Crossing the Ohio River into Cincinnati and taking Fifth Street into the city center, it's easy to see why Procter & Gamble Co. is still thriving after 163 years in the consumer-goods business. Well-kempt Midwesterners fill the sidewalks, their clean-shaven faces, highlighted hair, and freshly laundered clothes all signs of P&G's success. The company has mastered the science of putting paper on a roll and soap in a plastic container and the art of selling those products at hard-won profit margins-nickels and dimes multiplied by millions of units.
But those margins are constantly under pressure as powerful global competitors cut prices or create cheap knockoffs and as the cost of raw materials-everything from oil and resin to coffee beans-continues to rise.
To resist becoming a commodity business, P&G must constantly innovate in product development so it can justify raising prices every so often on "new and improved" Tide, Folgers, Clairol, and its 300-plus other household brands. Meantime, it must forge closer ties with suppliers, distributors, retailers, and consumers. And it has to do all that faster than ever because time to market and market share are nearly synonymous in consumer goods.
As part of that broad effort, P&G is introducing a set of desktop applications to foster real-time collaboration among its worldwide workforce of more than 100,000 people and with its vast network of customers and partners. The rollout consists mainly of five Microsoft products-the Office 2003 desktop suite, Outlook E-mail client, Communicator instant-messaging software, Live Meeting conferencing service, and SharePoint document-sharing portal-plus Windows Server 2003 and other server software. The deal represents the largest license to date of Microsoft's real-time collaboration suite (Communicator 2005, Live Meeting 2005, and upgraded Live Communications Server 2005), introduced in March.
The goal is to help employees maximize one-to-one communications, create more-effective virtual teams, and, ultimately, make faster and better decisions. It's about shorter business conversations and accelerated outcomes, company officials say. That may not sound groundbreaking in some industries, but it's a major step forward for a company still working hard to shake its reputation for having an insular culture.
P&G is spending more on technologies that drive innovation and less on infrastructure. "That's exactly the way it should be," CIO Filippo Passerini says.
Photo by Chris Lake
While the Microsoft apps are intended to make internal communications easier, Passerini and colleagues are thinking more broadly. The company already has a data warehouse on 200 million buyers, most of them women, which it taps for online and direct-mail marketing. P&G is exploring new kinds of interactive services aimed at certain consumer segments, such as mothers and teens, through Microsoft's MSN.com site.
When P&G officials talk about customers, they're also referring to retailers such as Wal-Mart Stores Inc. Designated managers are assigned to top accounts, and Passerini himself interacts regularly with peers such as Wal-Mart CIO Linda Dillman. The Microsoft products will support instant messaging among different types of IM clients and intercompany Web conferencing, helping P&G solidify business-to-business relationships. "The hypothesis is that connections will become more and more personalized over time with customers, consumers, shoppers, and employees," Passerini says.
By most accounts, Lafley, who took the P&G helm when former CEO Durk I. Jager was pressured to resign in June 2000, has turned the company around by doing just that: listening to employees, customers, and partners rather than just telling them how things need to be done. The result? P&G has increased profits an average of 19% over the past three years, topping analyst estimates for nine straight quarters. With 2005 revenue of $56.7 billion, it ranked No. 26 on the Fortune 500.
But P&G's reengineering isn't just focused on revenue growth. Two years ago, P&G cut its 4,400-employee IT workforce nearly in half under a 10-year, $3 billion outsourcing contract with Hewlett-Packard. The remaining staffers were folded into Global Business Services, a shared-services unit that also provides support functions such as human resources and payroll. Passerini has been centralizing P&G's IT department within that unit for the past year.
The desktop-app rollout is part of a P&G tech strategy that focuses on three main areas: one-to-one communications, real-time and predictive business intelligence, and "virtualization" of business processes. In using that term, P&G doesn't mean virtual machines or data-center automation. It's about morphing labor-intensive processes such as package design into electronic processes that apply 3-D imaging. Advances in virtualization will get products to market more quickly, Passerini says.
