1. MANAGING
CULTURAL CHANGES

2. Presentation Flow
Cultural change in P&G
• About P&G
• P&G + Gillette
• About “Organization 2005”
• Overview
• Why: cultural change
• Managing Stretch, Innovation & Speed
• P&G‟s Financial Highlights
• Conclusion

3. 3
About P&G
At a glance
• $67.9 billion sales*
• 135,000 employees
• More than 170 manufacturing
facilities in more than 40 countries
• More than 20 R&D centers in
10 countries
• Unique organization structure

4. P&G + Gillette
The world’s largest consumer products company
Began operations as one company October 1, 2005
•Increases P&G‟s position in faster-growing, higher-margin,
more asset-efficient businesses
•Combines each company‟s unique consumer/shopper
understanding to strengthen retailer relationships
•Common vision of supply network as source of value creates
opportunity to share and accelerate best practices

5. P&G + Gillette
Even stronger together
•22 brands with sales of $1 billion or more
•14 with sales between $500 million and $1 billion
= Expanded innovation platforms and pipeline

6. 6
Two Moments of Truth
About P&G
When she chooses and when sheof truth
Two moments uses
When she chooses When she uses

7. Proctor and Gamble’s “Organization 2005”
 In 2003 Procter & Gamble was the world‟s largest household
and personal products company, with $43.4 billion in net
revenues. It had almost 7,500 scientists working in 20
technical centers on four continents.
 In 1999, P&G‟s CEO Durk Jager had initiated a major
reorganization, “Organization 2005,” intended to accelerate
innovation.
 New product development would be more decentralized,
conducted in both U.S and foreign market.
 Products would be tested in U.S. and foreign markets
simultaneously.
 Regional business units were replaced with global business
units based on product lines.
 Business services would be centralized.

8. Mission and objectives of
“Organization 2005”
The mission to take P&G‟s global turnover from $38 billion to
70 billion
The objective was to raise profitability by change the work
culture
The change drivers identified were the attributes of
Stretch, Innovation, Speed(SIS)
• Structural changes to be include;
 Fourglobal business units based on product lines
 Eight market development organization based on region
Global business service centre

9. Cultural Change – a Sustained Effort
• Establishing the culture of innovation requires a broad and
sustained effort.
• Though changing a company's culture is never easy, with the
right leadership, cultures can be reshaped and amazing
results can accrue.
• Establishing an attitude of relentless growth is what enables
an organization and its people to achieve their goals.
• the primary challenge facing market leaders is to
institutionalize an environment where every decision and
direction can be constantly and safely reassessed."

10. WHY: NEED OF STRUCTURAL
CHANGE
• A firm‟s size and structure will impact its rate and likelihood
of innovation.
• Some structures may foster creativity and experimentation;
others may enhance efficiency and coherence across the
firm‟s development activities.
• There may also be structures that enable both
simultaneously.
• Some structural issues are even more significant for the
multinational firm.

11. STRETCH

12. Size and Structural Dimensions of the Firm
• Size: Is Bigger Better?
 In 1940s, Schumpeter argued that large firms would be more effective innovators
• Better able to obtain financing
• Better able to spread costs of R&D over large volume
 Large size may also enable…
• Greater economies of scale and learning effects
• Taking on large scale or risky projects

13. Cont…
 However, large firms might also be disadvantaged at innovation because…
• R&D efficiency might decrease due to loss of managerial
control
• Large firms have more bureaucratic inertia
• More strategic commitments tie firm to current technologies
 Small firms often considered more flexible and entrepreneurial
 Many big firms have found ways of “feeling small”
• Break overall firm into several subunits
• Can utilize different culture and controls in different units

14. Cont…
Structural Dimensions of the Firm
 Formalization: The degree to which the firm utilizes rules and procedures to structure the
behavior of employees.
• Can substitute for managerial oversight, but can also make firm rigid.
 Standardization: The degree to which activities are performed in a uniform manner.
Facilitates smooth and reliable outcomes, but can stifle innovation.
 Centralization: The degree to which decision-making authority is kept at top
levels of the firm OR the degree to which activities are performed at a central
location.

15. Cont…
• Centralized authority ensures projects match firm-wide objectives, and may be
better at making bold changes in overall direction.
• Centralized activities avoid redundancy, maximize economies of scale, and
facilitate firm-wide deployment of innovations.
• But, centralized authority and activities might not tap diverse skills and resources,
and projects may not closely fit needs of divisions or markets.
 Some firms have both centralized and decentralized R&D activities.

16. Establishing Linkages
Corporate
Business Strategy
Business Unit
Vision, Mission
Leadership Specific Goals & Measures
Organizational Unit
Compelling Business Need
Specific Goals & Measures
Departments
Specific Goals & Measures
Teams
Specific Tactics, Plans & Measures
Results
Individuals
Specific Goals & Measures
In the Work Plan

17. How: Linkage to Scorecard
Metrics
Organization
Metrics
Department
Packing Operations
Logistics Operations
Initiative Support
Individual Work Plan

18. RESULT:
MANAGEING STRETCH
• Greater economics of scale
• Usage of better technology
• Wide adaptation of innovation
• Co-ordination to achieve company strategy
• Proper work plan

19. INNOVATION

20. P&G: Regional Focus and Global
Coordination
Procter & Gamble (P&G) with annual sales of almost $40 billion has
operations in virtually every country of the world.
Trick:
• the firm employs a strategy that combines high national responsiveness
with high economic integration.
• strategies being developed and implemented locally and/or regionally. In
particular, product delivery and marketing are local.
• the „back office‟ of payroll, financing, human resource management and
other general services and processes is coordinated on a more global
basis, in order to achieve internal economies of scale.

