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Investigating the major problems prevelant in firms

Info: 5537 words (22 pages) Essay
Published: 1st Jan 2015 in Business

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The purpose of this report is to investigate the major problems that are prevalent The Procter & Gamble Company (P&G). One of the major problems that the firm is experiencing is that lack of Leadership & proper motivation. This is because of the leadership differences caused by their two CEO viz., Jager & Lafley. Lack of effective communication is also another problem that the firm suffers from. It is recommended that if the Company resolves the ineffectiveness of there HR policies, the lack of motivation, then the other problems like the weak organizational culture , etc. would also be eradicated.

This report highlights the problem of The Procter & Gamble Company & gives some definite measures to prevent from the future damages. Various Theories & Concept are used in this report for finding & solving the problems of the company.

Companies Overview

Founded in 1837, Procter & Gamble is one of the largest consumer products companies in the world. In fiscal year 2007, it had annual revenue of US$ 68.2 billion, and ranked 74th on Fortune 500 list of the world’s largest corporations.

P&G has operations in more than 80 countries, with more than 300 brands on market in 160 countries. These include beauty care, household care and Gillette products. Three billion times a day, P&G brands touch the lives of people around the world. P&G Greater China business includes Mainland China, Hong Kong and Taiwan, which were established in 1988, 1987 and 1985 respectively.

Procter & Gamble entered Mainland China in 1988 by establishing its first joint venture – P&G (Guangzhou) Ltd. Headquartered in Guangzhou, P&G China currently has operations in Guangzhou, Beijing, Shanghai, Chengdu, Tianjin, Dongguan and Nanping, and a technical center in Beijing. (Refer appendix for futher details)

( Source: http://www.pg.com.cn/job/overview/introduction.aspx )

Mission Statement

We will provide branded products and services of superior quality and value that improve the lives of the world’s fayes, now and for generations to come. As a result, consumers will reward us with leadership sales, profit and value creation, allowing our people, our shareholders and the communities in which we live and work with faye. Proctor and gamble believe Scunthorpe united will one day win the champions league. (Sources: http://wiki.answers.com/Q/What_is_the_mission_statement_of_proctor_and_gamble)

Vision Statement

Be. & be recognized as, the best consumer products & services company in the world.

(Source: www.pg.com)

Where does P&G stands today?

Organisational Structure of P&G

P&G’s organization structure is an important part of their capability to grow. It combines the global scale benefits of a $79 billion global company with a local focus to win with consumers and retail customers in each country where P&G products are sold. P&G structure also shows a high degree of control.

P&G’s structure has removed many of the traditional overlaps and inefficiencies that exist in many large companies.

Global Business Units (GBUs) focus solely on consumers, brands and competitors around the world. They are responsible for the innovation pipeline, profitability and shareholder returns from their businesses.

Market Development Organizations (MDOs) are charged with knowing consumers and retailers in each market where P&G competes and integrating the innovations flowing from the GBUs into business plans that work in each country.

Global Business Services (GBS) utilizes P&G talent and expert partners to provide best-in-class business support services at the lowest possible costs to leverage P&G’s scale for a winning advantage.

Lean Corporate Functions ensure ongoing functional innovation and capability improvement.

According to the finding of the case study, we can discover that there is a strong Bureaucratic structure in the company consisting of elements (Senior 2002) like

Clear distribution of the work

Chain of command System

Employee rules prevailing in the company

This Structure basically shows us that the main authority is with the top Management & there is no interference of the employee. This structure shows us a communication gap though its shows us a huge profit which is dangerous in long run sustainability.

Core strategic:

Supplier diversity is a fundamental business strategy at P&G. In 2010, P&G spent more than $2 billion with minority- and women- owned businesses. Since 2005, P&G has been a member of the Billion Dollar Roundtable, a forum of 17 corporations that spend more than $1 billion annually with diverse suppliers

.< http://www.pg.com/en_US/company/core_strengths.shtml>

Structure & governance

Unique organizational structure of P&G offers the global scale benefits of an international company and the local focus to be relevant for consumers in approximately 180 countries where P&G brands are sold. Corporate structure P&G provides the framework that allows company to tap the benefits of a global organization with speed and efficiency. P&G’s global operations keep the company in touch with its local communities. And strong governance practices in P&G ensure that company conduct its operations with consistently high standards and integrity.

