Designing matrix organizations that work : Lessons from the P & G case

The purpose of this paper is to illustrate why companies adopted the matrix, what problems they had, the solutions for these problems based on Galbraith (2009) and other authors like Davis & Lawrence (1977), and the state of the art of matrix structure design today like the P&G front-back hybrid matrix organization. The matrix organization concept emerged from the US aerospace industry in the 1960s and was adopted by many companies in the early 1970s. In the late 1970s and early 1980s many companies were experiencing trouble with its operation and many argued like Peters & Waterman in their bestseller In search of excellence in 1982 (p. 306) that the matrix was too complex to work properly. Galbraith (2009, p. 10-14) explains that the reason for the problems were that the matrix in these organizations was wrongly adopted, hastily installed, and inappropriately implemented. He explains that adopting a matrix structure requires a collaborative organization form, proper power, and accountability distribution, complementing changes to the information systems, planning and budgeting process, the performance evaluation and bonus system, and so on. To illustrate the historical evolution of organization structure to the simple matrix and then to more complex matrix organizations we used the P&G case (Piskorski & Spadini 2007).


Designing matrix organizations that work: Lessons from the P&G case INTRODUCTION
"Matrix organization is one of those management concepts, like Total Quality Management (TQM) or reengineering, that became very popular and then went through the management fashion cycle" writes Galbraith (2009, p.10).He continues explaining that the matrix became popular in the 1970s and early 1980s and was wrongly adopted, hastily installed and inappropriately implemented by many organizations.Therefore, word spread that the matrix does not work.In 1982, Peters and Waterman wrote the death sentence to the matrix: Our favorite candidate for the wrong kind of complex response is the matrix organization structure (p.306).They explain that the matrix organization is very confusing, people do not know to whom they should report to, and virtually none of the excellent companies they surveyed informed that they had formal matrix with the exception of project management companies like Boeing.Galbraith (2009, p.9) says that this assertion is not true.Besides Boeing, Intel, Digital Equipment, Fluor, and Bechtel used a matrix.This did not change the overall perception and managers avoided matrix.It was only in the late 1990s that the matrix concept became accepted again by managers due to the successful use by some companies.
The prejudice against the matrix lingered on and in 2005, Bryan and Joyce wrote: …vertical oriented organizational structures, retrofitted with ad hoc and matrix overlays, nearly always make professional work more complex and inefficient (p.26).They go on saying that matrix structures, designed to accommodate the secondary management axes that cut across vertical silos, frequently burden professionals with two bosses so they have where P&G once lagged major rivals… Analysts say the clear key to P&G's success has been the matrix organization put in place in the late 1990s under then CEO Durk Jager, even if the pain of implementing it may have led to his early exit … (2005, Abstract p. S2).Why is the matrix too complex and confusing to some and the reason of success to others like P&G?
The P&G case (Piskorski & Spaldini, 2007) is ideally suited to answer this question and demonstrate the pitfalls and benefits of the matrix.Today the matrix is the preferred organizational concept used by most large multinational, multi-brand, consumer-products companies that have to perform well in at least three dimensions such as products, functions, and regions.By using the P&G history, we can trace a parallel by the evolution of its organization and the schools of thought in organization structure design and the matrix organizations in particular.Besides the change in leadership at P&G from Durk Jager to A. G. Lafley is an opportunity to analyze their strategies, leadership profile and the human resource, rewards, information and process policies required to manage such a complex multidimensional matrix organization.