21. Centralized and Decentralized R&D
activities

22. Managing innovation across borders
• Centralization versus decentralization is a particularly
important issue for multinational firms.
– Foreign markets offer diverse resources, and have diverse needs.
– Innovation tailored to local markets might not be leveraged into other markets.
• Customization might make them poor fit for other markets.
• Divisions may be reluctant to share their innovations.
• Other divisions may have “not invented here” syndrome.

23. Cont…
• Bartlett and Ghoshal identify four strategies of multinational
innovation
 Center-for-global: all R&D activities centralized a single hub
• Tight coordination, economies of scale, avoids redundancy, develops core
competencies, standardizes and implements innovations throughout firm.
 Local-for-local: each division does own R&D for local market
• Accesses diverse resources, customizes products for local needs.
 Locally leveraged: each division does own R&D, but firm attempts to
leverage most creative ideas across company.
• Accesses diverse resources, customizes products for local needs, improve
diffusion of innovation throughout firm and markets

24. Cont…
 Globally linked: Decentralized R&D labs but each plays a different role
in firm‟s strategy and are coordinated centrally.
• Accesses diverse resources, improve diffusion of innovation throughout firm and
markets, may help develop core competencies.
 Bartlett and Ghoshal encourage transnational approach: resources
and skills anywhere in firm can be leveraged to exploit opportunities in any
geographic market. Requires:
1. Reciprocal interdependence among divisions
2. Strong integrating mechanisms such as personnel rotation, division-spanning teams, etc.
3. Balance in organizational identity between national brands and global image

25. RESULT:
MANAGING INNOVATION
• economic efficiency and localization.
• Centralized and Decentralized R&D
• R&D for local market
• Customization of product to local needs
• Developing core competencies

26. SPEED
It's Not the Big That Eat the
Small...It's the Fast That Eat
the Slow

27. The Consumer Driven Supply Network

28. Urgent Need to Address OOS
On average, retailers lose the sale 41% of the time
P&G loses 28% of the time
Consumer behavior when confronted with an OOS
• 48% switch stores based on P&G top 100 SKUs
Delayed Other
purchase 14%
8% Substituted
Did not buy product 10% another brand 19%
Purchased at Substituted same brand
(different size)
another retailer 31%
18%
*2000 Shoppers Research (12 P&G categories at 64 NA retailers)  2002 The Procter & Gamble Company, All Rights Reserved.

29. Reinventing the Supply Network
From To
Chain Network
Long and slow Fast and flexible
Forecast-based Demand-based
Manufacturer-driven Consumer-driven
Internal focus External focus
Designed from product forward Designed from shelf back
Cost-reduction Value and growth creation
supplier
supplier manufctr retailer consumer consumer
manufctr retailer

30. How: Key Operating Principles
The journey to the Consumer-Driven Supply Network
1. External focus: culture change
2. Operational excellence: service and availability
3. Synchronization: information replaces inventory
4. Shelf-back design
5. Flexibility: take time and cost out of
the system
6. Responsiveness: customer and
consumer driven
7. Customer collaboration:
joint value creation

31. Winning at the First Moment of Truth
The need for a Consumer-Driven Supply Network

32. Why: The Consumer is Boss
Ever-increasing expectations
• Innovation
• Value
• Shelf presence
• Customization
• In-store experience

33. Why: Retailers Are Responding
Changing to win with the new consumer
• Industry consolidation
• Importance of free cash flow
• Growth of private labels
• Focus on margins
• Seeking to be unique
• Seeking to offer solutions

34. What:Manufacturing’s Focus
Enable a Flexible, Responsive, Highly Productive and Profitable
Supply Network
• Link to External Metrics
• Build capabilities to execute a
Produce to Demand operating
strategy

35. How: Demand Driven
Manufacturing integrated with end-to-end SN
 Collaborative business planning with
retail customer
• Design product to move it efficiently to
the shelf
• Collaboration on “events”, key
merchandising activities and Initiatives
 Manufacturing flexibility and cycle
response to produce-to-demand vs.
produce-to-forecast
 Supplier relationships move from
“connected” to “integrated” based on
demand
• Speed and reliability of the supply
system

36. Results
Reinventing the Supply Chain
 Consumer wins
• Better in-store experience: fresh quality
product ON the shelf, more new products
and innovations
 Customer wins
• Synchronized, reliable innovation flow
• Inventories reduced – more cash
• Drop in OOS
 P&G wins
• Drop in OOS
• Despite 2-3 times more SKUs, costs
are lower, inventories are reduced
and volume is growing

37. P&G FINANCIAL HIGHLIGHTS

38. Conclusion
• To ensure the success out of cultural change programme
“Organization 2005”
1. SPEED:
 The change should be implemented globally at a rapid
speed
 It requires aggressive plan and executives to implement the
same
 The new structure and work has to be designed across all
global operations, assignments of people finalized and
communicated and the new organizations started up on
schedule

39. Cont….
2.EMPLOYEE COMMUNICATION:
 The key to successful transformation is employee buy in
 Proactive two way communication is the key to achieve that
 The top management of the organization has to meet a good
number of employees across all levels, functions and
countries to seek feedback and provide clarifications on
ORG‟2005

40. Cont…
3.FOLLOW THE GLOBAL STRATEGY:
 An important element should be to give the great degree of
standardization to the local management to align their own
design with global strategy
 This will give a feeling of independence to the local
management while the global standard will also be met

41. THANK YOU…