P&G Jump-Starts Corporate Change

Procter & Gamble Co. has always been an ambitious company. The 162-year-old, $38 billion consumer-goods giant--at one point best known as the company whose sole sponsorship of daily TV dramas led to the term "soap operas"--has traditionally aimed to double its sales every decade. It has largely succeeded--but not lately. Annual sales growth has been slowing over the last few years, from 5 percent in 1996 to 2.6 percent this year.

That's why this summer, new CEO Durk Jager kicked off Organization 2005, his plan to revitalize the company's stagnant growth rate, innovate new and improved products, and stretch P&G's goals and expectations further than ever.

As ambitious as anything the company has undertaken, Organization 2005 includes cutting 15,000 workers from P&G's worldwide head count of 110,000 and reorganizing the company's corporate structure from four geographic business units to seven global business units based on product categories.

Organization 2005 aims to do nothing less than change the Cincinnati company's culture from a conservative, slow-moving, bureaucratic behemoth to that of a modern, fast-moving, Internet-savvy organization. P&G wants to make faster and better decisions, cut red tape, wring costs out of systems and procedures, fuel innovation, set more aggressive sales goals and nearly double its revenue. Says CIO Todd Garrett: "We've got to change, or we won't be around in the next 160 years."

The catalyst for all this change is IT. Garrett says the company's IT spending--about $1 billion annually--is increasing "faster than sales growth." Organization 2005 incorporates a laundry list of IT initiatives, including collaborative technology to facilitate planning and marketing, business-to-consumer e-commerce, Web-enabling P&G's supply chain, and a data standards and data warehouse project that will deliver timely data to desktops worldwide.

Organization 2005 also represents a radical rethinking of IT within the company. For example, to integrate IT better into the new business structure, the company decentralized its 3,600-person IT department so that 97 percent of those employees now work in P&G's individual product, market and business teams, or are part of global business services, which supports shared services such as infrastructure to P&G units. The remaining 3 percent are still in corporate IT, says Garrett.

"We had been focused on functional expertise, like IT or financials," says John Roeder, VP of corporate IT. "The new structure is intended to make us a multiple-disciplined organization, to create more cross-sharing of information. That's a cultural change."

"Our IT people are now embedded in the organization," says Steve David, P&G officer for global customer business development, the new moniker for P&G's sales organization. "Our teams have IT people working side by side with the business people. The IT people are helping build the business with the salespeople."

In addition, P&G has 54 "change agents," most of whom are IT people working across its seven global business units. The agents are leading cultural and business change by helping teams work together more effectively through greater use of IT, in particular, real-time collaboration tools.

Analysts applaud the company's proactive stance. "Procter & Gamble's desire to change isn't a sign of weakness, but one of strength," says Mel Hughes, a financial analyst at Stein, Roe & Farnham, an investment firm that follows P&G. "Successful companies can't sit still. They must continually reinvent themselves in order to stay competitive in an ever-changing environment."

Still, P&G is reacting to market forces. Consolidation among big retailers--P&G's main customers--is putting pressure on consumer-product companies such as P&G, because the larger retailers become, the more demands (e.g., volume discounting) they make on their suppliers. Like other consumer-goods companies, P&G is being forced to develop new products and bring them to market faster while reducing operating costs, Hughes says.

"There's only so much laundry detergent that you and I will ever use," says M. Victor Janulaitis, president of Positive Support Review, an IT management consulting firm. "So P&G needs to expand the world to which they sell, and most important, more quickly innovate new products to sell. Investments in technology are needed to do that."

One area in which P&G is investing heavily is in collaborative technologies, such as e-mail, intranets and videoconferencing.

P&G had been infamous in the consumer-goods markets as "the one-page memo company." That's because, until the use of collaborative technologies, the company's employees presented most of their ideas and business plans on one-page written memos that were circulated among multiple managers, who would make their own changes and return them, until a final plan--and memo--was accepted.

