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In 1998, P&G’s Earnings Per Share (EPS)
fell below the 14% to 15% that Wall Street had got used to.
Revenue growth, which had varied between 1.4% and 5.5%
between 1995 and 1999, also was well below P&G’s internal
target of 7%. Revenue growth was slowing down particularly
in developed markets due to the maturity of its established
brands.
Half the brands were generating bulk of the growth while the
rest were lagging behind. In a retail world increasingly
populated by private label goods, P&G’s premium products
were having difficulty competing. More nimble competitors
were beating P&G to the market by launching products, by
executing marketing plans better and by faster product
innovation. |
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There was also speculation that P&G’s profitability was being eroded by the
increasing dominance of retailers like Wal-Mart, who controlled the
point-of-sale. Wal-Mart with a turnover of about $160 bn in 1999 was a
particularly formidable player. P&G’s innovation track record had also been
disappointing. New brands had the ability to add billions of dollars in
incremental revenue, but P&G had not launched a major new brand in almost a
decade.
In an effort to reinvigorate growth, P&G announced a corporate restructuring
program, named Organization 2005, in September 1998. The goal of the program
was to improve P&G’s competitive position and generate operating
efficiencies through more ambitious goals, nurturing greater innovation and
reducing time-to-market. This was to be accomplished by substantially
redesigning the company’s organizational structure, work processes, culture
and pay structures.
P&G estimated that Organization 2005 would result in an acceleration of
annual sales growth to 6-8% and of annual earnings growth to 13-15%.
Organization 2005 envisaged the transformation of P&G from a geographically
based organizational structure to one based on global product lines.
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