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REV: SEPTEMBER 15, 2009
ROSABETH MOSS KANTER MATTHEW BIRD
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Procter & Gamble in the 21st Century (C): Integrating Gillette
“We've done this integration differently in virtually every way.” – A.G. Lafley, Chairman and CEO, P&G “Most acquisitions fail. Most big acquisitions fail dramatically. I don’t think any acquisition of this size has been so successfully accomplished.” – Ed Shirley, Group President, P&G North America On October 1, 2005, official control of the Gillette Company passed into the hands of Procter & Gamble and its Chairman and CEO A.G. Lafley. Although the actual merging of systems, peoples, businesses, and subsidiaries would take roughly three years, P&G leaders, now including legacy Gillette executives, understood that any signs of trouble could show up much earlier and quickly appear in the bottom line.1
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P&G rolled out a series of announcements and initiatives following the change of control. It publicized its intention to use a best of both hybrid trade terms, extended offers to the second general managerial layer, brought over select director and associate director level Gillette employees to begin populating the P&G organization, and sought clarity on the remaining offers with the goal of informing all employees of their status by March 2006.
No
Senior leaders traveled extensively. “Our intention, my intention and A.G.’s intention, the whole time was to get out and talk to as many people as possible, and for me that meant traveling the world. Get in as many talks as possible, talk about what P&G’s like, talk about our purpose and our principles, allow people to put a face with the company. Give time for questions and answers,” said Bob McDonald, then vice chairman of global operations and future COO. Legacy Gillette executives, such as Ed Shirley, a co-leader for the global operations integration, shared a similar travel schedule.
Do
Meanwhile, Gordon Wright, the integration project leader, and Moheet Nagrath, who managed the MDO integration, oversaw the intensifying daily planning operations. As expected, some lowlevel noise arose in the system and was addressed through timely communications and actions. But more serious issues became apparent by January 2006, prior to the integration of global operations. Subtle but real cultural differences existed, which had to be managed alongside the system and people integration of Gillette into P&G’s organizational structure – the Global Business Units (GBU), Market Development Organizations (MDO), and Global Business Services (GBS) (See Exhibit 1). ________________________________________________________________________________________________________________
Professor Rosabeth Moss Kanter and Research Associate Matthew Bird prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.
Copyright © 2008, 2009 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-5457685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.
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GBU Integration
One of the first strategic choices taken after the merger announcement was the decision to maintain the Gillette categories in its own global business unit, with the exception of oral care and personal beauty care. Keeping the Gillette brands together within their existing R&D support structures, leaders reasoned, would help preserve the strong business momentum.
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The blades and razor business was Gillette’s most important business, followed by oral care, Duracell, and Braun. Although oral care was third largest in sales and profits, it was the industrywide leader in the brush category. Gillette’s individual business units were geographically dispersed. While the blades and razors unit was at the South Boston site, Duracell remained in Connecticut and Braun in Germany, never having fully integrated after earlier acquisitions by Gillette. P&G’s new Gillette GBU would be based in Boston with continued activities in Connecticut and Germany. Nancy Swanson of P&G headed the Gillette GBU integration team, with support from Gordon Wright. While they did not want to disrupt Gillette’s business model, they had to integrate reporting systems. Wright understood the challenge: “It was hard for Gillette leaders to find the information they had before because things were in flux, and in finance you actually need more help in the short term than you do in the long term.”
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Swanson went on a temporary assignment to Boston to help educate the GBU and move them to P&G work processes as appropriate. Unlike in the MDO, P&G did not cross-fertilize people in the GBUs – i.e., place Gillette people in P&G business units and vice versa – except when they needed to fill vacancies. In hindsight, Wright would have cross-fertilized the GBU more to give additional support and help educate Gillette leaders on the new processes. “We had people in Gillette working hellacious hours given the transition to new systems and reporting processes,” he said. But Wright, Swanson and the business leaders managed through it.
No
The merger of the two oral care divisions posed a significant challenge.2 On paper, the combination of Crest toothpaste and Oral-B toothbrushes looked like an ideal marriage. The former was the globe’s second highest selling dental paste, while the latter was the world’s number one toothbrush. In July 2005, Bruce Cleverly of Gillette was tapped to lead the business merger. But integration couldn’t move forward until March 2006, after P&G and Gillette divested select brush and toothpaste products to clear U.S. and European anti-trust hurdles. At the time, Cleverly’s appointment was one of many signals of P&G’s commitment to leveraging Gillette people and knowledge. Meanwhile, Charlie Pierce of P&G was assigned to lead the P&G component of the business, reporting to Cleverly.
Do
During that period, integration leaders focused on people planning. Cleverly understood that the business had to be physically integrated to fully realize marketing, sales, and R&D synergies, but it was a difficult task. Many Gillette employees in Boston were reluctant to move and Oral-B’s R&D center was located in Germany at Gillette’s Braun headquarters. P&G held a weekend event in Cincinnati in November 2005 to entice wary Boston-based employees to move to Cincinnati. Decisions were needed by mid-2006. In preparation for an August 2006 launch of a new umbrella oral care brand (Pro-Health), P&G also merged the professional sales forces of both companies. Cultural differences in decision-making appeared during debates, such as the one over how to brand products from the two companies. Should the combined company maintain existing Gillette and P&G brands or rebrand the oral care line altogether? Cleverly and the Gillette workers had a difficult time adjusting to P&G’s consensus-building style. “The cultural differences were real,” he said.3
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When the time came to relocate Gillette employees, a lower percentage than in other divisions accepted P&G’s offer. While 95% of Gillette employees accepted offers company-wide, a smaller ratio of Oral-B workers accepted positions to remain with P&G either in Boston, Cincinnati or other locations. “We didn’t get as many people to move to Cincinnati as we would have wished,” Cleverly said.4 Ultimately, Cleverly was among them, as he was already close to retirement. With his departure, Pierce became the new division head while P&G had to fill Oral-B vacancies internally.
