Procter nd Gmble nd 'Orgnistion 2005' - Case Study Example

Procter nd Gmble nd 'Orgnistion 2005' inititive Introduction In 1998, P&G's Ernings Per Shre (EPS) fell below the 14% to 15% tht Wll Street hd got used to. Revenue growth, which hd vried between 1.4% nd 5.5% between 1995 nd 1999, lso ws well Revenue growth ws slowing down prticulrly in developed mrkets due to the mturity of its estblished brnds. Hlf the brnds were mrked with potentil the growth while the rest were frozen. In retil business more nd more occupied by privtely owned lbel goods, P&G's top products were hving difficulty competing. More gile competitors were left P&G behind the mrket by lunching products, executing mrketing plns better nd finlly by fster product innovtion. It ws lso thought tht P&G's profitbility ws being slowed down due to incresing dominnce of retilers like Wl-Mrt, who controlled the point-of-sle. In n ttempt to reinforce the growth, P&G nnounced corporte restructuring progrm, clled Orgniztion 2005, in September 1998. The objective of the progrm ws to improve P&G's competitive position nd generte operting competences through more mbitious gols, enhncing greter innovtions nd diminishing time-to-mrket. This ws to be reched by considerble redesign of compny's orgniztionl structure, work processes, culture nd py structures. Orgniztion 2005 design s it ws lredy mentioned, Orgniztion 2005 is the ltest inititive by Procter & Gmble (P&G) worldwide nd the one tht defined the next phse of orgniztionl development nd growth. The progrm ws bsiclly put in plce to ccelerte the compny's growth, to double revenues between 2000 nd 2005 nd ultimtely to increse long-term nnul sles growth to 6-8 per cent nd ernings per shre growth to 13-15 percent in csh on the next five yers. The reorgniztion ligned the compny so tht plnning nd mnging the business were done on globl bsis. P&G orgniztionl culture, its structure, nd how work would be done were three key items tht the chnges would impct. In order to rech this gol nd implement the Inititive 2005 into life, the compny hs to invest $1,9 billion fter tx nd ffect 15, 000 jobs worldwide over this time period, beginning the fiscl yer of 2004. The progrm imed to generte nnul fter-tx svings of pproximtely $900 million by fiscl yer 2004. Bsic progrm elements included: 1) Stndrdizing production lines nd ligning production cpcity with the new business on globl bsis nd with n increse of mrket growth; 2) Plcing Compny's Globl Business Services to stndrdize systems, reduce internl opertions nd better serve customers worldwide; 3) Simplifying Compny's orgniztionl structure to reduce hierrchy nd hurry up decision mking. From the words of P&G Chief Executive Durk I. Jger, the compny ws ment to redesign orgniztionl structure completely, struggle for constnt innovtions through work process, substntil finncil benefits, fster speed of mrket nd greter growth. Under Orgniztion 2005, P&G is chnging from four business units bsed on territoril regions to seven Globl Business Units (GBU) bsed on product lines. This chnge is designed to drive greter innovtion nd speed by emphsizing strtegy nd profit responsibility globlly on mrkets, rther thn territories. P&G lso estblished eight Mrket Development Orgniztions (MDO), the regions whose objective ws to tilor globl mrketing progrms to locl mrkets nd develop mrket strtegies to build compny's entire business on superior consumer nd customer knowledge. Within Orgniztion 2005, P&G lso lunched Globl Business Services (GBS). Its overhed functions such s humn resources, ccounting, order mngement, nd informtion technology were consolidted from seprte geogrphic regions to one corporte orgniztion tht would serve ll GBUs. Finlly, P&G redefined the role of Corporte Functions. Most of the corporte stff were trnsferred to one of the new business units, with the remining stff refocused on developing cutting-edge new knowledge nd serving corporte needs. Costs of the Progrm Orgniztion 2005 involved substntil costs. Of the pproximtely $1.9 billion in costs, $400 million were plnned for 1999, $1 billion over the next two fiscl yers, the blnce during fiscl yers 2002-2004. However, these