1.Why did the US organizational structure shift from product grouping in the 1950s to a matrix in the 1980s? Why did the European organizational structure shift from geographic grouping in the 1950s to category management in the 1980s? Why were the two structures integrated into a global cube in the 1990s?
As mentioned in the article, the US market is a large homogenous one, which is characterized by buyers with similar needs and wants. P&G originally operated in the US in the form of product division management in order to facilitate nationwide brands. This management technique of individual operating divisions grouped employees around a certain product or a product line and gave managers more autonomy to work as separate “units” within the corporation, thus creating a competitive brand management system. By the 1980’s, product categories changed, and required more differentiated functional activity; brands could no longer be “ran” as differentiated units but as “bigger categories”. P&G adapted and upgraded its organizational structure in a way that optimizes the use of resources and expertise of the organizations manpower. This meant that middle class managers reported both to their functional leaders as well as to their business leaders. Europe, on the other hand, was a heterogeneous market, comprised of different nations, cultures and consumer preferences. P&G established the geographic management model in order to accommodate the company’s products to every local demand.
Every European country had a daughter company who altered P&G’s products to suit the local market. In addition, a European R&D center was launched to cater the local market. In the early 1980’s it was evident that the geographic management system, P&G was using in Europe wasn’t working. Revenues were low, manufacturing operations were expensive and unreliable the “daughter companies” (functional organizations) created “silos of knowledge” where new knowledge was stuck and not moved through the organization and finally, the European R&D center was both completely disconnected from US operation and inefficient by any means. Subsequently product categories were formed and Europe was divided into 3 sub regions with less executives that had more decision making capabilities and were responsible for multiple country products.
In the late 1980’s P&G recognized growth potential and had desires of opening up to new and diverse markets. This required P&G to go to upgrade its organizational structure. The outcome of this was the creation of the global matrix structure, which balances power between the product division and the geographic management. Europe, for instance, was transformed into a Market Development organization that was responsible for tailoring P&G’s global plans into it’s local market. Global Business Units were in charge of every aspect related to the company’s products. This new structure had numerous advantages, it helped eliminate the “silos of knowledge” and permitted for various aspects such as purchasing and distribution to be integrated
2.What are the key distinguishing features of Organization 2005? Why did P & G adopt this structure?
In the late 90s the global matrix structure of P&G ran into problems, since it turned out that the matrix has never been as symmetrical and coherent it was supposed to be. This caused various problems that lead to the opposite of what the matrix was designed for: Instead of cooperating and creating synergies throughout the organization, each function developed own strategy agendas rather than having a unified strategic approach. Furthermore the functions were more concerned about maximizing their own power within the organization rather than striving for the overall development of the corporation. Product-category management and regional managers varied in their interests due to unbalanced financial responsibility towards regional managers. This resulted into a corporate culture of risk-aversion, failure avoidance and slow speed of innovation.
Consequently P&G aimed to increase its innovative capacity and speed in order to accelerate global rollout of products and brands throughout new structures and policies. This was the main goal of Organization 2005:
The key distinguishing features of Organization 2005 consist in the abolishment and reorganization of the Matrix structure around three interdependent organizations: Global Business Units (GBUs), Market Development Organizations (MDOs) and Global Business Services (GBS). Furthermore P&G implemented several policies that empowered executives in order to facilitate faster decision-making, which in turn should promote innovation and increased agility on the market. P&G intended to overcome the tensions and conflicts of interest that arose in the former matrix structure between category management and regional managers by the clear definition and reallocation of responsibilities for product development, brand design and business strategies to GBUs and market development to MDOs. Next to that, GBS was supposed to provide an overall framework for managing internal business processes and IT platforms across GBUs and MDOs across the world so that standardization, consolidation and streamlining could be enabled.
Summarizing, new structure was designed in order to avoid potential for conflicts of interests and hence foster the speed in the process of global standardization of manufacturing processes and better coordination of marketing activities across countries.
3.Should Lafley make a strong commitment to keeping Organization 2005 or should he plan to dismantle the structure?
Lafley is confronted with a difficult situation since Organization 2005 meant a major change and structural impact for P&G. Consequently, it would not be wise to change the corporate structure dramatically again. The key distinguishing features of Organization 2005 (explained above) were intended to resolve the structural problems that arose in the matrix structure. In theory, the problems were tackled the right way since the overall goal was to change the risk averse corporate culture and promote faster innovation and product rollouts. Moreover, it is common that the first transition years are not easy since the many change that have been implemented may not be successful from the first day on and require time.
We suggest that Lafley should analyse first which impact currency changes, increased raw material prices and intense international competition really have on the financial performance and consequently evaluate whether the poor performance lies in the structure of the organization or may have its roots somewhere else. Concluding, a major change to the new implemented structure after only one year would be a very risky and unwise move. Moreover, Lafley should try to implement the proposed changes successfully and only make changes and slightly adaptations where it turns out to be essentially necessary.