P&G Business Case Analysis

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 three interdependent
global organizations, one organized by product category, one by geography and one by business
process.

Lack of immediate results, job reductions, reduced employee morale led to reduced profits and
stock price reduced to half in last six months.

Organizational Structure:

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.

United States

The organizational model was developed on two key dimensions: functions and brand. Brand
manager has responsibility for profitability and matching company strategy with product
category. Brand manager has access to strong divisional functions. It was more product centric.
There was competition within brand managers and this was the era when max product innovation
took place.

In 1987 structure was changed and functional units were centralized. Brands would be managed
as components of category portfolios by category general manager, to whom both brand and
functional managers would report. Each business unit has its own sales, product development,
manufacturing and finance functions. To retain the functional strength a matrix reporting
structure was set up whereby functional leaders report directly to their business leader and also
have reporting relationship to their functional leadership. Again product managers were more
powerful and responsible for profit and loss, matrix structure create ambiguity as man cant serve
two masters. Interdivision communication improved.

Western Europe

P&G organizational model developed along three key dimensions: Geography, function , brand.
The result was a portfolio of self- sufficient subsidiaries led by country GM with local market
expertise. New technologies were sourced from US, tested in local R&D and manufactured in
each country.

In 1963, the European Technical Center (ETC) in Brussels was establish to act as centralized
R&D and process-engineering unit. ETC develops products and manufacturing process that
country managers could choose to adapt and launch in their own countries.
Problems in Europe: Corporate R&D was completely disconnected from US operations.
European functional organizations were also in isolation from US counterparts. Unstandardized,
sub-scale production was expensive and unreliable. Countrys R&D was expensive to maintain.

By early 1980s, an attempted was made to promote cross-border cooperation and focus was
shifted from country management to product-category management. Headquarters at Brussels
encouraged formation of regional committees and eliminate needless product variations. The
strategy was successful and Entire Europe was divided into three sub regions, whose leaders
were given secondary responsibility for coordinating particular product category across the entire
continent. Country GMs were replaced with multiple country product-category GMs who report
to the division VPs.

Global Matrix

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. All country category GMs had reporting to their global category
president. The global category presidents and R&D VPs developed product category platform
technologies that could be applied to global branding strategies. 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.
Regionally managed product supply groups could extract massive savings by consolidating
country manufacturing plants and distribution centers into high scale regional facilities.

Global Matrix Problem

Strong regional functions produced extraordinary advantages, but in mid 1990s created grid lock.
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. Regional managers were responsible for profit and loss statement,
they often hesitate to launch a particular product even if it made sense for the company
strategically because it could weaken their upcoming profit and loss statement. As regional
managers were responsible for profit and loss they were hesitate to launch new product.

Organization 2005

In 1998, P&G started a 6 years restructuring program organization 2005.

Voluntary separations of 15000 employees by 2001

45% job separations from global product-supply consolidation.
25% from exploitation of scale benefits arising from standardized business process.
Eliminate 6 management layers , reducing the total from 13 to 7
Dismantling matrix organization and replacing with interdependent organizations: Global
Business Units, Market Development , and a Global Business Services managing internal
business process.
Conclusion

The matrix system would be expensive with increasing number of brands; there were a
number of vacancies announced with each brand launch.

Functional conflicts between departments for different interest or goals are a natural
characteristic of the matrix system that has to be effectively control by Human resources.
However, this structure could have been continued with a few HR controls as they
brought in the new structure 2005.

The cost of the structure was under control for the risk factor of introducing new brands
at country levels.

The restructuring was a right decision with limited number of control layers. The system
effectively detected product categories from 13 to 7.

Global business units can be further reduced if possible. This will also help to reduce
operating expenses.

The study shows lack of insight in planning and potential operational delays. The
company should work on contingency plan as well.

Country profit responsibilities be shared by global category leads.