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MANAGINGCULTURAL CHANGES
Presentation Flow                  Cultural change in P&G• About P&G• P&G + Gillette• About “Organization 2005”• Overview•...
3                        About P&G                            At a glance• $67.9 billion sales*• 135,000 employees• More t...
P&G + Gillette       The world’s largest consumer products companyBegan operations as one company October 1, 2005•Increase...
P&G + Gillette                   Even stronger together•22 brands with sales of $1 billion or more•14 with sales between $...
6Two Moments of Truth          About P&GWhen she chooses and when sheof truth                  Two moments uses    When sh...
Proctor and Gamble’s “Organization 2005” In 2003 Procter & Gamble was the world‟s largest household  and personal product...
Mission and objectives of                “Organization 2005”The mission to take P&G‟s global turnover from $38 billion to...
Cultural Change – a Sustained Effort• Establishing the culture of innovation requires a broad and  sustained effort.• Thou...
WHY: NEED OF STRUCTURAL               CHANGE• A firm‟s size and structure will impact its rate and likelihood  of innovati...
STRETCH
Size and Structural Dimensions of the Firm• Size: Is Bigger Better?   In 1940s, Schumpeter argued that large firms would ...
Cont…   However, large firms might also be disadvantaged at innovation because…• R&D efficiency might decrease due to los...
Cont…Structural Dimensions of the Firm   Formalization: The degree to which the firm utilizes rules and procedures to str...
Cont…• Centralized authority ensures projects match firm-wide objectives, and may be better at making bold changes in over...
Establishing Linkages                                                                          Corporate                  ...
How: Linkage to Scorecard                    MetricsOrganization                                             Metrics      ...
RESULT:                   MANAGEING STRETCH•   Greater economics of scale•   Usage of better technology•   Wide adaptation...
INNOVATION
P&G: Regional Focus and Global                 Coordination   Procter & Gamble (P&G) with annual sales of almost $40 billi...
Centralized and Decentralized R&D             activities
Managing innovation across borders• Centralization versus decentralization is a particularly  important issue for multinat...
Cont…• Bartlett and Ghoshal identify four strategies of multinational  innovation Center-for-global: all R&D activities c...
Cont… Globally linked: Decentralized R&D labs but each plays a different rolein firm‟s strategy and are coordinated centr...
RESULT:                  MANAGING INNOVATION•   economic efficiency and localization.•   Centralized and Decentralized R&D...
SPEEDIts Not the Big That Eat theSmall...Its the Fast That Eatthe Slow
The Consumer Driven Supply Network
Urgent Need to Address OOS                          On average, retailers lose the sale 41% of the time                   ...
Reinventing the Supply Network                                   From         To                        Chain             ...
How: Key Operating Principles      The journey to the Consumer-Driven Supply Network1. External focus: culture change2. Op...
Winning at the First Moment of Truth  The need for a Consumer-Driven Supply Network
Why: The Consumer is Boss                  Ever-increasing expectations• Innovation• Value• Shelf presence• Customization•...
Why: Retailers Are Responding            Changing to win with the new consumer• Industry consolidation• Importance of free...
What:Manufacturing’s Focus Enable a Flexible, Responsive, Highly Productive and Profitable                        Supply N...
How: Demand Driven       Manufacturing integrated with end-to-end SN Collaborative business planning with retail customer...
Results                    Reinventing the Supply Chain Consumer wins • Better in-store experience: fresh quality   produ...
P&G FINANCIAL HIGHLIGHTS
Conclusion• To ensure the success out of cultural change programme  “Organization 2005”1. SPEED: The change should be imp...
Cont….2.EMPLOYEE COMMUNICATION: The key to successful transformation is employee buy in Proactive two way communication ...
Cont…3.FOLLOW THE GLOBAL STRATEGY: An important element should be to give the great degree of  standardization to the loc...
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P&G

  1. 1. MANAGINGCULTURAL CHANGES
  2. 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. 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. 4. P&G + Gillette The world’s largest consumer products companyBegan 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/shopperunderstanding to strengthen retailer relationships•Common vision of supply network as source of value createsopportunity to share and accelerate best practices
  5. 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. 6Two Moments of Truth About P&GWhen she chooses and when sheof truth Two moments uses When she chooses When she uses
  7. 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 marketssimultaneously. Regional business units were replaced with global businessunits based on product lines. Business services would be centralized.
  8. 8. Mission and objectives of “Organization 2005”The mission to take P&G‟s global turnover from $38 billion to70 billionThe objective was to raise profitability by change the workculture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. 9. Cultural Change – a Sustained Effort• Establishing the culture of innovation requires a broad and sustained effort.• Though changing a companys 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. 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. 11. STRETCH
  12. 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. 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. 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. 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. 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 IndividualsSpecific Goals & Measures In the Work Plan
  17. 17. How: Linkage to Scorecard MetricsOrganization Metrics Department Packing Operations Logistics Operations Initiative Support Individual Work Plan
  18. 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. 19. INNOVATION
  20. 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. 21. Centralized and Decentralized R&D activities
  22. 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. 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. 24. Cont… Globally linked: Decentralized R&D labs but each plays a different rolein 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: resourcesand skills anywhere in firm can be leveraged to exploit opportunities in anygeographic 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. 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. 26. SPEEDIts Not the Big That Eat theSmall...Its the Fast That Eatthe Slow
  27. 27. The Consumer Driven Supply Network
  28. 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. 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 focusDesigned from product forward Designed from shelf back Cost-reduction Value and growth creation supplier supplier manufctr retailer consumer consumer manufctr retailer
  30. 30. How: Key Operating Principles The journey to the Consumer-Driven Supply Network1. External focus: culture change2. Operational excellence: service and availability3. Synchronization: information replaces inventory4. Shelf-back design5. Flexibility: take time and cost out of the system6. Responsiveness: customer and consumer driven7. Customer collaboration: joint value creation
  31. 31. Winning at the First Moment of Truth The need for a Consumer-Driven Supply Network
  32. 32. Why: The Consumer is Boss Ever-increasing expectations• Innovation• Value• Shelf presence• Customization• In-store experience
  33. 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. 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. 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. 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. 37. P&G FINANCIAL HIGHLIGHTS
  38. 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. 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. 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. 41. THANK YOU…

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