CASES

CASE 25
PROCTER & GAMBLE*
Procter & Gamble, a leading global consumer products firm products, marketing brilliance, and the intense loyalty of its
announced a revamping of its management structure in July employees who have come to be known respectfully as
2019 as part of an effort to streamline its operations. The Proctoids. In the 1990s, under Alan G. Lafley, P&G spent
firm had failed to show much growth over the last five years, $70 billion scooping up brands such as Gillette razors, Clairol
resulting in pressure from activist Trian Fund Management, cosmetics, and Iams pet food. With 25 brands that generated
which waged a proxy fight in 2017 and whose co-founder, more than $1 billion in sales, the firm claimed the status of
Nelson Peltz, now sits on P&G’s board (see Exhibit 1 and 2). the largest consumer products company in the world.
The firm said it would shrink the number of its business However, under Lafley’s chosen successor, Bob McDonald,
units from ten to six and give the heads of each of these P&G’s growth stalled as recession-battered consumers
control over the management of different products as well as abandoned the firm’s premium-priced products for cheaper
over their regional sales teams. P&G will also reduce its cor- alternatives. More significantly, the firm’s vaunted innova-
porate functions, with about 60 percent of corporate work tion machine failed to achieve any major product success
shifting to the new business units. “There is a need for during his tenure. P&G’s decline eroded morale among em-
greater agility,” said CEO David Taylor.1 ployees, with many managers taking early retirement or
Since its founding 175 years ago, P&G has risen to the bolting to competitors. Says Ed Artzt, who was CEO from
status of an American icon with well-known consumer prod- 1990 to 1995: “The most unfortunate aspect of this whole
ucts such as Pampers, Tide, Downy, and Crest (see Exhibit 3). thing is the brain drain. The loss of good people is almost
In fact, the firm has long been admired for its superior irreparable when you depend on promotion from within to
continue building the company.”2
Pressure from the board forced Lafley to back come out
* Case prepared by Jamal Shamsie, Michigan State University, with the
assistance of Professor Alan B. Eisner, Pace University. Material has been
of retirement in May 2013 to make another attempt to pull
drawn from published sources to be used for purposes of class discussion. P&G out of its doldrums. Soon after he took back the helm
Copyright © 2019 Jamal Shamsie and Alan B. Eisner. of the firm, Lafley announced that he would get rid of more

EXHIBIT 1
Income Statement Year Ending
(in millions of $)
June 30, 2018 June 30, 2017 June 30, 2016 June 30, 2015
Revenue $66,832 $65,058 $65,299 $70,749
Operating Income 13,711 13,955 13,441 11,049
EBIT 13,326 13,257 13,369 11,012
Net Income 9,861 15,411 10,604 7,144

Source: P&G Annual Report 2018.

EXHIBIT 2
Balance Sheet Year Ending
(in millions of $)
June 30, 2018 June 30, 2017 June 30, 2016 June 30, 2015
Current Assets $ 23,320 $ 26,494 $ 33,782 $ 29,646
Total Assets 118,310 120,406 127,136 129,495
Current Liabilities 28,237 30,210 30,770 29,790
Total Liabilities 65,427 64,628 69,153 66,445
Stockholder Equity 52,883 55,778 57,983 63,050

Source: P&G Annual Report(2018 and 2017)

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 EXHIBIT 3
• Tide was the first heavy-duty laundry detergent. Significant Innovations
• Crest was the first fluoride toothpaste clinically proven to prevent tooth decay.
• Downy was the first ultra-concentrated rinse-add fabric softener.
• Pert Plus was the first 2-in-1 shampoo and conditioner.
• Head & Shoulders was the first pleasant-to-use shampoo effective against dandruff.
• Pampers was the first affordable, mass-marketed disposable diaper.
• Bounty was the first three-dimensional paper towel.
• Always was the first feminine protection pad with an innovative, dry-weave top sheet.
• Febreze was the first fabric and air care product that actually removed odors from fabrics and the air.
• Crest White Strips were the first patented in-home teeth whitening technology.

