Corporate Profile: Procter takes a gamble to go truly global
Wednesday 26 May 1999
LAST YEAR, a seismic event occurred in the American corporate world: Colgate became the top-selling toothpaste in the US, overtaking Crest for the first time. This was not just a matter of toothpaste, but of corporate hierarchy, history and strategy.
Procter and Gamble, the Cincinnati-based giant which has manufactured Crest since 1955, had suffered a rare defeat, in this case to Colgate Palmolive. But it wasn't rare enough. In the last year Procter and Gamble has begun massive internal changes aimed at transforming the company's structure, speeding innovation and - perhaps most difficult of all - shifting the corporate mindset.
For a company that prided itself on its unique culture, whose most distinctive characteristic is that it refuses to "pollute" itself with the recruitment of executives from outside the company (all senior appointments are internal), what is happening is little short of seismic.
Next month, as its fiscal year comes to a close, P&G will outline the progress of those changes to analysts - how far it has come and how far it has to go - and the size of the bottom line charge to profits that will result.
It is a high-profile exercise, not without risks for a company that has one of the most outstanding heritages in corporate America. Taking on this task is Durk Jager, the high-flying Dutch president and chief executive, who will take over as chairman from John Pepper in September. He has extensive experience abroad: in his native Netherlands, in Japan and in Austria, as well as the US.
Mr Jager's self-appointed mission is to turn one of the world's largest and most formidable multinationals into something truly global, a company that has a great past and a great future. He is described by some as abrasive and confrontational, by others as inventive and direct. Most agree he does not suffer fools gladly, and in fact he doesn't suffer them at all. Others say he also has a great sense of humour - not a universal attribute at company headquarters - and is loyal and straightforward.
He is credited with turning around the company's ailing businesses in Japan in the 1980s; corporate investors are hoping he can do the same at a higher level.
The market likes him, says Bill Steel of Nations Banc Montgomery Securities, though it is taking a "wait-and-see" attitude towards his ability to deliver. In general, there is a considerable amount of optimism, he says.
But the big question for P&G is: what's history worth now? P&G's past is best seen through the prism of the brands it has so painstakingly developed and brought to the market: Ivory Soap in 1879, Crisco cooking oil in 1911, Tide in 1946, Crest in 1955 and Pampers in 1961. Each was a revolution, the invention of a category of goods, a name and a licence to print money. But each one of them has, inevitably, suffered as the years have rolled on. The new products have kept coming, but slowly, and rarely with the big bang generated by those older products.
P&G is famously meticulous, but sometimes that has taken time. The company has restructured its internal organisation, ending the division by geographic regions and focusing instead on seven global business units based on product lines. Three of these - fabric and home care, feminine protection and food and beverage - will be based abroad, in Brussels, Kobe and Caracas. The others - baby care, beauty care, health care, and tissues and towels - in Cincinnati, the Queen City of the Midwest that has been the company's home since William Procter, a candlemaker, and James Gamble, a soapmaker, arrived in the early 19th century.
The key to the new initiative, called Organisation 2005, is to create a structure better adapted to trading across the world. It already sells 300 products in 140 countries. "They are making the move from being a multinational company to being a truly global company," says Watts Wacker of First Matter, a Connecticut-based consultancy.
The new structure means that a manager in Latin America can devote resources to marketing several different product lines, rather than having to divide resources between them. It will be backed up by nine market development regions that will funnel intelligence, planning and other resources into local markets.
Mr Pepper is stepping down two years early to hand over to Mr Jager, a sign of generational and intellectual change. "Durk is a guy who tends to look at problems and solutions," says Ryan Mathews of First Matter. "Procter as a company has tended to look at systems and solutions. When Jager identifies a problem, he wants a fix."
Analysts have said that P&G has tended to become overly concerned with the next update to its products, the new Tide or a new flavour for Pringles. Mr Jager talks about "discontinuous leadership", telling shareholders last year that "you can't lead at this level with incremental innovation. If you look at the most successful companies like Intel, Coke, GE, you see a very common characteristic. Time and time again, they are first with new ideas that change the game. They set the pace of innovation. They define consumer expectations. And they generally create and benefit from most of the industry growth".