< http://www.pg.com/en_US/company/global_structure_operations/index.shtml>

The ‘Organization 2005′ Program

In January 1999, Jager, a P&G veteran became the new CEO taking charge at a time when P&G was in the midst of a corporate restructuring exercise that started in September 1998.

Jager faced the challenging task of restoring P&G’s operations and marketing practices. The biggest obstacle for Jager was P&G’s culture. Jager realized the need to change the mindset of the P&G employees who had been used to lifetime employment and a conservative management style. In 1999, P&G officially launched the Organization 2005 program. It was a program of six-year duration, during which, P&G planned to retrench 15,000 employees globally. The cost of this program was estimated to be $1.9 billion and it was expected to generate an annual savings (after tax deductions) of approximately $900 million per annum by 2004.

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Change in Organization Structure

Till 1998, P&G had been organized along geographic lines with more than 100 profit centers. Under Organization 2005 program, P&G sought to reorganize its organizational structure (Refer Exhibit III and IV) from four geographically-based business units to five product-based global business units – Baby, Feminine & Family Care, Beauty Care, Fabric & Home Care, Food & Beverages, and Health Care.

The restructuring exercise aimed at boosting P&G’s growth (in terms of sales and profits), speed and innovation and expedition of management decision-making for the company’s global-marketing initiatives.

It also aimed to fix the strategy-formulation and profit-creation responsibilities on products rather than on regions. The global business units (GBUs) had to devise global strategies for all P&G’s brands and the heads of GBU were held accountable for their unit’s profit. The sourcing, R&D and manufacturing operations were also undertaken by the GBU.

Standardization of Work Processes

One of the major objectives of Organization 2005 program was to significantly improve all inefficient work processes of P&G including its product development, supply chain management and marketing functions. In order to achieve this objective, P&G undertook several IT initiatives including collaborative technologies, B2C e-commerce, web-enabled supply chain and a data warehouse project for supplying timely data to company’s various operations located globally.

Restoring the Corporate Culture

The Organization 2005 program made efforts to change P&G from a traditional, lazy and bureaucratic to modern, quick-moving and internet-savvy organization. The new structure was directed towards restoring the work culture of P&G so as to focus on its new Section, Innovation and Speed (SIS) philosophy. Emphasizing on innovation, Jager said, “Organization 2005 is focused on one thing: leveraging P&G’s innovative capability.

The Mistakes Committed

The Organization 2005 program faced several problems soon after its launch. Analysts were quick to comment that Jager committed a few mistakes which proved costly for P&G. For instance, Jager had made efforts in January 2000 to acquire Warner-Lambert and American Home Products. Contrary to P&G’s cautious approach towards acquisitions in the 1990s, this dual acquisition would have been the largest ever in P&G’s history, worth $140 billion.

However, the stock market greeted the news of the merger negotiations by selling P&G’s shares, which prompted Jager to exit the deal.

Implementing Strategies to Revive P&G

In June 2000, Alan George Lafley (Lafley), a 23-year P&G veteran popularly known as ‘AG,’ took over as the new President and CEO of P&G. The major difference between Lafley and Jager was their ‘style of functioning.’ Soon after becoming CEO, Lafley rebuilt the management team and made efforts to improve P&G’s operations and profitability. Lafley transferred more than half of P&G’s 30 senior most officers, an unprecedented move in P&G’s history. He assigned senior positions and higher roles to women.

Leadership Differences

In the Organization 2005 initiative, leadership has changed in P&G in the middle of its implementation.  At some point, the company may have considerably gained immensely from this change in the leadership. Apparently, the leadership style of tends to conflict with the strategy in general. The style he used was highly confrontational and bordering to authoritative. This left a bad aftertaste on the operations of the company.