Source: P&G Innovations.

than half of its brands. Over the next three years, the firm In 2000, the board of P&G asked Lafley to take charge
sold off many of the brands it had acquired, capped by the of the troubled firm. He began his tenure by breaking down
$11.6 billion sale of dozens of beauty brands to Coty. He the walls between management and employees. Since the
announced that the company would narrow its focus to 65 1950s, all of the senior executives at P&G used to be lo-
or 70 of its biggest brands such as Tide, Crest, and Pampers. cated on the 11th floor at the firm’s corporate headquar-
“Less will be more,” Lafley told analysts. “The objective is ters. Lafley changed this setup, moving all five division
growth and much more reliable generation of cash and presidents to the same floors as their staff. He replaced
profit.”3 more than half of the company’s top 30 managers, more
David S. Taylor, who had spent years managing P&G’s than any P&G boss in memory, and trimmed its workforce
businesses finally took over as chairman and CEO of the by as many as 9,600 jobs. He also moved more women into
firm in November 2015. He has made moves to resurrect senior positions. In fact, Lafley skipped over 78 general
the firm but has opted against launching new brands or managers with more seniority to name 42-year-old Deborah
making new acquisitions. “I understand the desire for faster A. Henretta to head P&G’s then-troubled North American
growth and for a single-minded short-term objective, but baby-care division.
we’ve seen this movie before” he said at a meeting with ana- Lafley was simply acknowledging the importance of de-
lysts soon after he had taken over.4 veloping people, particularly those in managerial roles at
P&G. For years, the firm has been known to dispatch line
Fighting off a Decline managers rather than human resource staffers to do much
For most of its long history, P&G has been one of ­America’s of its recruiting. For the few that get hired, their work life
preeminent companies. The firm has developed several well becomes a career-long development process. At every level,
known brands such as Tide, one of the pioneers in laundry P&G has a different “college” to train individuals and every
detergents, which was launched in 1946; and Pampers, the department has its own “university.” The general manager’s
first disposable diaper, which was introduced in 1961. P&G college holds a week-long school term once a year when
also built its brands through its innovative marketing tech- there are a handful of newly promoted managers.
niques. But by the 1990s, P&G was in danger of becoming Under Lafley, P&G also continued with its efforts to
another Eastman Kodak or Xerox, a once-great company maintain a comprehensive database for all of its more
that might have lost its way. Sales on most of its 18 top than 130,000 employees, each of which is tracked care-
brands were slowing as it was being outhustled by more fo- fully through monthly and annual talent reviews. All man-
cused rivals such as Kimberly-Clark and Colgate-Palmolive. agers are reviewed not only by their bosses but also by
In 1999, P&G decided to bring in Durk I. Jager to try lateral managers who have worked with them, as well as
and make the big changes that were obviously needed to get on their own direct reports. Every February, one entire
P&G back on track. But the moves he made generally mis- board meeting is devoted to reviewing the high-level execu-
fired, sinking the firm into deeper trouble. He introduced tives, with the goal of recommending at least three poten-
expensive new products that never caught on while letting tial candidates for each of the 35 to 40 jobs at the top of
existing brands drift. He also put in place a companywide the firm.
reorganization that left many employees perplexed and
preoccupied. During the fiscal year when he was in charge, Gambling on its Brands
earnings per share showed an anemic rise of just 3.5 per- Above all, Lafley had been intent on shifting the focus of
cent, much lower than in previous years. And during that P&G back to its consumers. At every opportunity, he tried
time, the share price slid 52 percent, cutting P&G’s total to drill his managers and employees to not lose sight of the
market capitalization by $85 billion. consumer. He felt that P&G often let technology dictate its

