PROJECT REPORT ON

A Study on the Retrenchment Strategy Adopted by P&G

UNIVERSITY OF MUMBAI

MASTER OF COMMERCE

(Banking & Finance)

SEMESTER – I

2015-16

SUBMITTED BY

Name: SAMRIDDHI RAKHECHA

Roll No.: 11

PROJECT GUIDE

Dr. Poonam Kakkad

K.P.B HINDUJA COLLEGE OF COMMERCE

315, NEW CHARNI ROAD, MUMBAI-400 004

M.Com (Banking & Finance)

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1st SEMESTER

A Study on the Retrenchment Strategy Adopted by P&G

SUBMITTED BY

SAMRIDDHI RAKHECHA

Roll No.: 11

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Smt. P.D. Hinduja Trust’s

K.P.B. HINDUJA COLLEGE OF COMMERCE315, New Charni Road, Mumbai 400 004 Tel.: 022- 40989000 Fax: 2385 93 97. Email:

NAAC Re-Accredited ‘A’

Prin. Dr. Minu Madlani (M. Com., Ph. D.)

ISO 9001:2008 THE BEST COLLEGE OF UNIVERSITY OF MUMBAI FOR THE ACADEMIC YEAR 2010-2011

CERTIFICATE

This is to certify that Ms. SAMRIDDHI SUSHIL RAKHECHA of M.Com (Banking & Finance) Semester 1st [2015-2016] has successfully

completed the Project on “A Study on the Retrenchment Strategy Adopted by P&G ” under the guidance of DR. KULDEEP

SHARMA.

________________ _______________

P ro j ec t G ui de Co-co ord in a to r

________________ ________________

Internal Examiner External Examiner

________________ ________________

P r i nc i pa l Col l eg e Sea l

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DECLARATION

I Mr. / Ms. SAMRIDDHI SUSHIL RAKHECHA student of M.Com-(Banking & Finance), 1st semester (2015-2016), hereby declare that I have completed the project on “A Study on the Retrenchment

Strategy Adopted by P&G ”

The information submitted is true and original copy to the best of

our knowledge.

Samriddhi Rakhecha

(Signature)

Student

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CONTENTS:

Sr. No. Particulars Page No.Chp 1 Introduction 61.1 Objective of the Study 71.2 Scope of the Study 71.3 Research Methodology 71.4 Vision Statement 81.5 Values & Principles of P&G 9

Chp 2 Procter & Gamble Co. 122.1 History 122.2 Product Types 152.3 Corporate Structure 16

Chp 3 Retrenchment 173.1 Meaning & Definition 173.2 Types of Retrenchment 183.3 Nature of Retrenchment 20

Chp 4 Organization 2005 Programme 214.1 SWOT Analysis 214.2 Strategy followed by P&G 234.3 Nature of the Programme 254.4 Details of the Programme 264.5 Change in Organization Structure 274.6 Evaluation of the Programme 344.7 Mistakes Committed 354..8 Enter Lafley: Implementing Strategies to Revive

P&G37

Chp 5 Conclusion 40

Chp 6 Bibliography 41

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CHAPTER1: INTRODUCTIONEstablished Year 1837

Head Quarter Ohio, Cincinnati, USA

Sales Number About $ 82,559 million ( 2011 fiscal year) CONFIRM

Product Available AreaOver 80 countries

CategorySkin care, Hair Care, House Care, Health Care, Oral Care, food…etc

Brands About 300 brands

Employee Numbers About 127,00 employees

Board chairman A.G. Lafley

CEO A.G. Lafley

Global Technical Centers 28

Billion US dollar Brands 24

Procter & Gamble Co., also known as P&G, is an American multinational consumer goods company headquartered in downtown Cincinnati, Ohio, United States, founded by William Procter and James Gamble, both from the United Kingdom. Its products include cleaning agents, and personal care products. Prior to the sale of Pringles to the Kellogg Company, its product line included foods and beverages. In 2014, P&G recorded $83.1 billion in sales. On August 1, 2014, P&G announced it was streamlining the company, dropping around 100 brands and concentrating on the remaining 80 brands, which produced 95 percent of the company's profits. A.G. Lafley, the company's chairman, president and CEO, said the future P&G would be "a much simpler, much less complex company of leading brands that's easier to manage and operate". P&G remains a highly selective employer as less

than 1% of all applicants are hired annually.

1.1: OBJECTIVE OF THE STUDY

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To study the retrenchment strategy adopted by P&G

To understand the background and working of the company.

1.2: SCOPE OF THE STUDY

To understand the retrenchment strategies applied and the changes brought about by application of such strategies on the company.

1.3: RESEARCH METHODOLOGY

The data and information used in this project are collected from secondary sources such as books, magazine articles, internet, etc.

1.4: VISION STATEMENT

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 VISION OF P&G “To be a leading consumer goods company and to improve the lives of world consumers by providing valuable and innovative products”. Ten years ago Procter and Gamble started the journey to improve the lives of Indian consumers by providing them with world famous quality brands. P&G want to be an outstanding organization with a passion for winning that would felt by everyone everyday; in the office, in the field, every where , P&G vision is to lead business growth by proactively identifying opportunities and positively contributing to volume growth.

We will provide branded products and services of superior quality and value that improve the lives of the world's consumers. As a result, consumers will reward us with leadership sales, profit, and value creation, allowing our people, our shareholders, and the communities in which we live and work to prosper.

P&G SLOGAN

“

1.5: VALUES & PRINCIPLES OF P&G

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“ Touching Lives, Improving Life”

P&G is its people and the values by which we live.We attract and recruit the finest people in the world. We build our organization from within, promoting and rewarding people without regard to any difference unrelated to performance. We act on the conviction that the men and women of Procter & Gamble will always be our most important asset.

