tried to develop a new strategy that will basically
allow the company to have competitive advantage, i.e. Organization
2005. The company also wanted a strategy that will improve its ordering
and billing systems as well as quality of services for the consumers. The
main scope of the strategic change is to change the culture of P&G from
being a slow-moving, conservative, and bureaucratic image to a fastmoving, modern, and internet-connected company. In addition, the
mission and vision of the P&G Organization 2005 as a strategic change is
to make the company an organization that generate faster and better
decisions, cutting red tape, be open to changes, set more aggressive goals
for sales, and double their revenue. It is also noted that the nature of the
change catalysts with the information technology (2008). Furthermore,
the scope of the Organization 2005 is to abandon P&Gs legacy of
secrecy and consider the context of being open minded and to provide
consumer-friendly portal that provides various information about the
products and business operations of Procter & Gamble (2008).

27 | P a g e

4.4: DETAILS OF THE PROGRAMME

Accordingly, strategic changes can be considered as a primary activity in
identifying and recognizing the goals and aims of a company like Procter
& Gamble (2002), even as implementation is the sensible or physical
steps of employing an innovation. It can be said that P&Gs recognition
of sections for improvement is the first level of the process of change,
which has been followed by the integration of plausible solutions to meet
the goals and objectives of change process. Actions in these sections are
being held independent of position within the working organization. The
Organization 2005 strategic change of the Procter & Gamble envisioned
their company to be an industry that provides the latest products in
households, personal hygiene, and other product offerings. It can be said
that the change programme of the Procter & Gamble made focus on the
interest of the management with technological facilities. The new
business strategy (2005) requires the use of information technology,
especially in acquiring and managing data. This interest on technology
enables P&G to meet its goal as it implements Organization 2005. The
integration of the business units and the elimination of bureaucracy and
secrecy can also be considered the main focus of the strategic change of
P&G. Furthermore, the company has the resources to support the business
strategy, which includes technological support for better marketing
activities are which is included in the business strategy (2005). Forming
strategic alliances, merging or taking over other local and global
industries is also mission and objective for the company to strengthen its
operations, overcome competitors and support its future success through
its Organization 2005.

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4.5: CHANGE IN THE ORGANIZATION STRUCTURE

Till 1998, P&G had been organized along geographic lines with more
than 100 profit centres. 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, Fabri
c & 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. The number of profit centres was narrowed
down from earlier 100 to just 7. The GBU structure was further
strengthened and integrated with eight regional market development
organizations (MDOs).
The MDOs aimed at maximizing the business potential of the complete
product portfolio in their respective local markets. The MDOs had to
identify those business opportunities that were missed out earlier because
of lack of speed, innovation and higher technological requirements. They
also customized global programs to cater to the local markets and
designed marketing strategies based on the specialized knowledge they
had about local consumers. They were also responsible for collaborating
with other local companies and maintaining better long-term relationships
between customers and retailers. The GBUs and MDOs worked jointly to
promote P&Gs products in 140 countries.
P&G also created Global Business Services (GBS) department in order to
integrate
key
business processes such as accounting, order management, human resourc
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e systems, employee benefitsand welfare and IT services globally. GBS

assisted P&G in achieving economies of scale, better quality management
and in expediting the delivery of important business services. The
services of GBS (Refer Exhibit V) were made available to all the GBUs.
The GBS centres were operated in three regions (Refer Table I).
It was proposed that half of GBS employees would be accommodated at
the above centres and that the rest be located along with their major
customers. GBS also entered into an arrangement with several companies
like GE, IBM, HP, American Express, Johnson & Johnson, Pfizer,
Motorola and Rhone-Poulenc to learn about their best practices in
providing services and imbibe them in P&G.
TABLE I
GBS SERVICE CENTRES
Region
North America &
Latin America
Europe, Middle East &
Africa
Asia

City
Cincinnati
San Jose
New Castle
Brussels
Prague
Kobe
Manila
Guangzhou

Country
USA
Costa Rica
UK
Belgium
Czech Republic
Japan
Philippines
China
Singapore

The fourth important component of P&Gs new structure under

Organization 2005 program was Corporate Functions.
The corporate staff concentrated on improving the functional capabilities
of all the operations of the company. The GBS and Corporate Functions
played a supportive role for GBUs and MDOs by methodically creating
and managing global business services and functions.