The CIO declines to say how much all of this will cost or even to pin a number on P&G's overall IT budget. But he does give this much: Operational IT costs-money spent on basic infrastructure-are trending down "significantly," while investment in technology meant to foster business innovation (including collaborative apps, business-intelli- gence tools, and virtualization technologies) is rising. "That's exactly the way it should be," he says.
The Microsoft apps are intended to replace Lotus Notes on the company's 80,000 Windows PCs, plus 12,000 more Windows PCs that are part of P&G's $57 billion acquisition of Gillette, which closed Oct. 1. "Intended" because Global Business Services isn't forcing the issue (not just yet, anyway). "We don't have big deployment milestones in people and dates, which is the old way," says Laurie Heltsley, a director with Global Business Services. "We're talking about an adoption strategy where people can opt in."
Company officials project that 80% of PCs will be upgraded to the new tools by sometime next year, driven by what they expect will be employee enthusiasm for an integrated suite of contemporary desktop apps. The Lotus Notes environment is pressing 8 years old. P&G has long had an E-mail culture, having developed its own E-mail system 25 years ago before commercial offerings became popular. As one measure of all the messages flying back and forth inside P&G, the company has archived a staggering 20 terabytes of E-mail in storage.
Still if adoption of the new Microsoft tools goes slower than expected, Passerini admits he may apply a stronger hand in pushing the software across the company. The last thing his IT group needs is to support both Notes and Microsoft Outlook indefinitely. Hewlett-Packard will help with the rollout and management of the desktop environment, under an extension of the original outsourcing contract.
One area where P&G is still experimenting is in the use of videoconferencing. It's possible that video will be used at P&G more for personal interaction where eye-to-eye contact is important-job interviews and performance appraisals-than for meeting presentations. "I'm beginning to feel video may have a use that's very different from what we originally envisioned," Heltsley says. "It's not for meetings."
|Filippo Passerini's Philosophy|
|TECH BACKGROUND Passerini started at Procter & Gamble as a systems analyst in 1981. He served as VP of IT in several business units and was promoted to global services officer in 2003. He added the CIO title in July 2004.|
|MANAGEMENT STYLE Thinks IT departments must create value by offering something "distinctive."|
|MOVES Outsourced infrastructure management and application development to Hewlett-Packard in 2003. Centralized remaining 2,400 IT staffers within P&G's Global Business Services shared-services unit.|
|QUOTE "I may be wrong, but I'm very consistent."|
|FUN Enjoys watching his 11-year-old son, born in Venezuela, play competitive ice hockey in Cincinnati.|
Building On Experience
That's the kind of talk Passerini likes to hear. The P&G veteran has made the rounds since starting with the company 24 years ago as a systems analyst. A native of Rome, he's done stints in England, Greece, Italy, Latin America, Turkey, and the Cincinnati headquarters, gaining experience in marketing and business-process management along the way. As global services officer in 2003, Passerini helped design the company's outsourcing strategy; following the HP deal, P&G contracted out payroll, benefits, and travel services to IBM, and facilities management to real-estate services company Jones Lang LaSalle.
When the CIO title was added to Passerini's business card in 2004, he centralized what remained of the company's IT staff, many of whom were embedded in its business units. He also changed the group's name from Information Technology to Information Decision Solutions to reflect the change in mandate and folded it into Global Business Services. The shared-services unit employs 5,800-about 2,400 of whom are IT staffers.
Passerini acknowledges that some aspects of the grand plan are unproven. What if it turns out that company units really benefited from having IT people sitting alongside line-of-business counterparts? "Then we will undo immediately what we have done," Passerini says.
Of course, P&G's CIO doesn't expect that to happen, and it's full speed ahead on the desktop upgrades and other IT projects that are part of his plan. The company estimates that 3 billion times a day, a customer reaches for one of its products. That's a lot of hair dye and razor blades-and one-to-one opportunities.