P&G ORGANIZATION EVOLVED FROM OWNER ADMINISTERED PRODUCTION IN 1837 TO MULTIDIVISIONAL STRUCTURE IN THE US IN 1954 AND IN EUROPE IN THE EARLY 1980S
P&G is an American multinational company based in Cincinnati, Ohio, As individual ethic was giving way to social ethic in the early twentieth century, the human relations school started to emerge with Mary Parker Follet (1924) and Cherter Barnard (1938).This school that influenced management from mid twentieth century onward characterized organizations in terms of the need to harmonize and coordinate group efforts, emphasizing people rather than machines, accommodations rather than machine-like precision.The focus shifted to the motivation of the Multidivisional-product structure Chandler (1962, p. 383-396) analyzing the history of a sizable sample of large US industrial enterprises concluded that their strategy determined their organization structures and that the common denominator between

Product-category divisions in Europe
To better appreciate the subsequent changes in the European organization we have to understand the series of initiatives toward regional integration started in Europe after the Second World War as an antidote to extreme nationalism that had caused so many devastating wars in the continent (European Union, 2009) In 1981, Greece becomes the 10 th member followed by Spain and Portugal in 1886.
Although the custom barriers had been removed in 1968 trade did not flow freely across borders due to significant differences in national With all these integration moves, the European marked was gradually becoming more homogeneous and the P&G country functional structure was becoming cumbersome, expensive, and ineffective.Country manufacturing operations were not standardized, lacked economy of scale and so where costly and unreliable.Products were adapted to local norms and regulations that added little value to the customers but significant costs and complexity to the supply chain.For this reason, European management started early 1980s to promote cross-border cooperation across functions and to shift focus from country management to product-category management.This effort was successful in overcoming the objections of country manager's arguing that the initiative would lead to the neglect of the local consumer preferences.
The European organization in the early 1980s was first split into three sub-regions whose leaders were given secondary responsibilities for coordinating particular product-categories across the entire continent.This organization was subsequently fully restructured around continent-wide divisional product-categories with profit-and-loss responsibilities and country product-category general managers that reported directly to the divisional vice president who reported to the President for Europe.The In the 1920s with the direct sales force, management felt the need to better coordinate the products across the functions and brand managers were introduced followed by a market-research department to understand customers and markets.This was the first shift away from the pure functional influence in the management decision process of the company to a light product influence.
The need to effectively mobilize resources to meet growing and more complex market demands, as pointed out by Chandler (1962, p. 383-396), led to the multidivisional product structure in 1954, each with their how functions and brands, and some functional corporate coordination, particularly in R&D.Management decision process in the company was now firmly established with product influence and a light functional influence.
This shift in influence in the management decision process is shown in  In 1987, the US organization reorganized into the product-category divisions introduced in Europe in the early 1980s.This was an historical shift away from the competitive brand-management system put in place in 1931.Brands would now be managed as components of 39 productcategory portfolios by category divisional general managers, who also were responsible for the product-category functions.To strengthen functional influence, the matrix reporting structure was adopted and the divisional leaders reported directly to their divisional business leadership and had a dotted-line reporting relationship with their corporate functional leadership.

Product influence in decision making
At this point, it is important to understand why the P&G US organization structure in 1987 adopted the matrix.The purpose was to balance better the product and the functional influence in the management decision process as illustrated in Figure 2. In the 1920s, the brand manager brought the product influence to bear in the decision process of the hierarchical functional organization structure and after 1954; it was the turn of corporate functional managers to bring the functional influence to bear on the hierarchical multidivisional-product structure.The matrix structure was the attempt to formally balance the two influences in the management decision process following the general trend in the industry.To better understand the matrix, the balance of the influence on the management decision process between two dimensions, and the problems and conflicts this generates we will give in a brief highlight how this organization structure came into being.