costs were expected to be more thn offset by svings from the progrm. The compny expected to increse its fter-tx profits by pproximtely $600-700 million nnully by fiscl yer 2003/04 nd $900 million by fiscl 2004. pproximtely 10,000 positions would be eliminted through fiscl 2001 with further 5,000 cut fter 2001. P&G indicted tht pproximtely 42% of totl workforce reduction would occur in Europe, Middle Est nd fric; 29% in North meric; 16% in Ltin meric; nd 13% in si. Despite the substntil retrenchment, Jger remined confident tht employee morle would not be ffected. He believed tht Orgniztion 2005 ws bout ccelerting growth, not cutting jobs[1]. "These job reductions re principlly n outgrowth of chnges, such s stndrdizing globl mnufcturing pltforms, to drive innovtion nd fster speed to mrket, s lwys, we hve considered these decisions very crefully with deep concern for the impct on our people. We would crry out the chnges with mximum respect nd ttention to the welfre nd future of our employees". "We will crry out the chnges with mximum respect nd ttention to the welfre nd future of our employees," Jger continued. "To tht end we will mke mximum use of norml ttrition nd retirements, hiring reductions, re-loctions, job re-trining, nd voluntry seprtions, we will work with our people nd offer them finncil ssistnce to help them bridge to new creers. We will continue to set high stndrd in supporting nd respecting our employees' futures t this time of mjor chnge". Let us further look t the detils of the progrm nd review the shortcomings tht lter led to Jger's resigntion nd filure of the progrm. Product supply: Compny's Progrm chnged the pproch towrd supply of the products s it now becme truly globl process. The costs relted with product supply chnge were oriented on simplifiction nd stndrdiztion of production lines to deliver greter flexibility nd reduce the time required to convert production equipment to support new inititives. The remining costs were spent on ligning the compny's production opertions with the needs of the new globl business units. These chnges, s it ws expected, would ccelerte mrket shre nd decrese the costs. Reengineering process included closing up ten plnts nd number of individul production modules, resulting in the elimintion of 6, 700 positions globlly over the next six yers. Globl Business Services: this movement, s ws lredy notices, ws designed to sctter business ctivities to regionlly bsed centers to leverge scle nd stndrdize work processes to simplify opertions, provide better services nd reduce costs. The loctions for GBS service were identified s follows: North meric nd Ltin meric (Cincinnti (US), Sn Jose (Cost Ric); Europe, Middle Est, fric (Newcstle (UK), Brussels (Belgium), Prgue (Czech Republic); si (Kobe (Jpn), Mnil (Philippines), Gungzhou (Chin), Singpore). The implementtion of this orgniztionl inititives ws expected to result in the elimintion of 3, 900 current position globlly with the mjority of these impcts occulting three to five yers. Other Progrm Inititive 2005 Costs: The costs were lso directed to ligning the orgniztion with the new globl structure while reducing hierrchy to speed decision mking, stremlining orgniztions to reflect externl chnges such s globl trde customer consolidtion, nd other orgniztion simplifiction to deliver the Progrm's design. In generl, this prt of the progrm ws ment to reduce in the elimintion of 4, 400 positions over the period of six yers. From ll the fcets in bove it cn be concluded tht Progrm Orgniztion 2005 ws bsiclly focused on one thing - leverging P&G's innovtive cpbilities. Becuse the only wy to ccelerte the growth (sles, volume nd erning growth) ws to innovte bigger nd move fster consistently nd cross entire compny. Jger's filure nd Progrms downstrem Soon fter it ws introduced, Orgniztion 2005 rn into mny obstcles to chieve wht ws thought to incorporte into life of the compny. fter reching $117 shre in Jnury 2000, the stock fell below $90 shre in Februry. On Mrch 7, 2000, P&G wrned tht its ernings would drop by10-11%, rther thn rise by 7-9% s previously expected, citing higher rw mterils costs, lower reliztion nd incresing competition from