Procter & Gamble : Organization 2005 and Beyond
Ravi Madapati
Faculty Member
Icfai Knowledge Center
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Organization 2005 under Lafley
Alan George Lafley (Lafley), a 23-year
P&G veteran replaced Jager as president and CEO. Lafley announced he would
improve operations and profitability and rebuild the management team. The heads
of P&G’s operating businesses and corporate functions hailed from 13 different
countries.
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The new faces included Deb Henretta, head of global
baby care; Jim Stengel, global marketing officer; and Fabrizio Freda, head
of the global snacks business. Overall, the average age of the Global
Leadership Council was down to 49, compared to 54 three years earlier.
Unlike Jager, who focused on taking new initiatives in under-developed
markets, Lafley decided to focus more on big countries and big products.
He concentrated on selling Tide and Pampers in Western Europe before
talking about developing new products in Poland. The new CEO chose P&G’s
best selling brands that generated over $1 bn in sales and announced they
would receive top priority. He announced they would get the bulk of P&G’s
resources, manpower and financial backing. Lafley also announced plans to
improve the company’s competitiveness and revitalize long-term growth,
through initiatives that seemed to be an expansion and acceleration of
Organization 2005. |
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This would be
achieved by streamlining P&G’s cost structure by further reducing overhead, and
manufacturing costs. The company expected savings on this count to be
approximately $600-700 mn annually by fiscal year 2003/04. These savings would
be in addition to those projected in the original Organization 2005 program.
During 2000 Lafley reduced staffing by about 9,600 jobs worldwide, or 9% of
P&G’s workforce. About 40% were in US and about 60% outside US. Two-thirds of
the reductions came from non manufacturing functions across all levels in the
company. In manufacturing functions, reductions came as a result of both plant
closures and rationalization.
P&G also completed the remaining 7,800 separations that were part of the
Organization 2005 restructuring announced in 1999. Separations from the new
program combined with remaining separations from the Organization 2005 program
totaled 17,400. The company anticipated that part of the reduction would have
to be made through involuntary separations, but it intended to minimize that
number. The company also continued to review its businesses and new investments
with the goal of achieving sharper focus on its core businesses. While no
decisions had been reached, the company believed it could incur additional
restructuring costs as a result of this strategic review. Lafley said[1]:
“The cost benefits of strengthened competitiveness and improved productivity
are significant, but this is not just a cost-cutting program. No one ever
cost-saves their way to sustainable growth. We will invest these savings in
getting our consumer value and pricing right, continuing to invest in
innovation on core businesses and the most promising new businesses, and
continuing to provide strong marketing and sales support for our brands. All of
these actions are necessary to deliver P&G’s long-term financial goals.”
To boost growth Lafley introduced new product extensions. Big brands like
Tampax (tampons) rolled out new extensions in 2002. Other brands also planned
new products. P&G started shipping its new Ohm by Olay line of body care
products, which was the company’s first skin-care foray that used natural
products like ginger and jasmine, and also included new technologies such as a
body mist. Research oriented units like P&G Pharmaceuticals continued to invest
in new products.
Sales of the unit’s flagship brand, the Actonel osteoporosis drug, approached
$400 mn in 2002. In baby care, Pampers rolled out its Baby Stages line in
Europe and North America. In laundry, Tide and Downy were offered in different
fragrances.
Lafley singled out progress in oral care, baby care and dish care businesses as
one of the best outcomes of the restructuring initiative. All these businesses
had struggled and lost market share in the 1990s but posted sales and market
share gains in 2002. P&G’s fabric and home care business posted 9% sales growth
in 2002 on unexpectedly strong gains in case of brands such as Cheer, which
recently had been offered in reduced package size and price to combat a similar
move by rival Unilever’s Wisk. Sales in P&G’s baby and family care businesses
grew by 5% despite increasing competition from players like Kimberly-Clark. The
company had dropped numerous brands in 2002 including Jif, Crisco and Clearasil
that didn’t fit with its global strategy. By early 2003, P&G had finished
reviewing its portfolio of brands. The sales growth of 6% in 2003 had been the
biggest gain since 1996. Another accomplishment for Lafley was enabling Crest
to return as the number-one oral-care brand in the US, a position it had lost
to Colgate in 1998.
Lafley believed a key enabler for Organization 2005 had been Information
Technology (IT). The company’s IT spending had reached $1 bn in 2002 and was
increasing. Organization 2005 had incorporated several IT initiatives,
including collaborative technology to facilitate planning and marketing,
business-to-consumer E-commerce, Web-enabling P&G’s supply chain, and a data
standards and data warehouse project that would deliver timely data to desktops
worldwide. The company had decentralized its 3,600-person IT department so that
97% of those employees now worked in P&G's individual product, market and
business teams, or were part of global business services, which supported
shared services such as infrastructure to P&G units. The remaining 3% worked in
corporate IT.
Lafley said[2]:
“I have made a lot of symbolic, very physical changes so people understand
we are in the business of leading change.”
Conclusion
[1]
P&G press release: Procter & Gamble announces next step in overall plan to
restore competitiveness and growth, March 22, 2001.
[2]
AG Lafley, The Best & The Worst Managers, Businessweek, Special Report, January
11, 2003.
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May 2003 , All Rights
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