At the time of Organization 2005, P&G did not have the ability to report to this specific level, and instead focused purely on geographies first, product area second, and functional areas the last. This clearly made execution of marketing strategies extremely difficult, as in the old organizational structure, country-based marketing managers could decline to sell a specific product or an entire brand.
Jager, who had extensive experience in Asia-pacific prior to taking on the CEO role, had seen through many of his product introductions how having a strong geographical focus was actually a disadvantage for P&G. His work on the SKII market definition and planning in Japan was a case in point (Bartlett 2004).
What is troubling however in the definition of Organization 2005 is the high level of prioritization on process standardization, over and above the finely tuned execution of regional marketing campaigns and the ability to measure results to the market level. That ability to measure results is in effect lost with the development of an enterprise-wide SAP system that focuses on product line sales history and availability of data.
Most troubling about Organization 2005 from a policies perspective is the lack of agility it gives P&G to respond to the market. While Jager continually re-assures the company and investors that with the new triad organizational model and the aggressive pursuit of new markets with new products will deliver exceptional growth, Jager is in effect taking P&G in two directions at once. Wanting to have a highly standardized series of processes without the necessary integration to policies contributes to the confusion of how GBS and MDO will overcome their inherent conflicting roles and metrics of performance they are measured on to contribute to the success of GBUs, which will rely heavily on each of these two critical areas. Policies for each component of the triad of Organization 2005 then are not synchronized with one another, yet capitalize on the urgency P&G's leadership has to gain ever-increasing cost reductions through process standardization. Ironically Organization 2005s' structure could be aligned with market agility yet is, from a policy and political perspective, more reinforcing of process standardization and cost reductions as a result. P&G also faces the challenges of having to confront the fact that Organization 2005, from a policy standpoint, does nothing to alleviate pressure on the most competitive aspect of their company, and that is pricing. While P&G move up market with price increases during the Organization 2005 timeframe, competitors do not follow suite, and in fact drop prices. One does need to give credit to P&G however for organizing globally by product line, as in that organizational context it would be potentially possible to complete price elasticity and price optimization through their supply chains and to their retailers' shelves.
What is also glaring of the omissions from the strategy-supportive processes however is the complete lack of focus on how to capitalize on the emerging distribution channel of mass merchandisers, including Wal-Mart, Costco, and others. Further, there is no major policy definition on supply chain collaboration with other companies also selling to Wal-Mart, Costco and other mass merchandisers. Organization 2005 is definition in the policies pertaining to su0pply chain visibility, collaboration, forecasting and most critical, pricing stability against the competitive pressures of mass marketers. The demands of this challenge could be met using GBU as an organizational catalyst to change, yet the internal lack of balance would need to be dealt with first and overcome.
Exercising Strategic Leadership
Durk Jagers' vision is to capitalize on the strengths of P&G to quickly develop new products for new markets and then relying on a triad-based organizational structure, launch new products while achieving business process standardization. A complex vision, Jager sees the synchronization of each organizational unit (GBS, GBU, and MDO) as delivering on business process management (BPM) and business process reengineering (BPR) while at the same time scaling global programs to local markets. Looking for standardization in business processes while at the same time looking for agility in the market is a conflict-intensive strategy, yet one if executed correctly could lead to long-term significant competitive advantage.
What Jager does not address however from a strategic leadership standpoint are the most critical aspects of where P&G is suffering the most, and that is in increasing the supply chain efficiency, including order management, supplier collaboration, and the need for P&G to become more adept at interpreting customer demand in its many markets. The entire focus of Organization 2005 on a customer-to-innovation continuum is solidly on innovation alone, completely disregarding how to grow existing customer sales.
What's missing in the strategic leadership standpoint is the development of a Demand Driven Supply Network (DDSN) as defined by Asgekar, Fontanella and Swanton (2004). The DDSN model looks to define how transparent and agile supply chains are in response to customer demands. Ironically one of the most critical of business processes that could benefit from greater standardization, which is supply chain-based order management, is not specifically addressed by Jager or the management team. The ability to turn P&G into a lean manufacturing enterprise is not part of the Organization 2005 vision either, a serious shortcoming and ironic given the focus on high levels of process standardization.
Installing Support Systems
As Organization 2005s' success is in large part dependent on the integration between GBU and MDO components to enable business development functions and drive initiatives that lead to goals being attained in the areas of customers, geographic segments, functional areas and coordinate with corporate functions, the role of support systems is critical. Compounding this is the need for integrating literally tens of thousands of process workflows with Global Business Services, who in turn manage the process standardization and the development of best practices for the entire company. Support systems then in the context of Organization 2005 are both processes that serve to integrate GBU and MDO roles, and then synchronize those roles with GBS. Support systems from a process perspective can workflows between division then and don't necessarily entirely rely on information technologies. Clearly the biggest challenge for P&G from a systemic perspective is the integration and definition of process workflows across GBU, MDO and GBS.
Systems support from an it standpoint is also prevalent through the Organization 2005 initiative as well. P&G for example is lagging in certain areas during this time period. it-based initiatives needed to support Organization 2005 are defined as follows:
Enabling suppliers electronically, including supply chain collaboration and enabling supply chain integration with mass merchandisers including Wal-Mart and others is a major emerging competitive strategy for P&G using Organization 2005. Resource allocations for the development of Private Trading Exchanges (PTX) (Columbus 2001) and the completion of SAP installations also are defining resource allocations during the organization 2005. The SAP installation promises to provide product line forecasting functionality for Organization 2005, which is a critical reporting requirement for the new organizational structure. To accomplish this level of global visibility however, Global Business Services (GBS) will not only have to contend with an entirely new role in the company it must also consolidate 70% of the company's it systems. Resource allocation for supply chain integration with suppliers and mass merchandisers, development of Private Trading Exchanges (PTX) and the completion of an SAP ERP system that will lead to significant systems consolidation all are defining resource allocations from an it standpoint in organization 2005.
The structure of the PTX was first defined by AMR Research (2001) in the report, Building a Case for the Private Trading Exchange.
This landmark report was actually setting the stage for the creation of Service Oriented Architectures, as the many integration points between buyers, suppliers, and customers. Figure 1 shows an example of the diagram of what a PTX consists of. This is the beginning of the actual progression of it architectures to SOAs. Proctor & Gamble, according to AMR Research (2001) had begun pioneering the development of PTX market trading architectures as a result of the policy definitions in the latter stages of Organization 2005.
Figure 1: Structure of the Private Trading Exchange as pioneered by Proctor & Gamble
Table 1 provides insight into the maturity of the PTX architecture that P&G has defined and begun to use during Organization 2005.
Table 1: P&G Private Trading Exchange Maturity
Maturity Level of P&G Using PTX Architectures to Define Organization 2005
Where Org2005 is during the case study time period
Mass merchandisers including Wal-Mart are defining this type of PTX during the Org 2005 timeframe
Low; this is the area of best practices as it relates to P&G at the time of Org 2005
Supplier Preferences or Choices
Amount of Commitment Among the Parties
Medium to High
Degrees of Flexibility
Means of Communication
Method of Conflict Resolution
Haggling and Negotiating - resort to courts and lawyers for resolutions
Administrative Control through hierarchical authority