In July 2007, P&G fully integrated its Gillette GBU into the other business units, dispersing it between two divisions – Grooming (blades, razors, Braun) went to beauty and Duracell went to household care. Oral-B was already in the health and well-being unit. “We dissolved the Gillette GBU sooner than we had planned,” Wright said. “We were a year ahead of schedule.” But the phased integration of the GBU was not the only challenge P&G’s corporate office faced.
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The announcement of the P&G-Gillette merger wounded pride in the Boston “hub” community. The local press and politicians expressed concern over the impact the integration would have. In February 2005, Lafley brought Charlotte Otto, global external relations officer, with him during his first presentation to Gillette associates, promising that P&G would remain committed to the city. But in the following months, the Massachusetts Secretary of State began an investigation of the sale and the Boston papers opened fire on Kilts. Lafley had made it clear early on that there would be some corporate job losses, especially in support functions such as administration, IT, and human resources.
Community attitudes changed in January 2006, when Lafley came to Boston and reiterated his commitment to the community. He spoke before the city’s community leaders, announced a P&G endowed scholarship at Boston College, gave $500,000 to Boston Medical Center, donated $250,000 to the Massachusetts Dental Society, and signed research agreements with area technology firms. “World of difference, Lafley wins hearts in Hub visit,” read one headline.5
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Less than a year after Lafley’s successful Boston visit, he announced a $35 to $50 million investment in the South Boston facility, where all employees would be relocated. In July 2007, the complex was officially brought under P&G’s newly formed Beauty GBU. Chip Bergh, a P&G lifer who was brought in earlier to lead blades and razors and learn from Gillette’s Peter Hoffman before the latter’s retirement, was appointed head of the personal care business unit, which remained based in Boston.
No
MDO-GBS Integration
“There’s the mechanical integration of systems and processes and products, then there is the organizational and cultural integration, which is usually the more challenging and often most ignored.” – Moheet Nagrath, MDO integration leader and future global human resources officer
Do
The MDO-GBS integration made up 70% of total merger efforts and included two major pieces – systems and people. Regional and country MDO teams led the people component while the Global Business Services (GBS) unit and its external partners drove the systems element. Since sufficient systems resources did not exist for the simultaneous integration of 84 subsidiaries in seven regions, the leaders staggered the mergers as a way to flow resources. The sequencing also provided an opportunity to feed learnings back into the organization. The first wave of country mergers began in Latin America. By April 2006, 5% of total commercial sales were combined. The second wave, which included much of Asia, was completed in the next quarter, bringing the total to 25% in July. The next batch consisted of North America and a pair of 3 This document is authorized for use only by victor jordan until September 2011. Copying or posting is an infringement of copyright.
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European countries, which raised the commercial integration to 75% in October. And in January 2007, the bulk of Europe was merged, raising the integration to 95% of Gillette heritage sales, with only a handful of countries and plants waiting absorption.
Latin America was the first, the trailblazer, with which the organization made important learnings. Asia created unexpected obstacles in the integration of the sales and distribution systems. North America stood out for its sheer scale. Western Europe contained great complexity, while the CEEMEA integrations were relatively painless, despite the number of countries involved. All countries passed through the same basic integration phases.
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Forming Integration Teams Regional and country integration teams formed between March and April 2005. The 84 subsidiary teams reported to seven regional teams who partnered with Nagrath and colleagues in Cincinnati. Regional and country teams included representatives from finance, marketing, sales, logistics, IT, and Human Resources. The GBS unit retained three regional teams, with service centers in Costa Rica, the United Kingdom, and the Philippines, with a single global group leading supply chain. Control rooms existed in Cincinnati and in each region to troubleshoot and resolve issues.
Nagrath initially set up bi-weekly global conference calls providing regional leaders with a forum for addressing issues and sharing insights, as they found themselves in different phases of the integration. Regional team leaders also hosted their own regular calls with country leaders in their area to report back from corporate, coordinate activities, and share learnings within the regions. Regional leaders often had to mediate between corporate and country demands. As shared concerns appeared, integration leaders exchanged ideas. Sub-integration teams broke into ad hoc project groups when needs arose.
No
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Planning Information sharing of non-competitive information, such as organizational processes and human resources, began as early as March 2005 once mirror country integration teams formed. Conversations typically started with meetings and presentations, which allowed P&G and Gillette members to get to know one another and develop trust. Major planning tasks included business process mapping, organization design, staffing or fielding the best team, logisitics and systems integration. Two major MDO functions were marketing and sales. Marketing had to examine organization structure and, among other responsibilities, reconsider the roster of media, advertising, and marketing agencies used. Marketing’s challenges, however, were minimal compared to sales. In regions such as Asia, the transition to P&G’s sub-distributor model created significant sales force and distributor redundancies.
