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Managing and Sustaining Profitable Growth Group Presentation :

Procter & Gamble : Organization 2005 (A)


Haris Suhendra 1140003494 | Pramita Wardani 1140003121
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Table of Contents:
About Procter & Gamble
Problems
Business Analysis
Recommendation

From Candle and Soap to multinational empire


Founded in Cincinnati, Ohio by William Procter and James Gamble.
Differentiation of P&G is an aggressive investment strategy building a large factory in the 1850s despite rumors of
impending civil wars. Keywords for P&G : Rapid growth, innovations in HR managements, R&D, Distributions, Marketing
and organizational designs.

About Procter and Gamble | P&G History

Procter and Gamble Net Sales, 1985-2000

Procter and Gamble Share Price History, 1997-2000

About Procter and Gamble | The Organizational Structure Changes

Organizational
Structure:
(1948-1987)
Two different models for
US and Europe were
adopted, as US market
was more homogenous, a
nationwide brand and
product division
management was
adopted.
Western Europe is a
heterogeneous market
with different languages,
culture and laws therefore
a decentralized model was
adopted.
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About Procter and Gamble | The Organizational Structure Changes

United States
The organizational model was developed
on two key dimensions: functions and
brand.
In 1987 structure was changed and
functional units were centralized.

Europe
P&G organizational model developed
along three key dimensions:
Geography , function , brand. In 1963 ,
the European Technical Center (ETC) in
Brussels was establish to act as
centralized R&D and processengineering unit.
Problems in Europe: Corporate R&D were completely disconnected from US operations.
European functional organizations were also in isolation from US counterparts. Un
standardized , sub-scale production was expensive and unreliable. Country R&D were
expensive to maintain.
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About Procter and Gamble | The Organizational Structure Changes

Global Matrix
In late 1980s, expansion opportunities
in Japan and other parts of world led
P&G to develop globalization model.
Corporate functions in Brussels still
lacked direct control of country
functional activities. P&G started
migrating to a global matrix structure,
country functions were consolidated
into continental functions reporting
through functional leadership and
direct reporting through the regional
business manager.
In 1995 this structure was extended to
rest of the world through creation of
four regions North America , Latin
America , Europe /Middle East/Africa
and Asia.
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About Procter and Gamble | The Organizational Structure Changes

Global Matrix Problems


Most functions nominally had straight line reporting through regional
management and also reporting through functional management, the function
retained a high degree of de-facto control.
They develop their own strategic agenda, maximize power, do not coordinate
with other functions and business units.
As regional managers were responsible for profit and loss they were hesitate to
launch new product.

About Procter and Gamble | The Organizational Structure Changes

Organization 2005
Introduced by Durk Jager as an aggressive restructuring program
Designed to generate bolder innovations and accelerate their global rollout in
order to double P&G sales to 70billion in 2005 and achieve annual earning
growth of 13-15%
P&G chain of formal command was based on Geographical, Product, Function.
It changed to : product, geography, business process
The Plan also called to eliminate 6 management layers, reducing from 13 to 7
Focus was more on rolling out new products at faster rate. Implementation of
3M concept i.e product launched in last 3 year should make up certain
percentage of total turnover.
Previously organization was more decentralized and centralization coupled
with separations and negative growth rate has weaken moral of employees
Jager decided that P&G would sell its products under the same name all
around the world. So in Germany, the name of its dishwashing liquid suddenly
changed from Fairy to Dawn
Large level of transfers (2000 from Europe to Geneva ) and relocation led to
moral and behavioral changes.
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Situation (2)

Standardization of Work Processes


One of the major objectives of Organization 2005 program was to
significantly improve all inefficient work processes of P&G including its
product development, supply chain management and marketing
functions.
In order to achieve this objective, P&G undertook several IT initiatives
including collaborative technologies, B2C e-commerce, web-enabled
supply chain and a data warehouse project for supplying timely data to
companys various operations located globally.

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Revamping the Corporate Culture

The Organization 2005 program made


efforts to change P&G from :
conservative,
lethargic and
bureaucratic

modern, quick-moving
and internet-savvy
organization.

The new structure was directed


towards revamping the work culture of
P&G so as to focus on its new Stretch,
Innovation and Speed (SIS) philosophy.
Emphasizing on innovation, Jager said,
Organization 2005 is focused on one
thing: leveraging P&Gs innovative
capability.
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About Procter and Gamble | The Organizational Structure Changes

Dismantling matrix organization and replacing with interdependent organizations:


Global Business Units (GBUs) focus solely on consumers, brands and
competitors around the world. They are responsible for the innovation
pipeline, profitability and shareholder returns.
Market Development Organizations (MDOs) are charged with
knowing consumers and retailers in each market where P&G competes
and integrating the innovations flowing from the GBUs into business
plans that work in each country.
Global Business Services (GBS) utilizes P&G talent and expert
partners to provide best-in-class business support services at the
lowest possible costs to leverage P&Gs scale for a winning advantage.
Lean Corporate Functions ensure ongoing functional innovation and
capability improvement.

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About Procter and Gamble | The Organizational Structure Changes

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Problems

Problems

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Problems

Durk Jager , had introduced a restructuring program named Organization 2005


designed to accelerate sales and innovations. In past P&G chain of formal
command put geography first, followed by product and function.

In new design, P&G was structured as 3 interdependent global organizations, one


organized by product category, one by geography and one by business process.

Problems
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 reduced to half in last six months.
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Business Analysis

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Strength

Weakness

The corporate ability to create new


strategy
Prompts organizational
workforce to work on innovations
and competitive advantage;
Strong global brand

SWOT Matrix
Opportunities

integration of information
technology
the strategic arrangement of
organizational structure into
business units with five key
elements
expand its operations and even
potential business cooperation

Threats

The inability to handle change


management
the unprecedented business
trends and rapid competition

Organization 2005 affected human


resources and overall employment
as there is massive transfer of
employees to various countries
that resulted to the difficulty of
adapting to changes.
The confrontational management
style of Jager and failure to
conduct more intensive research
and development

Strength Opportunity
Expand the business to
another country
The product could be globally
standardize, but it must
contains local taste in their
products development

Weakness Opportunity
Campaign about the new CEO.
Build Leadership Strategy
Campaign about value of the
P&G product

Strength Threats
Innovation in technology for
efficiency
Create a good customer
service and communication to
their customers

Weakness Threats
Must create a good corporate
culture phase by phase
Corporate must have a good
communication and the
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executives must support all
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employees

Recommendations

Not just strategy but Organization

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Recommendation - To ensure the success out change program organization 2005

Building an organization with the


competences, capabilities, and resource
strengths to execute strategy successfully.

The key to success full transformation is


employee buy in.
Proactive two way communication is the
key to achieve that.
The top management of the organization
has to meet a good number of employee
across all level, functions and countries to
seek feedback and provide clarification on
Organizations 2005

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Recommendation - To ensure the success out change program organization 2005

Shaping the work environment and corporate


culture to fit the strategy.

The Change should be implemented


globally at a rapid speed
It requires aggressive plan and executives to
implement the same
The new structure and work has to be
designed across all global operations,
assignment of people finalized and
communicated and the new organizations
started up on schedule

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Recommendation - To ensure the success out change program organization 2005

Marshaling resources behind the drive for good


strategy execution and operating excellence.

An important element should be to give the


great degree of standardizations to the local
management align their own design with
global strategy
This will give a feeling of independence to
the local management while the global
standard will also be met

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- not just strategy but organization -

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