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 new products rather than consumer needs. He wanted to also yielding few results in the face of stiff competition from
see the firm work more closely with retailers, the place Unilever and Colgate-Palmolive, who already had a strong
where consumers first see the product on the shelf. And he presence. Furthermore, commodity prices were surging,
placed a lot of emphasis on getting a better sense of the even as P&G’s products were already too expensive for the
consumer’s experience with P&G products when they actu- struggling middle class that it was targeting everywhere.
ally use them at home. In order to deal with all of these challenges, McDonald
Over the decade of Lafley’s leadership, P&G managed replaced Lafley’s clear motto of “the consumer is boss”
to update all of its 200 brands by adding innovative new with his own slogan of “purpose-inspired growth.” In his
products. It began to offer devices that build on its core own words, this meant that P&G was “touching and im-
brands, such as Tide StainBrush, a battery-powered brush for proving more consumers’ lives, in more parts of the world,
removing stains, and Mr. Clean AutoDry, a water pressure- more completely.”5 “Purpose” was an undeniably laudable
powered car cleaning system that dries without streaking. ambition, but many employees simply could not fathom
P&G also began to approach its brands more creatively. how to translate this rhetoric into action. Dick Antoine,
Crest, for example, which used to be marketed as a tooth- P&G’s head of human resources from 1998 to 2008 com-
paste brand, was redefined an oral care brand. The firm mented: “’Purpose-inspired growth’ is a wonderful slogan,
now sells Crest-branded toothbrushes and tooth whiteners. but it doesn’t help allocate assets.”6
In order to ensure that P&G continues to come up with In part, P&G’s troubles also stemmed from its inability
innovative ideas, Lafley had also confronted head-on the to launch any major new products. As such, it was difficult
stubbornly held notion that everything must be invented for the firm to turn away from the pressure to cut back on
within P&G, asserting that half of its new products should the prices of its established brands. Given the wide range of
come from the outside. Under the new “Connect and problems that McDonald faced, in terms of pushing for
­Develop” model of innovation, the firm pushed to get al- growth across several different businesses across many mar-
most 50 percent of its new product ideas from outside the kets, he made some effort to try and address all of them si-
firm. This could be compared to the 10 percent figure that multaneously. Ali Dibadj, a senior analyst at Sanford
existed at P&G when Lafley had taken charge. Bernstein commented on this multi-pronged effort by P&G:
A key element of P&G’s strategy, however, was to move the “The strategic problem was that they decided to go after
firm away from basic consumer products such as laundry de- everything. But they ran out of ammo too quickly.”7
tergents, which can be knocked off by private labels, to higher- By the middle of 2012, it was becoming obvious that P&G
margin products. Under Lafley, P&G made costly acquisitions was struggling under McDonald’s leadership. Known for its
of Clairol and Wella to complement its Cover Girl and Oil of reliable performance, the firm was forced to lower its profit
Olay brands. The firm even moved into prestige fragrances guidelines three times in six months frustrating analysts and
through licenses with Hugo Boss, Gucci, and Dolce & investors alike. Even within the firm, many executives real-
Gabbana. When he stepped down, beauty products had risen ized that McDonald would not be able to take the bold
to account for about a quarter of the firm’s total revenues. moves that may allow the firm to recover from its slump.
But P&G’s riskiest moves had been its expansion into ­Activist investor Bill Ackerman commented: “We’re de-
services, starting with car washes and dry cleaning. The car lighted to see the company’s made some progress. But P&G
washes build on Mr. Clean, P&G’s popular cleaning prod- deserves to be led by one of the best CEO’s in the world.”8
uct. In expanding the brand to car washes, the firm ex-
pected to distinguish its outlets from others by offering
additional services such as Febreze odor eliminators,
Striving for Agility
lounges with Wi-Fi and big screen televisions, and spray Shareholder dissatisfaction with lack of improvement in
guns that children can aim at cars passing through the performance led P&G to push McDonald out and bring
wash. Similarly, P&G’s dry cleaning outlets are named after back Lafley in May 2013. As soon as he stepped back in,
Tide, its best selling laundry detergent. The stores will in- Lafley was under pressure to respond to investor concerns
clude drive-through services, 24-hour pickup, and environ- that P&G had become too large and bloated to respond
mentally benign cleaning methods. quickly to changing consumer demands. In April 2014,
he began the process of streamlining the firm by selling
off most of its pet food brands—including Iams and
Losing the Momentum Eukanuba —to Mars for $2.9 billion.
On July 1, 2009, Lafley passed the leadership of P&G to A few months later, in August 2014, Lafley took a bolder
McDonald, who had joined the firm in 1980 and worked step. He announced that the firm would unload as many as
his way up through posts in Canada, Japan, the Philippines, 100 of its brands in order to better focus on 60 to 70 of its
and Belgium to become chief operating officer. McDonald biggest ones—such as Tide detergent and Pampers diapers—
took over after the start of a calamitous recession, and had that generate about 90 percent of its $83 billion in annual
to deal with various emerging problems. As consumers in the sales and over 95 percent of its profit (see Exhibits 4 and 5).
United States and Europe were not willing to pay premium At the same time, Lafley insisted that sales will not be the
prices, the firm’s push to expand in emerging markets was only criteria for shedding brands. He stated that some large