Do
Different ways of working at P&G and Gillette appeared during the planning discussions. P&G employees referenced its Purpose, Values and Principles (PVP) statement. “We asked, what’s the principle you’re hanging this on?” Madalyn Brooks, a member of the Western Europe regional integration team, explained. “If you want to make this decision, what is the core principle? What is the reason that you're hanging this on?” Rodrigo Alponti, the merger leader for Brazil, also relied on the merger integration principles called out after the first global steering committee meeting. “We had a set of principles based on the PVP that we followed,” he said. “In each one of our meetings, in any document that we would send, we would check if the document or the communication was in line with our principles.” Some Gillette people felt disadvantaged during discussions and felt as if they weren’t listened to, but many adapted. “Some got it pretty quickly. They saw that actually it was to their advantage to do this,” Brooks said. “The quicker they got on to the PVP, the quicker they would get integrated into the company.” Fielding the Best Team Although the “fielding the best team” policy promised to refresh the P&G organization with new talent, skills, and knowledge, implementation required adept management.
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Planning began as early as March 2005, when Gillette country HR directors were asked to identify top talent and communicate their conclusions at the first joint-planning sessions. After the October 1, 2005 change of control, Gillette personnel began to receive transitional and permanent job offers, as human resources systematically moved down the band levels until all workers had been contacted by March 2006. Transitional employees had a defined timeline based on their operation’s integration after which they received appropriate separation support. The Gillette HR team, led by Ned Guillet, used a tool to track the status and individual plans of Gillette’s roughly 30,000 employees. In hindsight, Wright admitted that he would have kept some transition employees longer due to the unanticipated loss of knowledge and capability in some countries. But the challenges were surmountable, as Wright credited Guillet for having a calming effect during the integration.
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The “fielding the best team” principle affected many P&G employees as integration leaders wanted to find a home for top Gillette talent in the combined company. “It’s been a little shocking on the P&G side because some P&G people are going and some plum jobs have gone to Gillette leaders but that’s the way it should be,” Lafley said.6 Several P&G employees invoked the PVP during their separation: “How can you choose this person over me? You've known me for 20 years,” some were reported as saying. One manager responded by citing the value of trust: “Well we are buying a fantastic organization, and we're trusting that the talent in this organization that we're bringing in is exceptional. It is a much tougher thing to have to sell. Much, much tougher. How do you look P&G people in the eyes and tell them that, as result of the acquisition, they were needing to go?”
No
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An initial challenge for mid-level managers in Gillette’s global operations was to convince colleagues not to jump ship before P&G worked its way down its employee ranks and had a chance to make an offer. Headhunters started calling, especially in emerging markets such as Latin America, Asia, and Eastern Europe. But the hot labor markets were a mixed blessing, since it made it easier for P&G to float employees to other firms. Natural attrition also enabled P&G to increase its number of Gillette offers. “While most jobs would go to P&G-ers,” Ed Shirley, Gillette head of commercial operations and co-leader of the global operations integration, said, “We were going to make sure that there's enough room in the P&G system to allow Gillette folks to come in and create an environment where they can be successful.” In April 2006, P&G offered Ed Shirley the opportunity to be the new Group President of North America. “A.G. appointed a Gillette person to be responsible for the largest market,” Shirley said. “It was a highly visible signal to the organization that he was serious about fielding the best team and saw that Gillette has great capability.”
Do
Systems Integration The integration of information systems included order, shipping, billing, finance, payroll, and benefits. Without timely access to data, the business would have grounded to a halt. Three regional service centers were on call, while P&G’s external partners flexed resources as needed. Relative size influenced systems integrations. In some countries, either P&G or Gillette had larger organizations, while in others they were comparable. P&G was seven times bigger than Gillette in Mexico. In Brazil, although they were of comparable size and had roughly the same number of employees, Gillette’s business was more profitable and older, having operated in Brazil since 1927, arriving six decades before P&G in 1988. In the Middle East, Gillette had only five workers to integrate into P&G’s Near East office, while Gillette’s Turkey operations consisted of scores of employees. The integration of individual systems components also differed. India harmonized payroll and benefits together, while the UK and Ireland did so separately.
Site Integration Physical site mergers differed by country and were based on strategic concerns. In India, Gillette’s office in Gurgoan (outside of Delhi) was fully merged with P&G’s Mumbai headquarters. In Australia many of Gillette’s Melbourne employees voluntarily relocated to P&G’s Sydney office. But in China and Japan, P&G maintained separate offices. Leaders in China used the 5 This document is authorized for use only by victor jordan until September 2011. Copying or posting is an infringement of copyright.
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merger to step back and assess their roadmap for the country, not wanting to rush physical relocations in order to do what was right for the business categories. Some oral care personnel moved to Guangzhou, the site of P&G’s major office in China, while the majority of the Gillette employees stayed in Shanghai, alongside the new Gillette GBU. P&G also already had a large sales office in the city. Once a month, Shanghai leaders came to Guangzhou. The physical distance did not pose a problem: “We got more comfortable as we talked about a more virtual, a more open, a more networked world. It became less and less critical that we all had to be in the same brick-and-mortar, physical house,” Irwin Lee, China’s Chief Marketing Officer and future GM of the UK and Ireland, said. “Day-to-day they can be where they needed to be, and then we just had to make sure we had power time of collective leadership together once a month.” The company made a similar decision in Japan, where P&G’s Kobe and Gillette’s Tokyo offices were maintained.