The change of leadership is rooted from the demand of the major stakeholders of the company; from the shareholders, management, and even the retained rank and file employees. When Lafley took on the point, he recognised the flaws of the style and took on a different route. However, it must be pointed out that still cleave on the strategy started by Jager.  Based on the case study, apparently empowered his managers and other top officials in the company by giving them freedom to exercise their decision-making practices. Nonetheless, in the Lafley version of the Organization 2005 initiative, the mission was still the same but the objectives were much clearer. This clear set of objectives and policies helped the managers handle their jobs and executive functions as they are now currently aware of what courses of action to take when they encounter come bumps in their operations. And apparently, all they have to do is emulate what Lafley did and continue to cleave on to the principles of the strategy.

Why cultural change is needed

Organisations, and individuals, typically do not change unless they are confronted by a crisis, a potential crisis, or a major opportunity. They need to perceive some significant urgency to change, or they will tend to proceed as they have been going.

Professor John Kotter of Harvard University, a leading expert on leadership and organisational change, considers that:’Establishing a sense of urgency is crucial to gaining needed co-operation. With complacency high … few people are even interested in working on the change problem. With urgency low, it’s difficult to put together a group with enough power and credibility to guide the effort or to convince key individuals to spend the time necessary to create and communicate a change vision … Executives underestimate how hard it can be to drive people out of their comfort zones … The people at the top may think there’s a sense of urgency, yet if you dig down into the organization, you discover it’s not nearly what it needs to be to sustain change through the whole process’. (Kotter, 1996)

Kotter also cautions that about half the organisations that attempt change fail early in the process because they don’t pay sufficient attention to the need for establishing a great enough sense of urgency. Sometimes they are impatient and believe that they can move on without this step. Sometimes they become paralysed by fear of the consequences of focusing on an impending crisis.

Kotter also cautions that about half the organisations that attempt change fail early in the process because they don’t pay sufficient attention to the need for establishing a great enough sense of urgency. Sometimes they are impatient and believe that they can move on without this step. Sometimes they become paralyzed by fear of the consequences of focusing on an impending crisis.

Organizational Culture

 The cultural web

There are many approaches to culture and even more definitions. Kroeber & Kluckhohn in their classic review of culture (1952) report 156 different definitions, which they arrange under six different generic headings. In the years since they wrote many other definitions have been attempted and still there is no consensus.

A model of culture, developed by Jerry Johnson , may help to explain the use of Cultural Change in P&G. Cultural Web is used firstly to look at the organizational culture as it is now, secondly to look at how we want the culture to be, and thirdly to identify the differences between the two. These differences are the changes we need to make to achieve the high-performance culture that we want. (Source: mindtools.com)

Johnson calls his model as the ‘cultural web’. The paradigm in the centre is the set of core beliefs which result from the multiplicity of conversations and which maintains the unity of the culture. The ‘petals’ are the manifestations of culture which result from the influence of the paradigm.

Most change programmes concentrate on the petals; they try to effect change by looking at structures, systems and processes. 

The Cultural Web identifies six interrelated elements that help to make up what Johnson and Scholes call the “paradigm” – the pattern or model – of the work environment. By analyzing the factors in each, you can begin to see the bigger picture of your culture: what is working, what isn’t working, and what needs to be changed. The six elements are:

Stories – The past events and people talked about inside and outside the company. Who and what the company chooses to immortalize says a great deal about what it values, and perceives as great behavior.

Rituals and Routines – The daily behavior and actions of people that signal acceptable behavior. This determines what is expected to happen in given situations, and what is valued by management.

Symbols – The visual representations of the company including logos, how plush the offices are, and the formal or informal dress codes.

Organizational Structure – This includes both the structure defined by the organization chart, and the unwritten lines of power and influence that indicate whose contributions are most valued.

