COMP 101 Lecture 1: lecture-notes-case-study-pg-analysis-strategy-organization-and-marketing
Procter & Gamble: Organization 2005 (A) + (B)
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• In June 2000, a the new CEO, Mr. Lafley sub entered Mr. Jager,
the old CEO who made the company lose $70 billion in market
value in a 17 months time – frame (shortest in P&G’s history);
• Jager’s aggressive restructuring program: “Organization 2005”
was designed to bolder innovations and to accelerate their
global rollout.
• P&G’s chain of formal commands comparison (Organization
Design):
o In the past:
! 1st: geography
! 2nd: product
! 3rd: function
o “Organization 2005” " three interdependent global
organizations organized differently:
! One by product category
! One by geography
! One by business process
1.2. Dilemma
• “Organization 2005” resulted in:
o Flat sales
o Negative core earnings growth
o Consequentially, job reductions and low employees
morale
o Loss of P&G’s advantage in the market, competitors are
taking away market share in many product lines and
regions
• Mr. Lafley’s problem:
o Step back to previous Organizational design (Matrix)?
o Or Keep “Organization 2005”?
o Does P&G ($38 billion multinational company) have to
compete in over 50 categories with more than 300 brands
across multiple types of products?
o Should P&G create value by splitting the company in
stand-alone businesses?
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2. About Procter & Gamble
2.1. Brief History of the company:
2.1.1. 1837-1948:
• Founded in Cincinnati by Mr. Procter (candlemaker) and Gamble
(soapmaker) " Partnership in 1837;
• 1850s: aggressive investment strategy " build a large factory
• Focus on Product Innovation:
o James Gamble (son) is a chemist and makes “Ivory”
o soap and candle making process becomes a science
• 1882: “Ivory” is the first product marketed nationally (P&G is a branded-
good producer)
• 1887: mass production begins
• 1890: First centralized R&D labs
o more diversification into other chemistry-based consumer
industries (cooking oils, detergents, personal care, paper,
pharmaceutical) (EXIBIT 1)
• 1924: First market research department
• 1920s: managers are “entrepreneurs” and manage brands as
companies
• 1931: competitive brand management
o Brand managers can target different consumer segments
o Consumer focused business decision made at lower levels in
the hierarchy.
• 1943: First product category division (personal care products in the
drug-product dept.)
• Centralized function were retained in areas such as R&D and
manufacturing
o Conflicts among R&D and Brand Managers
2.1.2. 1948-1987: Diverging Organizational Structure
• 1948: first international sale division
o US: homogeneous market
! Brand and product division management
o Western Europe: heterogeneous market, different languages,
cultures, laws
! Decentralized hub-and-spoke model
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