Case Study

P&G and Unilevers Organizational Structure: Lessons to learn

In 2005, CEO Jager of P&G saw a need for a change in the organizational structure, he
saw that employees seemed too complacent, not innovative, under conservative
hierarchy structure, and in turn, suppressed the profits he set as a new goal.
CEO Jager wanted to increase profit, be proactive in innovation, but to his surprise he
could observe employees mindset is the biggest challenge.
Jager took the geographic divisional structure and implemented a 6 product type
organizational structure as under:

With this structure, the CEO wanted to rationalize the P&G and retrenched 15,000
employees. Also the CEO focused on organizational goal of increased production and
innovation with technology support. Thus the CEO has taken into consideration three
important determinants of organizational goal, i.e., increased production, innovation,
and technology support. Along with this the CEO also factored human resource
determinate based on higher skilled and educated employees, focusing on the nature of

the business being one that serves customers needs and offers improved and
innovative products.
By implementing this structure, the CEO could decentralize power referring decision
making to lower level managers, expediting resolving of issues. High skilled human
resources, complex technology and multifaceted strategies required this type of
structure to provide a more flexible environment to respond to uncertainty, expedite
management decisions, and allow for adaptation to changes. In addition, the employees
could not only gain expertise in one area, but also learn from each other yielding
innovation, brainstorming, and empowerment.
Research and development based on product could boost new ideas, stronger
marketing by focusing on what customers want in a product rather than in a region. By
focusing directly on products in each division, research can be done solely on feedback
from customers in a certain area of products, as well as being proactive in new product
development to focus on socially responsible issues such as environmentally friendly
products, health conscious products, and improved baby products and so on. This also
removed dual reporting and a tall structure of hierarchy. Cross-functional managers
could enhance product development, research, and sales and result in a more flexible,
employee-content but progressive company working at a more efficient and effective
rate.
Overall for the CEO this was a great plan to achieve business results through
organizational restructuring.
Experience belied
Results however not as was presumed. Critics say this was a `forced adaption
approach. With his aggressive vision, the CEO wanted the employees to adapt.
Meantime P&G went for new investments and acquisitions. With too many projects
without required influence and control, P&G has experienced difficult phase under CEO
Jager, and ultimately the Board had to ask him to quit within 17 months of his office.
Analysis indicates Jager failed to include his employees, especially middle management
who is the mouth pieces of executive management. He failed to influence and persuade
them. How would he have done this? This is where we need communication. When
management has a new idea, new challenge, or new issue, it is imperative employees
know about it. Sure, they don't have to know every single detail, but they should be
gathered and told about the idea. They must feel they are a party to it.
Any organizational restructuring initiative without assessing its impact on the employees
and other stakeholders, like what Jager did, would inevitably fail, as structure of an

organization establishes the `working relationships amongst human resources to

achieve goals.
P&Gs experience therefore teaches us a companys organizational structure is the
foundation of what brings job design, task grouping, business goals, employee relations,
employee mindset, efficiency, and efficacy together in a visual and interactive map of
reporting and working relationships. Strategies, resources, technology, and goals are
factors to consider when implementing a structure. However; the leaders style and
influence also plays a part in whether the structure will work soundly.
P&Gs Structure Now
P&G today combines global scale benefits with a local focus to win with consumers and
retail customers in each country where P&G products are sold. The resultant structure
at the apex level therefore now looks like this:

P&G now grouped its Global Business Units (GBUs) into four industry-based sectors as
part of the companys ongoing plan to improve business performance. The businesses
in each sector are focused on common consumer benefits, share common
technologies, and face common competitors.
P&Gs Market Development Organizations (MDOs) are focused on understanding
consumers and retailers in each market. MDOs integrate the innovations flowing from
the GBUs into business plans to grow our business in each country, using their
expertise in sales, logistics and retail execution.

Global Business Services (GBS) utilizes P&G talent and expert partners to provide bestin-class business support services at the lowest possible costs to leverage P&Gs scale
for a winning advantage.
Lean Corporate Functions ensure ongoing functional innovation and capability
improvement.
With decline in operative income from 2009-2012, P&G could experience a reversal
trend in its revenue growth (0.58%) from year 2013. The company now engaged its
former CEO, Mr. A.G. Lafley, back in May 2013.
With the aim of improving business performance, the company further altered its GBU
structure as under:

With this structure, P&G now organized their GBU into four industry-based sectors;
global baby, feminine and family Care, global beauty, global health and grooming and
global fabric and home care. As a result, feminine care will move from health care to
global baby, feminine and family care. Furthermore, pet Care will be switched from
fabric care and home care to global health.
As a result of this restructuring, the company can have an industry-wise and geographic
focus. Through this restructuring, the company can improve its market shares in
diversified industries and the geographies it operates in. The company can further
penetrate existing markets while concentrating more resources into expansion
opportunities. The improvement in the company's performance during the current year

can be seen stemming from restructuring and other strategic decisions from top
management.
First shrink and then grow this is what the CEO of Unilever Paul Polman now profess.
Unilever now wants to become lean and meanfocus on big products (those that get
1 billion-plus in sales) for growth, reduce its number of stock keeping units (SKUs),
improve working capital management, cut headcount and focus on margins rather than
on sales growth alone. SKUs represent the total unique units of all brands (that is, all
sizes and variants). Unilever also wants to change the way it operates, removing layers
to speed up decision-making.
The seventh largest FMCG Company of the world has many things in common with
P&G (2nd largest in the world). With similar GBU model, Unilever also akin to P&Gs
restructuring plans. The chart below explains.

Unlike P&G, Unilevers organizational structure is complex because it is jointly owned

by two parent companies; Unilever N.V. and Unilever PLC. Unilever N.V. is
incorporated in the Netherlands while Unilever PLC is incorporated in England and
Wales. The Unilever Group was formed in 1930 in order for the two parent companies
as well as their group of companies to operate as a single economic entity. This single
entity is maintained by Foundation Agreements between the two parent companies
which include: the Equalisation Agreement, the Deed of Mutual Covenants, the
Agreement for Mutual Guarantees of Borrowing, and the Articles of Association of N.V.
and PLC. Thus Unilevers organizational structure serves as both a monitoring and
bonding device which helps the company streamline its corporate diversification
strategy.
Question: Reviewing both the companies details can you predict what could be
the future implications for these two companies and what should be the
appropriate strategies then?