Restructuring P&G

            
 
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Case Details:

Case Code : BSTR068
Case Length : 20 Pages
Period : 2003
Organization : Procter & Gamble
Pub Date : 2003
Teaching Note :Not Available
Countries : USA
Industry : FMCG

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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"Organization 2005 marks the most dramatic change to P&G's structure, work processes and culture in the company's history." 1

- Durk Jager, Former President & CEO, P&G.

Introduction

The US based Procter and Gamble (P&G), one of the largest fast moving consumer goods (FMCG) companies in the world, was in deep trouble in the first half of 2000. The company, in March 2000, announced that its earnings growth for the financial year 1999-2000 would be 7% instead of 14% as announced earlier. The news led P&G's stock to lose $27 in one day, wiping out $40 billion in its market capitalization.

To add to this, in April 2000, P&G announced an 18% decline in its net profit for January - March 2000 quarter. For the first time in the past eight years P&G was showing a decline in profits. In the late 1990s, P&G faced the problem of stagnant revenues and profitability (Refer Exhibit I). In order to accelerate growth, the erstwhile P&G's President and CEO, Durk Jager (Jager) officially launched the Organization 2005 program in July 1999. Organization 2005 was a six-year long organizational restructuring exercise which included the standardization of work processes to expedite growth, revamping the organizational culture in order to embrace change, reduction in hierarchies to enable faster decision-making, and retrenchment of employees to cut costs.

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With the implementation of the program, P&G aimed to increase its global revenues from $38 billion to $70 billion by 2005. According to analysts, though Organization 2005 program was well planned, 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. This resulted in the decline of the company's revenues and profitability. After a brief stint of 17 months, Jager had to quit his post. In June 2000, Alan George Lafley (Lafley) took over as the new President & CEO of P&G. 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 (Refer Exhibit II). The company's share price shot up by 58% to $92 by July 2003, as against a fall of 32% in S&P's 500 stock index. A former P&G executive, Gary Stibel said, "If anybody had any doubts about AG, they don't anymore. This is about as dramatic a turnaround as you will see."

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1] As quoted in the article, "Organization 2005: Drive for Accelerated Growth Enters Next Phase," in www.procter.se, June 9, 1999.

2] As quoted in the article "Procter Entrusted to Lafley," by Cliff Peale, The Cincinnati Enquirer, April 11, 2002.

 

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