STANDARDIZATION OF WORK PROCESSES

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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 ecommerce, web-enabled supply chain and a data warehouse project for
supplying timely data to companys various operations located globally.
P&G introduced changes in its new product development process to bring
innovative offers or products to the market faster. The company formed
innovation teams to explore promising ideas rapidly within the company
and bring them fast to the market. P&G also indicated that it would take
more risks by reducing pre-market laboratory testing requirements. It also
planned to test market products worldwide in sharp contrast to its
traditional practice of first test marketing a product in the US.
The GBUs developed and sold products on a worldwide basis replacing
the old system which allowed P&Gs country managers to set prices and
handle products as they saw fit. P&G also made efforts to simplify its
product line by standardizing product formulas and packages worldwide
and divesting non-performing brands. In the new setup, P&G was able to
cut down product development time significantly.
Through the intensive use of IT, P&G aimed at improving the efficiency
of its supply chain, facilitating more collaboration in knowledge sharing
and enabling e-commerce with the suppliers, retailers and customers.
P&G adopted a system known as Key Account Replenishment System
(KARS) that enabled the company to get automatic orders through the
Internet from retailers point-of-purchase and inventory systems. The
system did away with the need of retailers to place orders manually or
take inventory counts using handheld devices. Elaborating on the benefits
of the system, David said, Salespeople are doing more category
management now to help retailers get better assortments of products. The
Internet allows us 24- by-7 communication with retailers.

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P&G launched an Internet distribution system called Web Order

Management,
which
made
it possible for the consumers to place orders directly with P&G. The syste
m allowed orderfulfillment in substantially less time than it did when
compared to the old manual system. The company also used IT in retail
operations. In August 1999, P&G worked in association with companies
such as Johnson & Johnson, Eastman Kodak and the Consumer Products
Manufacturers Association to establish systems to ensure product security
to minimize shoplifting losses during retail sales.
P&G, continuing with its spate of restructuring, took its first initiative in
B2C e-commerce by launching a website called Reflect.com in
September 1999. It also started a new division P&G Interactive
Marketing, that aimed at understanding consumer needs by facilitating
more interaction and feedback from them through the Internet. The
division, for the first time, also developed strategies for marketing P&Gs
products online. In one such instance, P&G tapped into customer
expertise by integrating customers into the companys product
development process. P&G created P&G Advisors program to
collaborate with customers in developing new products. Customers tried
new products and provided feedback, allowing P&G to refine products
and marketing plans. P&G, before restructuring, spent $25,000 to test a
new product concept, and used to take two months to complete the test.
But with the introduction of the Internet, P&G was able to conduct the
same test at a cost of $2,500 and reap results in two weeks. P&G also
used the Internet to take these new products to market. For example, in
launching
its
Physique
hair
care products, P&G invited consumers to register on its new
Physique.com website to sample the new products. Within 12 weeks,
more than five million consumers visited the site, giving a strong thrust to
the product launch.
P&G also introduced 54 change agents (IT personnel) across its seven
GBUs. These change agents facilitated cultural and business change,
through closer coordination with product teams and making the
maximum use of IT in real-time collaboration projects. Steve David
(David),P&Gs Global Customer Business Development Officer, said,
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Our IT people are now embedded in the organization. Our teams have IT
people working side-by-side with businesspeople. The IT people are
helping build the business with the salespeople.
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 focussed on one thing: leveraging
P&Gs innovative capability. Because the single best way to accelerate
our growth our sales, our volume, our earnings growth is to innovate
bigger and move faster consistently and across the entire company.
P&G had outlined the cultural changes it wanted to achieve through the
program (Refer Table II).
TABLE II
CULTURAL CHANGES
Before Organization 2005
After Organization 2005
Misaligned objective with high
The organization is aligned on
penalties for failure.
common goals with trust as a
foundation.
Internal inspection keeps everyone
A focus on coaching and teaching
under control.
enables informed risk taking and
team collaboration.
Risk is avoided and victory is
Victory is defined as stretch with
narrowly defined.
trust and candor.
Complexity is delegated down.
Lenders take on complex
challenges.
Creating a slow moving
An organization driven by stretch,
organization that lacks stretch,
innovation and speed toward
innovation and speed.
breakthrough goals.
Under the program, P&G changed the way it looked at individual
appraisals and moved from a conservative goal-setting plan to a stretch
goal plan. Earlier P&G would appraise employees on the basis of targets
33 | P a g e

