CASES

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

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• Tide was the first heavy-duty laundry detergent.
• 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
sold off many of the brands it had acquired, capped by the
$11.6 billion sale of dozens of beauty brands to Coty. He
announced that the company would narrow its focus to 65
or 70 of its biggest brands such as Tide, Crest, and Pampers.
“Less will be more,” Lafley told analysts. “The objective is
growth and much more reliable generation of cash and
profit.”3
David S. Taylor, who had spent years managing P&G’s
businesses finally took over as chairman and CEO of the
firm in November 2015. He has made moves to resurrect
the firm but has opted against launching new brands or
making new acquisitions. “I understand the desire for faster
growth and for a single-minded short-term objective, but
we’ve seen this movie before” he said at a meeting with ana-
lysts soon after he had taken over.4
Fighting off a Decline
For most of its long history, P&G has been one of ­America’s
preeminent companies. The firm has developed several well
known brands such as Tide, one of the pioneers in laundry
detergents, which was launched in 1946; and Pampers, the
first disposable diaper, which was introduced in 1961. P&G
also built its brands through its innovative marketing tech-
niques. But by the 1990s, P&G was in danger of becoming
another Eastman Kodak or Xerox, a once-great company
that might have lost its way. Sales on most of its 18 top
brands were slowing as it was being outhustled by more fo-
cused rivals such as Kimberly-Clark and Colgate-Palmolive.
In 1999, P&G decided to bring in Durk I. Jager to try
and make the big changes that were obviously needed to get
P&G back on track. But the moves he made generally mis-
fired, sinking the firm into deeper trouble. He introduced
expensive new products that never caught on while letting
existing brands drift. He also put in place a companywide
reorganization that left many employees perplexed and
preoccupied. During the fiscal year when he was in charge,
earnings per share showed an anemic rise of just 3.5 per-
cent, much lower than in previous years. And during that
time, the share price slid 52 percent, cutting P&G’s total
market capitalization by $85 billion.
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EXHIBIT 3
Significant Innovations
In 2000, the board of P&G asked Lafley to take charge
of the troubled firm. He began his tenure by breaking down
the walls between management and employees. Since the
1950s, all of the senior executives at P&G used to be lo-
cated on the 11th floor at the firm’s corporate headquar-
ters. Lafley changed this setup, moving all five division
presidents to the same floors as their staff. He replaced
more than half of the company’s top 30 managers, more
than any P&G boss in memory, and trimmed its workforce
by as many as 9,600 jobs. He also moved more women into
senior positions. In fact, Lafley skipped over 78 general
managers with more seniority to name 42-year-old Deborah
A. Henretta to head P&G’s then-troubled North American
baby-care division.
Lafley was simply acknowledging the importance of de-
veloping people, particularly those in managerial roles at
P&G. For years, the firm has been known to dispatch line
managers rather than human resource staffers to do much
of its recruiting. For the few that get hired, their work life
becomes a career-long development process. At every level,
P&G has a different “college” to train individuals and every
department has its own “university.” The general manager’s
college holds a week-long school term once a year when
there are a handful of newly promoted managers.
Under Lafley, P&G also continued with its efforts to
maintain a comprehensive database for all of its more
than 130,000 employees, each of which is tracked care-
fully through monthly and annual talent reviews. All man-
agers are reviewed not only by their bosses but also by
lateral managers who have worked with them, as well as
on their own direct reports. Every February, one entire
board meeting is devoted to reviewing the high-level execu-
tives, with the goal of recommending at least three poten-
tial candidates for each of the 35 to 40 jobs at the top of
the firm.
Gambling on its Brands
Above all, Lafley had been intent on shifting the focus of
P&G back to its consumers. At every opportunity, he tried
to drill his managers and employees to not lose sight of the
consumer. He felt that P&G often let technology dictate its
CASE 25 :: PROCTER & GAMBLE C193
 new products rather than consumer needs. He wanted to
see the firm work more closely with retailers, the place
where consumers first see the product on the shelf. And he
placed a lot of emphasis on getting a better sense of the
consumer’s experience with P&G products when they actu-
ally use them at home.