A recent example of the increased use of collaborative technology is a product called Swiffer, a dust sweeper with disposable cloths electrostatically charged to attract dust, dirt and other household allergens. Swiffer, which was introduced to the market in August, represents a collaboration among multiple P&G product groups, including paper and chemicals.

Swiffer also represents another strategy change at P&G. Swiffer took just 18 months from test market to global availability. In the past, when a product was introduced, it might have taken years for it to be available worldwide. That's because global management in each region was responsible for the product's launch in his or her geography, including everything from test marketing to getting the products onto retailers' shelves.

"P&G was a highly structured company that made it slow to react," says analyst Hughes. "Product rollouts were bureaucratic processes that could take five years in different parts of the world." Hayes characterizes P&G's previous product strategy as "ready, aim, aim, aim, aim, aim, fire." Now it's "ready, aim, fire, adjust. P&G is much more willing to move quickly, take risks and make needed adjustments later," he says.

Collaborative technologies, including chat rooms on the company's intranet, are also transforming the company's polite, conservative, play-it-safe culture to one that encourages employees to be candid, test boundaries and take chances.

Earlier this year, while P&G was preparing its Organization 2005 plans, the company launched a dedicated internal Web site for worried employees to sound off, vent and pass along rumors anonymously. Employees are also encouraged to e-mail questions directly to CEO Jager, who writes a weekly column on the intranet called "Durk's Corner."

"The intranet is becoming an integral part of doing business at Procter & Gamble and has become our primary forum for discussing culture change," says Jager. Jager is also encouraging employees to use the company's technology tools to communicate.

In July, in preparation for talking with employees about Organization 2005, P&G's 300 senior managers needed to download PowerPoint presentations and other information from the company's intranet. This forced some of those managers and executives to visit the site for the first time, company insiders say. Since it was launched, thousands of employees have visited the Organization 2005 site.

Collaboration via the Internet is also being used by P&G to improve communications with its largest shareholders. That includes programs to brand the P&G name--as opposed to brand-name products such as Ivory soap--as well as including shareholders in marketing and new-product tests.

P&G is also addressing cultural change through aggressive use of technology in its supply chain. The company is looking to change its relationships with suppliers and with customers, from one of passive market acceptance to one of proactive sharing of knowledge and data.

Part of P&G's supply-chain-related work is its evolving Key Account Replenishment System (KARS--a Microsoft Access application that generates demand-driven orders from small and midsize retailers, those not large enough to be supported by the company's electronic data interchange IBM mainframe replenishment system.

With KARS, orders are automatically placed into P&G's billing system via the Web from the retailers' point-of-sale or inventory systems. KARS replaces the need for these smaller retailers to place orders manually or take inventory counts using handheld devices, David says.

The extranet and PC order-processing and replenishment system for smaller customers are "much more accurate" than EDI or manual orders, David says. The systems are more efficient than EDI because 20 percent to 30 percent of EDI orders still require some degree of manual work, he says.

Technology-based ordering frees the company's sales staff to spend more time on customer and product issues rather than traveling to handle mundane paperwork with customers such as Kroger and Wal-Mart, David says. "Salespeople are doing more category management now to help retailers get better assortments of products," he says. "The Internet allows us 24x7 communication with retailers."

P&G is also focusing on improvements in retail sales technology beyond its immediate operations. In August, the company said it was working with Eastman Kodak, Johnson & Johnson and the Consumer Products Manufacturers Association to develop standards for product security tags in an attempt to reduce retailer shoplifting losses.

While P&G is busy equipping its supply chain to work on the Web, it's also expanding its consumer-related business on the Web.

In September, P&G unveiled its first consumer-oriented e-commerce effort. The unit, called Reflect.com, will be located in Silicon Valley and will leverage P&G's manufacturing and supply-chain technology to create a unique retail effort.

Reflect.com's business proposition: Deliver beauty-care products, ordered over the Internet, custom-made for each individual consumer. It represents the integration of P&G's research into individual variations in beauty and hair care, and the company's grasp of the individual marketing potential of the Internet.

