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NAME: Pragati Bharti




The words put on paper are mere ink marks but when they have a
purpose, there exist a thought behind them. I too have a purpose to
express my gratitude towards the individuals without which the project
would not have been possible.
I owe a deep sense of gratitude to Dr. Himanshu Mohan, for his active
guidance and constant supervision together with time to time providing
of necessary information connected with the project following active
support in the completion of project.
Finally I would also like to express my earnest gratitude to my friends
and family members for their constant support and encouragement
without which the assignment would not have been completed besides
the constant blessings of Almighty.
Pragati Bharti

Procter & Gamble is a Fortune 500 American multinational corporation
headquartered in Downtown Cincinnati, Ohio that manufactures a wide
range of consumer goods (Wikipedia 2010, Procter & Gamble). Procter
& Gamble (P&G) is America’s biggest maker of household products,
with at least 250 brands in six main categories: laundry and cleaning
(detergents), paper goods (toilet paper), beauty care (cosmetics,
shampoos), food and beverages (coffee, snacks), feminine care (sanitary
towels) and health care (toothpaste, medicine). P&G’s famous brands
include Ariel, Pantene, Head & Shoulders, Fabreze, Sunny Delight, and
Oil of Olaz. About half of P&G's sales come from its top ten brands. P&G
also makes pet food and PUR water filters and produces the soap operas
Guiding Light and As the World Turns (Corporate Watch, n.d. Procter &
Gamble). So what has made P&G become what it is today? The answer is
multiple but apparently its organisational structure has played an
important role, which has necessitated this study.

P&G’s Structure
An organisation is a consciously coordinated social entity, with a
relatively identifiable boundary, that functions on a relatively
continuous basis to achieve a common goal or set of goals. And
organisation structure defines how tasks are to be allocated, areas of
responsibility and authority, who reports to whom, and the formal
coordinating mechanisms and interaction patterns that will be followed
(Robbins & Neil Barwell 2002, pp.6-7).

So far, a great number of theorists have developed their theories as to

the classification of the organisation structure. According to Duncan
(1979, cited in Bartol et al. 2006, p.196), organisation structure is also
called departmentalisation which is defined as grouping individuals into
units, and units into departments and larger units to achieve
organisational goals. Different patterns of departmentalisation are
called organisation designs. Functional, divisional, hybrid and matrix
are four common departmentalisation patterns.
Functional structure is a type of departmentalisation where positions
are grouped into functional (or specialization) areas. In other words,
positions are combined on the basis of similarity of expertise, skill and
work activity.
Divisional structure is a type of departmentalisation, with positions
grouped by product, service or market similarity.
Hybrid is a form of departmentalisation with both functional and
divisional structure elements at the same management level (Draft 1998,
cited in Bartol et al. 2006, p.202).
Matrix structure is a type of departmentalisation which
superimposes divisional horizontal reporting relationships onto a

hierarchical functional structure (Miles & Snow 1992, cited in Bartol et

al.2006, p.204). Thus the structure is both functional and divisional at
once. There are two chains of command, one vertical and one

P&G has undertaken many structural changes over the past century, but
that discussed in this study is the current structure of P&G. The main
structure, partial organisation structure and specific structure of P&G
are shown in Figure 1.1, 1.2 and 1.3.

Figure 1.1 (Corporate culture: Strength in Structure, P&G)


Figure 1.2 Partial organisation structure of P&G (MIKOŁA J JAN

ALESSANDRO L . SPADINI , Procter & Gamble: Organization 2005(A)
pdf, p.9)

Figure 1.3 Organization 2005 Structure, 1999 (MIKOŁA J JAN

ALESSANDRO L . SPADINI , Procter & Gamble: Organization 2005(A)

pdf, p.15)

Global Business Units (GBUs)

Global Business Units were responsible for product development,
brand design, business strategy and new business development. In total,
there were seven GBUs (represented by the ellipsis) each with complete
profit responsibility, and benchmarked against focused
product-category competitors. Each operated autonomously focusing on
a different product category, such as Fabric and Home Care or Tissue
and Towel (see the middle section of Figure 1.3). Each GBU was led by a
president, who reported directly to the CEO and was a member of the
global leadership council that determined overall company strategy. At a
GBU level, Vice Presidents of Marketing, R&D, Product Supply, New
Business Development, and support functions such as IT
implementation reported to the GBU President (see the middle section
of Figure 1.2 ). The new business development function of GBUs was
managed separately from the rest of the GBU.

