Chapter 9

ORGANIZING STRATEGY
Procter & Gamble
1 What type of organization structure does P&G have in place for its worldwide operations? Is this structure
optimal?

P&G follows a three-axis matrix structure in which the organizational responsibilities are divided among (a) regional
marketing, (b) product-based R&D and manufacturing, and (c) regional logistics. These, in turn, are overseen by the
Corporate Functions department. Because of the scale and international reach of its operations, a matrix structure allows
high levels of national responsiveness in the marketing of P&G’s branded products, economies of scale in R&D and
production to be materialized through the Global Business Units, and economies of scale in logistics through the Global
Business Services. Other types of organization structures would either constrain national responsiveness in marketing or
undermine the company’s capacity to achieve economies of scale at a regional level.

2 Why was the international division replaced by the matrix structure?

The international division is a fairly primitive type of organization structure of an MNE. It is used at an early stage of
international expansion (by P&G in the 1940s and 1950). As P&G’s sales in the international market increased beyond 20
percent or so, it turned to a more complex global organization structure, the three-axis global matrix, with which it could be
nationally responsive and achieve economies of scale.

3 Why does the company rely on decentralized decision making?

The primary reason why the firm relies so heavily on decentralized decision making is because the demands of the local
areas are so great that it cannot make all important decisions from headquarters. This applies to the MDOs, which must
market to different cultures with different languages and business environments. But it also applies to the GBSs catering
directly to a given region, which must function in the relevant languages and understand regionally specific logistics
environments. Decision making is also delegated to the GBUs, which specialize to provide the most efficiency and
innovation in each product category and to dissipate R&D knowledge across product families.

4 In controlling its operations, what are three areas that are paramount for the firm?

There are a number of areas P&G needs to control. One of these is profit. The company must ensure that its divisions are
profitable in each market in which it operates. A second area is cost control. Presently, P&G’s matrix structure is designed to
be nationally responsive and decrease costs through economies of scale. A third area is innovation.
One of the firm’s principal competitive advantages is its ability to improve its brands against the competition; as a result, it
must weigh its advances in R&D against that of the competition. A fourth area of control is the brand awareness of
consumers for P&G’s brands.