CASE # 5
PROCTER & GAMBLE
For years Procter &
Gamble (P&G) has been one of the leading consumer products companies in the
world. Its Crest toothpaste, Tide laundry soap, and Ivory dish soap were first
in their markets. In 1998, however, P&G was faced with the bleak prospects
of disappointing revenue growth and demanding retail customers. For two years
the company had under achieved its financial goals for growth and revenue, and
now Wal-Mart and other retailers were demanding standardized worldwide pricing,
marketing, and distribution from their suppliers. Executives at P&G,
worried about the firm’s weakness in sales, developed a strategic plan to deal
with global competition, including getting innovative offerings to the global
market quickly. The company’s strategic plan, Organization 2005, is a multiyear
program that sets 2005 as the goal for realigning the organization into global
product-based segments from a geographic structure and changing the work
processes and culture. The strategic plan cost was estimated at $2.1 billion over
six years, but it was expected to result in annual savings of $1.2 billion
beginning in 2004. Organization 2005 reshapes P&G’s traditional
bureaucracy, which had been based on geography. The old system gave P&G’s
managers in each country the decision-making authority to set prices and offer
the products that they saw fit. Under the company’s new organization design,
global business units will be organized by category, such as baby care, beauty
care, and fabric-and-home care, to develop and sell products on a worldwide
basis. As a result of this redesign, P&G has already reduced its management
hierarchy from 144 top executives to 33.