P&g Case Study

Why did the European organizational structure shift from geographic grouping in the 1950s to category management in the 1980s?

Prior to 1980s, P&G designed its organization in Europe in three dimensions including country, function and brand in order to respond and tailor products and process to local tastes and norms. P&G portfolio was managed by country general managers who used P&G technology and marketing expertise in local markets.

Innovations and new technologies about products came from U.S R&D division and adapted to each country by local R&D divisions. However country managers not brand managers were responsible for profitability and market strategy which means that country managers could decide which new manufacturing processes to adopt and which products to launch in their own region. These two aspects prevented innovations and brands to globalize fast. One example of slow global launching was Pampers, which was launched in the U.S.  1961, in Germany in 73 and in France in 1978. It can be seen that the launch of the new brand took around 17 years to reach France from the United States because of this organizational structure, which slows down the process.

On the other hand, country managers had their own branding strategy rather than one global strategy, which created misalignment between Europe and the United States. In addition to that, unstandardized products and packaging processes added no additional value but created cost and complexity to the whole supply chain.

Increased costs coming from supply chain and local R&D labs which adds no additional value, misalignments of strategies between each European country and the United States led P&G to shift its European organizational structure from geographic grouping to category management in order to eliminate unnecessary product variations, strengthen product launches and create alignments across all regions.