Market Development Organizations (MDOs)

Market Development Organizations (MDOs) were designed to take
responsibility for “tailoring the company’s global programs to local
markets and for using their knowledge of local consumers and retailers
to help P&G develop market strategies to guide the entire business.” In
total, there were seven MDOs represented by the ellipsis (see the top
part of Figure 1.3). Unlike the GBUs, they did not have complete profit
responsibility, but were instead compensated on sales growth. Each
MDO was led by a president who reported directly to the CEO and, like

the GBU presidents, sat on the global leadership council.

Global Business Services (GBS)

The third leg of the new organizational structure, Global Business
Services (GBS) unit was given an ambitious plan to standardize,
consolidate, streamline, and ultimately strengthen business processes
and IT platforms across GBUs and MDOs around the world. GBS was
organized as a cost center. The head of GBS reported directly to the CEO,
but was not a member of the global leadership council.
As shown in Figure 1.2 and Figure 1.3, corporate new ventures president,
chief financial officer and other presidents or officers make up the
functional structure, while seven MDOS and GBUS who are responsible
for different areas and different products make up the divisional
structure. Thus the structure is both functional and divisional at once,
so P&G’ organisation structure should be a matrix structure as per the
classification of organisation structure.

Contingency Factors of P&G’s Current Structure

The mostly adopted theory in deciding an organisation’s structure is
contingency theory. This viewpoint argues that appropriate managerial
action depends on a situation’s parameters. The best structure for a firm
was seen to depend on contingency factors such as strategy, technology,
size and environment (Bartol et al.2006, p. 219).
Miller (1986; 1998, cited in Bartol et al. 2006, p.220) matched
strategies with appropriate structures. And in terms of his theory, P&G’s
strategy is similar to innovative differentiation which is to distinguish
one’s products and services from those of competitors by leading in
complex product or service innovations. As in P&G’s case, it has

diversified its products into many types (cleaners, shampoos, toothpaste)

and into hundreds of brands. A matrix structure fits with an innovative
differentiation strategy.
Another factor determines P&G’s current structure is partly owing to
technology. Woodward (1958; 1965, cited in Bartol et al. 2006, p.221)
found three different technology types often predicted structural firm’s
practices, and P&G should be of continuous-process production that
makes products of liquids solids or gases through a continuous process.
Therefore, by Woodward’s theory, P&G should have low formalization
and centralisation.
It is known for sure that size has played a critical part in the
formation of P&G’s current structure. As organisations grow,
departments and levels need to be added, and structures grow more
complex. With functional forms, this drives a change to divisional
structure (Astley 1985; Cullen, Anderson & Baker 1986, cited in Bartol
et al. 2006, p. 222). As organisations grow, decentralizations increases.
This is probably due to the rules and regulation guiding lower level
decision making (Robbins 1990, cited in Bartol et al. 2006, p.222).
Burns and Stalker (1961, cited in Bartol et al. 2006, p.223) studied the
effects of environment on organisation structure. They found different
structural characteristics, depending on whether the environment was
stable with little change or unstable with rapid change and uncertainty.
P&G has been classified as a downstream company, originating as a
marketer distributor (Galbraith, 1991, cited in Leadership &
Organisation Development Journal. Vol. 15. No.2, 1994, pp.24-28).
Downstream companies, like P&G, have multiple products and multiple
markets. They are also customer oriented and concerned with tailoring
their products to meet target market needs. Thus they need to be more

flexible and adaptable than traditional manufacturing companies

(Leadership & Organisation Development Journal. Vol. 15. No.2, 1994,
pp.24-28). In highly unstable and uncertain environments, by contrast,
firms had more organic characteristics, decentralized decision making,
few rules and regulations, with hierarchical considerable delegation
between levels, which is also applicable to P&G.