set and their achievements. But, the system seemed to have a loophole.
By setting easy targets, there was a possibility of an under performing
manager projecting himself as an achiever. Through the stretch element,
P&G sought to make clear that merely achieving targets was not
sufficient. The individuals appraisal would be on the basis of how the
stretch targets were fixed and what attempts had been made to meet them.
The
companys
goalsetting process required the employees to set stretch targets. P&G did not
concentrate only onrestructuring; it also introduced a new reward system
that recognized extraordinary contributions of the employees at every
level of the organization.
P&G discarded the old dressing code. The company left it to the
employees to decide as to what they wanted to wear at the workplace.
P&G also introduced measures to play down the hierarchy. According to
an employee, Earlier the top executives were served tea in higher quality
cups compared to what the junior level employees got. But that has
changed. Now all P&G employees sip their brew in the same white bonechina which was earlier reserved for top executives.
The efforts made to change the corporate culture was not limited to just a
few countries but were spread all over the world where P&Gs operations were
located. For instance, under the program, P&G India initiated Project Pride in
late 1999 to promote an open work culture. All the six dispersed offices
of P&G in Mumbai were brought under one roof by July 2000. There was
an overhauling of the hierarchical office structure, which would not
discriminate between senior and junior employees. In the new setup,
employees could actually see their ideas being implemented. The CEO
like all other employees sat in a cubicle in the new office. Moreover,
irrespective of the rank, all cubicles were to be of same size in all offices.
P&G also invested large amount of money in IT to facilitate more
employee collaboration and knowledge sharing. The company introduced
e-mail, intranet, and videoconferencing facilities for its employees. Jager
also urged P&Gs employees to use the companys IT tools while
communicating with fellow employees. In July 1999, 300 senior
managers were asked to download information in the form of PowerPoint
34 | P a g e

presentations from P&Gs intranet site to apprise the employees in their

department about the Organization 2005 program. Some of the senior
managers and top executives were forced to visit the companys website
for the first time.
P&G was earlier known in the FMCG industry as the one-page memo
company. The employees of P&G were asked to offer their ideas,
suggestions, or business plans in just one- page, which would in turn be
communicated to every manager, who would edit the document and
return it to be finally accepted. By embracing IT, P&G was able to
change its image from being a one-page memo company. By using chat
rooms on the companys intranet, the company attempted to change its
soft, traditional and play-it-safe culture to one of an aggressive,
outspoken and risk-taking culture. Emphasizing the importance of
intranet, Jager said, The intranet is becoming an integral part of doing
business at P&G and has become our primary forum for discussing
culture change.
Though Organization 2005 program involved significant job reduction
(Refer Exhibit VI), Jager announced that he would make full use of
normal attrition and retirements, hiring reductions, re-locations, job
retraining, and voluntary separations to help reduce the number of
potential involuntary separations. In cases of involuntary separations,
P&G would offer employees financial assistance to help them in their
new careers.
Appreciating Jagers efforts to launch several new initiatives under the
Organization
2005 program,William Steele, MD, Banc of America Securities, said, To
Durks credit, he got the company focused on brands, innovations, new
products and acquisitions. He really got P&G energized from a top-line
(sales) perspective. And over the long term, thats what
consumer- products companies need to grow their worldwide market
share.

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4.6: EVALUATION OF THE PROGRAMME

It can be said that Organization 2005 has been of the most important
strategic change that ever happened within Procter & Gamble. Through
the strategic change and the assessment made for it, it can be considered
as essential factors on determining the needs of initiating Organization
2005 within Procter & gamble. The internal and external drivers that have
been mentioned in the above analysis can be said to be good factors that
enables Procter & Gamble in having successful implementation for
Organization 2005.
It can be said that the strategic change for Procter & Gamble has
been bale to use different approaches which serves as a guiding forces for
Procter & Gamble to continuously believe on the benefits of pursuing
Organization 2005 in spite of its possible risks in some aspects, while
other aspects can also be considered as a guiding elements to be given
attention by the management of Procter & gamble to ensure that their
initiation of Organization 2005 will guarantee success and will be able to
meet their organizational objective of being the number one industry in
household and healthcare and hygiene products.

