ANALYSIS OF PROCTER & GAMBLE:

ORGANIZATION 2005(A)

Strategic Management II

Group 2 - Section D
Ankita | Deepak | Harshal | Kashish | Mridul |Praneeth | Saurabh | Shagun
Shift in Organizational Structures 1948-1987
Organization 2005
Why did the US organizational structure shift from product
grouping in the 1950s to Matrix in the 1980s?
Rationale:
Brands competed with one another and at the same time they had shared access to divisional functions like R&D and
manufacturing
However each brand was responsible for its individual profit contribution
Product categories also required differentiated functional activities
So, a divisional structure with shared functions was not able to keep up

Modification:
In the Matrix structure brands were managed as a component of category portfolios
Each category business unit had its own sales, productivity development, manufacturing and finance functions
Every category BU was headed by the respective category general manager
The functional leaders reported directly to the business leadership and to the functional leadership through a dotted
line reporting

Advantages:
With decentralization each category could now have its differentiated R&D, manufacturing, product development etc.

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Why did the European organization structure shift from
geographic grouping in the 1950s to category management in
the 1980s
Rationale:
With geographic grouping manufacturing operations were unstandardized and subscale thus increasing cost and
lowering reliability
Based on geographies there were unnecessary product modifications thus leading to more SKUs which increased
packaging costs and supply chain complexity
Country R&D labs were expensive to maintain
The company had to promote cross border co-operation and improve bottom lines

Modification:
Regional committees were formed comprising of large country managers and corporate functional leaders
The focus shifted from geographies to product categories
Product category division VPs were established who were responsible for the continent wide profit and loss for that
category

Advantage:
The restructuring proved successful in Europe

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Why were the two structures integrated into a global cube in the
1990s?
Reasons
P&G anticipated the needs for expansion opportunities in Japan and other developing markets
Corporate functions in Brussels still lacked direct control of country functional activities
The integration contributed to economies of scale and cost saving
P&G wanted to improve the coordination of category and branding strategies world wide
To create powerful & independent global functions by:
Promoting knowledge pools
Transfer of best practices
Elimination of intra regional redundancies
Standardization of activities

Problems:
Most functions had straight line reporting through regional management and reporting through functional
management, the function retained a high degree of de-facto control
They develop their own strategic agenda, maximize power, do not coordinate with other functions and business
units
As regional managers were responsible for profit and loss they were hesitate to launch new product

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What are the key distinguishing features of the organization
2005? Why did P & G adopt this structure?
Distinguishing factors of organization 2005
Matrix structure was dismantled and replaced by following structure:
7 global business units, primary responsibility of product
7 market development organizations, primary responsibility of markets
Global business service unit, for managing internal business processes
Primary objective is to increase speed and globalize innovations
Growth expectations:
Sales growth: 6-8%
Profit growth: 13-15%

Reason for adoption of this structure

To ensure stability in long term across all innovations
Prevention of future failures as risk averse business
Tradeoff between cost and performance
For better alignment and cost cuts through:
Exchange of ideas
Technological connection, rapid and smooth transfer of technology across all businesses.

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