Emergence of the matrix
The matrix organization that emerged in the late 1960s from the aerospace industry, has its origins in the scientific management era of the early 1900s according to Galbraith (2009, p. 7).He explains that it was Taylor (1911) who suggested the benefits of having multiple bosses that he labeled functional foremanship: a schedule boss, a quality boss, a tool boss, an administrative boss, and so on.The idea did not catch on because of the confusion of multiple bosses was to bring specialized skill directly to the workforce.
Galbraith goes on explaining that the acceptable position was articulated by Fayol (1949)   There are according to Davis & Lawrence (1977, p. 46-52) three key roles in the matrix: the top leadership, the matrix leaders that must share subordinates with other matrix leaders and the subordinates with two bosses.These roles are shown in Figure 4   The top leadership has to be outside the matrix overseeing its operating performance and solving eventual conflicts.With their behavior, they have to incorporate the need to collaborate, sell this need to the subordinates, coach, and oversee their functioning, and ensure the adequate balance of power between the two dimensions.To avoid biases the strategy has to be set above the matrix structure and the balance of power of the dimensions by the top leadership and then implemented top down to the lower levels of the organization.
According to Davis & Lawrence (1977, p. 48)   The strong global and regional functions that had promoted extraordinary benefits appeared to create a strong imbalance in the matrix structure in detriment of the country product-category managers.The matrix structure was never intended to be balanced and was designed to be product-category dominant or market dominant as shown in Figure 3.This was a shift to the middle from the multidivisional-product organization of 1954 as shown in Figure 2. The intended dominant influence on the decision process of the regional product-category was clearly defined by the solid line reporting and their profit and loss responsibility as shown in Figure 6.
The functional and the global product-category influence were intended to be secondary as demonstrates the dotted line reporting.The reason for the reversal in the imbalance of the matrix from country-product-category managers in favor of the functional leadership seems to have been caused by the high degree of de-facto control they had on the country functional managers because they determined their career paths and promotions, and those of their subordinates.The functional managers trying to optimize their particular parameters in cases suboptimized regional performance conflicted with the regional managers that were the sole responsible for the financial results.A similar conflict arose between the product-category global leadership and the country managers who were reluctant to implement initiatives that affect their short-term results even if this meant sacrificing future gains for the company.These unresolved conflicts made it difficult to make the regional profit centers fully accountable for their results.

Global
The organizations inability to solve the classic conflicts between the functional overall cost optimization strategy, with the regional managers focused on local profit-and-loss, and the product-category leaders initiatives

Matrix pathologies
The pathologies of the matrix structure developed by P&G between The poor subordinated product-category-country general managers that were supposed to accommodate the competing demands were in a skewed position.They had a strong input from the regional-productcategory vice presidents to whom they were accountable for profit and loss.
The input from product-category president was weak because it came from far up in the organization hierarchy and bypassed their direct boss.The functional input bypassed them and went directly to their country functional managers.The regional vice presidents that were supposed to coordinate conflicts between country general managers and regional functional directors were skewed toward their regional president to whom they had profit and loss responsibility and did not balance properly the influence between region and country with the functions.The consequence of this distorted situation was that the country managers gave priority to financial results over product-category initiative and had a constant conflict with their functional managers.
The third problem was that the required complementary and reinforcing changes to the culture, the information and accountability system, the budgeting and planning process, and the performance, career and bonus system necessary to successfully implement the matrix structure had not been made.By keeping the processes and systems of the previous multidivisional organization structure P&G maintained the strong regional and functional silos that where co-responsible for its problems with the matrix structure.
The functional managers gave much more attention to the influence in the decision process to their functional leaders to whom they theoretically had only a dotted-line report in detriment to their regional and country leaders to whom they had full line reporting, This imbalance in the decision process was the consequence that the functional leaders determined their career paths and promotions of all the functional personal.The regional and country managers in their turn were responsible for profit and loss and complained about their lack of cooperation to reach their objectives of their functional subordinates that were set on following functional agendas.They were in their turn reluctant to implement product-category initiatives that affected their short-term financial results and consequently bonuses.
The main problems that P&G matrix structure had -the lack of a proper collaborative culture, the excessive management levels, and profit centers, the skewed design of the structure, and the disaggregating effect of its processes and systems -motivated its management to restructuring program named Organization 2005.
So not to be unfair with P&G management that originally implemented the matrix in 1987 it is important to note that these problems were common to most early matrix structures implemented following the management fashion in the 1970s and early 1980s and motivated many of them to abandon it and spread that "the matrix doesn't work".This believe was widely accepted at the time, according to Galbraith (2009, p. 10), to the point that managers avoided the matrix, even in situation where it was appropriate.He continues explaining that because the matrix structures worked in some companies and benefit in certain situations the matrix concept was reinstated in the late 1990s and assumed its normal place in organization design theory.