Over the decade of Lafley’s leadership, P&G managed
to update all of its 200 brands by adding innovative new
products. It began to offer devices that build on its core
brands, such as Tide StainBrush, a battery-powered brush for
removing stains, and Mr. Clean AutoDry, a water pressure-
powered car cleaning system that dries without streaking.
P&G also began to approach its brands more creatively.
Crest, for example, which used to be marketed as a tooth-
paste brand, was redefined an oral care brand. The firm
now sells Crest-branded toothbrushes and tooth whiteners.
In order to ensure that P&G continues to come up with
innovative ideas, Lafley had also confronted head-on the
stubbornly held notion that everything must be invented
within P&G, asserting that half of its new products should
come from the outside. Under the new “Connect and
­Develop” model of innovation, the firm pushed to get al-
most 50 percent of its new product ideas from outside the
firm. This could be compared to the 10 percent figure that
existed at P&G when Lafley had taken charge.
A key element of P&G’s strategy, however, was to move the
firm away from basic consumer products such as laundry de-
tergents, which can be knocked off by private labels, to higher-
margin products. Under Lafley, P&G made costly acquisitions
of Clairol and Wella to complement its Cover Girl and Oil of
Olay brands. The firm even moved into prestige fragrances
through licenses with Hugo Boss, Gucci, and Dolce &
Gabbana. When he stepped down, beauty products had risen
to account for about a quarter of the firm’s total revenues.
But P&G’s riskiest moves had been its expansion into
services, starting with car washes and dry cleaning. The car
washes build on Mr. Clean, P&G’s popular cleaning prod-
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,
lounges with Wi-Fi and big screen televisions, and spray
guns that children can aim at cars passing through the
wash. Similarly, P&G’s dry cleaning outlets are named after
Tide, its best selling laundry detergent. The stores will in-
clude drive-through services, 24-hour pickup, and environ-
mentally benign cleaning methods.
Losing the Momentum
On July 1, 2009, Lafley passed the leadership of P&G to
McDonald, who had joined the firm in 1980 and worked
his way up through posts in Canada, Japan, the Philippines,
and Belgium to become chief operating officer. McDonald
took over after the start of a calamitous recession, and had
to deal with various emerging problems. As consumers in the
United States and Europe were not willing to pay premium
prices, the firm’s push to expand in emerging markets was
C194 CASE 25 :: PROCTER & GAMBLE
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also yielding few results in the face of stiff competition from
Unilever and Colgate-Palmolive, who already had a strong
presence. Furthermore, commodity prices were surging,
even as P&G’s products were already too expensive for the
struggling middle class that it was targeting everywhere.
In order to deal with all of these challenges, McDonald
replaced Lafley’s clear motto of “the consumer is boss”
with his own slogan of “purpose-inspired growth.” In his
own words, this meant that P&G was “touching and im-
proving more consumers’ lives, in more parts of the world,
more completely.”5 “Purpose” was an undeniably laudable
ambition, but many employees simply could not fathom
how to translate this rhetoric into action. Dick Antoine,
P&G’s head of human resources from 1998 to 2008 com-
mented: “’Purpose-inspired growth’ is a wonderful slogan,
but it doesn’t help allocate assets.”6
In part, P&G’s troubles also stemmed from its inability
to launch any major new products. As such, it was difficult
for the firm to turn away from the pressure to cut back on
the prices of its established brands. Given the wide range of
problems that McDonald faced, in terms of pushing for
growth across several different businesses across many mar-
kets, he made some effort to try and address all of them si-
multaneously. Ali Dibadj, a senior analyst at Sanford
Bernstein commented on this multi-pronged effort by P&G:
“The strategic problem was that they decided to go after
everything. But they ran out of ammo too quickly.”7
By the middle of 2012, it was becoming obvious that P&G
was struggling under McDonald’s leadership. Known for its
reliable performance, the firm was forced to lower its profit
guidelines three times in six months frustrating analysts and
investors alike. Even within the firm, many executives real-
ized that McDonald would not be able to take the bold
moves that may allow the firm to recover from its slump.
