P&G streamlines operations with 6 industry-focused business units
Procter & Gamble (P&G) announced at an investor conference this week and in a news release that it is streamlining its management structure. The packaged goods giant, which owns brands like Tide, Pampers and Gillette, will reorganize to operate through six category-based Sector Business Units, or SBUs, starting in July next year.
- Each SBU will have its own CEO leading major decision-making around brand communications, product and packaging innovation, consumer insights, cost management and the supply chain. The units will span P&G's largest markets, such as the U.S., Canada and China, which account for roughly 80% of its sales, according to the release. The CEOs of each unit will report to P&G President and CEO David Taylor.
The change-up follows on the tails of activist investor Nelson Peltz joining P&G's board in March, per CNBC. Peltz has put pressure on the marketer to simplify and modernize its business structure. His appointment to the board was hotly contested: he initially lost a proxy vote for a board seat by a slim margin in October 2017, but was later granted the position by P&G. P&G and Peltz were estimated to have spent $60 million collectively campaigning around the appointment, an amount Ad Age said was the largest ever put toward a proxy vote for a board position at a company.
The realignment of P&G's structure, which CEO Taylor called "the most significant organization change we've made in the last 20 years," demonstrates the potentially dramatic impact Peltz' appointment to the board has had on the company — one creating a ripple effect touching on its marketing operations.
Long before Peltz' arrival, however, P&G had already been working to innovate with digital marketing and e-commerce. The company is the largest advertiser in the world by media spend, but it's also been cutting back on those business areas at a fairly rapid clip for several years now, including by trimming production costs and the number of ad agencies it works with.
The CPG giant is additionally grappling with continued disruption from younger, digital direct-to-consumer brands like Harry's, which it has tried to account for through a ramp up in e-commerce and direct sales. Its men's personal care Old Spice last month launched its first-ever beard care line as an Amazon exclusive. Today (Nov. 9), Tide also debuted a Tide Eco-Box that's focused on reducing the amount of packaging used for shipped goods. Expressly designed around e-commerce, it comes in a perforated cardboard box that doubles as a dispenser for the brand's laundry detergent. The product is the first to come from P&G Fabric Care's eCommerce Innovation Group.
When Peltz initially launched his campaign for a board seat, his hedge fund Trian Partners published a 94-page white paper outlining the areas where P&G lacked agility, such as with e-commerce and digital marketing. Peltz' vision for P&G at the time also included thinning the company's global business units from 10 down to three, all of which would be linked together by a holding company. The current plans for reorganization show P&G meeting somewhere in the middle on that goal with the plan for six smaller business units, which will likely continue to focus on innovating in the direct sales and e-commerce space amid a tough physical retail climate.
The appointment of individual CEOs for each SBU, who will help to guide duties like marketing, is an interesting development as well. It's currently unclear how that will change the role of someone like Chief Brand Officer Marc Pritchard, who's been seen as a thought leader within the marketing industry when it comes to topics like transparency and brand bravery.
P&G's fairly aggressive push toward cost-cutting in marketing appears to have paid off in bolstering financial performance. The broader business realignment could build on that momentum. P&G posted organic sales growth of 4% for Q1 2019 in October — its strongest performance in the past five years — even though it spent 6% less on marketing during that period.
Correction: This story has been updated to more accurately reflect how Peltz came to be appointed to the P&G board and the company's steps to streamline operations prior to his arrival.
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