Judgment for the Change Programme

Analysis shows that the change programme made by Procter &
Gamble through their Organization 2005 initiative has been able to meet
their objectives and enhances the competitiveness of the organization. In
their change management approach, the company has been able to
support the change initiative made by their CEO. Herein, the management
and employees of the company has provided full support for the change
plan, process, and design. In addition, in order to pursue their change
management approach, the management of Procter& Gamble has also
take into consideration the context of their organizational culture. With
the support that they get and the open mindedness of the people in Procter
& Gamble, it can be said that the company has a successful change
management initiative which enable them to sustain competitive
advantage and position.

36 | P a g e

4.7: MISTAKES COMMITED

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.
Critics felt that in its pursuit to focus more on developing new products,
Jager completely ignored P&Gs well-established brands. He introduced
several new products in quick time with the hope of finding P&Gs 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&Gs established, best performing brands like
Crest, Pampers and Tide. Elaborating on Jagers mistake, Christopher
said, They spent way too much on new products. Thats a typical
problem that companies face. They spend too much on growth, and they
lose sight of their core businesses.
Another mistake that Jager committed was to presume that the strategy
of selling P&Gs products under the same name globally would be
successful. However, this strategy backfired. For instance, in Germany,
the US dish-washing detergent, Fairy was a popular brand and sold
successfully. But Jager renamed it Dawn, as it was known in the US.
Since Dawn was perceived by German consumers to be a new product,
its sales fell drastically.
Jagers measures to revamp P&Gs cautious corporate culture also failed
to yield the desired results. Analysts were of the opinion that his plan had
been
too
aggressive
resulting
in
HR problems. Managers had become critical of Jagers confrontational st
yle. Employees were nothappy with the changes made in the companys
organization structure. In Europe, approximately2,000 people were
abruptly transferred to Geneva, while 200 employees were relocated from
37 | P a g e

various parts of Asia to Singapore. As a result of restructuring, food and

beverage
managers, based in Cincinnati, US, reported to a President in Caracas, Ve
nezuela. Similarly, managers in the laundry and household cleaning
business reported to Brussels.
All the above problems had a negative effect on P&Gs financial
performance as well as on its share price. After touching a high of $117
per
share
in
January
2000,
P&Gs
stock
price
fell below $90 in February 2000. In March 2000, P&G announced that its
earnings growth for thefinancial year 1999-2000 would be about 7%. The
news sent the companys stock to its lowest level since the mid-90s. The
stock price plunged to less than $60, wiping out $40 billion in market
capitalization in just one day.
In April 2000, P&G announced an 18% decline in its third-quarter net
profit. Moreover, the company also announced that its fourth-quarter
results earnings growth would be flat compared to 15% to 17% estimated
earlier. Jager accepted responsibility for the companys problems and
resigned.
Summing up Jagers mistakes, Daniel Peris said, Jager has launched a
wide range of initiatives, and I think his credibility is beginning to wear
thin. The Organization 2005 restructuring ... I think is an excellent
program, but adding to that the mega-merger proposals, adding to that
launching rapidly, focusing relentlessly on top-line growth and launching
all kinds of product initiatives to achieve that top-line growth, they let the
cost picture get out of control.Another analyst with Olde Discount Corp.
based in Detroit, said, P&G had been in a mode to cut costs and improve
efficiencies, and they mastered that. But back then, they lost sight of the
top line (sales). Now, they've reinvigorated the management teams and
encouraged employees to take risks and come out with new products.
They've done a good job doing that, too. But now they've lost sight of the
expense side of the equation. They need to find a way to balance both of
those.

38 | P a g e

4.8: ENTER LAFLEY 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 Jagerwas 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. In one instance, he overlooked 78 senior most
general managers and appointed a 42-year old woman, Deborah A.
Henretta, as the head of P&Gs global baby care division. After the
changes in the management structure, the heads of P&Gs operating
businesses and corporate functions represented 13different countries.
Overall, the average age of P&Gs Global Leadership Council (Refer
Exhibit VII) came down to 49, compared to 54 in 1999. Lafley also
proposed to cut down P&Gs personnel strength by 25,000 (one-fourth of
P&Gs existing employee strength). By 2001, Lafley had achieved the
target of remaining 7,800 job reductions, a part of Organization 2005
program.
Lafley focused more on the major markets and leading brands. On the
contrary, Jager had focused more on new product development and tried
to build market share in developing and under-developed markets. The
sales of P&Gs leading brands including Tide, Pampers and Crest picked
up as they got more resources in terms of marketing expenditure and
manpower. Though Lafley reduced the thrust on new product
development, high potential products like Crest whitener strips and
ThermaCare heat wrap still got attention. Lafley also introduced new
product extensions in an attempt to generate growth. Major brands like
Tampax (tampons) introduced new product extensions in 2002 while
other brands planned new products. P&G introduced its new Ohm by
Olay line of body care products, which was the companys first skin-care
foraythat used natural products like ginger and jasmine. In 2002, the