­Activist investor Bill Ackerman commented: “We’re de-
lighted to see the company’s made some progress. But P&G
deserves to be led by one of the best CEO’s in the world.”8
Striving for Agility
Shareholder dissatisfaction with lack of improvement in
performance led P&G to push McDonald out and bring
back Lafley in May 2013. As soon as he stepped back in,
Lafley was under pressure to respond to investor concerns
that P&G had become too large and bloated to respond
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
Eukanuba —to Mars for $2.9 billion.
A few months later, in August 2014, Lafley took a bolder
step. He announced that the firm would unload as many as
100 of its brands in order to better focus on 60 to 70 of its
biggest ones—such as Tide detergent and Pampers diapers—
that generate about 90 percent of its $83 billion in annual
sales and over 95 percent of its profit (see Exhibits 4 and 5).
At the same time, Lafley insisted that sales will not be the
only criteria for shedding brands. He stated that some large
 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
core business: “If it’s not a core brand—I don’t care whether
it’s a $2 billion brand—it will be divested.”9
Although analysts were receptive to the reduction of
brands, they pointed out that P&G has already sold off
more than 30 established brands over the past 15 years that
were supposedly hindering growth. Many of these sold-off
brands have been performing well with other firms.
J.M. Smucker, for example, that bought Crisco shortening,
Folgers coffee, and Jif peanut butter, has had 50 percent
sales growth since 2009. Some critics charge that P&G,
which was once was most successful in building and manag-
ing brands, has lost its touch.
In large part, the focus is on the cumbersome centralized
and bureaucratic structure that has developed at P&G. Unlike
many of its newer competitors, the firm still tends to rely less
on working with outside partners. The Connect and Develop
program that had been started by Lafley to bring in new ideas
from outsiders has led to 50 percent of its new technologies
coming from outside, but these are then reworked or modified
by P&G’s internal R&D group. This has stifled innovation,
with most of the firm’s growth coming from line extensions of
existing brands or from costly acquisitions.
On November 1, 2015, Lafley stepped down, passing the
reins to David Taylor, who had built his career at P&G. He
had most recently been assigned to take over the firm’s
struggling beauty unit. Taylor continued with Lafley’s strat-
egy of cutting back on P&G’s brands. The sale of 43 of the
firm’s beauty brands to Coty in a $12 billion deal was com-
pleted in October 2016. A few months earlier, P&G had
completed the transfer of Duracell to Berkshire Hathaway
through an exchange of shares.
Fighting for Its Iconic Status
Under Taylor, P&G has been trying to find ways to revive
the prospects of its mostly aging brands. For years, P&G
had spent heavily to build on its success with legacy soap
and detergent brands to acquire hundreds of additional
brands in new businesses that it hoped could also become
part of consumers’ daily routines. The latest effort to jetti-
son over half of its brands indicated that the strategy was
not working anymore. In particular, P&G has been strug-
gling with its push to place more emphasis on products that
carry higher margins in order to move it away from its de-
pendence on household staples.
Above all, it is clear that the recent push to expand into
new categories with acquired brands did not produce the
desired results. The firm’s aggressive push into beauty, for
example, has struggled to show much growth. Lafley had
tried to build the firm’s presence in this business for years,
regarding it as a high margin, faster growing complement to
the firm’s core household products. The firm has struggled
to show growth in this business and it has been generating
the lowest profit margins. Sales of Olay skin care products
and Pantene hair care products have mostly sagged in recent
years. Its efforts to build a line of perfumes around licenses
with Dolce & Gabbana, Gucci, and Hugo Boss were also
running into problems.
Analysts are hoping that the decision to restructure
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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