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 EXHIBIT 4 Business Segments, 2018

% of Net % of Net
Reportable Segments Sales Earnings Product Categories (Sub-Categories) Major Brands
Hair Care Head & Shoulders,
Pantene, Rejoice
Beauty 19% 23%
Skin and Personal Care Olay, Old Spice,
Safeguard, SK-II
Shave Care - Female Blades & Razors, Braun, Fusion, Gillette,
Grooming 10% 14%
Male Blades & Razors, etc. Mach3, Prestobarba, Venus
Oral Care Crest, Oral-B
Health Care 12% 13%
Personal Health Care Metamucil, Prilosec, Vicks
Laundry Products Ariel, Downy, Gain, Tide
Fabric & Home Care 32% 27% Cascade, Dawn, Febreze,
Cleansers Mr. Clean, Swiffer
Baby Care Luvs, Pampers
Baby, Feminine, & Family Care 27% 23% Feminine Care Always, Tampax
Paper Towels, Tissues, etc. Bounty, Charmin, Puffs

Source: P&G Annual Report 2018.

brands will be jettisoned if they don’t fit with the firm’s completed the transfer of Duracell to Berkshire Hathaway
core business: “If it’s not a core brand—I don’t care whether through an exchange of shares.
it’s a $2 billion brand—it will be divested.”9
Although analysts were receptive to the reduction of Fighting for Its Iconic Status
brands, they pointed out that P&G has already sold off Under Taylor, P&G has been trying to find ways to revive
more than 30 established brands over the past 15 years that the prospects of its mostly aging brands. For years, P&G
were supposedly hindering growth. Many of these sold-off had spent heavily to build on its success with legacy soap
brands have been performing well with other firms. and detergent brands to acquire hundreds of additional
J.M. Smucker, for example, that bought Crisco shortening, brands in new businesses that it hoped could also become
Folgers coffee, and Jif peanut butter, has had 50 percent part of consumers’ daily routines. The latest effort to jetti-
sales growth since 2009. Some critics charge that P&G, son over half of its brands indicated that the strategy was
which was once was most successful in building and manag- not working anymore. In particular, P&G has been strug-
ing brands, has lost its touch. gling with its push to place more emphasis on products that
In large part, the focus is on the cumbersome centralized carry higher margins in order to move it away from its de-
and bureaucratic structure that has developed at P&G. Unlike pendence on household staples.
many of its newer competitors, the firm still tends to rely less Above all, it is clear that the recent push to expand into
on working with outside partners. The Connect and Develop new categories with acquired brands did not produce the
program that had been started by Lafley to bring in new ideas desired results. The firm’s aggressive push into beauty, for
from outsiders has led to 50 percent of its new technologies example, has struggled to show much growth. Lafley had
coming from outside, but these are then reworked or modified tried to build the firm’s presence in this business for years,
by P&G’s internal R&D group. This has stifled innovation, regarding it as a high margin, faster growing complement to
with most of the firm’s growth coming from line extensions of the firm’s core household products. The firm has struggled
existing brands or from costly acquisitions. to show growth in this business and it has been generating
On November 1, 2015, Lafley stepped down, passing the the lowest profit margins. Sales of Olay skin care products
reins to David Taylor, who had built his career at P&G. He and Pantene hair care products have mostly sagged in recent
had most recently been assigned to take over the firm’s years. Its efforts to build a line of perfumes around licenses
struggling beauty unit. Taylor continued with Lafley’s strat- with Dolce & Gabbana, Gucci, and Hugo Boss were also
egy of cutting back on P&G’s brands. The sale of 43 of the running into problems.
firm’s beauty brands to Coty in a $12 billion deal was com- Analysts are hoping that the decision to restructure
pleted in October 2016. A few months earlier, P&G had P&G will address long-standing problems that the firm has