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The company’s principles of trust and respect also influenced physical relocation decisions. Managers were secure enough in their leadership and had enough trust in their division heads that they could delegate decision-making. Respect also played a role in the way the company approached employee relocation, especially for those with family concerns. “You have to humanely think about the right time to do things,” Lee said. Onboarding and Training Integration leaders used several mechanisms to integrate Gillette employees into P&G’s culture, networks, and processes.
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P&G brought select Gillette employees over in October 2005 prior to office integrations. The move reinforced previous signals of commitment, while grooming them to mentor future legacy Gillette employees. With the site merging, Gillette employees were assigned a peer buddy and a mentor, thus giving them a go-to-person horizontally and vertically in the organization with whom they could clarify doubts and seek support. P&G also cross-fertilized teams, placing Gillette employees in P&G categories and vice versa, thus fostering knowledge transfer. Onboarding efforts sought to train Gillette employees in the company PVP and teach soft skills, such as influencing, crucial for succeeding in network organizations. Gillette employees knew about P&G’s promote-from-within system and the potential difficulty of integrating as mid-career newcomers into P&G networks.
No
Leaders were likewise aware of the challenges Gillette employees faced on the ground. Upon arriving, they were asked to perform immediately while still learning new work practices. P&G had set procedures for budgeting, forecasting and reviews, cloaked in unwieldy acronyms for outsiders. Managers such as Irwin Lee and Tarek Farahat, GM of Brazil, exercised patience using their own managerial styles. Farahat offered generous praise of Gillette workers, while Lee encouraged employees to rely on Gillette processes until they learned P&G’s way of doing things. “It is the content and the thinking that we are interested in,” Lee told them.
Do
Aware of the toll the integration would take on its people during the first year, P&G did not rate Gillette employees in their first yearly performance review on “building the business,” an important category which accounted for upwards of 50% of the performance rating. Instead, Gillette marketers were rated on their contribution to building the organization for the first 12 months, and then in the next year were expected to focus on building the business. Leaders understood that a fall might occur during the first year despite efforts to maintain business momentum. Retention The further down in the organization one went, the higher was P&G’s initial retention of Gillette employees. Of Gillette’s top executives, only two remained after merger completion. By December 2005, 60% of top managers chose to stay with the company. Though attrition figures may
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have appeared high, they were slightly better than industry standards. On average, half or more of senior managers from acquired companies depart after mergers.7
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Reasons for leaving varied. Some had neared retirement, while others received enticing offers at other companies. Robert DeMartini, former head of the North America blades and razors division, became the CEO of New Balance. Joseph Scalzo, a former business group president, was tapped as the new CEO of WhiteWave Foods. Gillette CFO Chuck Cramb became CFO of Avon. For some, personal considerations, such as not wanting to relocate family to Cincinnati from Boston, also came into play. Lower down in P&G’s organization, the retention rate was high. Over 90% of Gillette’s top talent employees who were offered jobs accepted them, and overall 23,000 Gillette employees joined the new company, despite headhunter calls and intense competition for talent, especially in emerging markets. The majority of the people integration took place in global operations, regional headquarters, and country subsidiaries. Plant employees, among the largest populations, experienced the least disruption since P&G maintained Gillette’s production processes.
Three Country Integrations
While the MDO integrations shared similar phases and faced the basic challenge of maintaining business momentum, obstacles differed by country and region.
Brazil
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Brazil completed its planning phase in December 2005. The mirror team held 400 mapping and matching sessions and identified 110 best practices for implementation. Learnings included the realization that Gillette’s communications and information system linking stores to the office was better, yet Gillette lacked P&G’s focus on the pharmacy and perfumery channel. P&G had a stronger go-to-market sales structure, while Gillette’s order anticipation program outclassed P&G’s. In the first quarter of 2006, the teams designed implementation actions in anticipation of a July merger.
No
In January 2006, P&G Brazil received word of a new opportunity to reduce costs. However, there was not enough time to complete the project before the scheduled integration in July. In March, after discussions involving Hermann Schwarz (the Brazil GM), Tarek Farahat (his replacement who was scheduled to arrive in July 2006 to lead the merger), Rodrigo Alponti (the Brazil integration leader), and regional managers, a decision was made to delay the merger until October 2006.
Do
This created a new set of challenges. Gillette needed to vacate its offices by August, when its lease ended. The additional delay infused both permanent and transitional Gillette employees with anxiety, prolonging either their merging or their separation. “When you postpone the integration then people start getting nervous,” Alponti said. The Gillette servers were in danger of crashing. The Gillette GM had begun to phase out of the company and lacked a daily presence in the office. P&G Brazil opted to open a separate office on August 1 on the second floor of their building in São Paulo. P&G occupied the third and fourth floor.
The PVP’s emphasis on respect shaped the decision to bring Gillette employees onsite. “We considered bringing people or not bringing people and decided that bringing people would be the right thing, to be close to them. We could see them, talk to them, take care of them here,” Alponti said. To house Gillette transitional and permanent employees for two additional months, P&G added cables and computers. The businesses and offices remained separate since they did not want to make transitional employees feel uncomfortable. In October 2006, Farahat, now GM, inaugurated new office space on the Monday of the actual merger so employees from both companies could start from 7 This document is authorized for use only by victor jordan until September 2011. Copying or posting is an infringement of copyright.