VALUES

LEADERSHIP:

We are all leaders in our area of responsibility, with a deep commitment to deliver leadership results.

We have a clear vision of where we are going. We focus our resources to achieve leadership objectives and

strategies. We develop the capability to deliver our strategies and

eliminate organizational barriers.

OWNERSHIP:

We accept personal accountability to meet our business needs, improve our systems, and help others improve their effectiveness.

We all act like owners, treating the Company's assets as our own and behaving with the Company's long-term success in mind.

INTEGRITY:

We always try to do the right thing. We are honest and straightforward with each other. We operate within the letter and spirit of the law. We uphold the values and principles of P&G in every action

and decision. We are data-based and intellectually honest in advocating

proposals, including recognizing risks.

PASSION FOR WINNING:

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We are determined to be the best at doing what matters most. We have a healthy dissatisfaction with the status quo. We have a compelling desire to improve and to win in the

marketplace.

TRUST:

We respect our P&G colleagues, customers, and consumers, and treat them as we want to be treated.

We have confidence in each other's capabilities and intentions.

We believe that people work best when there is a foundation of trust.

PRINCIPLES

We Show Respect for All Individuals

We believe that all individuals can and want to contribute to their fullest potential.

We value differences. We inspire and enable people to achieve high expectations,

standards, and challenging goals. We are honest with people about their performance.

The Interests of the Company and the Individual Are Inseparable

We believe that doing what is right for the business with integrity will lead to mutual success for both the Company and the individual. Our quest for mutual success ties us together.

We encourage stock ownership and ownership behavior.

We Are Strategically Focused in Our Work

We operate against clearly articulated and aligned objectives and strategies.

We only do work and only ask for work that adds value to the business.

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We simplify, standardize, and streamline our current work whenever possible.

We Value Personal Mastery

We believe it is the responsibility of all individuals to continually develop themselves and others.

We encourage and expect outstanding technical mastery and executional excellence.

We Seek to Be the Best

We strive to be the best in all areas of strategic importance to the Company.

We benchmark our performance rigorously versus the very best internally and externally.

We learn from both our successes and our failures.

Innovation Is the Cornerstone of Our Success

We place great value on big, new consumer innovations. We challenge convention and reinvent the way we do

business to better win in the marketplace.

Mutual Interdependency Is a Way of Life

We work together with confidence and trust across business units, functions, categories, and geographies.

We take pride in results from reapplying others' ideas.

We build superior relationships with all the parties who contribute to fulfilling our Corporate Purpose, including our customers, suppliers, universities, and governments.

CHAPTER 2: PROCTER & GAMBLE Co.

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2.1: HISTORY

Procter and Gamble Company (P&G) was founded by William Procter and James Gamble, in 1837. Both men were immigrants to the United States.

The company began by selling soap and candles, but after the invention of Edison's electric light bulb in 1850, candle sales were so slow that they stopped production. Things looked up, however, because the U.S. Government began to order loads of soap from Procter and Gamble for Union soldiers during the Civil War.

With the increase of production demands, the company began to investigate more productive and less time-consuming ways to make soap. That eventually led the firm to many more innovative ideas and many more lines of soap, for hair, laundry, and eventually dishwashers. Other kinds of products would be born as well.

A company is formed

The two men might not have met had they not married the sisters Olivia and Elizabeth Norris. Their new father-in-law suggested that they become business partners. In 1837, the Procter and Gamble Company was born.

With intentions of heading farther west than they managed, William Procter (emigrating from England), and James Gamble (emigrating from Ireland), settled in Cincinnati

"Procter had a sick wife to look after, while Gamble had medical problems of his own to overcome. Those factors compelled the future proprietors to "stay put," so that destiny would ensure a great company in Ohio.

After Proctor's wife died of a terminal illness, he quickly prospered as a candle maker. Meanwhile, Gamble was making ends meet as an apprentice soap maker. A few months later, on April 12th, 1837, Procter and Gamble started to make and sell mass quantities of candles and soap.

A company built of soap

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In 1859, 22 years after the partnership was formed, P&G had reached $1 million in total sales, in spite of declining candle sales. Fortunately, three years later during the Civil War, Procter and Gamble was awarded numerous contracts to supply soap and candles to Union armies. Those orders kept the factory of 80 employees busy day and night. The fact that P&G supplied soldiers enhanced the company's reputation for heavy-duty quality. That was reinforced when troops came home from the war carrying P&G's soap among their belongings.

By the year 1879, a new generation of the company was emerging — while unveiling improved ideas. Founders' sons Harley Procter and Norris Gamble helped to put a new spark into P&G. Norris Gamble developed an inexpensive white soap equal to the former high-quality, imported castiles

Inspiration for the soap's name — Ivory — came to Harley Procter, where he would place $11,000 towards well-spent advertising. The name became an ideal match for the soap's virtual purity ("99 and 44/100ths percent pure"), mildness, and long-lasting quality. By 1890, P&G was selling more than 30 types of soap, including Ivory.

The year 1890 also brought an end to 53 years of the business as a partnership. The partners incorporated, and raised additional capital for expansion. William A. Procter, one of two sons of the founder, was then named the first president. P&G then set up one of the earliest product research labs in America at Ivorydale (a newly constructed plant in Cincinnati) to study and improve the soap-making process.

In 1907, following the death of his father, William A. Procter, a new president was named, William C. Procter.

Expansion and Crisco

The year 1911 saw the introduction of P&G's new Crisco product, and by 1915, the company built its first manufacturing facility outside of the United States, in Canada. The plant employed 75 people.

By 1943, following the passing of William C. Procter, new president Richard R. Deupree continued the company's robust progress. The introduction of hair products and household cleaning products gained the growing company even more ground, responding to an increasing demand for daily consumer products. When Deupree took the helm in

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1930, he didn't take long to supply the Far East with such products — by means of the Philippine Manufacturing Company.