"We would like nothing more than products and services to meet individual needs," says Nathan Estruth, marketing director at P&G. "And it's not possible without the Internet."

Back at headquarters, P&G Interactive Marketing is an internal "center of excellence" that helps the company's product units jump-start their Internet-based business-to-consumer initiatives. Vivienne Bechtold, head of P&G's interactive marketing, says the group is the company's poster child for cultural change. "The Internet allows us to treat individuals as a consumer market of one, as opposed to a mass market," Bechtold says.

The multifunctional group has 12 full-time and six part-time employees, including IT, marketing and business people, who help the various brands launch Internet marketing programs. As an incentive, the group offers to match the funds spent by product units on their Internet projects.

P&G is as wary of disintermediation as any channel-oriented supplier and is reticent about discuss ing detailed e-commerce plans or specific strategies. Business-to-consumer e-commerce is the gold mine in the Internet that hasn't yet been found, says CIO Garrett. Company executives involved in Internet strategy still aren't sure how e-retailing will affect their market.

"Customers aggregate demand," says Mark Schar, VP of P&G's eVentures unit. "The Wal-Marts of the future may not be Wal-Mart--they may be Yahoo." So far, P&G's sales over the Internet are almost zero, admits Schar, but he isn't ignoring the Net's potential. "In the future," he says, "brick-and-mortar and Internet will need to flourish side by side."

While P&G has a multitude of ambitious IT plans, the company also has the challenge of staffing these projects. P&G's ongoing global SAP implementation, for example, is being done almost exclusively by P&G staff. That's because, as a policy, P&G uses very few consultants. Also, with the exception of the outsourcing of 22,000 workstations to IBM Global Services, P&G does very little outsourcing.

To get the expertise it needs, P&G depends heavily on knowledge transfer by very skilled experts--from inside and very selectively from outside the company--to P&G's staff. "We want the experts internally," says Garrett. "We do a lot of strategic development of staff."

Because P&G prefers to develop its own talent rather than hire expertise from the outside, the company lacks agility in filling IT talent vacancies, experts say.

P&G "has no bench strength," says Paul Daversa, president of IT executive recruitment firm Resources Systems Group, which has placed a number of former P&G IT executives at other companies during the last few years. "When key IT people leave or the company deploys new technology, there are serious organizational problems in getting over the hump."

P&G doesn't use headhunters or promotions to solicit IT talent. Instead, managers do most of the recruiting themselves--mainly of college students who are hired with the promise of building long-term careers at the company. It's one cultural legacy P&G is anxious to hold onto--for good reason. Longtime IT employees tend to be unusually loyal and not easily lured away, Daversa says. "Many people there are interested in hearing about new opportunities elsewhere," he adds. "But in the end, they don't want to leave the company or move from Cincinnati."

One way the company is trying to inject fresh blood and new ideas is through its 2-year-old internship program. It's a multidisciplinary summer program in which youthful participants help address questions related to the the company's future, particularly in relation to new media and the opportunities it presents for bonding with consumers.

"We look at how technology can improve consumer life," says Sara Young, an analyst for digital brands in P&G's marketing department. She ought to know--Young started at P&G as a summer intern. "We can learn a lot from new hires," she says.

There's no doubt that P&G's savvy use of technology over the years helped the company evolve from a Midwestern maker of wax candles to a diversified consumer-products giant with more than 300 brands worldwide. The company hopes technology will again help bring about more change and growth.

But the battle between change and growth may be a vicious circle. That's because the corporate culture that IT is trying to help change is the same culture that has at times stymied P&G's implementation of new technologies.

"Procter & Gamble has excellent people and excellent technology," says a former P&G IT manager. "But it's very methodical, very formal and very bureaucratic. This has made implementation of new technology very slow."

But without those changes, P&G may find that meeting its loftier goals of double-digit growth and faster product innovation can be as slippery as a wet bar of soap.