Control Systems – The ways that the organization is controlled. These include financial systems, quality systems, and rewards (including the way they are measured and distributed within the organization.)

Power Structures – The pockets of real power in the company. This may involve one or two key senior executives, a whole group of executives, or even a department. The key is that these people have the greatest amount of influence on decisions, operations, and strategic direction.


A paradigm is a self-consistent set of ideas and beliefs which acts as a filter, influencing how we perceive and how we make sense. The term was brought into common currency by Thomas Kuhn in his famous Structure of Scientific Revolutions, first published in 1962. Fritjof Capra adapted Kuhn’s original definition to present it in a form more suitable to the study of organisations:

A paradigm is a constellation of concepts, values, perceptions and practices shared by a community, which forms a particular vision of reality that is the basis of the way a community organises itself. (Capra 1997)

As an example of the way a paradigm-especially the paradigm at the heart of a culture-can influence perception.


            All organizations have their strengths and weaknesses in the functional area of business. Thus, Organization 2005 is “a corporate restructuring program” focused on comprehensive changes in an organizational structure, work processes, and employee culture towards increased innovation. Providing a SWOT analysis for Organization 2005 & the company’s HR & Strategy policies allows the forecasting that serves as an important tool and process of finding the future concerns of the entire program.

 Organizational Strengths

            Proctor & Gamble’s Organization 2005, according to case study 2003 was intended to increase sales and profits through the introduction of new brand products, closing needless production plants and eliminating unproductive jobs & introducing the new IT programme in the company.

In details, Organization 2005 offers a corporate ability to create new strategy that is perceived to be complete, with top to bottom effects on individualized area of concentration (i.e. production, finance, human resources, etc). , P&G’s CEO Jagger in 1999 and the forerunner of this new program strategy believed that Organization 2005 is designed for the purpose of growth at a consistently higher level. If the program is to be applied, positive feedbacks are expected in the general managerial and working environments. For, Organization 2005 will “create an environment that produced bolder goals and plans, bigger innovations and greater speed” ( Jager, 1999). He also believed that on specific areas of the Company for example, the new program will be financially helpful as one of its prime objectives is the increasing of sales and profits while in work processes, the aspect of automation is vital as new technologies will be used to replace outdated processes of production. Human resources in regards to Jager’s redesigning of the rewards system is considered in support of the Company’s workforce. However, there is a need to create and maintain a balance of costs and the employment issue on human resources is expected to exist and complicate after. Organization 2005 is said to be broad as it satisfies the future needs of the whole Company.

Regardless of unique drawbacks of the program, Organization 2005 as new business & HR strategy which was perfectly designed for long-term entrepreneurial benefits and competitive purposes.


Organizational Weaknesses

            On the contrary, Organization 2005 seems to be single-mindedly crafted and hastily implemented that led to various difficulties in management. Among the immediate drawbacks of the new business strategy is the inability of Jager to anticipate sudden outburst of management implications. Other issues in management sized up and Jager decided to resign from his post. The initial stages of the new strategy resulted to downgrading of P&G’s from $117 in January 2000 to $90 the next month according to its annual report. The expected good results turned out to be the reverse effect. Organization 2005 affected human resources and overall employment as there is massive transfer of employees to various countries that resulted to the difficulty of adapting to changes. The confrontational management style of Jager was also seen as a weakness during that time. Human resources management is among the most remarkable weakness of Organization 2005 as it created unnecessary rift between upper level management and common manpower staff. Lastly, Jager’s failure to conduct more intensive research and development (R&D) efforts sprouted difficulties on the seemingly perfect Organization 2005 program strategy.