Household products and pharmaceuticals

P&G weathered the Great Depression and World War II kept it perking. Most people who grew accustomed to P&G's convenience products couldn't put them down. What that allowed was more research and development of past products as well as newly introduced "conveniences."

By 1978, Procter and Gamble seemed to have covered all bases in household products. From "Tide" laundry detergent to feminine products, P&G dominated the industry with company expansions throughout Japan, China, Europe, and other parts of the world. The company's introduction of pharmaceuticals in the form of Didronel (a treatment for Paget's disease), spurred a further upward spiral of corporate profits.

Still a diverse company

Today, after nearly two centuries of research, development, and expansion, there are more than 300 P&G products available to the general public. If you brush your teeth, wash your hair, or take a prescription drug, chances are good that what you're using originated in a Procter and Gamble plant.

2.2: PRODUCT TYPES

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Fabric Care:

Procter & Gamble has two of its world-leading detergents – Tide and Ariel, in India to cater to the main concerns of the Indian households, namely, outstanding whiteness and stain-removal.

Ariel Front-O-Mat

Ariel 2 Fragrances

Tide Detergent

Tide Bar

Hair Care:

P&G’s Beauty Business is over US$ 10 Billion in Global Sales, making it one of the world’s largest beauty companies. The P&G beauty business sells more than 50 different beauty brands including Pantene®, Olay®, SK-II®, Max Factor®, Cover Girl®, Joy®, Hugo Boss®, Herbal Essences® and Clairol Nice ’n’ Easy®. In India, P&G’s beauty care business comprises of Pantene, the world’s largest selling shampoo, Head & Shoulders, the world’s No. 1 Anti-dandruff shampoo and Rejoice – Asia’s No. 1 Shampoo.

Procter & Gamble is committed to making every day in the lives of its consumers better through the superior quality of its products and services.

Baby Care:

Pampers

2.3: CORPORATE STRUCTURE

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P&G’s corporate structure contains four pillars which are as follows:

Four pillars — Global Business Units, Market Development Organizations, Global Business Services and Corporate Functions — form the heart of P&G's organizational structure.

Global Business Units (GBU) build major global brands with robust business strategies.

Market Development Organizations (MDO) build local understanding as a foundation for marketing campaigns.

Global Business Services (GBS) provide business technology and services that drive business success.

Corporate Functions (CF) work to maintain our place as a leader of our industries.

P&G approaches business knowing that we need to Think Globally (GBU) and Act Locally (MDO). This approach is supported by our commitment to operate efficiently (GBS) and our constant striving to be the best at what we do (CF). This streamlined structure allows us to get to market faster.

CHAPTER 3: RETRENCHMENT

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3.1:MEANING & DEFINITION

A strategy used by corporations to reduce the diversity or the overall size of the operations of the company"This strategy is often used in order to cut expenses with the goal of becoming a more financially stable business"Typically the strategy involves withdrawing from certain markets or the discontinuation of selling certain products or service in order to make a beneficial turnaround"A retrenchment grand strategy is followed when an organization aims at a contraction of its activities through  substantial reduction or the elimination of the scope of one or more of its businesses in terms of their respective customer groups, customer functions, or alternative technologies either singly or jointly in order to improve its overall performance.

DEFINITION

A strategy used by corporations to reduce the diversity or the overall size of the operations of the company. This strategy is often used in order to cut expenses with the goal of becoming a more financial stable business. Typically the strategy involves withdrawing from certain markets or the discontinuation of selling certain products or service in order to make a beneficial turnaroundSection 2(oo) the id act, 1947, defines Retrenchment as:The termination by the employer of the service of a workman for any reason whatsoever, otherwise than as a punishment inf l i cted by way of disciplinary action,But does not include-

Voluntary retirement of the workman Retirement of the workman on reaching the age of superannuation Termination of the service of the workman as a result of  the non-

renewal of the contract of employment between the employer and the workman concerned on its expiry.Termination of  the service of workman on the ground of continued ill- health

3.2: TYPES OF RETRENCHMENT

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1. Turnaround Strategies

 Turn around strategies derives their name from the actioninvolved that is reversing a negative trend. There are certainconditions or indicators which point out that a turnaround isneeded for an organization to survive. They are: Persistent Negative cash flows. Negative profits declining market share deterioration in physical facilities. Over manning, high turnover of employees, and low morale. Uncompetitive products or services, Mismanagement An organization which faces one or more of these issues is referred to as a ‘sick’ company. There are three ways in which turnarounds can be managed

The existing chief executive and management team handles the entire turnaround strategy with the advisory support of a external consultant.

In another case the existing team withdraws temporarilyand an executive consultant or turnaround specialist isemployed to do the job.

The last method involves the replacement of the existingteam specially the chief executive, or merging the sick organization with a healthy one.

2. Divestment Strategies

A divestment strategy involves the sale or liquidation of a portion of business, or a major division. Profit centre or SBU. Divestmentis usually a part of rehabilitation or restructuring plan and isadopted when a turnaround has been attempted but has provedto be unsuccessful. Harvesting strategies a variant of thedivestment strategies, involve a process of gradually letting acompany business wither away in a carefully controlled manner.

Eg:

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 TATA group is a highly diversified entity with a range of businesses under its fold. They identified their non – corebusinesses for divestment. TOMCO was divested and sold toHindustan Levers as soaps and a detergent was not considered acore business for the Tatas. Similarly, the pharmaceuticalscompanies of the Tatas- Merind and Tata pharma – were divested to Wockhardt. The cosmetics company Lakme was divested and sold to Hindustan Levers, as besides being a non core business, it was found to be a non- competitive and would have required substantial investment to be sustained.