Of course, this is what P&G has done historically as well, he adds. "But we want this level of discontinuity to become the standard in every part of the company, all the time."
Creating a global company also means the company will look at product launches in a different way, an approach that it will roll out in July. Dryel, a home dry-cleaning product, and Swiffer, a sweeper cloth, will be launched in North America in July, and in Europe and Canada by October.
"The Dryel and Swiffer introductions mark the creation of two new-to- the-world categories with tremendous growth potential around the globe," said Mr Jager when the idea was unveiled earlier this month. Traditionally, the company would have tested each separately, beginning in the US market, changing packaging and perhaps name along with the marketing strategy. Mr Jager said of Febreze, a fabric freshener: "We focused principally on the US business in large part, because it was developed and funded in the US. But what if we had taken a global view of this product from the start? What if we had truly understood the global upside of this business and had developed launch plans specifically designed to go after that upside right out of the gate? A much more stretching vision."
The company is facing pressures from numerous sources that have pushed it towards radical solutions. Two years ago it promised investors that by 2006 it would double sales to $70bn (pounds 44bn), which based on an average growth rate of 8 per cent, did not look impossible. But in 1997 sales were up just 1 per cent, and in 1998 they grew at 4 per cent. Volume is flat this year. Sagging growth in some of its best overseas markets has not helped, and nor has the strong dollar.
But Unilever, its Anglo-Dutch competitor, has established strong, entrenched positions in South Asia and Africa. Unilever has had a run of new product launches and, with Niall Fitzgerald at the helm, has proved an agile and inventive competitor. Unilever has already been through a costly restructuring. And then, of course, there is Crest.
Colgate-Palmolive created Colgate Total as a new, catch-all weapon in the war for the nation's mouth and seized 30 per cent of the market by the end of last year. P&G explained its loss of toothmug hegemony by accusing CP of cutting corners in its efforts to win approval for the product in clinical trials: an accusation it later retracted.
The more alarming truth is that P&G seems to have been left behind. That will not happen again if Mr Jager has his way. His restructuring of the company is not just aimed at changing organisation but also mentality, and the tricky area of corporate culture.
P&G has often been regarded as a supremely effective company, but one that is hidebound, its employees mocked as "Proctoids", its methods summed up by the company's carefully documented "Current Best Approaches". Mr Jager has little patience with all this. "At P&G, we tend to put people into a P&G box, a Proctoid box, where certain behaviours, and institutionalised ways of acting, are accepted," he told the Cincinnati Enquirer last year.
"I don't believe in all that at all. We need diversity in style, we need diversity in content... and we have to move from trying to institutionalise certain dogmas within the company."
The fact that he had to explain this - and in the company's local paper - shows there are risks in his approach. Some analysts report unhappiness at corporate headquarters - a concern that the baby will get thrown out with the bathwater. Good science, good marketing practice, well-founded approaches to business management, that have stood the company in good stead for a century and a half.
But many staff are happy to see change - and new opportunities - in the reshuffle.
A Life with P&G
NAME: ONDURK I. JAGER
President and Chief Executive
RESIDENCE: Cincinnati, Ohio, United States
DATE OF BIRTH: April 30, 1943
PLACE: Haskerland, The Netherlands
EDUCATION: Erasmus University, Rotterdam.
POSITIONS HELD AND DATES:1970 - Assistant Brand Manager; Brand Manager, The Netherlands 1975 - Assistant Brand Manager; Brand Manager, U.S.A.1976 - Brand Promotion Manager, The Netherlands1980 - Brand Promotion Manager, Austria1981 - Country Manager, Austria1982 - Advertising (Marketing) Manager, Japan1985 - General Manager, Japan1986 - Division Manager-Japan1987 - Vice-President-Japan1988 - Group Vice- President (Far East and Asia Pacific Divisions)1989 - Member, Board of Directors1990 - Executive Vice-President (Soap, Chemicals, Health Care and BeautyCareDivisions)1991 - Executive Vice-President (U.S. Business)1995 - President and Chief Operating Officer, The Procter & Gamble Company1999 - President and Chief Executive (Effective 1/1/99)1999 - Chairman of the Board and Chief Executive (Effective 9/1/99)
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