39 | P a g e

company also dropped several brands including Jif, Crisco and Clearasil
that did not fit in with its global strategy.
In the midst of intense competition, the baby care, fabric & home care
and oral care businesses lost market share in the 1990s. However, under
Lafley, all the three businesses gained both in terms of increased revenues
and market share. In spite of stiff competition from companies like
Kimberly-Clark, revenues rose by 5%, to $2.4 billion, while net earnings
increased by 8%, to$241 million in the baby care segment during the first
quarter ending September 2002. Pampers rolled out its new Baby Stages
line in Europe and North America. The revenues from P&Gs fabric and
home care business witnessed a 9% growth for the first quarter ending
September2002, despite strong competition from Unilever. This was
possible due to brands like Cheer reducing its package size and price to
compete with Unilevers Wisk. Revenues in oral care business rose by
20% around the same period while Crest was able to regain #1 oral-care
brand position in the US, which it lost to Colgate in 1998. In the laundry
business too, revenues showed an upward trend. The Tide and Downy
brand were offered in different fragrances.
Under Lafley, P&G acquired Clairol in 2001 for $5 billion. The
acquisition of Clairol helped P&G to achieve a 16% ($1 billion) growth
in net earnings in the first quarter ending September2002. The market
share in the US for eight out of its top ten billion dollar brands increased
by15% during the same period. Lafley believed that P&Gs IT initiatives
under the Organization2005 program had significantly benefited the
company. He increased P&Gs expenditure on IT initiatives to $1 billion
in 2002 and planned to increase it further in 2003.
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. The total cost of
the new program was $1.4 billion (post-tax). In this new program, P&G
planned to retrench 9% of its global workforce or about 9,600 jobs. The
total number of job reductions were expected to increase from 15,000 to
17, 400.
40 | P a g e

Unlike Jager, Lafley attempted to change the culture of P&G from harsh
to soft one. He believed that P&G was a family and each employee was
its
family
member.
Though
he
announced
that part of the job reduction would be made through involuntary separati
ons, at the same time heintended to minimize that number.
Lafley felt that the new program would improve P&Gs competitiveness
and boost its long-term growth. The new program involved streamlining
of P&Gs cost structure by further reducing overheads and manufacturing
costs. Speaking about the new program, Lafley said, This program is
right for the long-term health of our business and is the next step in our
plan to restore long-term growth. Its one element of a three-part growth
plan to focus on big brands and big opportunities, consistently deliver
superior consumer value, and create a more cost-competitive, productive
organization.

41 | P a g e

CHAPTER 5: CONCLUSION
Business organization faced different level of market dynamism and
challenges. In this regard, the company are being triggered (internally and
externally) to initiate strategic change to adjust their company in the
business trends and align their operations with their environment. In the
case of P&G it can be concluded that the strategic change implemented in
the company can be considered a successful move to cope with the
changes in the environment especially in terms of technological
advancements. This strategic approach to change has made P&G promote
a good management and marketing strategy for the organization as a
whole which resulted for the company to be considered as the largest and
leader of producing new and innovative products in terms of healthcare,
personal hygiene, and household products.
In order to P&G to continue survive in the competitiveness of the
global market it is recommended that the management of the company
will continue to be open minded for changes which to adapt to the rapid
changes in the business world. In addition, in considering strategic
change, the management of P&G must be able to determine the most
appropriate approach and strategy to be used to avoid failure and
downfall. The company is also recommended to continue their reputation
of being an innovative organization, giving importance to the needs and
demands of the global market.

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CHAPTER 6: BIBLIOGRAPHY
http://ivythesis.typepad.com/term_paper_topics/2009/11/strategicbusiness-analysis-procter-gamble-case-study.html
http://ivythesis.typepad.com/term_paper_topics/2009/03/procter-

and-gamble-strategic-change-management.html#_Toc202254803
https://en.wikipedia.org/wiki/Retrenchment
https://www.scribd.com/doc/43375893/Retrenchment
https://www.scribd.com/doc/256936549/Restructing-p-g
www.slideshare.net
https://u-s-history.com/pages/h1811.html
http://businessdictionary.com

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