3. Liquidation Strategies

A retrenchment strategy which is considered the most extremeand unattractive is the liquidation strategy, which involvesclosing down a firm and selling its assets. It is considered as the last resort because it leads to serious consequences such as loss of employment for workers and other employees, termination of opportunities where a firm could pursue any future activities and the stigma of failure The psychological implications.

3.3: NATURE OF RETRENCHMENT

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1) General: Retrenchment generally means "discharge of surplus labour or staff "By the employer on account of long period of lay-off or rationalization or production process or improved machinery or similar other reasons.It is adopted as an economy measure.

2) Retrenchment and Lockout

3) Retrenchment and Lay-off 

4) Retrenchment and Closure of business

CHAPTER 4: ORGANISATION 2005 PROGRAM

4.1: SWOT ANALYSIS

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STRENGTH:

New Management Gross Margin 15 Times the Industry Average One of the best marketers in the world Diversified brand portfolio: more than 300 brands with more than

79 billion in Revenue Tightly integrated with the largest retailers in the US and around

the world Product innovation Talented management Distribute to 80 Countries Distribution channels all over the world New Billion Dollar brands

WEAKNESS:

Top Brands Losing Market Share Health and Beauty Women Only Lagging behind in online media presence & leadership Missing opportunity: Refuses to manufacture private label products

for its retail customers Slow Process Heavy Culture Views Product Performance only Expansion for brands is limited

THREATS:

Substitute brands that have a cheaper price Private label growth Slowdown in consumer spending in the US & globally Key competitors expanding their product portfolios through

acquisitions Increase in raw material price.

OPPORTUNITIES:

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Health and Beauty for Men Doubling Environmental Goals for 2012 Adding Value for the Conspiracy Utilizing online social networks Going Green/Eco Friendly Capitalizing on online media Continue to divest brands that don't align with the company's long-

term goals (i.e., Folgers) Emerging markets New acquisition opportunities Selling directly to consumers Design for better product experience

4.2: STRATEGY FOLLOWED BY P&G 

Changes in the business arena are very common, especially for those companies which wants their business to stay in the competition and sustain their competitive advantage among their rivals. In this regard,

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companies are trying to consider change management approach to cope with the new business trends and protect their competitive position (2000;  2003). It is mentioned that in order to adjust with the changing market environment, companies must create breakthroughs by considering changes in their strategic management approach or innovation (1996) and Procter & Gamble is never an exemption.

In order to initiate the strategic change effectively, Procter & gamble has been able to use various approaches and strategies which they follow. The strategy that P&G have used two of the three general change management approaches also known as meta-strategies (2000) which is the empirical-rational approach and the normative-reductive approach. In the first approach, staffs and employees are being considered as a rational being and follow their self-interest once it has been revealed.  The key aspect of the rational-empirical strategy for strategic changes is information through the use of new technology which fits the aim of Organization 2005. By considering technological approach, the company may be able to disseminate important information within and outside the company. With this approach the increased capability of the management to assure that all the stakeholder of the organization have access to new system’s information as it becomes obtainable provide a latest and immediate mechanism that sustains the changes that will be done in the organization.  These technological instruments also allow the basic principle of the empirical-rational strategy to transform the organization with sufficient and effective information.

On the other hand, the secondary strategy followed by Procter & Gamble is the normative-reductive strategy.  Herein, the people in P&G have been considered as social beings attached to unique cultural norms and values. Such approach is based on the notion that various people are inevitably active in order to satisfy their needs. In the P&G, this change strategy has been utilized appropriately, when the employees or the people in the organization have identified dissatisfaction due to different cultures and values. The key aspect of its use is that, this strategy focuses on not finding the best information to provide guidance on the rational process but to seek an effective and efficient relationship between the value of the whole system imposed by the organization including the stakeholder and the values of the internal or external environment of the organization. The changes that has been done by the company in their

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Organization 2005 strategic change is their  redeployment or reorganization, and redefining of the existing norms and values of the organizations as well as adapting to new development brought by changes.

The Organization 2005 Program

In January 1999, Jager, a P&G veteran became the new CEO taking charge at a time when P&G was in the midst of a corporate restructuring exercise that started in September 1998. Jager faced the challenging task of revamping P&G’s operations and marketing practices. Soon after taking over as the CEO, Jager told analysts that he would overhaul product development, testing and launch processes. The biggest obstacle for Jager was P&G’s culture. Jager realized the need to change the mindset of the P&G employees who had been used to lifetime employment and a conservative management style.

On July 1, 1999, P&G officially launched the Organization 2005 program. It was a program of six-year duration, during which, P&G planned to retrench 15,000 employees globally. The cost of this program was estimated to be $1.9 billion and it was expected to generate an annual savings (after tax deductions) of approximately $900 million per annum by 2004. The program worked towards speeding up decision making to enable the company innovate and bring new products to the market as early as possible. It also aimed at creating a stimulating workenvironment for P&G’s employees. The program aimed to redesign P&G’s organization structure, work processes and corporate culture in order to cut costs and improve its efficiency.

4.3: NATURE OF THE PROGRAMME

The growth and success of an industry now depends on its ability to innovate to execute new business strategy effectively. Many

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organizations see that changing the business strategy must become a part of the core competency of every part of the organization and its network of business partners. It is noted that management adheres to different changes because of some factors. Like any other organizations or industries, Procter & Gamble has also been able to initiate change in their business strategy. In order to address the company’s problems due to the changes in the industry, P&G tried to develop a new strategy that will basically allow the company to have competitive advantage, i.e. Organization 2005. The company also wanted a strategy that will improve its ordering and billing systems as well as quality of services for the consumers. The main scope of the strategic change is to change the culture of P&G from being a slow-moving, conservative, and bureaucratic image to a fast-moving, modern, and internet-connected company. In addition, the mission and vision of the P&G Organization 2005 as a strategic change is to make the company an organization that generate faster and better decisions, cutting red tape, be open to changes, set more aggressive goals for sales, and double their revenue. It is also noted that the nature of the change catalysts with the information technology (2008). Furthermore, the scope of the Organization 2005 is to abandon P&G’s legacy of secrecy and consider the context of being open minded and to provide consumer-friendly portal that provides various information about the products and business operations of Procter & Gamble (2008).