mny generic brnds tht produced cheper versions of mny of its core products. The news sent the compny's stock to its lowest level since the mid-90s. The stock price plunged to less thn $60 shre wiping out $40 bn in mrket vlue in one dy. Then in pril 2000, P&G posted n 18% decline in third-qurter profit, its first decline in eight yers. It lso nnounced tht fourth-qurter results would fll short of estimtes. Jger ccepted responsibility for the compny's problems nd resigned. But he mintined: "I m proud of the vision we set out to chieve with Orgniztion 2005, nd we've mde importnt progress. It's unfortunte our progress in stepping up top-line sles growth resulted in ernings disppointments". nlysts tried to define the resons behind Jger's filure. It ws concluded tht Jger put too much pressure on P&G mngers into bringing products to mrket fster. He hd lunched min chnges such s the dul cquisition of Wrner-Lmbert nd mericn Home Products, which were useless. None of these improved P&G's performnce. Jger's exhorttions lso did not go well in P&G's cutious corporte culture. His pln hd been too ggressive. He hd introduced new products irresponsibly in the hope of finding the next billion-dollr product. He hd decided tht P&G would sell its products under the sme nme ll round the world. So in Germny, the nme of its dishwshing liquid suddenly chnged from Firy to Dwn, the nme it sold under in US. But since Dwn ws unknown in Germny, sles plummeted. There were lso problems relted to humn resources. Mngers hd become criticl of Jger's confronttionl style. s employees felt they were being pushed, there ws significnt disillusionment. In Europe, bout 2000 people were suddenly moved to Genev. bout 200 employees were sked to move from vrious prts of si to Singpore. Besides trnsfers, the progrm hd lso led to vrious behviourl problems. s result of the Orgniztion 2005 progrm, some food nd beverge mngers, bsed in Cincinnti, reported to president in Crcs, Venezuel. Mngers in the lundry nd household clening business reported to Brussels. Conclusion The progrm Orgniztion 2005 ws expected to be completed by June 2003. fter the ouster of Jger, Lfley hd shifted the focus from new inititives to dvncing the mrket shre of big brnds in developed mrkets. Mngers believed tht overll, Orgniztion 2005 hd brought the much-needed discipline to P&G's globl mrketing efforts but ws suggested tht lot of work remined in convincing people tht the experience in running the progrm hd brod ppliction. Progrm Inititive in generl innovted nd cut costs while growing profits by double digit mrgins every yer. References 1. Mckenzie, Susn., The Procter & Gmble Compny, ccounting For Orgniztion 2005, Hrvrd Business School Cse, Februry 2002. 2. Vedpuriswr V, The Globl CEO: Lessons From World's Leding Corportions, Vision Books, 2001. 3. Brooker, Ktrin, Schlosser, Julie; The un-CEO, Fortune, 9/16/2002. 4. Serwer, ndy; P&G's Covert Opertion Fortune, 9/17/2001. 5. Brown, Eryn; Loving P&G, Leving Dot-Com, Fortune, 05/29/2000. 6. Foust, Den; Wiped Out Businessweek, 2/24/2003. 7. Specil Report, The Best nd The Worst Mngers, Businessweek, 1/11/2003. 8. Brrett, my, Lvelle, Louis; It's Getting Lonely t The Top, Businessweek ,11/13/2000. 9. Neuborne, Ellen, Berner, Robert., Wrm nd Fuzzy Won't Sve P&G, Businessweek, 6/26/2000. 10. rndt, Michel, McNtt, Robert; Veggie Clener To Shine Up P&G Stock, Businessweek, 4/17/2000. 11. The color of money, The Economist, Mrch 8, 2003. 12. Mr. Lfley's mkeover, The Economist, Mrch 20, 2003. 13. Procter's Gmble, The Economist, June 10, 1999. 14. Jger's Gmble, The Economist, October 28, 1999. 15. Kroll, Luis; Fresh Fce Forbes, 7/8/2002. 16. Beverges, Forbes, 5/21/2001. 17. Swibel Mtthew., Spin Cycle, Forbes 4/2/2001. 18. Pele, Cliff; The Lfley Method: Fce the Fcts, Think Like Consumer, The Cincinnti Enquirer, June 2002. 19. Pele, Cliff., How G. Lfley turned Procter round, The Cincinnti Enquirer, June 2002. 20. Pele, Cliff., Up Next, Innovtion nd Cost Cutting, The Cincinnti Enquirer, June 2002. 21. CNN Money, P&G CEO quits mid woes June 8, 2000. 22. McCoy, Michel., Product Report, Sops & Detergents, Chemicl & Engineering News,1//15/2001. Read More