Procter and Gamble
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It is the general idea that, during the 1940s, Procter and Gamble set up their first International sales division in order to control their foreign business which was growing. Earlier in 1931, the competitive brand management was implemented. During the 20th century, the company faced several changes in its structure, main of which happened in the 50s, in the 80s, and at the end of the 20th century. Most of these changes were useful in order increase the company’s profit. However, some of them resulted in serious economic crisis. This paper seeks to analyze the structural changes of the company in the following years, how structural changes influenced the company, and how the crisis situation after Organization 2005 implementation could be improved by the new CEO.
P&G Structure in the 50s
The two types of operation of the company resulted in two types of organizational operation, which influenced that the USA with its homogenous market involved itself in product division management and nationwide brand, and Western Europe, as a heterogeneous market, included many countries with different cultures, languages, and laws, which adopted a decentralized model.
During the 50s in the USA, the Company used a horizontal design of their organization. Also, P&G tried to use a product design. The following design gave an opportunity to organize the company functions that contributed to products, such as producing, developing, and selling. The main division management was based on product and brand. Products were based on brands and functions. The responsibility of decrease in profits fell on the brand managers. Considering the abovementioned structure, the most appropriate strategy that would perfectly apply to it is a differentiation business strategy, which is based on providing customers with unique services or products, which would differ from the ones of competitors.
In Europe, the company developed three main dimensions – fiction, country, and brand. As a matter of fact, P&G used a geographical design in its structure. So, the company’s president on overseas operation set up this model to accustom processes and products to local norms and tastes. In fact, country managers were used in this structure, instead of brand managers.
There are a lot of benefits in using the product design, as it allows employees and leaders to become experts and specialize in a particular product line. A branding structure and product design was appropriate for the USA, as its market was homogenous. Consequently, the Company could gain brand recognition in the market. Moreover, the Company could respond to customers’ demands, define responsibilities of every product line, and make leaders which are able to think across the functional lines.
Moreover, there are some advantages in utilizing a geographical design. It provides an organization with an opportunity to have competitive advantage in a particular region. P&G was able to adapt their marketing expertise and technology to local markets. In addition, they could save costs and time involving all distribution and production in one place, solve problems according to their location, and better understand their customers’ desires.
The strategy that perfectly fits in this structure is a focused business strategy, which gives an organization an opportunity to target a particular niche of the specific regional market or buyer.
P&D Structure in the 80s
At the beginning of the early 1980s, P&G had two different structures, one for the Western Europe, where they applied geographical design, and one for the U.S., where they applied product design. In order to integrate the product lines by grouping the similar functions for every product line, P&G applied functional design structure, which put leaders and employees into groups according to the areas of expertise and resources to perform their jobs. On the one hand, in the U.S., brands were managed as category portfolios’ components, according to which each category business unit had its own product development, sales, finance functions, and manufacturing. On the other hand, in Western Europe, the Company used a global matrix structure of functions and categories.
The main reason the Company switched to this structure is that they wanted to benefit from developing markets and expansion opportunities, such as in Japan.
Functions of the European countries, therefore, were consolidated into continental functions. These functions were characterized by direct reporting through regional managers.
In 1995, the following structure was applied to the rest of the world. As a matter of fact, it created four regions: Europe/Middle East/Africa, North America, Asia, and Latin America. Each region had its own president who was responsible for loss and profit of his region. In theory, strong regional functions could result in competitive advantages. However, in the mid-1990s, it resulted in poor strategic coordination throughout the company. It became obvious that the applied matrix structure could not resolve the conflict between the category-product and regional management. The following conflict resulted in stagnation in track record of globalizing brands and innovations. Moreover, the company faced serious competition. This resulted in sales decrease from 8.5% to 2.6% from 1980s to 1998. It was debatable whether the matrix organizational structure was effective and scalable in the long run.
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The functional department grew to some point when they were making their own strategic plans, as they were seeking more for their own goals than for goals beneficial to profitability of all Company. As a matter of fact, there was functional goal conflict between the product-category management and functional management.
In order to solve this conflict, in September 1998, the Company announced Organization 2005, a six-year plan for restructuring. In order to increase its profit, it announced voluntary separations of 15,000 workers by 2001. The second aim of Organization 2005 was to dismantle the matrix organizational structure and replace it with independent organizations, such as Market Development Organizations with main responsibility for markets, Global Business Units with key responsibility for product, and Global Business Services unit aimed to manage internal business processes. These innovations were created to improve the innovation speed.
As a matter of fact, it is evident that Jager’s new organization design was too radical in conditions of high competition. In the past, the company management put geography first, which was followed by product, and by function. The new design created two independent global organizations, organized by business process, geography, and product category. No immediate results could be reached in such situation.
Moreover, job reductions negatively affected the employees’ morale. If Jager had continued working using the old model, the company would not have faced such deep crisis. If I were Lafley, I would analyze all competing categories and brands, in order to define if it is profitable to compete in all of them. It is extremely difficult to compete in more than 50 categories, so it would be wise not to rely on the company’s marketing, as splitting the company into sets of individual businesses would bring more profit. The splitting of the company could fight the crisis and decrease sales. Moreover, I would represent a plan of increasing the employees’ morale and encourage them to continue working for the company. In order to fight the competition, I would learn more about their business strategy and try to improve the P&G business strategy.
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