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4.4: DETAILS OF THE PROGRAMME           

Accordingly, strategic changes can be considered as a primary activity in identifying and recognizing the goals and aims of a company like Procter & Gamble (2002), even as implementation is the sensible or physical steps of employing an innovation. It can be said that P&G’s recognition of sections for improvement is the first level of the process of change, which has been followed by the integration of plausible solutions to meet the goals and objectives of change process. Actions in these sections are being held independent of position within the working organization. The Organization 2005 strategic change of the Procter & Gamble envisioned their company to be an industry that provides the latest products in households, personal hygiene, and other product offerings. It can be said that the change programme of the Procter & Gamble made focus on the interest of the management with technological facilities. The new business strategy (2005) requires the use of information technology, especially in acquiring and managing data. This interest on technology enables P&G to meet its goal as it implements Organization 2005. The integration of the business units and the elimination of bureaucracy and secrecy can also be considered the main focus of the strategic change of P&G. Furthermore, the company has the resources to support the business strategy, which includes technological support for better marketing activities are which is included in the business strategy (2005). Forming strategic alliances, merging or taking over other local and global industries is also mission and objective for the company to strengthen its operations, overcome competitors and support its future success through its Organization 2005.

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4.5: CHANGE IN THE ORGANIZATION STRUCTURE

Till 1998, P&G had been organized along geographic lines with more than 100 profit centres. Under Organization 2005 program, P&G sought to reorganize its organizational structure (Refer Exhibit III and IV) from four geographically-based business units to five product-based global business units -Baby, Feminine & Family Care, Beauty Care, Fabric & Home Care, Food& Beverages, and Health Care. The restructuring exercise aimed at boosting P&G’s growth (in terms of sales and profits), speed and innovation and expedition of management decision-making for the company’s global-marketing initiatives. It also aimed to fix the strategy-formulation and profit-creation responsibilities on products rather than on regions.

The global business units (GBUs) had to devise global strategies for all P&G’s brands and the heads of GBU were held accountable for their unit’s profit. The sourcing, R&D and manufacturing operations were also undertaken by the GBU. The number of profit centres was narrowed down from earlier 100 to just 7. The GBU structure was further strengthened and integrated with eight regional market development organizations (MDOs).

 The MDOs aimed at maximizing the business potential of the complete product portfolio in their respective local markets. The MDOs had to identify those business opportunities that were missed out earlier because of lack of speed, innovation and higher technological requirements. They also customized global programs to cater to the local markets and designed marketing strategies based on the specialized knowledge they had about local consumers. They were also responsible for collaborating with other local companies and maintaining better long-term relationships between customers and retailers. The GBUs and MDOs worked jointly to promote P&G’s products in 140 countries.

P&G also created Global Business Services (GBS) department in order to integrate key business processes such as accounting, order management, human resourc

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e systems, employee benefitsand welfare and IT services globally. GBS assisted P&G in achieving economies of scale, better quality management and in expediting the delivery of important business services. The services of GBS (Refer Exhibit V) were made available to all the GBUs. The GBS centres were operated in three regions (Refer Table I).

It was proposed that half of GBS employees would be accommodated at the above centres and that the rest be located along with their major customers. GBS also entered into an arrangement with several companies like GE, IBM, HP, American Express, Johnson & Johnson, Pfizer, Motorola and Rhone-Poulenc to learn about their best practices in providing services and imbibe them in P&G.

TABLE I

GBS SERVICE CENTRES

Region City CountryNorth America &

Latin AmericaCincinnati USASan Jose Costa Rica

Europe, Middle East & Africa

New Castle UKBrussels BelgiumPrague Czech Republic

Asia

Kobe JapanManila Philippines

Guangzhou ChinaSingapore

The fourth important component of P&G’s new structure underOrganization 2005 program was Corporate Functions.The corporate staff concentrated on improving the functional capabilities of all the operations of the company. The GBS and Corporate Functions played a supportive role for GBUs and MDOs by methodically creating and managing global business services and functions.

STANDARDIZATION OF WORK PROCESSES

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One of the major objectives of Organization 2005 program was to significantly improve all inefficient work processes of P&G including its product development, supply chain management and marketing functions. In order to achieve this objective, P&G undertook several IT initiatives including collaborative technologies, B2C e-commerce, web-enabled supply chain and a data warehouse project for supplying timely data to company’s various operations located globally.

P&G introduced changes in its new product development process to bring innovative offers or products to the market faster. The company formed innovation teams to explore promising ideas rapidly within the company and bring them fast to the market. P&G also indicated that it would take more risks by reducing pre-market laboratory testing requirements. It also planned to test market products worldwide in sharp contrast to its traditional practice of first test marketing a product in the US.

The GBUs developed and sold products on a worldwide basis replacing the old system which allowed P&G’s country managers to set prices and handle products as they saw fit. P&G also made efforts to simplify its product line by standardizing product formulas and packages worldwide and divesting non-performing brands. In the new setup, P&G was able to cut down product development time significantly.

Through the intensive use of IT, P&G aimed at improving the efficiency of its supply chain, facilitating more collaboration in knowledge sharing and enabling e-commerce with the suppliers, retailers and customers. P&G adopted a system known as ‘Key Account Replenishment System’ (KARS) that enabled the company to get automatic orders through the Internet from retailers’ point-of-purchase and inventory systems. The system did away with the need of retailers to place orders manually or take inventory counts using handheld devices. Elaborating on the benefits of the system, David said, “Salespeople are doing more category management now to help retailers get better assortments of products. The Internet allows us 24- by-7 communication with retailers.”

