Raffi Semerciyan |August 21th, 2010
P&G Case Report
The case takes us back in June 2000, facing two main issues slumping in stock price and leadership crisis when Jager the CEO at that time steps down and is replaced by Lafley. Jager initiated one year ago a reorganization of P&G called ‘Organization 2005’ in order to regain growth of sales.Mainly the new organization consist of a shift from geographical structure to a global product business divisions structure.
But Wall Street seemed to punish this move in spring 2000 when the stock price felt by 50% from its peak. P&G internal low confidence was also punishing this move and was the expression of the internal resistance to these changes.
Lafley, the new CEO who takeover Jager has now a dilemma. He must make a choice on whether or not to continue ‘Organization 2005’. He was facing several problems, first of all the lack of coordination across countries and region combined with a willing of majority of senior manager to reverse back to a regional business organization.
Our job here as EMBA students is to help Lafley in this difficult choice eliminare
To do that, we will first understand the features of the ‘Organization 2005’ and their rationales. Then we will also analyse what are the factors that we should consider before concluding with our advices.
1. What are the main features of the Organization 2005 initiative? What are their rationale?
The goal of a greater innovation and faster responsiveness was a new culture revolution. Pushing in innovation moving out the organization from the inertia with a strong emphasis of performance target and payment related.
The new organization was a new orientation from geographical to global business unit in order to reduce the burocracy internal to the old organization, thanks to a more efficient integration giving more empowering to the president of the global business unit in order to roll out the new products but at the same time also to be responsible for the P & L , and the senior manager who with a less hierchical organization was be able for a faster decision making..
• New Organizational Structure where:
▪ Profit responsibility shifted from P&G four regional organizations to seven global business units (GBU’s) who were now responsible for worldwide products in their category development, manufacturing and marketing. We believe that this is a more efficient way of managing the units as the GBU has a worldwide focus and also knows the adaptation for emerging markets.
▪ The regional organizations were transformed into seven market development organizations and are responsible for the local implementation of the GBUs’ global strategy. ▪ Functional services (HR, Accounting, payroll, IT, ...) were organized into a new global business service unit (GBS).Our understanding is if companies create business service units they plan to get rid of inefficiencies in administration and make better use of their concentrated expertise in the concerned functional service • Emphasis on performance: Increase of performance pay.
• For senior management, the performance-related variation in annual compensation would change from 20% to 80% • Stock options were extended from top management team to include middle managers. • P&G Budget setting process was organized into a single integrated business-planning process built on stretch performance targets. • Increase decision making authority of middle managers.
• Innovate bigger and move faster consistently and across the entire company In P&G´s case they needed to get a step ahead again of their competitors and they needed to achieve sustainable advantage through innovation. • Grow fast and grow profitably
• Low growth of sales during the 1990’s as a result of lack of...