P&G RESTRUCTURING PROGRAM
The objective of the restructuring program P&G announced in 1998 was to achieve $900 million in annual after-tax cost savings by 2004 by voluntary separation of 15 thousand employees, of with 10.5 overseas, and eliminating six management layers, reducing the total from 13 to 7, at a cost of &1.9 billion over five years.The plan also called for the dismantling of the global matrix structure introduced in 1995 and replacing it with an amalgam of independent organizations: Global Business Units with primary responsibility for products, Marked Development Organizations with primary responsibility for markets, and a Global Business Services unit responsible for managing internal business processes.
This new organization structure is now known as the front-back hybrid matrix according to Galbraith (2009, p. 115-127).This structure has two parallel multifunctional line organizations: one focused on the customermarkets designated the front end, and a second focused on products designated the back end.The objective is to achieve simultaneously the customer focus and responsiveness and the global-scale economies.To effectively achieve these conflicting objectives the management challenge is to effectively link and balance the customer-market front end with the product back end in a matrix.The corporate functions form an additional matrix across the two parallel organizations.

The restructuring program
The The first key to faster growth, greater business vitality, is increasing the pace of innovation at P&G.This has been true for us in the past and is just as true today.…Our Innovation Leadership Team, which I chair, is fueling our growth in new product categories.It funds promising ideas that fall outside our businesses, from seed-level investment all the way through test market.Previously, these kinds of ideas would often go undeveloped.…

Today, we have tapped only a portion of our innovation capacity. With
Organization 2005, we are making changes to unleash this capability and capitalize on the new marketplace in which we compete.… New Global Business Units (GBUs) leverage our scale.We will develop products and plans globally, to better utilize our technology and get products to the world faster.Focus on new business will increase our innovative output.Each GBU has a dedicated New Business Development unit to create new brands in related categories.
The vision Jager had is typical of an entrepreneurial manager.These managers according to Degen (2009, p. 359-366) are excellent in producing the needed change in companies that became bogged down in an administrative stalemate like apparently P&G was.He explains that these managers have the vision and the courage to make the necessary changes.
However, they never stop to implement these changes and tend to continue making changes.They tend to have no patience for the detail required to execute the new strategy that they created.When this happens, they have to be substituted by administrative managers that are god implementers of changes.These managers are good executers but not entrepreneurial enough to make them.This seems to have been the case of P&G, where

THE P&G FRONT-BACK HYBRID MATRIX ORGANIZATION
The key attribute of the matrix structure is the balance of power between the different dimensions of the company.One of the most direct ways to enhance the power of a dimension is to make it report higher up in the hierarchy.The business units in the P&G organization established in 1995, the product-category country units, reported to regional managers, The routines and policies that had created problems to the proper functioning of the matrix organization also streamlined and adapted to the new structure.A single business-planning process was created whereby all budget elements could be reviewed and approved jointly by the various matrix leaders.The incentive system was also overhauled and adapted to the new organization, maintaining the promote-from-within policy.The performance-based portion of the compensation for upper-level executives increased from 20 percent to 80 percent, with 40 percent up or down of base pay.Stock-option compensation was extended from previously less than then thousand employees to over hundred thousand.

Designing matrix structures that work
The success of the P&G clearly demonstrated by the growth of earnings in Figure 9 and the growth in net sales in Figure 12 to go up the organization before they can go across it.Contrasting with this negative opinion on the matrix in the same year Neff wrote: None did a better job overall of marketing brands in 2005 than Procter & Gamble Co (P&G)…In the US last year sales rose 7%, more than double the pace of P&G's categories.What really pushed the company to its third consecutive year of double-digit top-line growth, through, were developing markets,

