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MANAGING CULTURAL CHANGES
Presentation Flow
• About P&G• P&G + Gillette• About “Organization 2005”• Overview• Why: cultural change• Managing Stretch, Innovation & Speed• P&G’s Financial Highlights• Conclusion
Cultural change in P&G
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• $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
About P&GAt a glance
P&G + Gillette
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
The world’s largest consumer products company
P&G + Gillette
•22 brands with sales of $1 billion or more•14 with sales between $500 million and $1 billion
= Expanded innovation platforms and pipeline
Even stronger together
6
Two Moments of TruthWhen she chooses and when she uses
About P>wo moments of truth
When she chooses When she uses
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.
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; Four global business units based on product lines Eight market development organization based on regionGlobal business service centre
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."
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.
STRETCH
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
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
Cont…
Structural Dimensions of the FirmFormalization: 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.
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.
TeamsSpecific Tactics, Plans & Measures
DepartmentsSpecific Goals & Measures
CorporateBusiness Strategy
Leadership
Results
Business UnitVision, Mission
Specific Goals & Measures
IndividualsSpecific Goals & Measures
In the Work Plan
Organizational UnitCompelling Business NeedSpecific Goals & Measures
Establishing Linkages
Linkage to ScorecardMetrics
Packing Operations
Logistics Operations
Initiative Support
Organization
Department
Metrics
Individual Work Plan
How:
RESULT:MANAGEING STRETCH
• Greater economics of scale• Usage of better technology• Wide adaptation of innovation• Co-ordination to achieve company strategy• Proper work plan
INNOVATION
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.
Centralized and Decentralized R&D activities
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.
Cont…
• Bartlett and Ghoshal identify four strategies of multinational innovationCenter-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
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
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
SPEED
It's Not the Big That Eat the Small...It's the Fast That Eat the Slow
The Consumer Driven Supply Network
*2000 Shoppers Research (12 P&G categories at 64 NA retailers)
Purchased atanother retailer 31%
Substitutedanother brand 19%
Substituted same brand(different size)
18%
Other
8%
Did not buy product 10%
Delayedpurchase 14%
Consumer behavior when confronted with an OOS• 48% switch stores based on P&G top 100 SKUs
2002 The Procter & Gamble Company, All Rights Reserved.
Urgent Need to Address OOSOn average, retailers lose the sale 41% of the time
P&G loses 28% of the time
Reinventing the Supply Network
Chain
Long and slow
Forecast-based
Manufacturer-driven
Internal focus
Designed from product forward
Cost-reduction
Network
Fast and flexible
Demand-based
Consumer-driven
External focus
Designed from shelf back
Value and growth creation
From To
supplier manufctr retailer consumer consumer
manufctr
supplier
retailer
1. External focus: culture change2. Operational excellence: service and availability3. Synchronization: information replaces inventory4. Shelf-back design 5. Flexibility: take time and cost out of
the system6. Responsiveness: customer and
consumer driven7. Customer collaboration:
joint value creation
How: Key Operating PrinciplesThe journey to the Consumer-Driven Supply Network
Winning at the First Moment of TruthThe need for a Consumer-Driven Supply Network
• Innovation• Value• Shelf presence• Customization• In-store experience
Why: The Consumer is BossEver-increasing expectations
• Industry consolidation• Importance of free cash flow• Growth of private labels• Focus on margins• Seeking to be unique• Seeking to offer solutions
Why: Retailers Are RespondingChanging to win with the new consumer
What:Manufacturing’s FocusEnable a Flexible, Responsive, Highly Productive and Profitable
Supply Network
• Link to External Metrics
• Build capabilities to execute a Produce to Demand operating strategy
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
How: Demand DrivenManufacturing integrated with end-to-end SN
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
ResultsReinventing the Supply Chain
P&G FINANCIAL HIGHLIGHTS
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
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
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
THANK YOU…