P&G opens up its doors and its ears

Procter & Gamble’s major restructuring, begun in 1999, has led it to take a more media-friendly approach, focus on creativity in its advertising and to listen more closely to what consumers want, writes Sonoo Singh

Gaining entry to one of the most secretive and uncommunicative businesses in the world has never been easy.

But Procter & Gamble has decided to open up its Cincinnati headquarters to journalists from around the world in a bid to demonstrate to the corporate financial markets that it is no longer an organisation preoccupied with navel gazing and developing products divorced from real consumer needs, but is instead prepared to look outside its confines to the world of consumers for inspiration.

P&G Plaza, the home to brands such as Ariel and Pampers, is a sanitised, yet slightly forbidding place, where everyone speaks in hushed tones.

In the past, the consumer goods giant, described by many as an institution rather than an enterprise, has operated a closed-door policy, giving outsiders the chance to make capital out of fresher insights into consumer needs.

But P&G insists that is changing. Its global marketing officer, Jim Stengel, says that the company has become more experimental and that it is going through a corporate transformation, making the organisation “open, collaborative and confident” – a change which he claims is reflected in the company’s growth.

Last month, P&G reported its fourth consecutive quarter of double-digit earnings. Its net sales were $11bn (£6.7bn) for the quarter ending December 31, up six per cent on the same period the previous year, while net earnings were $1.49bn (£900m), up 14 per cent.

Recognition of P&G’s resurgent strength came from a curious quarter last week – its arch-rival, Colgate-Palmolive, conceded defeat in the detergent sector by announcing plans to sell its Ajax brand.

Colgate-Palmolive’s chairman and chief executive, Reuben Mark, said P&G’s dominance of the detergent market had made it unprofitable to try to build market share. Stengel is flattered by the remarks but refuses to say whether or not P&G will acquire Ajax.

A few years ago, the world’s biggest packaged goods company did not look so healthy. It was faced with the daunting task of trying to compete globally with its mature brands in saturated markets. In a bid to inject new life into the business, it embarked on a new product development frenzy, bringing products to market quickly and without in-depth research into their performance. As a result, there were many disasters. Among them was the UK launch of Charmin, the paper that had to be reformulated to prevent it from blocking toilets, and the aborted roll-out of the dry cleaning product Dryel after three years of test-marketing in Ireland.

P&G was so desperate to revive its performance that it resorted to dirty and, ultimately, embarrassing tactics, eventually admitting that staff had rifled through the rubbish bins of Unilever to unearth the secrets of its rival’s haircare product developments.

Apart from trying to develop new markets through product development, P&G also began a restructuring exercise in 1999 called Organisation 2005, which resulted in the loss of almost 25,000 jobs and a cull of many marginal and mature brands, such as Vidal Sassoon.

But Organisation 2005, which is expected to conclude in June this year, is not simply about cost-cutting, claims a P&G spokeswoman. She says that the main aim was to bring about a fundamental change in P&G’s corporate culture, which had been criticised for being highly structured, making the organisation slow to react to market trends and opportunities.

That structural change has also influenced corporate culture and has even reached the hallowed 11th floor in the Cincinnati powerhouse, home to P&G’s most senior executives, including Alan Lafley, the chairman and chief executive. The wood-panelled offices have been replaced by workstations separated by glass partitions.

Stengel, who also sits on the 11th floor and has been with the company for 19 years, says: “P&G was highly structured 19 years ago and, of course, any change takes time. Also, the market now is more dynamic than ever before and so we are innovative in our approach to the market and consumers. We are much more receptive to different approaches to product development and listen to what our customers tell us.”

When Lafley was appointed in 2000, he made it clear that the organisation needed to put consumers at the centre of its strategy by talking to them in store and visiting their homes.

That focus on consumers has resulted in a different approach to extending the Swiffer brand in the UK. P&G abandoned tests of the Swiffer wet mop in the UK when it realised that most homes have carpets instead of wooden floors. It is instead developing a new technology that can be used for cleaning carpets.

There has been a sea-change in P&G’s approach to advertising too. Last October, the company sent out letters to its roster of ad agencies, which includes the Publicis network and Grey Worldwide, urging them to be more creative and to produce award-winning work.

“Awards are important,” says Stengel. “Advertising is all about building brands and if we are not making advertising that is more persuasive than our competitors’, we are just not doing our basic work.”

But Stengel rules out any advertising review of the existing roster. The head of global advertising, Kim Doeberiener, adds: “We will not chop and change agencies just because there are some smaller agencies known for winning awards.”

What is being chopped and changed is P&G’s attitude to corporate responsibility. It has recently appointed George Carpenter to the position of director of corporate sustainable development to develop a strategy.

Carpenter says: “It is all about fixing the ‘bads’ of a corporation. We have already been taking steps like using recycled plastic in our products, but it is only now that we have recognised the need for embracing sustainable development as part of our business strategy.”

P&G, which has more than 250 brands and spends $3.77bn (£2.3bn) on advertising each year, has convinced itself that it has shed its overbearing corporate image. Not only Stengel, but his entire team, recites the “customer first” mantra. They believe that the cultural shift in both marketing and management attitudes will help attain long-term growth objectives.

The industry will be watching with interest to see whether the double-digit growth is sustainable and whether P&G will be faster on its feet in responding to consumer needs and preventing flawed new products from getting to market.

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