Managing Cultural Change at P & G

            
 
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Case Details:

Case Code : HROB042
Case Length : 18 Pages
Period : 1990 - 2004
Pub Date : 2004
Teaching Note :Not Available
Organization : P & G Inc.
Industry : FMCG
Countries : USA

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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"P&G's desire to change isn't a sign of weakness but one of strength. Successful companies can't sit still. They must continually reinvent themselves in order to stay competitive in an ever-changing environment."1

- Mel Hughes, Financial Analyst at Stein, Roe & Farnham, a US-based investment firm.

"P&G people and our strong culture are sustainable competitive advantages. P&G people are bright, creative owners of their company with a passion for winning. But, more than that, they are committed to improving the lives of the world's consumers. They embrace a common set of values and principles that keeps them focused on doing the right thing - on doing whatever it takes to serve our consumers."

- www.pg.com, May 04, 2001.

Introduction

The US-based Procter and Gamble (P&G), one of the leading fast moving consumer goods (FMCG) companies in the world was faced with a situation of stagnant revenues and profitability in the mid-late 1990s (Refer Exhibit I). In order to accelerate growth, P&G's President and CEO at the time, Durk Jager (Jager) launched the Organization 2005 program in July 1999. Organization 2005 was a six-year long organizational restructuring exercise, which involved a radical revamping of P&G's organizational culture, reduction in hierarchies and retrenchment of employees. With the implementation of the program, P&G aimed to increase its global revenues from $38 billion in 1999 to $70 billion by 2005.

Human Resource and Organization Behavior | Case Study in Management, Operations, Strategies, Human Resource and Organization Behavior, Case Studies

Established in 1837, P&G was globally famed for its people-centric policies (Refer Exhibit II). It was the first company to introduce a shorter workweek over a hundred years ago, and also had the oldest profit-sharing plan in the US.

Each and every employee was entitled to stock options in P&G. Over the decades, P&G had built a strong, tradition-bound and conservative corporate culture that was resistant to change. Analysts felt that the culture had taken deep roots in P&G and in its operations across the world. They felt that changing this culture would be a major challenge. Jager took up the challenge, in order to foster growth and innovation in the company.

Analysts said that though the Organization 2005 program was well-conceived, it was not executed properly. They felt, and Jager himself admitted, that he tried to change the culture too drastically in a very short time.

This resulted in a rise in costs and a decline in the company's profitability. In April 2000, P&G announced an 18% decline in its net profit for the January-March 2000 quarter. For the first time in eight years, P&G witnessed a decline in net profits. After a brief stint of 17 months as CEO, Jager resigned.

In June 2000, Alan George Lafley (Lafley) took over as the new President & CEO of P&G. Lafley reverted back to the old culture of P&G and did not make attempts to change it radically. With Lafley at the helm, P&G's financial performance improved significantly (Refer Exhibit III).

The company's share price shot up by 58% to $92 by July 2003, as against a fall of 32% in S&P's 500 stock index. However, analysts expressed doubts, whether Lafley's leadership would sustain P&G's growth in the long term.

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1] "Culture Change: Lessons from A Cultural Revolution," Marianne Kolbasuk McGee, www.informationweek.com, October 25, 1999.

 

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