Figure 1
Figure 1 P&G Timeline from 1837 to 1987 Source: Piskorski & Spaldini 2007 individual and group, delegation of authority, employee autonomy, trust and openness, upward communication and authority, and leaders who function as a cohesive and motivational force.The P&G historical timeline with the important business and organizational events from 1937 to 1987 before the matrix organization was introduced in the US is shown in Figure 1.The transition from the classic line staff organization started in 1943 with the creation of the first categoryproduct division in 1943, the drug-products department.Nevertheless, it was only in 1954 that the US organization was organized into individual operating divisions to manage category-products with their own line and staff structures along two key dimensions: functions and brands.
strategy and structure was the application of company resources to anticipated marked demand.He describes the four phases that can be discerned in the history of these large companies: the initial expansion and accumulation of resources; the rationalization of the use of resources; the expansion into new markets and product-lines to help assure the continuing full use of resources; and finally the development of a new structure to make possible continuing effective mobilization of resources to meet both changing short term market demands and long term market trend.He also points out that although each company had a distinct and unique history, nearly all followed along this general pattern.The reason being that all of them operated within the same external environment and that the phases in the collective history of the industrial enterprise followed roughly the underlying changes in the over-all American economy.P&G was part of Chandler's sample of companies (p.6) and was with General Foods, General Mills, and Borden in the group that developed new products to use existing personnel and facilities more effectively and then to grow reorganized into multidivisional organization structures (p.346).He explains that most US companies initially accumulated their resources in the years between the 1880s and First World War when P&G mass-marketed and mass-produced Ivory, and created the first centralized R&D department in the industry.During the first two decades of the twentieth century, these same firms build their initial administrative structures and P&G established its direct sales force, one of the first marked research departments, and institutionalized brand management.For some, continued expansion, largely through diversification, began in the 1920s but for most, it came after the depression of the 1930s.Although some pioneers of the new multidivisional structure to manage the expanded businesses began introduction in the 1920s, most enterprises like P&G carried out their reorganization in the 1940s and 1950s (p.386).It also clearly shows that the companies in developing over time the ideas for the new structure clearly borrowed from each other (p.324).The survey conducted by Chandler showed that in the late 1950s the multidivisional structure was generally used by the largest US industrial companies.This organization a corporate office plans, coordinates and appraises the work of a number of operating divisions and allocates to them the necessary personnel, facilities, funds, and other resources.The divisions command most of the functions necessary for handling one major line of products or services over wide geographic area, and are responsible for their financial results and success in the market place (p.2).It is interesting to note that in the list of the largest US industrial companies of 1909 (p. 5) P&G does not appear and in the Fortune 500 1959 list of the largest industrial corporations is already 48 th .The rapid expansion and accumulation of resources of the large US industries from the 1812 War to the Second World War can be explained by the large homogeneous American market, wars in Europe, and the protectionist US economic policies.Chan (2008, p. 50-51) explains that when the 1812 War broke out the US Congress immediately doubled import tariffs from the average of 12,5% to 25%.The war also made space for new industries in the US to emerge by interrupting the manufactured imports from Britain and the rest of Europe.The new industries that had arisen by substituting imports naturally wanted the protection to continue and in 1816 tariffs were raised further to an average of 35%.By 1820, the average tariff rose further to 40% firmly establishing the program developed by Hamilton (1789) to protect what he called infant industries.This program guided US economic policy until the end of Second World War and explains the rapid sales growth and success of P&G's Ivory soap, the first American soap comparable to fine European imports.It was only after Second World War with its industrial supremacy unchallenged that the US economic policy changed away from protectionism and started championing the cause of free trade to open foreign markets for these industries.P&G followed the trend set by other large US companies and established in 1948 its first international sales division.The international expansion led to the development of two different organizations: the multidivisional structure in 1954 for the US with its large and homogeneous market; and a decentralized hub-and-spoke line and staff structure in Western Europe due to its heterogeneous market.By the early 1980s, P&G was operating in 27 countries and a quarter of its revenues derived from overseas operations.
regulations.The Single European Act of 1986 launched a vast six-year program to sort these differences out.The EEC officially became the European Union (EU) in 1992 when the Treaty on European Union was signed in Maastricht.This treaty set clear rules for the future single currency as well as for foreign and security policy and closer cooperation in justice and home affairs.The Single Market and its four freedoms were established in 1993 -the free movement of goods, services, people, and money became a reality.In 1995, the Schengen Agreement was implemented for seven countries: Belgium, Germany, Spain, France, Luxemburg, the Netherlands, and Portugal.This agreement allows travelers of any nationality to travel between all these countries without any passport control at the frontiers.Other countries have since joined the passport-free Schengen area.Also in 1995 Austria, Finland, and Sweden joined the EU.The euro was established as the common currency to many EU countries in 2002.In 2004 the Czech Republic, Cyprus Estonia, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia, and Slovakia joined the EU followed in 2007 by Bulgaria and Rumania bringing the number of member states to 27.
concept of product-category divisions introduced successfully in Europe in the early 1980s was later incorporated into the US matrix structure in 1987.P&G ADOPTED THE MATRIX STRUCTURE IN THE US IN 1987 AND THE GLOBAL MATRIX IN 1995The introduction of the matrix organization in the US in 1987 was a direct consequence of the shift from the early functional organization into the multidivisional product organization in 1954.The P&G started in its early years organized around activities and evolved barrowing from Taylors (1911) scientific management into a functional organization focused on mass-producing Ivory soap in the late 1880s and R&D in the 1890s to diversify into other chemistry-based consumer industries.Management was focused on economy of scale, specialization, and cost efficiency.