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 P&G launched an Internet distribution system called ‘Web Order Management,’ which made it possible for the consumers to place orders directly with P&G. The system allowed orderfulfillment in substantially less time than it did when compared to the old manual system. The company also used IT in retail operations. In August 1999, P&G worked in association with companies such as Johnson & Johnson, Eastman Kodak and the Consumer Products Manufacturers Association to establish systems to ensure product security to minimize shoplifting losses during retail sales.

P&G, continuing with its spate of restructuring, took its first initiative in B2C e-commerce by launching a website called ‘Reflect.com’ in September 1999. It also started a new division ‘P&G Interactive Marketing,’ that aimed at understanding consumer needs by facilitating more interaction and feedback from them through the Internet. The division, for the first time, also developed strategies for marketing P&G’s products online. In one such instance, P&G tapped into customer expertise by integrating customers into the company’s product development process. P&G created “P&G Advisors” program to collaborate with customers in developing new products. Customers tried new products and provided feedback, allowing P&G to refine products and marketing plans. P&G, before restructuring, spent $25,000 to test a new product concept, and used to take two months to complete the test. But with the introduction of the Internet, P&G was able to conduct the same test at a cost of $2,500 and reap results in two weeks. P&G also used the Internet to take these new products to market. For example, in launching its Physique hair care products, P&G invited consumers to register on its new  ‘Physique.com’ website to sample the new products. Within 12 weeks, more than five million consumers visited the site, giving a strong thrust to the product launch.

P&G also introduced 54 ‘change agents’ (IT personnel) across its seven GBUs. These change agents facilitated cultural and business change, through closer coordination with product teams and making the maximum use of IT in real-time collaboration projects. Steve David (David),P&G’s Global Customer Business Development Officer, said,

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“Our IT people are now embedded in the organization. Our teams have IT people working side-by-side with businesspeople. The IT people are helping build the business with the salespeople.”

REVAMPING THE CORPORATE CULTURE

The Organization 2005 program made efforts to change P&G from a conservative, lethargic and bureaucratic to modern, quick moving and internet savvy organization. The new structure was directed towards revamping the work culture of P&G so as to focus on its new Stretch, Innovation and Speed (SIS) philosophy. Emphasizing on innovation, Jager said, “Organization 2005 is focussed on one thing: leveraging P&G’s innovative capability. Because the single best way to accelerate our growth – our sales, our volume, our earnings growth – is to innovate bigger and move faster – consistently and across the entire company.”P&G had outlined the cultural changes it wanted to achieve through the program (Refer Table II).

TABLE IICULTURAL CHANGES

Before ‘Organization 2005’ After ‘Organization 2005’Misaligned objective with high

penalties for failure.The organization is aligned on common goals with trust as a

foundation.Internal inspection keeps everyone

under control.A focus on coaching and teaching enables informed risk taking and

team collaboration.Risk is avoided and victory is

narrowly defined.Victory is defined as stretch with

trust and candor.Complexity is delegated down. Lenders take on complex

challenges.Creating a slow moving

organization that lacks stretch, innovation and speed.

An organization driven by stretch, innovation and speed toward

breakthrough goals.

Under the program, P&G changed the way it looked at individual appraisals and moved from a conservative goal-setting plan to a stretch goal plan. Earlier P&G would appraise employees on the basis of targets set and their achievements. But, the system seemed to have a loophole.

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By setting easy targets, there was a possibility of an under performing manager projecting himself as an achiever. Through the stretch element, P&G sought to make clear that merely achieving targets was not sufficient. The individual’s appraisal would be on the basis of how the stretch targets were fixed and what attempts had been made to meet them. The company’s goal-setting process required the employees to set stretch targets. P&G did not concentrate only onrestructuring; it also introduced a new reward system that recognized extraordinary contributions of the employees at every level of the organization.

P&G discarded the old dressing code. The company left it to the employees to decide as to what they wanted to wear at the workplace. P&G also introduced measures to play down the hierarchy. According to an employee, “Earlier the top executives were served tea in higher quality cups compared to what the junior level employees got. But that has changed. Now all P&G employees sip their brew in the same white bone-china which was earlier reserved for top executives.”

The efforts made to change the corporate culture was not limited to just a few countries but were spread all over the world where P&G’s operations were located. For instance, under the program, P&G India initiated ‘Project Pride’ in late 1999 to promote an ‘open’ work culture. All the six dispersed offices of P&G in Mumbai were brought under one roof by July 2000. There was an overhauling of the hierarchical office structure, which would not discriminate between senior and junior employees. In the new setup, employees could actually see their ideas being implemented. The CEO like all other employees sat in a cubicle in the new office. Moreover, irrespective of the rank, all cubicles were to be of same size in all offices.

 P&G also invested large amount of money in IT to facilitate more employee collaboration and knowledge sharing. The company introduced e-mail, intranet, and videoconferencing facilities for its employees. Jager also urged P&G’s employees to use the company’s IT tools while communicating with fellow employees. In July 1999, 300 senior managers were asked to download information in the form of PowerPoint presentations from P&G’s intranet site to apprise the employees in their

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department about the Organization 2005 program. Some of the senior managers and top executives were forced to visit the company’s website for the first time.

P&G was earlier known in the FMCG industry as “the one-page memo company.” The employees of P&G were asked to offer their ideas, suggestions, or business plans in just one- page, which would in turn be communicated to every manager, who would edit the document and return it to be finally accepted. By embracing IT, P&G was able to change its image from being a “one-page memo company.” By using chat rooms on the company’s intranet, the company attempted to change its soft, traditional and ‘play-it-safe’ culture to one of an aggressive, outspoken and risk-taking culture. Emphasizing the importance of intranet, Jager said, “The intranet is becoming an integral part of doing business at P&G and has become our primary forum for discussing culture change.”