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 EXHIBIT 5 Financial Breakdown 2018

Earnings/(Loss) Net Earnings/

from Continuing (Loss) from Depreciation
Global Segment Net Operations Before Continuing and Capital
Results Sales Income Taxes Operations Amortization Total Assets Expenditures
BEAUTY 2018 $12,406 $ 3,042 $ 2,320 $ 236 $ 4,709 $ 766
2017 11,429 2,546 1,914 220 4,184 599
2016 11,477 2,636 1,975 218 3,888 435
GROOMING 2018 6,551 1,801 1,432 447 22,609 364
2017 6,642 1,985 1,537 433 22,759 341
2016 6,815 2,009 1,548 451 22,819 383
HEALTH CARE 2018 7,857 1,922 1,283 230 5,254 330
2017 7,513 1,898 1,898 209 5,194 283
2016 7,350 1,812 1,250 204 5,139 240
FABRIC & HOME CARE 2018 21,441 4,191 2,708 534 7,295 1,020
2017 20,171 4,249 2,713 513 6,886 797
2016 20,730 4,249 2,778 531 6,919 672
BABY, FEMININE, &
2018 18,080 3,527 2,251 899 9,682 1,016
FAMILY CARE
2017 18,252 3,868 2,503 874 9,920 1,197
2016 18,505 4,042 2,650 886 9,863 1,261
CORPORATE 2018 497 (1,157) (133) 488 68,761 221
2017 505 (1,289) 247 571 71,463 167
2016 422 (1,379) (174) 788 78,508 323
TOTAL COMPANY 2018 $66,832 $13,326 $ 9,861 $2,834 $118,310 $3,717
2017 65,058 13,257 10,194 2,820 120,406 3,384
2016 65,299 13,369 10,027 3,078 127,136 3,314

Source: P&G Annual Report 2018.

been facing. The new organization will give more responsi- 2. Reingold, J. and D. Burke. 2013. Can P&G’s CEO hang on? Fortune,
bility for its different product categories to separate busi- February 25, p. 69.
3. Coolridge, A. 2014. P&G plans to unload more than its brands.
ness units, giving them control over their sales for the Cincinnati Enquirer, August 2, p. 1.
largest 10 geographic markets, including the United States, 4. Benoit, D. and S. Terlep. 2017. Activist builds $3 billion stake in P&G.
China, Russia, and Germany. Such a push for decentraliza- Wall Street Journal, February 15, p. A1.
tion would give these units more freedom to adjust their 5. P&G Annual Report 2009.
strategies to the needs of the different product categories in 6. Reingold, J. and D. Burke. 2013. Can P&G’s CEO hang on? Fortune,
each of the markets. “We are accelerating the pace of February 25, p. 70.
change and stepping up execution to meet the challenges of 7. Ibid.
8. Ibid. p. 75.
today’s dynamic world,” said Taylor.10
9. Ibid. p. 70.
10. Press Release. 2019 (January 23). P&G announces fiscal year 2019
ENDNOTES second quarter results.
1. Al-Muslim, A.2018. P&G streamlines its management. Wall Street
Journal, November 9, p. B2.

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