Figure 2 .
Figure 2. Functional and product influence in decision making at P&G Source: Adapted from Galbraith & Nathanson 1978, p. 70 in the line-and-staff structure model.The hierarchy was the line organization with specialist roles, called staff roles, bringing expertise to bear without formal authority.The staff specialists would provide advice and service when requested by the line managers in the hierarchy.This structure model preserved the unity-of-command principle yet allowed expert advice to be used.According to Galbraith in the late 1960s, there simply were not enough resources for the US Government to fund the three big national programs: the space program with the man on the moon objective; the defense build up to support the Vietnam War; and the supersonic transport program.The result was that with scarce resources, cost and budgets became priorities.The change in strategic priorities from simply get the best technological performance to the additional objectives of cost and schedule resulted in changes in the aerospace companies organizations and they all adopted the matrix project management structure.The dual priorities meant that project managers responsible for costs and schedules and engineering managers responsible for technological development of the projects reported equally to the general managers.The success of the US space program in beating the objective set by John Kennedy to put a man on moon by 1970 made the press pick up the matrix as the hot new management trend and books on the subject began to appear.One of the best books introducing the matrix organization in the late 1970s was Davis & Lawrence's Matrix (1977).The two authors reproduce in the book (p. 2) a text that appeared in the GE's Organization Planning Bulleting of September 1976 that states:We have highlighted matrix organization… not because it is a bandwagon that we want you all to jump on, but rather that it is a complex, difficult, and sometimes-frustrating, form of organization to live with.It is also, however, a bellwether of things to come.Hovever, when implemented well, it does offer much of the best of both worlds.And all of us are going to have to learn how to utilize organization to prepare managers to increasingly deal with high levels of complexity and ambiguity in situations where they have to get results from people and components not under their direct control… Successful experience in operating under a matrix constitutes better preparation for individual to run a huge diversified institution like General Electric -where so many complex, conflicting interests must be balanced -than the product and functional modes which have been our hallmark over the past twenty years.This extract from the GE bulleting explains very well the complexity of implementing the matrix structure and the need to abandon all precepts of the mechanical school of organization and the need to embrace the modern practices of the human relations school.Originally, organization structures were functional following the mechanical school with the purpose of optimizing resource allocation, of work specialization and cost reduction.The strategy was to compete in the market by efficiency in producing products or delivering services.As the business world became more complex organization structures evolved in response to this complexity and started creating coordination mechanisms to manage additional dimensions like products, geography, and customers.Some of these coordinating mechanisms were brand-product managers and functional teams as shown in Figure2.The need to be efficient in at least two dimensions let to the development of the matrix structure where the functional side is responsible for efficient resource allocation and the market side is responsible for the efficient response to client needs.The dual-strategy is now focused on functional and on market efficiency to obtain organization effectiveness.The relative weight given to each strategy varies between companies and can be inclined toward functions, markets or balanced as shown in Figure3.The relative weight between the two dimensions is generally represented in the organization charts by the solid-line for the main hierarchical reporting line and dotted line for the lateral or secondary reporting line.