Though Organization 2005 program involved significant job reduction (Refer Exhibit VI), Jager announced that he would make full use of normal attrition and retirements, hiring reductions, re-locations, job retraining, and voluntary separations to help reduce the number of potential involuntary separations. In cases of involuntary separations, P&G would offer employees financial assistance to help them in their new careers.

Appreciating Jager’s efforts to launch several new initiatives under the Organization 2005 program,William Steele, MD, Banc of America Securities, said, “To Durk’s credit, he got the company focused on brands, innovations, new products and acquisitions. He really got P&G energized from a top-line (sales) perspective. And over the long term, that’s what consumer- products companies need to grow their worldwide market share.

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4.6: EVALUATION OF THE PROGRAMME

It can be said that Organization 2005 has been of the most important strategic change that ever happened within Procter & Gamble. Through the strategic change and the assessment made for it, it can be considered as essential factors on determining the needs of initiating Organization 2005 within Procter & gamble. The internal and external drivers that have been mentioned in the above analysis can be said to be good factors that enables Procter & Gamble in having successful implementation for Organization 2005.

            It can be said that the strategic change for Procter & Gamble has been bale to use different approaches which serves as a guiding forces for Procter & Gamble to continuously believe on the benefits of pursuing Organization 2005 in spite of its possible risks in some aspects, while other aspects can also be considered as a guiding elements to be given attention by the management of Procter & gamble to ensure that their initiation of Organization 2005 will guarantee success and will be able to meet their organizational objective of being the number one industry in household and healthcare and hygiene products.

 Judgment for the Change Programme

Analysis shows that the change programme made by Procter & Gamble through their Organization 2005 initiative has been able to meet their objectives and enhances the competitiveness of the organization. In their change management approach, the company has been able to support the change initiative made by their CEO. Herein, the management and employees of the company has provided full support for the change plan, process, and design. In addition, in order to pursue their change management approach, the management of Procter& Gamble has also take into consideration the context of their organizational culture. With the support that they get and the open mindedness of the people in Procter & Gamble, it can be said that the company has a successful change management initiative which enable them to sustain competitive advantage and position.

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4.7: MISTAKES COMMITED

The Organization 2005 program faced several problems soon after its launch. Analysts were quick to comment that Jager committed a few mistakes which proved costly for P&G. For instance, Jager had made efforts in January 2000 to acquire Warner-Lambert and American Home Products. Contrary to P&G’s cautious approach towards acquisitions in the 1990s, this dual acquisition would have been the largest ever in P&G’s history, worth $140 billion. However, the stock market greeted the news of the merger negotiations by selling P&G’s shares, which prompted Jager to exit the deal.

Critics felt that in its pursuit to focus more on developing new products, Jager completely ignored P&G’s well-established brands. He introduced several new products in quick time with the hope of finding P&G’s next billion-dollar product. Since the sales and marketing resources were diverted towards new products, there was a decline in sales and profitability of P&G’s established, best performing brands like Crest, Pampers and Tide. Elaborating on Jager’s mistake, Christopher said, “They spent way too much on new products. That’s a typical problem that companies face. They spend too much on growth, and they lose sight of their core businesses.”

 Another mistake that Jager committed was to presume that the strategy of selling P&G’s products under the same name globally would be successful. However, this strategy backfired. For instance, in Germany, the US dish-washing detergent, ‘Fairy’ was a popular brand and sold successfully. But Jager renamed it ‘Dawn,’ as it was known in the US. Since ‘Dawn’ was perceived by German consumers to be a new product, its sales fell drastically.

Jager’s measures to revamp P&G’s cautious corporate culture also failed to yield the desired results. Analysts were of the opinion that his plan had been too aggressive resulting in HR problems. Managers had become critical of Jager’s confrontational style. Employees were nothappy with the changes made in the company’s organization structure. In Europe, approximately2,000 people were abruptly transferred to Geneva, while 200 employees were relocated from

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various parts of Asia to Singapore. As a result of restructuring, food and beverage managers, based in Cincinnati, US, reported to a President in Caracas, Venezuela. Similarly, managers in the laundry and household cleaning business reported to Brussels.All the above problems had a negative effect on P&G’s financial performance as well as on its share price. After touching a high of $117 per share in January 2000, P&G’s stock price fell below $90 in February 2000. In March 2000, P&G announced that its earnings growth for thefinancial year 1999-2000 would be about 7%. The news sent the company’s stock to its lowest level since the mid-90s. The stock price plunged to less than $60, wiping out $40 billion in market capitalization in just one day.

In April 2000, P&G announced an 18% decline in its third-quarter net profit. Moreover, the company also announced that its fourth-quarter results earnings growth would be flat compared to 15% to 17% estimated earlier. Jager accepted responsibility for the company’s problems and resigned.

Summing up Jager’s mistakes, Daniel Peris said, “Jager has launched a wide range of initiatives, and I think his credibility is beginning to wear thin. The Organization 2005 restructuring ... I think is an excellent program, but adding to that the mega-merger proposals, adding to that launching rapidly, focusing relentlessly on top-line growth and launching all kinds of product initiatives to achieve that top-line growth, they let the cost picture get out of control.”Another analyst with Olde Discount Corp. based in Detroit, said, “P&G had been in a mode to cut costs and improve efficiencies, and they mastered that. But back then, they lost sight of the top line (sales). Now, they've reinvigorated the management teams and encouraged employees to take risks and come out with new products. They've done a good job doing that, too. But now they've lost sight of the expense side of the equation. They need to find a way to balance both of those.”