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Market Opportunities

            Considering Proctor & Gamble’s position in the global marketplace, it is not difficult to specify Organization 2005 market opportunities. Opportunities lay upon the effectiveness of the Company to implement its policies on the new program strategy. The new program strategy paves way for a reinforcing effect particularly on the conditions of growing markets, extended service networks, emergent economies or capitalizing on the basis of competitor’s imperfections. Companies like P&G employ detailed business plans and strategies in order to gain several benefits from its competitors such as increased profits and enhanced customer relations as company objectives. The opportunity for Organization 2005 to create a newly innovative management roles with the integration of information technology (IT) is promising

           Using Organization 2005 as new program strategy, it addresses the opportunity to expand its operations and even potential business cooperation. The opportunity to stand as number one in the line of industry is also posed through the initiatives of managers and implementers of policies of Organization 2005.


Market Threats

            The inability to handle change management particularly on the implementation of strategy poses great threat to the overall functions of the Company. On the party of human resources whom serving the main fuel of production, their inability to deal with sudden changes is risky. This occurrence will potentially affect the entire production and corporate management activities.

            Furthermore, the extraordinary business trends and rapid competition is never taken out of the list of most popular threat in any business regardless of geographical coverage. It is acknowledged that development among worldwide industries is deliberate and seems to be a top priority. For industries like P&G, the threat of unprecedented trends in business like international trade policies and economic factors, changing consumer culture and smart buying behavior may lead to uncertainty. Technological difficulty may also affect business operations even if Organization 2005 looks forward for comprehensive and state-of-the-art technological innovations since the constant improvement in IT will make new facilities not longer to be obsolete. On the aspect of competition, more and more companies will try to challenge the market status of P&G.

Key Organisational Issues & there Recommendations

Among the many organisational Issues of the company few are listed below:

New Boss – New Leader – New Strategy

Expatriation- Relocation

Risk avoidance – Risk taking

Product Development Time – 5 years to 1.5 years

Goal Setting – Stretch targets

Insufficient IT-training

Disciplined employees code – dress code, same cup, same cubicle office.

Steady development-innovation-product development

IT focus rather than consumer needs.

Resistance to cultural change

Installing information and operating systems that enable company personnel to carry out their strategic roles proficiently

Based on the case study given, IT has become one of the main developments by P&G with over a billion dollars allocated to its development. As mentioned in the prior parts, this is a great step on the part of Lafley and his crew as the development of this part of the operations also entails an improvement in the support systems present in the company. Thought the case study fails to mention the actual support systems installed in P&G,  it has indicated that a “innovative, state-of-the-art support system” is a good starting point for building competitive advantage as long as the company’s core competencies complement such systems.

 The case study mentioned possible support systems that could be supportive in the operations of P&G. These include e-commerce systems, internet and intranet for the company. With the installation of these, the employees of P&G are able to communicate through email and even access online data systems that could be helpful in making market analyses and other examination tools measuring the complex and varied environment on which the company operates.

In any case, installing support systems are all but a share of the knowledge management of the organisation. This means it adds up to the basic competencies of the organisations with specific focus on the efficient distribution of information from one individual employee to another. P&G should implement continuous improvements and developments to add to their competitive advantage in the market.  

Binding rewards and incentives straight to the achievement of strategic & financial targets & to decent strategy execution

The case study of 2003 noted that in spite of the huge job cuts in the initial stages of Organization 2005, the company have given those that have been reserved with both monetary and non-monetary incentives to continue working to realise the goals of the initiative. Monetary Incentives comprises those connected to increase in salary, bonuses for performance, stock options, retirement packages, promotions, and other perks. 2003 On the other hand, non-monetary incentives include those that deal with job security and employee morale particularly as a result of praise, constructive criticism, recognitions and trust from the company. In the case of P&G, the incentives were seen predominantly in terms of the separation packages that they offered to their employees during the jobs cuts. This took place in the time of  where those retained felt unsecured of the jobs that they possess along with the vaguely offensive leadership style practiced by the then CEO.

These all changed when took over the headship of the company. In this period, there are still job cuts but it is overshadowed by the appealing incentives for those who have been retained, especially those holding from the management positions. A balance between monetary and non-monetary incentives has been apparent with a rewards system that is based on performance and considerably result-oriented. Compensation was given at competitive rates with the existence of constant training to “revitalize long-term competitiveness” of P&G.   

