When Durk Jager takes over as chief executive of Procter & Gamble at the beginning of next year, it will herald the start of a new era in the company’s 160-year history.
Jager replaces John Pepper, who bows out after just three years in the post – three years that have seen the sales growth of the world’s largest consumer goods company slow to a trickle.
According to Pepper, Jager possesses “outstanding” strategic thinking and a “passion” for speedy innovation. These qualities will be vital in implementing the sweeping changes to P&G’s organisation that were announced last week alongside the top management reshuffle. The restructure establishes seven global product groups which will be responsible for the profitability of existing and new brands.
The aim is to help P&G develop new products – and new brands – much more quickly and pave the way for co-ordinated global launches.
But Jager has other personal qualities which Pepper does not mention. One former insider says: “He is a brutal man of limited tastes. Doing his job is what he likes best.”
He is described as an abrasive, uncompromising manager, an executive in the mould of Ed Artzt, P&G’s former boss, who Pepper succeeded in 1995. These qualities are likely to play a vital role in helping him shape the “organisation 2005” initiative, designed to sharpen P&G’s focus over the next decade.
Jager joined P&G in 1970 as a brand manager and by the beginning of the Eighties had risen to the position of country manager for Austria. One observer says that at that time P&G had doubts over his abilities and decided to test him with one of the toughest jobs in its portfolio.
He was sent to Japan, then a problematic market for P&G, as advertising manager. Jager removed all doubts about his abilities and within five years had been promoted to vice-president for the Far East and Asia Pacific Divisions. In 1989, he joined the board of directors. He soon emerged as heir apparent to chief executive Artzt and there was some surprise when Pepper succeeded Artzt in 1995 and Jager was made his deputy.
It was thought that the P&G board gave the top job to Pepper, the so-called “nice guy” of the duo, because his consensus-building qualities would be useful in rebuilding morale after the 1993 downsizing, in which 13,000 jobs – nearly a tenth of the total – were axed.
But as P&G supremo, Jager will not be charged simply with reorganising the company’s physical structure – though this in itself is a huge task. He will have to make profound cultural changes.
In a speech last week, Jager outlined the task ahead as the company tries to achieve its goal of doubling sales by 2006. The company’s turnover – now $37bn – grew just one per cent in 1997, and four per cent so far this year – about half of what it needs to achieve its goal.
One problem Jager refers to is P&G’s failure to “stretch” products across the globe. He cites the example of Febreze, a clothes freshener which is being introduced in the US and slowly rolled out across the world. Jager says the product should have been launched globally in the first place. “If we had done that, we would be launching this product around the world at the same time we were expanding it in the US. And we’d be realising perhaps $500m (313m) in sales instead of our current projection ($200m in the US),” he says. The new culture of P&G will attempt to co-ordinate global launches rather than introduce products market by market.
He also believes in greater innovation. P&G’s strategy over the past 50 years has been to develop brands that offer a real point of difference from other products on the market. But as markets have matured, it is ever harder to find new products, since consumer needs have, largely, been met. So the company has to work harder to develop products with clear benefits over rivals. For example, it has spent 25 years and $500m (313m) creating Olestra, a re-engineered fat.
According to Richard Zambuni, managing director of consultancy The Value Engineers, the days when P&G could simply buy market share by putting money behind a product launch are gone. “P&G’s ability to generate mass brands which can control markets is becoming difficult. Other companies such as Bass develop brands with a four- or five-year shelf life. They are not brands of the future, but they ride a cycle,” he says.
As Pepper said last week: “We’re used to taking four years to get a new brand out, but we need to do it in one or two years.” And as Jager confirmed: “speed counts.”
So there will be a complete change in the way P&G develops products, which traditionally has involved painstaking market testing. Only then are products launched in a market and given the big ad spend they need to build market share. But this can remove “first mover advantage” if rivals beat them to launch. For example, while Lever Brothers launched Persil Tablets last May across the UK and three other European markets, without undertaking exhaustive market testing, P&G is still testing the performance of Ariel Discs, in Hull and Cleethorpes. P&G detergent executives are said to be undecided whether detergent tablets really do provide clear product benefits. Meanwhile, Persil has overtaken Ariel’s market share for the first time in four years on the strength of its tablets launch.
The latest P&G innovations show the difficulty of coming up with revolutionary new products. If the new structure is successful in bringing about global launches, products such as Febreze, home dry cleaning product Dryel and disposable cleaning cloth Swiffer will be rolled out around the world. Global launches – especially for products with limited consumer benefits in unglamorous categories – are problematic as they cut across cultural values and contain a strong element of risk. Nor do they always capture the public imagination.
P&G’s expansion beyond cleaning products into cosmetics, food and soft drinks and pharmaceuticals has met with varied success.
It needs to improve the performance of some of its problematic categories. It had to jettison its mass-market perfume business and its Cover Girl cosmetics brand has lost share in the US. Its pharmaceuticals division accounts for only eight per cent of sales, with over the counter drugs such as Vicks and Pepto-Bismol. Nearly one third of the company’s $1.5bn research budget is spent developing new pharmaceuticals, though it has yet to hit on a global winner. P&G has had more success in food and beverages, with Pringles crisps and the orange drink Sunny Delight.
So repair work on some of these categories will be vital and could include newly-researched products and acquisitions, such as last year’s buyout of Tambrands.
One source says that one of the greatest effects of the restructure will be to sweep away the old certainties at P&G. “It shows nothing is sacred. There have been too many who thought their job was fixed, but this shows nothing is fixed, nothing is forever.” This is just how Jager wants it: an atmosphere where performance is everything.
But it will be Jager’s performance that P&G’s investors will be watching. They will want to see whether the cultural changes will deliver the increase in sales that Pepper and Jager suggested last week.