Figure 3 .
Figure 3. Matrix organizations -functional and market dominant and balanced structures with the matrix leaders divided into functional leaders and market leaders.What makes these leadership positions different from other leadership positions is the behavior required for them to effective in the matrix structure.

Figure 4 .
Figure 4. Matrix leadership Source: adapted from Davis& Lawrence 1977, p. 47-50 one of the several paradoxes of the matrix it is requirement of a strong unity of command at the top to ensure balance of power at the next level down.This balancing of power of the top leadership requires a unique blend of autocratic and participative leadership.The top role will have to firmly and decisively arbitrate disputes that cannot be resolved along the dual lines, at the same time promote collaborative decision making and ensure that both lines have approximately equal influence in the decision making process so as to guarantee the proper balance between the dimensions.

Figure 6 .
Figure 6.P&G Global matrix structure with three dimensions -regional (1), functional (2), and product-categories (3) Source: adapted from Piskorski & Spaldini 2007 that increased short term cost to capture future profits raised serious doubts about the matrix structure and if it was the right organization for P&G.It became clear that each dimension was trying to optimize its parameters and that neither sought tradeoffs that would optimize the overall performance of the company.To make things worst competitors were catching up quickly in the market and sales growth was down to only 1.4 percent in 1987 from an average yearly growth of 8.5 percent in the 1980s.The problems with the matrix and the poor sales performance prompted P&G to announce in 1998 a six-year restructuring plan named Organization 2005.
1987 and 1995 were probably properly diagnosed and corrected in the new Organization 2005.It is important to understand these errors to appreciate the new and successful matrix structure that is in place today.The same mistakes were made by many organizations in the 1970s and early 1980s and led to the discredit of the matrix as explained in the introduction.The first and most obvious problem is the need to abandon the mechanical school approach to managing an organization and create a culture of teams and collaboration.This is especially difficult for managers trained in business schools that stress individual class competition in business cases discussions instead of building consensus around a common goal.They have to abandon the idea of winning vis-à-vis others.The matrix operates in a balance of power model.The matrix leaders must understand that if they win the power struggle with other leaders absolutely the organization as a whole loses performance ultimately.They must understand that total victory in one of the dimensions only destroys the balance and the matrix.There are some examples of this type of pathology in the P&G matrix(Piskorski & Spaldini 2007, p. 7-8).Top leadership must understand that a power struggle will always develop between the dimensions.What they have to ensure that the matrix leaders are worthy adversaries and that they understand the need to turn the conflict to constructive common end.For this to work the top leadership has to manage three important things: prevent that one side totally wins or loses, ensure that the matrix leaders always maintain an institutional point of view, and remove those that through inability are constantly losing and replace them with stronger managers.Galbraith (2009, p. 10)  stresses the need that the matrix organization form has to be implemented using a collaborative change process.He goes on saying that people should develop the collaborative skills they will need in their roles in the matrix structure during its implementation phase.The managers that were not properly prepared and simply ordered to collaborate usually faked it because they did not understand what it meant.Many ordered to share power did not and passively resist the matrix.When the expected benefits of power sharing were not achieved, these resistors were quit to suggest that the matrix structure did not work.For this reason, many poorly managed change processes resulted in failure, even when the matrix structure was the best solution for the business.The second problem was the high number of management layers and the imbalance in the design of the matrix structure.The matrix to function properly must have the proper balance and coordination between the matrix leaders so that the subordinates can properly negotiate, accommodate, and optimize the conflicting demands as shown in Figure 4.The design of the P&G global matrix structure shown in Figure 6 clearly had serious design flaws accentuated by the many management layers that generated imbalance and conflicts between the three dimensions: global functions, regional product-categories, and global product-categories.Applying to the Davis & Lawrence key roles to the P&G global matrix we can clearly identify the structural design flaws that created some of the operational problems that hindered its proper functioning.These design flaws are shown in Figure 7.The top leader had simply too many subordinates to be able to properly coordinate the performance and solve conflicts with the matrix leaders at the region and country levels far down the organization.