Another Perspective to Analyze P&G’ s Structure

Henry Mintzberg (1983, cited in Stephen P. Robbins & Neil Barnwell,
2002, p.111) argues that there are five basic parts to any organisation.
They are defined as follows:
1. The operating core—employees, who perform the basic work related
to the production of products and services.
2. The strategic apex—top-level managers,who are charged with the
overall responsibility for the organisation.
3. The middle line—managers, who connect the operating core to the
strategic apex.
4. The technostructure—analysts, who have the responsibility for
effecting certain forms of standardization in the organisation.
5. The support staff—people who fill the staff units that provide indirect
support services for the organisation.

Any one of these five parts can dominate an organisation and where
each dominates, a different organisational form emerges. Moreover, a
given structural configuration is likely to be used depending on which
part is in control. As a result, there are five distinct design
configurations and each one is associated with the domination by one of
the five basic parts.

After comparison P&G’ structure with Mintzberg’s theorem, we can

draw a conclusion that P&G should be of machine bureaucracy with a
horizontal divisional structure. The machine bureaucracy has highly
routine operating tasks, formalised rules and regulations, tasks that are
grouped into functional departments, centralized authority and a
decision making that follows the chain of command. And the divisional
structure is a set of autonomous self-contained units, each typically
configured as a machine bureaucracy. The dominant part of the
divisional structure lies with middle management. They report to, and
are administered by, a central headquarters. (Stephen P. Robbins & Neil
Barnwell, 2002, p.114-117) In P&G’s case, the functional departments
are engineering, financial, human resources, technology and other
departments, and divisions are seven MDOS and GBUS which perform
different function and are in charge of different regions and different

What Makes P&G’ Current Structure Stand Out?

The market and industry P&G lies in have determined P&G’s present
structure, as P&G must focus on two things, one is means (processes) in
order to make excellent product quality and minimize the cost, the other
is ends (outcomes) to yield profits and satisfy the shareholders,
stakeholders, customers and so on. And this structure overtly has its
manifold merits than P&G’s former structure, mainly are as follows:
First it created a clear balance between these two key dimensions –
customer focus and product focus; second it presented a unified sales
contact for customers that is focused on sales growth of all products;
third the product-category business units with profit and loss

responsibility have full control over their key functions; and fourth the
service functions and corporate functions formed a third and fourth
dimensions in matrix structures over the two key dimensions. The new
structure is a four-dimension front-back hybrid matrix with a top leader,
a coordination council to define priorities and solve disputes, matrix
leaders, and subordinates with the need to coordinate and balance four
influences structure as shown in Figure1.2.
The routines and policies that had created problems to the proper
functioning of the matrix organization also streamlined and adapted to
the new structure. A single business-planning process was created
whereby all budget elements could be reviewed and approved jointly by
the various matrix leaders (Ronald Jean Degen, 2009, pp.34-35).

Examination of Organisational Effectiveness

Centring around organisational effectiveness, there have appeared
diverse approaches trying to measure it, the most common ones are the
goal-attainment approach, systems approach, strategic-constituencies
approach and the balanced scorecard approach.
First the definition of organisational effectiveness must be presented
despite that effectiveness is conceptually complex. Organisational
effectiveness can be defined as the degree to which an organisation
attains its short-(ends) and long-term (means) goals, the selection of
which reflects strategic constituencies, the self-interest of the evaluator
and the life stage of the organisation (Stephen P. Robbins & Neil
Barnwell 2002, p.87).
(1) The goal-attainment approach states that an organisation’s
effectiveness must be appraised in terms of the accomplishment of ends
rather than means. Put another way, it should be judged by whether it

has achieved what it set out to achieve, rather than how it got there.
Popular goal-attainment criteria include achieving profit objectives or
meeting budgets, achieving certain quality outcomes, helping a certain
number of disadvantaged people, attaining health objectives or winning
a sports competition. Goal attainment approach allows for better
concentration on and dedication to certain objectives of an organisation
and easier assessment of its performance because the number of goals of
the organisation is usually small and countable.
(2) Systems approach is to evaluate an organisation’s effectiveness by
its ability to acquire inputs, process the inputs, channel the outputs and
maintain stability and balance. Systems models emphasise criteria that
will increase the long-term survival of the organisation, such as the
organisation’s ability to acquire resources, maintain itself internally as a
social organisation and interact successfully with its external
Therefore, systems approach has such advantages: it allows managers
to make decisions that will benefit the organisation’s long-term health
and survival rather than short-goals; besides, the systems approach
increases the manager’s awareness of the interdependence of
organisational activities; moreover, systems approach has higher
applicability where end goals either are very vague or defy
(3) Strategic-constituencies approach proposes that an effective
organisation is one that satisfies the demands of those constituencies in
its environment from which it requires support for its continued
existence. This approach is similar to the systems view, yet it has a
different emphasis. Both consider interdependencies, but the
strategic-constituencies view is not concerned with all the organisation’s