Shaping the work environment and corporate culture to fit the strategy

The basic foundation of the Organization 2005 initiative establishes the need to rationalize the operations of the company. This is the main reason why the company conducted job cuts all over the world. One sure way of rationalizing the operations of the company and in the same time decrease the cost of operations is by mass lay-offs. Another consequence of these job cuts could be mass reduction on the morale of the remaining employees. However, this rather negative effect of the strategy could also work in favour of P&G. (2003) The company have to use their influence effectively so as to instil an culture of competition among those retained. Essentially, the uncertain job security could be counteracted by establishing a performance-based incentive or a results-oriented appraisal system such that every person retained by P&G will give the best that they can offer professionally. This change in culture could be derived from what  and  (2003) indicated as those that originate from arrival of new leaders, policies and strategies compounded by the organisational politics inherent in P&G. In such conditions, the culture of P&G will incontrovertibly evolve into something far different from the original. This is manifested in the change in leadership as Lafley took over the seat of power from Jager. The change from confrontational leadership shown by Jager to the transformational style of Lafley made leaps and bounds of improvements on P&G. In any case, the change in culture in P&G made the execution of Organization 2005 acquire a better mode of execution.

Using the leadership

In the Organization 2005 initiative, leadership has changed in P&G in the middle of its implementation.  At some point, the company may have considerably gained hugely from this change in the leadership. Apparently, the leadership style tends to clash with the strategy in general. As the case study characterised it, the style he used was highly confrontational and bordering to authoritative. This left a bad trace on the operations of the company.

When Lafley took on the point, he recognised the flaws of the  style and took on a different route. However, it must be pointed out that he is still divided on the strategy started by Jager.  Based on the case study, Jager apparently allowed his managers and other top officials in the company by providing them freedom to exercise their decision-making practices. However, in the Lafley version of the Organization 2005 initiative, the mission was still the same but the objectives were much clearer. This clear set of objectives and policies helped the managers handle their jobs and executive functions as they are now currently aware of what courses of action to take when they encounter come bumps in their operations. And apparently, all they have to do is emulate what Lafley did and continue to be divided on to the principles of the strategy.


Strategy making and implementation has become a important in any organisation. In order to gain market domination and competitive advantage, strategy making has to be close to flawless along with its consequent implementation. This is seen in the case of Procter and Gamble as it implements Organization 2005, their strategy to sustain their lead on the consumer product market. The discussions above have provided an in-depth inspection of the company and the modifications in its changes as Organization 2005 was implemented under the leadership of Jager and Lafley. In the first part of the study, it has been established that the company is certainly a powerful one with both resource assets and market opportunities are more than enough to ensure the survival of the P&G. In a similar regard, the analysis presented that like any other varied companies, P&G has some flaws in its structure along with the threats in the environment particularly coming from the competitors and from the consumers themselves. These threats and weaknesses are actually the factors that laid the Organization 2005 initiative. The second part of the discussions has provided a detailed discussion of the changes that took place in the company as Organization 2005. It indicates that the company is indeed on its way to success as the market is beginning to turn to their favour. From the improvement of the value chain to the infusion of IT operations in the company, the implementation of Organization 2005 initiative has been doing wonders for P&G. A clear indication of the effectiveness of the Organization 2005 initiative is the bold move of acquiring the Gillette brand. Though it does seem rather audacious on the part of P&G to engage in such risky endeavour, the said action is a perfect fit for the structure, value chain, and the overall strategy of P&G. To some extent, that area may have been the key element of the apparent success of P&G’s Organization 2005 as it complements the diversified structure, value chain, multinational operations and distribution, and overall framework of the firm.

Moreover, the study has also emphasised that the capability of the organisation to decipher the subtle changes in the environment, both internal and external, allowed it to minimise its losses and lessen the risk in its operations. In any case, it must also be noted that the decisions made by the leadership of P&G may have led the company into greener pastures using its own resources and capabilities and in the


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