P&G Case Analysis

Pre-class, case based, assignment, Group no.
7, Sec-A, Case: P&G Case

Nikhil Thapar (WMP08024), Ashraf Jamal (WMP10061), Kush Malik (WMP10072), Mahesh M (WMP10073), Sandeep Sinha
(WMP10084)
1. Why did the US organizational structure shift from Product Grouping

(1950s) to a matrix (1980s)?
United States had a large homogeneous market which lent itself to nationwide brands
and product division management
Following were the reasons why the US organizational structure moved from Product
Grouping to a Matrix structure:
-
The main disadvantage of the Product Grouping structure was that individual
divisions were able to promote their own objectives so powerfully as to endanger
wider, corporate strategies. Thus it was dependent upon the senior directors to be
able of exercising their control over the corporate intentions, but without robbing
the line manager of their motivation to obtain the perfect results for their
business divisions.
Primary reason for making the shift was because product categories were starting
to require more differentiated functional activities but at the same time, P&G US
needed to retain functional strengths
The Matrix structure was set up to ensure that Functional Leaders reported
directly to their Business leaders and to a dotted boss as well.
To provide a stable base for specialized activities and a permanent location for the
staff members and units that integrate various activities of different functional
departments.
Another advantage of the matrix structure was higher amount of flexibility,
greater security and control over projects and products.
2. Why did the European organizational structure shift from Geographic

Grouping (1950s) to category management (1980s)?
P&G in Europe developed around 3 dimensions: country, function and brand, this was
established to make products and processes as per local tastes and norms which lead
to a self-sufficient subsidiaries which were led by General Managers of that Country.
They were called as mini-U.S's in each country reason behind as new product
technologies were sourced from U.S. R&D labs in Cincinnati, qualified, tested and
adapted by local research and development (R&D) and manufacturing organizations
in each country.
In 1963 European Technical Centre was opened and housed in Brussels, processes
were build and as per - Country Managers were responsible for profitability and
market strategy, while the Brussels regional headquarter was very hands-off, serving
mostly legal, tax and public relations entity.
As per Cole, Geographically based entities have key advantages of widely spread
markets like local knowledge of customers, access to labor market, customized
distribution, this can be seen in P&G Europe. However the disadvantages associated
with such a model are the inevitable tensions between the Head Office and the
regions concerning priorities for action and priorities for company resources.
Geographical based cultures and focus may differ away from the overall company
strategy, its culture, and thus increasing costs.
The main reason why Product grouping was not effective for P&G in Europe was
because innovations and brands were taking way too time for Globalizing.
3. Why were the structure in previous two instance integrated into a global
cube (1990s)?
P&G had two main structures: U.S matrix structure and the Western European
category management structure they both were integrated in the 1990s into a single
global cube system due to the several reasons, which are mentioned below:
-
Attractive expansion opportunities in Japan and the developing markets were the
factors which led P&G to rethink on its globalization model, particularly in
anticipation of the new challenge of appealing to diverse consumer preferences,
cultures and income levels.
P&G was also hoping for positive results in the innovation so that the
establishment of global technical centers in different regions could have more
core competencies in a specific product category.
P&G also worked upon tremendous top line and bottom line changes such as the
creation of powerful and independent global functions promoted to the pool of
knowledge, transfer of best practices, elimination of intraregional redundancies
and standardization of activities.
They were also seeking to integration the manufacturing, purchasing, distribution
and engineering verticals into one single global product supply function which will
be managing the supply chain from starting to end.
P&G was able to achieve this specific integration by 1987.
In the new global cube, P&G was also seeking for massive savings, which could be
achieved by regionally managed product supply groups - consolidating country
manufacturing plants and distribution centers to a higher scale regional facilities.
P&G also sought a stronger sales organization globally with local regional
leadership so as to develop closer global relationship.
By 1997, financial and accounting information storage had been consolidated at
three global data storage centers. P&G was also seeking global category
management whereby it aimed at developing close relationships.
Reduced duration to globalize a new initiative.
In just over a decade, increased global focus on product categories helped P&G's
beauty care division to grow from USD 600 million to a highly strategic USD 7
billion business.
4. What are the key distinguishing features of Organization 2005? Why did
P&G adopt it?
Organization 2005 was a six -year restructuring plan announced by P&G in

September 1998.
The company's objectives were to achieve a USD 900 million in annual after- tax cost
savings by 2004 after spending USD 1.9 billion over the five years.
First feature was about job separation, which was mainly for global product
consolidation and standardizing business processes.
Eliminate the six management layers, moving from 13 to 7.
Dismantling the matrix organizational structure and replacing it with an amalgam of
interdependent organizations which were: Global Business Units (GBUs), Market
Development Organizations (MDOs), Global Business Services (GBSs)
Improving the speed with which P&G innovated and globalized its innovations.
Become more agile and reduce costs through accelerated global standardization of
manufacturing processes and better co-ordination of marketing activities.
To centralize responsibility for managing processes so that it could lead on to

economies of scale while keeping the other two GBUs and MDOs to focus on their
core competencies.
Change in routine and HR policies to be bought in Organization 2005.
Reducing execution time for business tasks which earlier took months and moving
them to days
Improved Budgeting
4.2Why did P&G adopt it?

P&G adopted the structure of Organization 2005 because of the following reasons:
-
Challenges and problem which were occurring in the Global Matrix during 1995-1998.
Firstly, the matrix structure had never been symmetrical as the function had a high
degree of the de-facto control because it was able to determine career paths and
promotion for its employees.
The matrix structure was not able to fully resolve the tension between regional and
product category management.
Third reason being that, the competition was rising up fast. P&G always enjoyed the
first mover advantage in the supply chain consolidations and integration the same
with customers, but by the latter half of the decade, over 200 vendors had opened
'embassies' to WalMart in the Bentonville region. Share price was consequently
dropping by 3.3% since 1993 and the sales growth also started to slow down going
down to 2.6% in 1997 and 1998 by contrast to 8.5% on average in 1980s.
The global matrix cube was not internally scalable over the long term. As it was not
possible to assign full accountability to regional profit centers as they could not
manage it fully as a result it bought a culture of risk aversion and avoidance of
failure.

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Pre-class, case based, assignment, Group no.

7, Sec-A, Case: P&G Case

1. Why did the US organizational structure shift from Product Grouping

2. Why did the European organizational structure shift from Geographic

Organization 2005 was a six -year restructuring plan announced by P&G in

To centralize responsibility for managing processes so that it could lead on to

4.2Why did P&G adopt it?

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