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a clean slate. When P&G and Gillette employees arrived, most of them, including legacy P&G people, were in new offices on a new floor, giving all the sense of a new start. They held an opening ceremony and other welcoming events. Materials, including the PVP statement, were placed at their desks. The Gillette employees that came to P&G earlier acted as intermediaries for later Gillette arrivals. The cross-fertilization of employees in Gillette and P&G brands also aided integration.
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Brazil benefited from learnings in Latin America and China. Difficult aspects included merchandisers, trade terms, and forecasting. P&G contracted third-party merchandisers while Gillette maintained them as employees, an element that contributed to Gillette’s best practice pointof-sale execution. Gillette Brazil leaders proposed to preserve the in-house merchandisers. Initially, P&G Brazil took a conservative approach and kept the merchandisers, but they ran into difficulties. The sides eventually agreed to outsource the merchandisers. Trade term integration also took time as it involved developing a different relationship with customers. And the operation had difficulty predicting sales or the supply needed given increased distribution and altered promotion schedules. Production was aligned to previous forecasts, thus hindering the subsidiary’s initial ability to reap new profitability.
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In Brazil, some Gillette employees had concerns about adapting to P&G’s mode of decision making. Onboarding followed the curricular guidelines provided by the regional and global teams, and included intense PVP and business conduct manual training. “For former Gillette employees, it was very good to see a company whose values were basically the same,” Relvas said. “The only difference is the way you apply those values. From 8:00am to 6:00pm it's a different story working here.” Gillette’s decision rights were clear, it was smaller than P&G, and there was less functional depth. This made Gillette quicker and more flexible. “One of the things that the regional Gillette people were complaining about was, wow, I cannot do anything outside of the procedures and it's very difficult to align everyone.” In Gillette, a decision could be made with four to five people, but in P&G it required speaking to and reaching a consensus with as many as 15 people. On the other hand, Gillette employees marveled at the easy access to P&G’s global knowledge and information.
No
The appointment of Relvas as HR director in Brazil gave Gillette a legacy representative on the leadership team. His role differed from that in Mexico where he identified talent, sold the new company, and re-signed Gillette employees. In Brazil, since the payroll and benefits systems had already been set up, he had a more high-touch support responsibility: “I think that the role I played here was to calm Gillette people down, tell them we are going to have opportunities. This is a great company. It's going to take a while, it's normal. We just arrived. They will need to get to know us, but take your time. You're going to survive.”
Do
A major concern of Gillette employees was that they lost their networks, which was even more important in P&G than in Gillette. The higher up one went in the organization the lower the retention rate as senior managers took golden parachutes and retired or accepted other job offers. While Relvas knew the track record of legacy Gillette employees and could put in a word for them as a member of the leadership team, he lacked the very support that he offered. “Having a network here is absolutely vital,” he said. “You must be connected.” But Relvas managed. The company achieved its goal of single digit turnover, while two Gillette employees received visible promotions. An associate director became director and a brand manager became an associate director. “We are walking the talk,” Relvas said. Since completing the systems and people integration, P&G Brazil began a period of accelerated growth.
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India
A major promise of the merger was the increased scale that P&G would give Gillette in emerging markets, especially in China and India. Gillette had not extended distribution beyond China’s major urban areas and although India was already the world’s largest blades market, 90% of it still used double-edged blades. Growth opportunities were enormous. However, the Asian integrations posed two significant challenges. The transition to P&G’s distribution structure was trickier than expected and the hot Asian labor markets made retention of Gillette employees difficult.
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To deliver on promised cost savings and synergies, P&G India had to dismantle Gillette’s distribution network and integrate it with P&G’s, laying off over 2/3 of the Gillette workforce, the majority of which were in sales, while relying on them to disengage Gillette’s 3500 distributors. The latter maintained strong union ties and could threaten legal action. Until then, Gillette’s local jointventure partner had spoken out about merger expectations, analysts questioned the fate of the new entity’s publicly traded status (it was listed on the Mumbai stock exchange), and job cut speculations stoked fear into Gillette India’s employees and contractors.
To supply India’s burgeoning consumer goods market, P&G had to seek cost-effective ways to traverse a vast geographical domain, navigate federal and state regulations, and overcome the fragmented nature of retail. Less than a third of the country’s 1.1 billion people lived in urban areas, a third of India’s towns and villages were not connected by all-weather roads, and 12-15 million small, mostly family-run shops or kiranas accounted for 94% of the market.8 Despite liberalization, investment in infrastructure remained meager and the government restricted FDI in the retail sector. Efforts by large foreign retailers to tap the Indian market had summoned the ire of traders, shopkeepers, the political left, and business lobbies.
tC
Gillette used a traditional distribution model with multiple links in the chain. To maintain its $100 million business, it employed over 200 people to service 750 stockists and 2800 sub-stockers which delivered products to 300,000 customers. India’s tax situation made traditional distribution even more complex. The country charged a 4% sales tax for “import” transactions across state lines. To serve customers and consumers in the most logical and affordable way, companies set up proprietary distribution centers in India’s 28 states from which they invoiced distributors.
