Procter & Gamble : Organization 2005 and Beyond
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Authors
Authors: Ravi Madapati,
Faculty Member,
ICMR (IBS Center for Management Research).
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Organization 2005 Contd...Organization 2005 involved substantial costs. Of the approximately $1.9 bn in costs, $400 mn were planned for 1999, $1 bn over the next two fiscal years, the balance during fiscal years 2002-2004. However, these costs were expected to be more than offset by savings from the program. The company expected to increase its after-tax profits by approximately $600-700 mn annually by fiscal year 2003/04 and $900 mn by fiscal 2004. Approximately 10,000 positions would be eliminated through fiscal 2001 with a further 5,000 cut after 2001. P&G indicated that approximately 42% of total workforce reduction would occur in Europe, Middle East and Africa; 29% in North America; 16% in Latin America; and 13% in Asia. |
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"These job reductions are principally an outgrowth of changes, such as standardizing global manufacturing platforms, to drive innovation and faster speed to market, as always, we have considered these decisions very carefully with deep concern for the impact on our people. We would carry out the changes with maximum respect and attention to the welfare and future of our employees".
P&G announced it would make full use of normal attrition and retirements, hiring reductions, re-locations, job retraining, and voluntary separations to help reduce the number of potential involuntary separations. In cases of involuntary separations, P&G would offer employees financial assistance to help them in their new careers.
Jager's Resignation
Soon after it was introduced, Organization 2005 ran into various problems. After reaching $117 a share in January 2000, the stock fell below $90 a share in February. On March 7, 2000, P&G warned that its earnings would drop by10-11%, rather than rise by 7-9% as previously expected, citing higher raw materials costs, lower realization and increasing competition from many generic brands that produced cheaper versions of many of its core products.
The news sent the company's stock to its lowest level since the mid-90s. The stock price plunged to less than $60 a share wiping out $40 bn in market value in one day. Then in April 2000, P&G posted an 18% decline in third-quarter profit, its first decline in eight years. It also announced that fourth-quarter results would fall short of estimates. Jager accepted responsibility for the company's problems and resigned. But he maintained3:
"I am proud of the vision we set out to achieve with Organization 2005, and we've made important progress. It's unfortunate our progress in stepping up top-line sales growth resulted in earnings disappointments".
2] P&G press release: Organization 2005 Drive For Accelerated Growth Enters Next Phase, June 9, 1999.
3] Source: CNN Money, P&G CEO Quits Amid Woes, June 8, 2000.