In response to a huge crisis in 2000, the new CEO of Procter & Gamble has to decide whether to continue with an unusual organizational design or to revert to the old matrix organization. Describes all the organizational designs used by Procter & Gamble from the 1920s onward, including geographic, product, and matrix architectures. Market development organizations, global business units, and global business services unit, each of which is heavily interdependent with the others and none of which has a clear decision-making advantage, comprise the unusual organizational design. Examination of the different organizational designs, trade-offs associated with each organizational architecture as well as the accompanying implementation problems

1. PROCTER & GAMBLE: ORGANIZATION 2005
- Mikolaj Jan Piskorski
- Alessandro L Spadini
Presented to
Dr. Divakaar Kamat

2. 1. History
• Started in Cincinnati, Ohio by an English and
an Irish Immigrant in 1837
• They faced close to 14 competitors by 1845
so to differentiate itself, it started a large
factory in 1850’s on the rise of the civil war
• The supplies given to the Union army were
tagged as high quality products in unique
packaging developed national reputation
• The key differentiator of P&G from its
competitor’s was its inclination towards R&D

4. United States: Product Division Management
• In order to appropriately manage the growing lines of products, P&G created
individual operating divisions with their line and staff organization
• Divisional Functions transferred best practices and talent across many brands,
fostering leading-edge competencies in R&D, manufacturing, etc.
• This divisional structure do provide flexibility and specialization of competences
but there are also disadvantages such as additional cost of the canter and
duplication at functional/divisional level
2. Diverging Organization Structures(1948-1987)

5. United States: Advent of Matrix
• Brands were managed by category general manager as components of category
portfolios
• Every category and brand function (for example: R&D) would finally report to the
VP of that function ( for example: R&D VP)
• Integrate knowledge and flexible are some of advantages but there are also
some disadvantages such as ambiguity of responsibilities, authority overlap
leading to high degree of conflicts

6. Western Europe
• In Europe, P&G developed along three dimensions:
country, brand and functions
• New Product Technologies were sourced from U.S.
R&D labs and then qualified, tested, adapted by
local R&D and manufacturing organizations in the
country
• This structure led to a situation where innovation
and brands took a lot of time to globalize, since
each country were working in silos
• To resolve above issue, new structure was
implemented where focus was shifted from country
management to product management
• Cross-border cooperation across functions was also
one of the feature of this new structure

7. 3. Global Matrix (1987-1995)
Challenges with previous organization structures
Unstandardized
and subscale mfg.
operations in each
country
Innovations and
brands taking more
than 10 years to
globalize
Corporate function
in Brussels lacking
direct control over
country functional
activities

8. Global Matrix (1987-1995)
Structure

9. Global Matrix (1987-1995)
Results
Integration of mfg., purchasing,
engineering, and distribution into
one global product-supply function
Strengthening Global Effectiveness
(SGE) Program : 30 /147 plants
eliminated
By early 1990s, it took only four
years, on average, to globalize a
new initiative
P&G beauty care division grew
from $600 million to $7 billion
(pantene, olay, old spice)

10. P&G Net Sales

11. P&G Income Statement

12. P&G Cash Flow Statement

13. Global Matrix running into trouble
Global Functional Conflict
Each global function
tried to maximise its
own power within
the organisation
rather than
cooperating
Eg - Product supply tried
to reduce suppliers
globally whereas R&D
wanted high performance
ingredients irrespective of
the source
Regional
managers got
caught in this
global functional
conflict
Global - Regional Conflict
Global category
leaders & R&D VPs
wanted to globalise
brands as quickly as
possible
Whereas, Regional Managers
took decisions based on
upcoming profit/loss even if a
product launch was
strategically important for
the company
This stagnated
company’s
globalisation
track record
Each region’s
accountability for results
led to risk aversion &
avoidance of failure
Competitors started
supply chain
consolidation which led
to drop in sales growth

14. 4. Organization 2005
 September-1998
 6-year restricting plan
 Annual saving of 900 mn
 Sales growth of 6-8 % and profit growth
of 13-15% per year
 Voluntary separation 15k employees
 Reduction of 6 management layers
(13 to 7)
 Dismantling matrix structure and
adopting amalgam of inter-dependent
organization
 Global Business Units (GBUs)
 Market Development
Organizations (MDOs)
 Global Business Services (GBSs)
 To improve speed of innovation and
globalization

15. Organization 2005
MDO
• Responsible for
• Tailoring global program to
local markets
• Developing market
strategies using their
knowledge of local
consumers and retailers
• Consolidation of Consumer
Business Development
(previously dispersed)
• Regionally and converted
into line functions
• 7 MDOs
• No profit responsibility
• Compensated on sales
growth
• Reported to president who
directly report CEO
Routines and HR Policies
• Committee to individual decision
making
• Budgeting streamlined

16. Organization 2005

17. Organization 2005 in Action
Oct 1999
• Sales up by 5%
• 2.6% annual
revenue growth
• Core net
earnings up by
10%
• Stock price
$118.38
March 2000
• Core earnings
10% lower than
Jan-Mar’99
quarter
• Higher than
expected raw
material costs
• Stock price
down by 30% to
$57.25
June 8, 2000
• Fourth quarter
profits flat
• Future quarterly
sales growth
estimate
lowered by 2-3%
• Poor
competitive
position

18. THANK YOU!