Case study 1: Has restructuring paid off at Procter & Gamble?

Procter & Gamble (P&G), formed by William Procter and James Gamble in Cincinnati in 1837, is one of the oldest global companies. Its famous brands include Tide, Pringles and Crest. For much of its history, the company has been innovative in producing new consumer products and new marketing techniques, such as the soap opera. However, despite its record of reliable profit growth, by the 1990s P&G had become weighed down by bureaucratic hierarchy. According to Richard Tomkins: ‘the company became formula-driven, risk-averse and inbred. Even the smallest decisions had to be referred to senior management. Individuality was frowned upon: employees learnt how to write memos, how to speak and how to think’ (Financial Times, 12 June 2000). Times became harder for the well-known brands, which were losing sales to copycat products and supermarket own brands. The big supermarket chains, such as Wal-Mart, grew more powerful and were able to demand lower prices from manufacturers.

In a restructuring in 1990, P&G’s chief executive closed 30 plants worldwide, cutting 13,000 jobs. This move brought down prices, but damaged employee morale and adversely affected product innovation. In 1999, a new chief executive, Durk Jager, took radical measures to dismantle the company’s multilayered bureaucracy. Aiming to recreate entrepreneurial spirit, he took power away from country-based divisions and created global product managers, with greater control over their budgets. But the change from country-based divisions to product divisions proved expensive, and the costs did not translate immediately into greater sales. Further, the radical changes had a disorienting effect on employees. It has been estimated that of P&G’s 200–300 top managers, only 20 per cent were left doing the same job they had done 18 months previously.