No
P&G India adapted the company’s sub-distributor model to local circumstances. From ports or manufacturing points, the company sent products to three mega-distribution centers from which they routed them to P&G-owned state depots to reduce costs. Next, the company moved the product to a co-located distributor and invoiced them for the “in-state” purchase. These distributors then connected and collaborated with their respective sub-distributor networks, consisting of 20 to 25 stock points or branches from which each delivered the products to retail and wholesale customers. P&G sold $300 million in goods to 450,000 customers through a sales team of 35 people. It reached a total of three million outlets.
Do
Managers outlined the risks associated with switching to P&G’s distribution system. Although P&G reached 150,000 more customers, Gillette served specialty wholesalers for the battery and blades business not covered by P&G’s network. Gillette’s outlets were more concentrated in urban areas. From a trade and merchandizing perspective, the end-consumer differed; Gillette served mostly men, and P&G served predominately women. Care was needed to not trample on business drivers and lose momentum during the transition. While drying out inventories of disengaged distributors, P&G had to ensure that supply would continue to meet demand.
Public opinion compounded the business challenge. P&G India was seen as a foreign company, unlike Hindustan Lever, the subsidiary of the Anglo-Dutch giant which had operated in the country 9 This document is authorized for use only by victor jordan until September 2011. Copying or posting is an infringement of copyright.
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since the 1920s and had revenues of $3 billion on the back of a distribution structure that reached six million outlets. “Anything we do gets reported,” Ashok Chhabra, P&G’s General Counsel, explained. “There are journalists who are working with our suppliers. They stay in touch with our past employees. They try to even see what moves we are making. And being a democracy, you have to talk about it – as a responsible company, you need to share.”
op yo
But the greatest challenge was human. Shantanu Khosla, the GM of P&G India, and his team had to retain the Gillette employees it made offers to, execute an onboarding program, manage the cutting of over 200 people from the sales force, and negotiate the disengagement of roughly 3500 distributors with political and union ties. The company sent a strong signal in May 2005 when it was the first country in the world to move a Gillette person to P&G, prior to the October change in control. It later extended permanent offers to 60 people, mostly in marketing. Only one person rejected P&G’s offer and that was because of personal reasons, a sick parent. Most employees relocated to Mumbai, while some were transferred to Singapore, the site of P&G’s regional headquarters. Onboarding focused on the PVP and the soft skill training needed for rebuilding one’s network. From January to June, the human resources team, led by Mohit Nayyar, devoted nearly four full weeks to training. Given India’s hot labor market, retention would pose a significant challenge in 12 to 18 months.
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As for the 230 sales people who would lose their jobs, Khosla, who came to P&G through its acquisition of Richardson-Vicks, decided to be open and honest with them. The company could not offer them a position, but it would be fair, doing everything possible to help them find another job. In exchange, the employees would help P&G disengage contracted distributors. But at first, P&G only placed 40 of 230 sales employees through recruitment agencies and referrals. Aware of the commitment, integration leaders took an unorthodox approach and organized a job fair. It invited 25 companies in India, ranging from consumer goods and telecommunications to retailing and banking, to participate. P&G then coached the Gillette employees in interviewing prior to the fair. Ten two-day workshops were held in February. In the first three days, P&G found new positions for 190 or 85% of the employees. By the end of the process, only seven to eight workers remained without a job.
No
P&G’s commitment gave the Gillette sales team the trust and security to responsibly disengage distributors. This was no small feat. P&G had to terminate 750 distributor and 2800 sub-distributor contracts, dispersed throughout India. “These distributors are all affiliated to associations and political parties, and then you have some of the states which are left dominated, south of India and the east of India. So that was a subject of concern as was the employees of these people,” Chhabra said. “When concerns were made known to us about the distributors, we prepared a communication which we continued to share.” It stated that P&G recognized that they would be out of business, but they would be fair to them and their employees. At the same time, P&G would do what was right for the consumers. The new system would offer products faster and at a cheaper price.
Do
As expected, the switch affected Gillette product stocks. Under Gillette, retailers had benefited from the extension of up to one month of credit; P&G asked for payment up front or within one week during the transfer. Many smaller retailers chose to stop carrying Gillette products because they could not afford to pay on the spot. Between January and March 2006, during the distribution transition, Gillette’s net profit dropped significantly. Part of the fall consisted of business restructuring costs, but the majority consisted of P&G buying back Gillette stock from distributors and warehouses. By June 2006, the physical and system integration was complete, as the subsidiary quickly rebounded, leveraging its new scale, and set itself on course for substantial growth.
United Kingdom and Ireland Western Europe’s mergers were complex: a significant number of MDOs serving large markets;
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numerous site integrations; major manufacturing operations; and a maze of legal and regulatory hurdles. “Maybe I’m the frog in warm water,” Madalyn Brooks, a member of regional integration team and future HR director for UK and Ireland, said. “I’m used to dealing with European complexity. But if you were sitting somewhere else, you may look at Western Europe and think, oh my God. How'd you work your way through that?”
European managers understood how to help U.S. headquarter teams work around regional differences, such as the European Commission, anti-trust legislation, labor requirements, and works councils. Europe had labor and communication guidelines mandating approval from the works councils before going forward, while in the U.S. such communications would have breached U.S. law. “You have to manage the boundary very sensitively,” Brooks said. Even vacation schedules could create issues. August was generally not a good time to do something.
