Durk Jager , had introduced a restructuring program named “Organization 2005” – designed to accelerate sales and innovations. In past P&G chain of formal command put geography first, followed by product and function. In new design, P&G was structured as 3 interdependent global organizations, one organized by product category, one by geography and one by business process.
Lack of immediate results, job reductions, reduced employee morale led to reduced profits and stock price reduced to half in last six months.
Organizational Structure: Two different models for US and Europe were adopted, as US market was more homogenous, a nationwide brand and product division management was adopted. Western Europe is a heterogeneous market with different languages, culture and laws therefore a decentralized model was adopted.
United States
The organizational model was developed on two key dimensions: functions and brand. Brand manager has responsibility for profitability and matching company strategy with product category. Brand manager has access to strong divisional functions. It was more product centric and costlier. There was competition within brand managers and this was the era when max product innovation took place.
In 1987 structure was changed and functional units were centralized. Brands would be managed as components of category portfolios by category general manager, to whom both brand and functional managers would report. Each business unit has it’s own sales, product development, manufacturing and finance functions. To retain the functional strength a matrix reporting structure was set up whereby functional leaders report directly to their business leader and also have reporting relationship to their functional leadership. Again product managers were more powerful and responsible for profit and loss, matrix structure create ambiguity as man can’t serve two