More speed and less haste for P&G

Durk Jager’s restructuring has drastically reduced P&G’s launch times, but it is still being outrun by smaller rivals. Will a discerning acquisitions drive give the company the boost it is searching for?

Two giant US companies are locked in a worldwide battle for supremacy over a revolutionary new product. It may only be a duster, but the outcome of this household cleaning showdown will demonstrate whether the two consumer products companies are on course to thrive in the next century.

Last July, Procter & Gamble launched the Swiffer, the so-called “dry-mop” which is charged with static electricity, and wipes surfaces shiny clean. Since then it has introduced it in Canada, Puerto Rico and most European countries, notching up sales of $200m (&£125m).

SC Johnson launched the Pledge Grab-it at about the same time, with a US television ad campaign comparing the two products. Needless to say, the ads claimed the Grab-It was superior, though US District Judge Loretta Preska banned the campaign. She granted P&G a temporary restraining order just before Christmas, finding that the product demonstration in the commercial comparing the Swiffer to Pledge Grab-It was “literally false”. Since then there have been no more Grab-It ads in the US.

One marketing source who has used both products says they will change the way houses are cleaned from Peckham to Peking. The only small drawback, he says, is that they clean so effectively, they show up how dirty other parts of the house are.

The products themselves may be revolutionary, but the big question is how well-prepared the companies are to launch them across the globe. For P&G chief executive Durk Jager, the successful worldwide launch of the Swiffer will be a measure of the success of the new company structure he put in place 18 months ago when he took up the biggest marketing job in the world.

Jager’s recovery plan for P&G is to ensure that it brings its products to market more quickly. In the UK, there has been a flurry of new products introduced since Jager’s inaugural statement 18 months ago. Bounty kitchen towels, Febreze fabric refresher, Ariel Discs laundry tablets, Pampers Care Mats (MW last week), Charmin toilet roll, and Tempo facial tissues are all being launched in the UK, with a marketing spend of about &£100m.

Former chief executive John Pepper once said: “We’re used to taking four years to get a new brand out, but we need to do it in one or two years.” P&G’s famed rigour in testing products and its considered approach in bringing them to market has diminished its competitiveness. Yet it is hard for the company to suddenly ditch the methods it has held sacred for so many years.

But in the UK, SC Johnson has beaten P&G to the launch of the Swiffer, rolling out the Dust-It, under the name of Dust & Go in the summer. Despite Jager’s reorganisation, P&G still lags behind its rival. SC Johnson has the advantage of being a smaller company and so has less complex reporting structures, making worldwide launches much simpler and quicker.

This goes to the heart of P&G’s problem. Its seven brand categories and 300 worldwide brands require a more labyrinthine organisational structure, and this can make new launches problematic, particularly as regional variations of specifications and packaging need to be approved by a list of departments right through to the top of the organisation.

One insider says: “Swiffer is exactly why P&G needs to go more quickly, since the boundaries are being blurred with rivals always able to copy and deliver new products more quickly. Speed is essential. It is too soon to answer the question of whether the changes have been successful. You can’t change new product development that quickly.”

Jager certainly believes the new structure is having a positive effect. Last week, after his first 500 days in the job, he was well on the way to achieving the ambitious growth targets he announced at the beginning of his tenure.

On his appointment in September 1998, Jager unveiled plans to build sales by seven per cent a year. Last week’s results showed sales had grown by seven per cent, quarter on quarter, to $10.58bn (&£6.62bn), up five per cent year on year. At the time, Jager said: “Organisation 2005 is allowing us to continually innovate and bring new products to market faster, as evidenced by our accelerating momentum in sales growth. [Organisation 2005] is streamlining our management structure and decision-making as we consolidate strategic management into fewer locations.”

But instead of celebrating, Jager was forced to watch P&G’s stock price dive 17 per cent. Investors took fright at his plan to build P&G’s small pharmaceuticals interests through acquiring two drugs giants, Warner-Lambert and American Home Products. Investors were alarmed by the planned $140bn (&£87.5bn) buyout. They questioned its financial benefits, and were worried about P&G’s acquisition strategy. Jager abandoned the takeover talks early last week.

However, analysts speculated that there would be further acquisitions. This is one sure way Jager has of building sales. The purchase of Iams petfoods last year boosted sales in the healthcare division by 35 per cent, which all helps in achieving Jager’s ambitious sales targets. Wall Street’s attentions quickly turned to Gillette, and rumours abounded that P&G would bid for the company. This seemed a little out of character, as P&G has a reputation of not making hostile bids, and Gillette’s vigorous management was thought to be opposed to such a move.

Jager has played on the Wall Street stage with Organisation 2005 and with P&G’s acquisitions policy. But investors are being wooed by Internet companies with rocketing stock prices, and the world of household cleaners must look pedestrian by comparison.

Jager’s first two years have been a mixed bag. Sales have grown in line with his predictions, although his acquisition strategy is under scrutiny by investors. Organisation 2005 does seem to have hastened product launches, though the experience of the Swiffer shows that smaller rivals can beat a lumbering giant.

But one good thing about dusters, toilet paper and petfood from an investor’s point of view is that they will always be in demand. When the last Internet start-up has come crashing down, people will still need those basic, low-tech products.

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