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P&G’s UK and Ireland operations were among the company’s largest, with roughly 7,000 people distributed between the MDO, manufacturing plants, and research centers. The “fielding the best team” principle generated mild but manageable concern. “The reality is the expectations for an individual here are very strong in that you need to meet or exceed expectations and if you do not, you are clear that you need to turn performance around,” Dean Keeling, a P&G marketer, said. Marketing had little redundancy, natural attrition helped, and no Gillette marketing directors left.
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P&G’s reputation combined with the attitudes of senior leadership helped convince Gillette employees to stay. In Europe, an increasingly larger percentage of Gillette employees had come from other companies and were not afraid to change jobs. Roisin Donnelly, the UK’s chief marketing officer and a member of the country integration team, credited a presentation by A.G. Lafley, the chairman and CEO, for helping to win over doubters. “He talked about himself as a person and his values even before the P&G values,” Donnelly said. “The Gillette people said that this was a huge ahha moment, that we were a human, caring company.” The December 2005 event coincided with the job-offer process, while the site integration was scheduled for March 2006. “I have had several people say that the moment they decided that P&G was the right place for them was after his first town hall meeting,” Donnelly said.
No
Carl Davies, a quintessential “new Gillette” employee, who became the head of U.K. Market Sales and Planning, was won over by P&G’s professional reputation. Davies had previously been at Nestlé and Coca Cola but respected P&G, having worked directly with many former P&G employees, taking notice of the way principles continued to infuse P&G-ers even after they left the company. P&G targeted Davies as a high-talent employee. He served on a feeder group to the trade terms clean team and then came to P&G in December 2005 as the second Gillette employee in the P&G offices (another colleague had come in October). Initially, he struggled to adapt to the new work processes and culture. On the other hand, a mere walk to get a coffee in the open lounge at P&G’s Weybridge Surrey office often turned into a social event as people stopped to introduce themselves. Due to the multi-functional depth of work teams, Davies claimed that he had quickly surpassed his 50-person working network at Gillette, estimating that he had developed good relationship with upwards of 150 P&G-ers.
Do
Davies’s presence, alongside the other legacy Gillette person, helped ease the transition for those Gillette employees that arrived in March 2006. As in other subsidiaries, they were greeted with a day of welcoming and intense onboarding trainings. But Gillette colleagues felt overwhelmed. “For a lot of the Gillette guys it was a difficult transition because, you know, Procter culture,” Keeling said. There was a sense of loss given the symbolic nature of Gillette’s UK office. The location was called Gillette Corner and was a multifunctional site – housing plant, distribution, marketing, and sales. It also offered career opportunities and flexibility. For example, someone could work on Eastern Europe out of the building. 11 This document is authorized for use only by victor jordan until September 2011. Copying or posting is an infringement of copyright.
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The biggest challenge was to maintain momentum in Gillette categories while new employees learned the P&G system and went to training sessions. Some Gillette people wondered whether they should stay, but the support provided by P&G, as well as Davies and Gillette colleagues, helped retain them. Some momentum was lost during the first year, but the subsidiary soon regained its focus on Gillette categories.
op yo
In October 2006, P&G scheduled its systems integration, followed by benefits harmonization in 2007. Typically, countries did the two together, but it was separated in the U.K. due to the size of the task. The U.K. also managed through labor law demands. All workers had to have a “trial period” in their new jobs, which did not exist in other P&G MDOs. The subsidiary had offered a final salary pension plan for its employees, but froze it after the Gillette integration, offering a different pension plan instead in order to harmonize better with Gillette. “The fact that we have a principle that says we will provide retirement benefit to our employees is there, and it's similar with the Gillette piece, so you can harmonize it, so long as you harmonize it under the principles,” Brooks said.
Gillette Catalyzing Change
“The brilliance in how A.G. has led the integration with Gillette is he's used Gillette as a catalyst for change. It was such a pinnacle point. He, Bob McDonald, and Clayt Daley said we are going to do this.” – Ed Shirley, Group President, P&G North America
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The systems and people integration of Gillette dramatically changed the P&G organization. Worldwide, it added 144,000 customers, 113 distribution centers, 68,500 new products, and 23,000 employees, while relocating 4,600 workers and consolidating 112 offices. (See Exhibit 2 for the acquisition’s effect on financial trends) But much work was left. P&G was on target to meet its cost reduction and revenue synergy commitments, yet leaders recognized that an even bigger return was within their grasp if they could continue to use Gillette as a catalyst of change. The company faced several challenges as it moved to consolidate the integration, taking the best of Gillette’s brands, practices, and people.
No
Go-to-Market Reinvention At the time of due diligence in 2005, P&G leaders identified several cost and revenue synergies amounting to $1.0 to $1.2 billion cost savings and $750 million in revenue creation by year three. Greater scale would lead to lower overhead costs; likely better bargaining position with suppliers, media, and customers; greater distributional reach in emerging markets; and potential cross-brand innovation and marketing. However, as the integration proceeded, some revenue synergies did not pan out while new ones appeared. P&G planned on having no limitation on the Venus trademark name in countries around the world, but did not. Meanwhile, P&G discovered that Gillette practices were better in some cases. “Over time it became apparent that Gillette was best in class at a lot of things that P&G wasn’t good at,” McDonald said.
