Organizational Architecture at P&G

The Procter & Gamble Company (P&G) is a force in the global marketplace. P&G is the
biggest U.S. advertiser at some $5 billion annually, and it spends a staggering $9 billion
annually worldwide on advertisement. Beyond ad spending, P&G is also the world’s
largest maker of household products. It is a very large company with more than $80
billion in annual sales and with a net worth (sometimes referred to as “market
capitalization”) greater than the gross domestic product (GDP) of most countries. P&G
markets products in more than 180 countries.
Geographically, these 180 countries are divided into the core markets of Asia; Europe;
India, the Middle East, and Africa; Latin America; and North America. The company
sells products to about 5 billion of the world’s 7 billion people. P&G organizes its many
products into four industry based sectors: (1) Baby, Feminine and Family Care; (2)
Beauty, Hair and Personal Care; (3) Fabric and Home Care; and (4) Health and
Grooming. In fact, P&G states that “we have made P&G’s organization structure an
important part of our capability to grow . . . it combines global scale benefits with a local
focus to win with consumers and retail customers in each country where P&G products
are sold.”

To best serve the global markets, P&G decided that it would cut around 100 brands from
its portfolio and focus on its core remaining 80 brands, which generated 95 percent of the
company’s profits. Alan “A.G.” Lafley, then the company’s board chair, president, and
CEO, said, “This will be a much simpler, much less complex company of leading brands
that’s easier to manage and operate.” Additionally, P&G cut its marketing and advertising
agency roster by 50 percent over the previous three years from around 6,000 to 3,000
companies in a bid to increase its marketing productivity. With the organizational size
and product line breadth come both industry responsibility and business opportunity.
P&G says that “our responsibility is to be an ethical corporate citizen” and the company
articulates this in its Purpose Statement:

“We will provide branded products and services of superior quality and value that
improve the lives of the world’s consumers, 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 to prosper.”

As P&G continues to streamline its product assortment, it focuses heavily on its Selling
and Market Operations (SMOs) as a mechanism to reach global customers in all four of
its industry-based sectors. P&G views the SMOs as more of a name change from its old
Market Development Organizations to a structure that supports each of the four industry
sectors with “superior, effective and efficient selling, distribution, shelving, pricing
execution and merchandising—every day, every week—in every store.” The SMOs are
staffed with employees representing 140 different nationalities. At the same time, less
than 1 percent of job applicants actually get a job offer from P&G. There is strength in
architecture (structure, people, incentives and control, culture, processes) at P&G.
Case Discussion Questions

1. Advertising is important for most companies, especially companies such as P&G that
sells mostly to end customers. But, most people already know about P&G products such
as Charmin bathroom tissue and moist towelettes, Crest toothpaste, and so on. Does P&G
really need to constantly put money into advertising when its products already have a
strong hold in the global marketplace?

2. P&G cut its marketing and advertising agency roster by 50 percent over the past three
years from around 6,000 to 3,000 companies in a bid to increase its marketing
productivity, efficiency, and effectiveness. At a $9 billion worldwide spend on
advertising, should P&G have more or fewer marketing and advertising agencies doing
its advertising?

3. By consolidating and cutting 100 brands from its consumer portfolio of brands, does
P&G run the risk of ultimately losing out on global market opportunities?