implementation of the ambitious restructuring program started with the installation of Durk Jager as the new CEO by the P&G board January 1 st of 1999 in substitution of John E. Pepper who had been Chairman and CEO from 1995 to 1998.Pepper who managed the company during the years that the matrix got into trouble and the planning of the restructuring program with Jager, the COO, stayed on as Chairman up to 2002.He announced his departure from P&G were started working in 1963 in the 1999 annual report (p.10-11) but stayed on to 2002 because of the implementation problems of the restructuring program, the sudden departure of Jager, and his substitution by Alan G. Leffley as CEO in June 2000.When he left the company, Lefley became Chairman and CEO.The PG historical timeline from the announcement of the restructuring program in 1998, the success of the new matrix organization in 2005, and the continuing success up to 2007 is shown in Figure 8. Jager in the P&G 1999 Annual Report (p.3-5) explained his vision: fighting force of nimble, entrepreneurial freethinkers and bigger risk takers.
Little more than two years after Lafley took over sser wrote: Lafley's predecessor, Jager, had been brought in -like Lafley -for a rescue mission.… Jager had an aggressive plan: Launch a slew of new products in hopes of finding the next big billion-dollar produc like Tide or Pampers.Trouble was, he did not find it.… At the same time, Jagers other ambitious initiatives backfired.… As each initiative failed, the troops at P&G began to feel rudderless.… When he came in, Lafley had to move fast.… As he saw it, P&G did not need a radical makeover.What it needed was, well, to sell more Tide.In its rush for new products, P&G had neglected its older brands like Tide and Pampers.However, those billiondollar blockbusters are, and have always been, the company's bread and butter.… Therefore, Lafley refocused the company on its big brands.… If the plan was shocking in anything, it was its simplicity.Everyone down the chain of command could understand it: Selling more Tide is less complicated than trying to invent the new Tide.… As he got P&G' brands on track, Lafley also had to get expenses in line.Under Jager costs had gotten out of control, … To cut expenses Lafley began a massive round of layoffs eliminating some 9,600 jobs.He shut down skunk works projects and pulled flopped launches… He sold off … units, which were not strategic fits.… For a traditional dowry grande dame of a company, with 1002,000 employees in 80 countries, there was surprisingly little resistance to the transformation.Some credit Lafley's calm, unflappable focus, a directnes that comes without an iota of bluster.Lafley credits the employees.… he says."In crisis, people accept change faster."… Watching A. G. Lafley at work is a deceptively unimpressive sight.As far as CEOs go, it is fair to sa The implementation of the complex restructuring program required clear d , the that the 55-year-old New Hampshire native does not have much dazzle or flair.….Lafley has managed to pull off what neither his two predecessors could -turn around the global behemoth.In addition, did this in the midst of a world economic slowdown (2002, p. 88).execution skills to manage the cost reduction objective, the radical change the organization structure, the voluntary separation of 15 thousan employees, the reduction from 13 to 7 management levels, the redesign of the internal processes and systems to the new structure and so on.Such a massive restructuring program normally creates all sorts of problems as middle management first resist and then adapts to the new structure.For this reason, results in the first years tend to suffer and the benefits only start appearing after some time as show for the P&G case in Figure 9 and 10.Jager, the entrepreneur, launched the restructuring program, was over optimistic, overpromised, and created the crisis.Lafley, the administrator, calmed the crisis, did not overpromise, focused the organization, and implemented the needed changes.The resulting new P&G organization front-back hybrid matrix structure is today an example of a successful organization design. Figure11.

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Everybody is always worried about taking risks, because nobody likes to fail," he avowed at the time."But you have to celebrate failure."For a company with a long history of playing it safe, this promised to be a real imbroglio.One year later Jager's revolution is in full swing.The company has overhauled its reporting lines.It started up an internet beauty site in