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4.8: ENTER LAFLEY – IMPLEMENTING STRATEGIES TO REVIVE P&G

In June 2000, Alan George Lafley (Lafley), a 23-year P&G veteran popularly known as ‘AG,’ took over as the new President and CEO of P&G. The major difference between Lafley and Jagerwas their ‘style of functioning.’ Soon after becoming CEO, Lafley rebuilt the management team and made efforts to improve P&G’s operations and profitability.

Lafley transferred more than half of P&G’s 30 senior most officers, an unprecedented move in P&G’s history. He assigned senior positions and higher roles to women. In one instance, he overlooked 78 senior most general managers and appointed a 42-year old woman, Deborah A. Henretta, as the head of P&G’s global baby care division. After the changes in the management structure, the heads of P&G’s operating businesses and corporate functions represented 13different countries. Overall, the average age of P&G’s Global Leadership Council (Refer Exhibit VII) came down to 49, compared to 54 in 1999. Lafley also proposed to cut down P&G’s personnel strength by 25,000 (one-fourth of P&G’s existing employee strength). By 2001, Lafley had achieved the target of remaining 7,800 job reductions, a part of Organization 2005 program.

Lafley focused more on the major markets and leading brands. On the contrary, Jager had focused more on new product development and tried to build market share in developing and under-developed markets. The sales of P&G’s leading brands including Tide, Pampers and Crest picked up as they got more resources in terms of marketing expenditure and manpower. Though Lafley reduced the thrust on new product development, high potential products like Crest whitener strips and ThermaCare heat wrap still got attention. Lafley also introduced new product extensions in an attempt to generate growth. Major brands like Tampax (tampons) introduced new product extensions in 2002 while other brands planned new products. P&G introduced its new ‘Ohm’ by Olay line of body care products, which was the company’s first skin-care foraythat used natural products like ginger and jasmine. In 2002, the

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company also dropped several brands including Jif, Crisco and Clearasil that did not fit in with its global strategy.

In the midst of intense competition, the baby care, fabric & home care and oral care businesses lost market share in the 1990s. However, under Lafley, all the three businesses gained both in terms of increased revenues and market share. In spite of stiff competition from companies like Kimberly-Clark, revenues rose by 5%, to $2.4 billion, while net earnings increased by 8%, to$241 million in the baby care segment during the first quarter ending September 2002. Pampers rolled out its new Baby Stages line in Europe and North America. The revenues from P&G’s fabric and home care business witnessed a 9% growth for the first quarter ending September2002, despite strong competition from Unilever. This was possible due to brands like Cheer reducing its package size and price to compete with Unilever’s Wisk. Revenues in oral care business rose by 20% around the same period while Crest was able to regain #1 oral-care brand position in the US, which it lost to Colgate in 1998. In the laundry business too, revenues showed an upward trend. The Tide and Downy brand were offered in different fragrances.

Under Lafley, P&G acquired Clairol in 2001 for $5 billion. The acquisition of Clairol helped P&G to achieve a 16% ($1 billion) growth in net earnings in the first quarter ending September2002. The market share in the US for eight out of its top ten ‘billion dollar brands’ increased by15% during the same period. Lafley believed that P&G’s IT initiatives under the Organization2005 program had significantly benefited the company. He increased P&G’s expenditure on IT initiatives to $1 billion in 2002 and planned to increase it further in 2003.

In 2001, Lafley had announced another program which complemented theOrganization 2005 program. The new program was expected to save an additional $600-700 million (post-tax)annually by the financial year 2003-04. The total cost of the new program was $1.4 billion (post-tax). In this new program, P&G planned to retrench 9% of its global workforce or about 9,600 jobs. The total number of job reductions were expected to increase from 15,000 to 17, 400.

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Unlike Jager, Lafley attempted to change the culture of P&G from harsh to soft one. He believed that P&G was a family and each employee was its family member. Though he announced that part of the job reduction would be made through involuntary separations, at the same time heintended to minimize that number.

Lafley felt that the new program would improve P&G’s competitiveness and boost its long-term growth. The new program involved streamlining of P&G’s cost structure by further reducing overheads and manufacturing costs. Speaking about the new program, Lafley said, “This program is right for the long-term health of our business and is the next step in our plan to restore long-term growth. It’s one element of a three-part growth plan to focus on big brands and big opportunities, consistently deliver superior consumer value, and create a more cost-competitive, productive organization.

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CHAPTER 5: CONCLUSION

Business organization faced different level of market dynamism and challenges. In this regard, the company are being triggered (internally and externally) to initiate strategic change to adjust their company in the business trends and align their operations with their environment. In the case of P&G it can be concluded that the strategic change implemented in the company can be considered a successful move to cope with the changes in the environment especially in terms of technological advancements. This strategic approach to change has made P&G promote a good management and marketing strategy for the organization as a whole which resulted for the company to be considered as the largest and leader of producing new and innovative products in terms of healthcare, personal hygiene, and household products.

            In order to P&G to continue survive in the competitiveness of the global market it is recommended that the management of the company will continue to be open minded for changes which to adapt to the rapid changes in the business world. In addition, in considering strategic change, the management of P&G must be able to determine the most appropriate approach and strategy to be used to avoid failure and downfall. The company is also recommended to continue their reputation of being an innovative organization, giving importance to the needs and demands of the global market.

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CHAPTER 6: BIBLIOGRAPHY

http://ivythesis.typepad.com/term_paper_topics/2009/11/strategic-

business-analysis-procter-gamble-case-study.html

http://ivythesis.typepad.com/term_paper_topics/2009/03/procter-

and-gamble-strategic-change-management.html#_Toc202254803

https://en.wikipedia.org/wiki/Retrenchment

https://www.scribd.com/doc/43375893/Retrenchment

https://www.scribd.com/doc/256936549/Restructing-p-g

www.slideshare.net

https://u-s-history.com/pages/h1811.html

http://businessdictionary.com

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