Do
The realization began before the change of control and grew out of early work on creating hybrid trade terms. In May 2005, P&G had announced an initiative to identify best practices within the two companies. Unrealized opportunities remained in channel development, in-store effectiveness, and supply chain optimization, and there may be more. (See Exhibit 3 for go-to-market reinvention portfolio) The first two could drive top-line growth while the third addressed the bottom-line. Over time, the combination of best practices could become the integration’s biggest source of revenue synergy, outstripping those identified during due diligence. McDonald created a headline under which to group the practices, but the shift was a constant managerial challenge. For Gillette workers, the adoption of Gillette best practices made sense. For 12 This document is authorized for use only by victor jordan until September 2011. Copying or posting is an infringement of copyright.
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P&G-ers, it could be challenging. “They had been doing business one way for years,” Shirley said. “This was a sea change both culturally as well as in the go-to-market approach.”
Decision Making P&G also had the opportunity to streamline its decision-making process. In the Gillette organizational matrix, decision rights were clear; but in P&G its consensus-driven style slowed reaction times. Gillette people recognized the differences immediately. Roisin Donnelly summarized Gillette observations of how she and her P&G colleagues worked: “They thought that we were a meeting culture, that we had far too many meetings. That we had pre-meetings about the meeting, and they just called that out to us and we’ve gone back and looked at how we manage things.” While P&G-ers saw the benefits of inquiry, they recognized the need for change. “We’re very self-critical,” McDonald said. “When the employees, whether they’re Gillette legacy or P&G legacy, tell us that the decision making is too slow, we try to react to that the best we can.”
op yo
Nancy Swanson led a project to streamline P&G’s decision-making process, while maintaining the benefits of inquiry and consensus. It was piloted in a Western Europe GBU and in 2008 was ready to be rolled out across the company. It was known as PACE: P was for process owner, A was for approver, C was for consult, and E was for execute. The decision-maker’s responsibility lay in ensuring that he or she brought in the right cross-functional depth, thus preserving the benefits of P&G consensus, while following through as the clear decision owner. But existing practices were hard to break. How would P&G ensure take up of the PACE process?
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Gillette Retention and the People Challenge A third piece to the puzzle, upon which continued extraction of Gillette’s best practices depended, was retention. Institutional knowledge was contained in Gillette workers, but if they, after having tested the P&G organization, were unable to integrate into P&G’s processes, culture, and networks, then P&G would have difficulty fully leveraging Gillette. Then again, not all retention challenges were inherent to P&G. Since Gillette had made a transition over the years from a promote-from-within to a hire-from-without company, many Gillette employees were accustomed to changing positions.
Do
No
P&G also faced its own myth-busting challenge. It was no longer strictly a promote-from-within organization. After Gillette and earlier Clairol and Wella mergers, 40% of P&G’s employees had arrived from outside, via acquisitions. “How do you get that same level of trust?” McDonald asked. As P&G became more distributed and networked, it had to instill its employees and leaders with the skills and values necessary to thrive in the new P&G, all while fighting to preserve the company’s core. “Our challenge as a leadership group is how do we keep that PVP alive, day-to-day, countryby-country, new-employee-by-new-employee as everything else changes,” McDonald said. “It’s almost harder. It is harder to keep that the same than it is to change everything else because the entropy, the entropy for change is there.”
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Exhibit 1
Source: Procter & Gamble company presentation.
No
P&G Organizational Structure, c. 2007
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P&G Financial Trends, 1998-2007
Do
No
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Exhibit 2
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Procter & Gamble in the 21 Century (C): Integrating Gillette
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No
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Source: http://www.pg.com/investors/fin_trends.shtml.
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Exhibit 3
Source: Procter & Gamble company presentation.
P&G Go-to-Market Reinvention Portfolio
No
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End Notes
1 More information and frameworks related to this case can be found in Rosabeth Moss Kanter, SuperCorp: How Vanguard Companies Create Innovation, Profits, Growth, and Social Good (New York: Crown Publishing, 2009) 2
Ellen Byron, “P&G and Gillette Find Creating Synergy Can Be Harder Than It Looks,” Wall Street Journal, April 27, 2007. 3
Ibid.
4
Ibid.
5
Brett Arends, “World of difference: Lafley wins hearts in Hub visit,” Boston Herald, January 26, 2006.
7
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6 Patricia Sellers interview with A.G. Lafley, “It was a no-brainer” That’s what Procter & Gamble’s A.G. Lafley says of his decision to buy Gillette. Here’s why he thinks so – and how the deal came about,” Fortune, February 21, 2005.
Jack Neff, “Gillette losing 40% of its top managers,” Boston Globe, December 7, 2005.
8
Do
No
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See Confederation of Indian Industry and A.T. Kearney, “Retail in India: Getting organized to drive growth,” November 2006; The Economist, “Setting up shop in India,” November 2, 2006; and Meenakshi Radhakrishnan-Swami, “Taking Stock,” Business Standard January 30, 2007. Only 28% of India’s population lived in urban areas. Other BRIC countries registered higher urbanization levels – 40% in China, 73% in Russia, and 84% in Brazil. By 2030, the differences would become even more pronounced. India’s urban ratio would rise to 41%, while China’s would climb to 60%, Russia’s to 76%, and Brazil’s to an astonishing 91%. Reaching India’s consumers would challenge consumer goods distribution systems for years to come. See United Nations DESA Population Division, “World Population Prospects: 2005 Revision,” 2006. See also Economist Intelligence Unit, “India: Transport and communications,” October 18, 2007 and The Economist, “Survey: Business in India,” June 1, 2006.
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