P&G's big re-org: Peltz wins (some), marketing stays largely intact

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Credit: Procter & Gamble Co.

Procter & Gamble Co. has a new simplified organizational structure coming next July, the company announced Thursday. It's still fairly complex, but partly addresses the differences management had with new board member Nelson Peltz last year when they fought to keep him off the board.

Among the key updates announced during P&G's investor day: Newly minted CEOs of P&G's new Sector Business Units will oversee most of their sales departments, product development and manufacturing in most of the world, and 60 percent of central corporate staff will now report to these business leaders in parts of the world representing 80 percent of P&G's sales and 90 percent of after-tax profits (which includes North America, Western Europe, China and Russia.) While this reorganization doesn't directly involve headcount reduction, it does aim at eliminating duplication of effort. Chairman-CEO David Taylor called it "the most significant organization change we've made in the last 20 years."

Here are five key takeaways from yesterday's announcement.

Nelson Peltz got much of what he wanted

As he battled for a board seat last year, Peltz proposed breaking P&G into three semi-autonomous units reporting to Taylor, with a lean central corporate staff. Yesterday's move creates six semi-autonomous units, with more emphasis on the semi.

Nelson Peltz
Nelson Peltz Credit: Trian Partners

For example, Peltz wanted R&D given to the business units, but corporate R&D will continue working on projects that span multiple categories or move into new ones. The sector units will be responsible for sales people in most of the world, but even there "market leaders" from P&G will still work directly with top executives at such retailers as Walmart or Tesco.

Last year, Taylor described Peltz's plan as a prelude to a company breakup. Under the new organization, breaking up is still hard to do. The six sectors share multi-category manufacturing and distribution centers, plus integrated sales and corporate functions across Central and Eastern Europe and most of the southern hemisphere.

Marketing and media won't be affected so much

Peltz wanted his semi-autonomous business units to control media buying. That isn't happening, as those duties will still be handled by corporate market operations, a spokeswoman says. Vice Chairman and Chief Financial Officer Jon Moeller, answering a question yesterday about why P&G's scale still mattered given the organizational breakup, pointed to how Chief Brand Officer Marc Pritchard's push for more accountability from digital media last year wouldn't have been possible without P&G's combined buying clout.

That said, business units already have some say in choosing their media agencies, as P&G's North American hair-care business showed in switching from Omnicom's Hearts & Science to Dentsu's Carat earlier this year. And P&G is letting brand managers do more self-service buying in digital and social media. Peltz wanted P&G brands to have more flexibility to hire and fire ad agencies, and the "fixed and flow" model P&G adopted earlier this year makes that easier for many projects.

The dispersal of corporate staff to business units won't be as pronounced in Pritchard's brand group as in other parts of the company, says spokesman Damon Jones, since most marketing already is handled by the business units, and corporate marketing, such as P&G's Olympics sponsorship program, will continue.

CFO's power grows

Jon Moeller adds to his power, taking on the additional duties of chief operating officer and overseeing sales and corporate functions in all of Latin America, India, Australia, and Central and Eastern Europe. He'll also oversee some corporate functions like information technology globally.

P&G has a bunch more CEOs

Leaders of the new Sector Business Units get CEO titles and report to Taylor, including Stephen Bishop, 54, in Health Care; Gary Coombe, 54, in Grooming; Mary Lynn Ferguson-McHugh, 59, in Family Care & Ventures; Fama Francisco, 49, in Baby & Feminine Care; Shailesh Jejurikar, 51, in Fabric & Home Care; and Alex Keith, 50, in Beauty.

CEO succession prospects clarify some

Moeller, 54, moves into a chief operating officer role that puts him second in line to Taylor, 60. Except for Ferguson-McHugh, all the new CEOs also are six or more years younger than Taylor, putting them in line to move up in P&G's traditional promote-from-within model.

Whether that happens depends on how well the company does. P&G's board considered outside candidates when Taylor was appointed in 2015, and could look outside again when he leaves. And if these new pieces of P&G ultimately do get broken off, all bets are off.

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