Published on .

March 22, 2001

By Jack Neff

Although he previously criticized his predecessor for trying to change "too much too fast," Procter & Gamble's CEO and president, A.G. Lafley,

Photo: AP..
A.G. Lafley to slash 17% of P&G's workforce.
. now appears to have concluded that those earlier restructuring efforts were too little, too late.

This morning, the company announced it was accelerating and expanding its corporate restructuring to include sweeping job reductions throughout P&G's global workforce. P&G plans to eliminate 17,400 jobs, or 17% of the company's employees. What Mr. Lafley termed "phase two" of P&G's restructuring plan will eliminate 9,600 jobs. That's on top of the 15,000 job cuts announced in phase one in 1999. P&G has eliminated 7,200 jobs through phase one so far, and the new cuts announced today will complete the elimination of 17,400 positions.

P&G also plans to announce by June 30 the results of Mr. Lafley's current strategic review of the business, which could result in further divestitures of brands and businesses. Last year, Mr. Lafley was critical of outgoing P&G CEO Durk Jager for his restructuring efforts, which Mr. Lafley said went too far.

Change of plans
Previously, Mr. Lafley said divestitures would likely come on a brand-by-brand basis, but today he kept open the possibility of more divestitures of entire businesses and larger brands. He also indicated that smaller or struggling brands could go on the block in less than a year.

"I've charged each of our global business leaders to fix or get out of underperforming businesses in the next year," he said. "Existing businesses, brands or new initiatives in the market that are not delivering will be fixed quickly. If we cannot get these brands or businesses profitable, we will substantially restructure them or simply shut them down. We cannot and will not let underperformers be a drag on the rest of the company."

Layoffs not ruled out
P&G is offering voluntary separation packages to eligible employees and hopes to accomplish as many job reductions as possible through attrition. But Mr. Lafley said in a conference call with analysts that some reductions, particularly in manufacturing, would have to come from layoffs.

But unlike the past restructuring that left marketing personnel unscathed and focused on manufacturing jobs and Europe, Mr. Lafley's new round of layoffs will cut deeper in the U.S. and will target non-manufacturing jobs.

Mr. Lafley said P&G's global business units, which include most brand managers and marketing directors, would cut their budgets 10% to 15% next year. He was less clear on how much, if any, of those cuts would come from marketing expenditures as opposed to head-count reductions. He would say that P&G plans to keep marketing spending as a percent of sales flat and possibly down in the current fiscal year that ends June 30.

The deepest cuts will come in the food and beverage business, he said, while the fabric and home-care business that has fared relatively well will see the fewest cuts. Another target of personnel reduction will be what Chief Financial Officer Clayton Daley called "hierarchy," or senior executives throughout the organization.

Improving marketing
Marketing efficiency, though not necessarily spending cuts, remains a priority, Mr. Lafley said. Though he said P&G already outspends competitors in marketing support in most cases, he also said one goal of the job cuts is to continue to invest in marketing support for the company's core brands.

"Without going into all the details, the world has changed dramatically in the past 20 or 30 years, and you have to have a strong TV program as a cornerstone of your entire marketing program," he said, "but there's a lot of opportunity to innovate and improve other areas of marketing and sales execution."

In remarks to financial analysts today, Mr. Lafley didn't limit his critique to his immediate predecessor. He also cited problems dating to the CEO tenures of the company's current chairman, John Pepper, and former chairman and CEO, Edwin L. Artzt. In a frank assessment of P&G's performance over the past five to 10 years, Mr. Lafley conceded the company's prices have too often been too high, its new products too often failures and its staffing too high for P&G to win against its strongest competitors, such as Kimberly-Clark Corp. and Colgate-Palmolive Co.

3,800 U.S. jobs
Of those additional 9,600 job cuts, two-thirds, or more than 6,400 will come in non-manufacturing positions. More than 3,800 will come in the U.S., about half of those in P&G's Cincinnati base. Of the 15,000 jobs targeted in the first round of restructuring, only 10% to 15% were in the U.S.

P&G expects to complete the bulk of its workforce reductions before the end of the next fiscal year, which ends June 30, 2002, anticipating charges of $1.4 billion against earnings next year to be offset by savings of $600 million to $700 million annually by fiscal 2003. Originally, P&G had expected to complete its workforce reductions through 2004.

A key goal of the staffing reduction is to reduce P&G's costs to accommodate more competitive pricing. Mr. Lafley said price rollbacks in such areas as paper towels, feminine care, Pringles snacks and Sunny Delight drinks in recent months represent about 80% of the price cuts P&G plans. But he also said P&G will try to limit future price increases to 1% to 2% annually.

"The most obvious reason we're not getting the results we want is due to pricing," he said. "Our price increases over the past several years have in some cases not been fully justified by product advantage. Instead, we've used pricing to deal with problems and to fund investments, too many of which have not delivered."

Copyright March 2001, Crain Communications Inc.

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