environment. It seeks to appease only those in the environment who can

threaten the organisation’s survival—that is, the strategic constituencies.
Strategic-constituencies approach enables managers to decrease the
chance that they might ignore or severely upset a group whose power
could significantly hinder the organisation’s operations as well as to
modify its preference ordering of goals as necessary to reflect the
changing power relationships with its strategic constituencies (Robbins
& Barnwell, 2002, p. 81).
(4)Balanced scorecard approach seeks to balance the various
demands on the organisation with its capabilities by use of balanced
scorecard. The balanced scorecard encompasses four basic components
or perspectives that any organisation needs to consider: financial
perspective, customer perspective, internal business perspective and
innovation & learning perspective. The first advantage of the balanced
scorecard is that it brings together in a single report many areas of
importance to an organisation’s competitiveness. Second is that the
scorecard acts to guard against suboptimisation. Third it also has the
advantage of involving a reasonably wide range of managers and
stakeholders in the process of nominating what is important for the
After introducing the four current approaches to examine the
organisational effectiveness, a question that what is the appropriate
approach for the assessment of P&G’s organisational effectiveness needs
to be answered. Because of the complexity and vastness of P&G’s
structure and a demanding environment where it operates, goal
attainment, systems, strategic-constituencies approaches are all
inappropriate for the assessment of P&G’s organisational effectiveness.
The P&G’s management must look into every perspective and identify

just a few goals for each of the four perspectives and reach the final
decision which should be balanced in terms of every perspective rather
than contributing to one particular perspective.

Inherent Structural Problems and Better Option

Though P&G has started its restructuring plan since 1998 and gone
to as far as today, there are still some inherent structural problems. As
its matrix structure has added a layer of category managers, brand
managers and service staffs to a functional hierarchy, costs grow. Also,
matrix designs can also encourage group decision making until groups
make even minor decisions, which can seriously erode productivity.
Finally, while a matrix can adapt to change, this can be slow if members
have poor interpersonal skills, or senior management tries to keep
control (Bartol et al. 2006, p. 206); in other words it means slow
responsiveness and low flexibility. Could there be a better option for
P&G? Boundaryless structure may be the answer. A contemporary
organisational design is the idea of the Boundaryless organisation, an
organisation whose design is not defined by, or limited to, the horizontal,
vertical or external boundaries imposed by a predefined structure. Also
named as “barrier-free” organisation by Gregory G. Dess et al.(1995, pp.
7-20), a Boundaryless organisation enables a firm to bridge real
differences in culture, function, and goals to find common ground that
facilitates cooperative behaviour. Boundaryless organizing is to remove
vertical boundaries through such structural approaches as
cross-hierarchical teams (which include top-level managers, middle
managers, supervisors and employees) and participative
decision-making, the hierarchy is flattened. Managers can remove
horizontal boundaries by using cross-functional teams and organizing

work activities around work processes instead of around functional

departments. And external boundaries can be minimized or eliminated
by using strategic alliances with suppliers, or value chain management
customer-organisation linkages. Ideally, through all these restructuring,
P&G can streamline its work activities so that it can respond quickly to
the tumultuous and fast moving marketplace.

Through this study, we have looked into the P&G’s organisation
matrix structure and how does its structure facilitate the achievement of
its goals and to some extent, this structure is effective. However, in a
context of complex, rapidly changing and highly competitive global
environments, an organisation has to adapt quickly in order to take
advantage of opportunities that arise anywhere in the world. And the
need for rapid innovation cannot be ignored as well. So turning to a
boundaryless structure which has higher environmental responsiveness
may be a better option for P&G.