Karen- Kimberly-Clark Case Study

In 1872 four business men, John Kimberly, Havilah Babcock, Charles Clark and Frank Shattuck created a company called Kimberly, Clark and Company which initially sold manufactured paper goods. They would eventually branch out into personal care items in order to compete in a larger market with companies like Proctor and Gamble. In 1978, Kimberly-Clark introduced Huggies disposable diapers and were an instant success. In the mid 1990’s Kimberly-Clark merged with Scott Paper and found them in an unusual predicament, the merger did not go well, the integration of Scott and Kimberly-Clark was a rocky one that would lead to dissatisfaction on the part of most Scott employees and especially Scott’s senior management.[1] In 2002, Proctor and Gamble released a line of high end Pampers disposable diapers that not only was a substitute for Huggies, but also captured a large portion of Huggies market share. Around 2003, Kimberly-Clark decided to restructure the way that the company focused on business products. They chose to use a system of “grow, sustain and fix”, which split all products in to areas that needed growth, needed to sustain market share or items that needed to be reformulated. This system was a total failure and caused the company to take several steps back in market share in most of their areas.[2] Had Kimberly-Clark gone for a more product related divisional structure, it is possible that they would not have lost so much of its market share to begin with. By going with a divisional structure they would have been able to bring together related products, for example, baby related, paper products, and personal hygiene, making the flow of the company and the divisions much smoother. This would allow for the employees in each division to be more focused on their specific products, have more flexibility in newer product design and to be held accountable when things do not go as planned.[3] By pursuing this type of organizational strategy where each division is broken off unto itself, this allows for an “economies of scope through the use of joint inputs.”[4] This can create tangible interrelationships with the use of raw materials, physical assets, distributions channels and support technologies as well as intangible interrelationships in the form of knowledge sharing and personal capabilities.[5] One of the largest pitfalls for those companies choosing the divisional structure is companies need to watch for duplication of functions among the different units. It is possible to connect different divisions if there are several units that use the same processes or products while maintaining the separate divisions. By doing this the divisions can have more knowledge sharing and an increase their productivity by learning new processes.[6] In terms of corporate culture, divisional structures are more easily adapted in cultures where collectivism and individualism are equal as each division is responsible for itself and those employees contained within it and there is no reliance on the corporation as a whole rather a dependence upon others within their division.[7] This includes divisions that are located in other countries. While the negatives to divisional structure can be detrimental, Kimberly-Clark found out that by grouping things together in a hodgepodge fashion is even more damaging. Kimberly-Clark found that by treating their loyal Huggies customers in a cavalier manner, failing to create innovative products and accessories lead their customers to find substitutions for the Huggies brands. Namely, choosing to go with Pampers instead of Huggies, this showed Kimberly-Clark that they were substitutable and very easily imitated, thus they had to perform at a higher level in order to maintain their market share.

Question #1-
Why would Kimberly-Clark executives restructure the company based on “Grow, sustain and fix” categories? What disadvantages might result from such a structure?

Assumptions can be mad that the executives thought by keeping sustainable products, like Huggies, Depends and other well-know, frequently purchased products together that they could maintain the level of market share by having a constant eye on them. However, competitors (such as Proctor and Gamble) created innovative new products that filled the market share of Kimberly-Clark. The creation of a high end line of Pampers took away a big portion of Huggies’ market. This form of organization created stagnation in areas where there should have been innovation. It is always a good idea to have an emerging markets area in every company, but to devote very little staff to innovating the current product lines, and a large amount of staff to fixing what is wrong with current products is folly, and just makes poor business sense.

Question #2-
Was the organizational structure presented by Kimberly-Clark executives in 2004 better than the first structure proposed? Why or Why not?

The second structure that was offered by Kimberly-Clark executives was a far better option than the first one. “Grow, sustain and fix” was not the most effective way that executives could have come up with to continue having a successful business. It allowed for the growth of different products based upon use. Though branching out further from personal care, Washroom products and emerging markets would still be a better idea. Personal care can cover a large amount of products. A structure closer to what Proctor and Gamble uses would be better suited for Kimberly-Clark. They use a divisional structure that also consists of product and function divisions. Each of their many products is overseen by a brand manager, who oversees all aspects of each brand that they are responsible for and all accompanying and complementary items.[8] This would give them an even greater control over R&D, finance and sales and allow them to immediately see a change in their market share, and fix the issue, before they lose too much ground to the competition.
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[1] Hitt, Black, and Porter. Management 2009, pg 199
[2] Hitt (2009)
[3] N Anand, and Richard L Daft. "What is the Right Organization Design? " Organizational Dynamics 36.4 (2007): 329.
[4] Riahi-Belkaoui, Ahmed. "The Impact of the Multi-divisional Structure on Organizational Slack: The Contingency Analysis." British Journal of Management 9.3 (1998):213
[5] Riahi-Belkaoui (1998)
[6] Martinsons, Aelita G B, and Martinsons, Maris G. "In search of structural excellence. " Leadership & Organization Development Journal 15.2 (1994): 24-29

[7] Bruce T Lamont, V Sambamurthy, Kimberly M Ellis, and Paul G Simmonds. "The influence of organizational structure on the information received by corporate strategists of multinational enterprises. " Management International Review 40.3 (2000): 231-252

[8] Martinsons, (1994)