Procter & Gamble : Organization 2005 and Beyond
Ravi Madapati
Faculty Member
Icfai Knowledge Center
In the late 1990s, growth was hard
to come by for P&G. In an attempt to spur growth in mature markets, P&G CEO Durk
Jager initiated the Organization 2005 program amidst high expectations. But, he
fumbled mid-way. Lafley, who took over the mantle seems to be on the right path
but it remains to be seen whether his moves will pay off in the long run.
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Procter & Gamble’s (P&G)
Organization 2005 was conceived as a set of far-reaching initiatives to
accelerate the company’s growth. It involved comprehensive changes in organizational
structure, work processes and culture to make employees stretch themselves
and speed up innovation. Organization 2005 also sought to leverage P&G’s
global presence. The program was intended to boost sales and profits by
introducing an array of new products, by closing plants and by eliminating
jobs. This initiative, spearheaded by P&G CEO Durk Jager (Jager) who
became CEO in 1999, was to be a 6-year, $1.9 bn effort. Jager believed
that rapid restructuring was necessary to create new growth opportunities
for P&G. While launching the program he had expressed his optimism in an
address to analysts[1]: |
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“Success is defined first and foremost in terms of
growth. Unless a company grows at an acceptable rate— year in, year out— it
can’t sustain its organization. Success also means growing profitably.
Otherwise, it can’t produce the resources and capability to invest, to take
risks, seizing new opportunities. The program we lay out here today is designed
to deliver that growth, at a consistently higher level. Just come back in a
couple of years and take a look. I believe that the best way to accelerate
growth is to innovate bigger and move faster consistently and across the entire
company”.
Jager indicated that the cultural changes he planned
to introduce would create an environment
that produced bolder, more stretching goals and plans, bigger innovations and
greater speed.
As part of the exercise, Jager redesigned the reward system to strengthen the
link between executive
compensation and results.
Corporate background
P&G was one of the most well-known consumer goods companies in the world. For
the year ended June 30, 2002, P&G reported revenues of $40.2 bn. The company was
in the Fortune Global 50 list. It owned several well-known brands that were sold
in over 140 countries to nearly five billion consumers . P&G has
operations in North America, Europe, Middle East, Africa, Asia and Latin
America. P&G has five main business segments: Fabric and Home Care; Baby,
Feminine and Family Care; Beauty Care; Healthcare; and Food and Beverage. Fabric
and Home Care was the most important segment, accounting for nearly a third of
P&G’s total sales. The division dealt with cleaning products for clothes,
surfaces, and dishes. Key brands included Bold and Tide laundry detergents, and
Cascade dishwasher powder.
Baby, Feminine and Family Care segment produced tissues and paper towels,
feminine protection products, nappies (diapers) and baby wipes. Well-known
brands in this category were Bounty paper towels and Tampax tampons. Beauty Care
products included deodorants such as Old Spice, Sure and Cover Girl, and Max
Factor cosmetics. The segment also produced fragrances, shaving products, and
shampoos such as Head & Shoulders and Pantene brands.
Healthcare products ranged from prescription drugs to toothpastes such
as Crest, as well as Pepto-Bismol and pet foods. Food and Beverage produced
cooking oil, Pringles snacks and peanut butter. It also offered drinks like
Sunny Delight and Folgers coffee.
Corporate history
William Procter and James Gamble
founded P&G as a partnership in 1837 in Cincinnati, Ohio by merging Procter’s
candle making company with Gamble’s soap business. The company grew to $1 mn in
sales by 1859. P&G’s initial foray into branding was The Moon and Stars, a
trademark that appeared on all company products starting in the early 1860s. In
1887, P&G became one of the first companies in US to offer a profit-sharing
program for its employees. In 1924, P&G was one of the first companies to create
a market research department to study consumer preferences and behavior. The
company’s marketing organization and brand management system began to evolve in
the early 1930s. In 1933, P&G’s Oxydol soap powder sponsored a radio serial
program.
P&G had been a late globalizer. But
after World War II, P&G began its international expansion in right earnest. In
1948, it established an overseas division while opening its first Latin American
subsidiary in Mexico. P&G entered Europe in 1954, Saudi Arabia in 1961 and Japan
in 1973. By 1980, P&G was operating in 23 countries and reporting over $10 bn in
annual sales. By the mid-90s, over half of its sales came from outside US. As
its global expansion progressed, P&G continued to modify its structure and
internal processes to maximize global leverage. Various initiatives were
launched to facilitate exchange of knowledge and best practices across the
company.
Organization 2005
Organization 2005 under Lafley
Conclusion
[1]P&G press release: Organization 2005 Drive For Accelerated Growth Enters Next
Phase, June 9,1999.
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