Answered: Was the organizational structure…

Understanding Business

12th Edition

ISBN:9781259929434

Author:William Nickels

Publisher:William Nickels

Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment

Section: Chapter Questions

Problem 1CE

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Was the organizational structure presented by Kimberly‐Clark executives in 2004 better
than the first structure proposed? Why or why not?

Transcribed Image Text:In 2003, Kimberly-Clark, the maker of paper products including Kleenex, Huggies, and Depends, announced it was creating a radical new structure to shore up parts of its business that were performing poorly by restructuring its products into three categories. The categories were "grow," "sustain," and "fix"-somewhat unconventional categories. They weren't devised based on product type, customers, or the geographic locations in which Kimberly- Clark sold goods, but instead on the perceived strength of the products themselves. Background Kimberly, Clark and Company was established in 1872 by four young businessmen, John A. Kimberly, Havilah Babcock, Charles B. Clark, and Frank C. Shattuck. Based in Neenah, Wisconsin, the company initially manufac- tured paper, but over the years it began to branch out, broadening into the personal hygiene consumer prod- ucts area to compete with companies like Procter & Gamble. In 1978, Kimberly-Clark introduced what would become its top seller: Huggies disposable diapers. Huggies were an instant hit and soon became the nation's number- one diaper brand. Over the course of the next two decades, Kimberly-Clark introduced Depends for adults and training pants for toddlers, and acquired its competi- tor Scott Paper, a leading maker of toilet paper and paper towels. Today, the merged company sells its products in over 150 countries around the world. In 80 of those coun- tries, it holds the number-one or number-two spot in the marketplace. It has physical operations in 38 countries and employs more than 55,000 employees. Restructuring Problems Like many corporate mergers, the merger between Kimberly-Clark and Scott Paper in 1995 didn't roll out smoothly. Most of Scott's senior management team left after the merger, and Kimberly-Clark experienced prob- lems integrating the two companies. The following year, operating income and sales dropped. By the late 1990s, the company's senior managers had finally worked through the integration challenges of the merger. But the dawn of the twenty-first century brought new challenges. Chief among these was the lack of growth in developed countries for Kimberly-Clark products due to market saturation. To continue to grow, the company had to look to new markets. The company was also losing market share to its fiercest rival, P&G. By introducing a high-end line of Pampers in 2002, P&G had been able to capture market share from Huggies. management projected that cost savings could be as high as $450 million by the end of 2010. And, manage- ment also announced a new plan to reduce up to $500 million more by 2013. Finally, the company is searching for good acquisitions in the health care industry. Given the tough competition in the disposable diapers industry, Kimberly-Clark tried to diversify by producing a related product: disposable baby wipes. But these growth plans were upset when Johnson & Johnson, the prominent maker of baby shampoo, launched its own line of baby wipes. It was within the context of these competitive dynam- ics that Kimberly-Clark's senior managers announced their radical reorganization plan in 2003. The "grow" category (brands and sectors growing the fastest) included prod- ucts such as training pants, household towels and wipes, and Kleenex. The "sustain" category (brands generating solid returns) included U.S. infant care products and other facial tissue lines. Whereas the "fix" category included products related to European personal care along with the U.S. professional washroom business. Sales of these prod- ucts were relatively flat. And although they accounted for about 20 percent of the firm's total sales, they contributed only 10 percent of the profits. Kimberly-Clark's senior managers argued that reorgani- zation would help increase the company's speed to market, streamline its decision making regarding allocating capital, and deliver cost reductions on a sustainable basis. However, simultaneous to the reorganization announcement, Kimberly-Clark announced it had revised its forecasts for sales increases down from 6 percent to 8 percent annually to 3 percent to 5 percent. Predictably, shareholders reacted negatively, and Kimberly-Clark's stock price closed down immediately after the announcements. Thus, executives began to reconsider the planned changes. Kimberly-Clark eventually presented a new and different organizational structure in early 2004. Rather than organize products by the "grow, sustain, and fix" categories, management announced that it would organize around personal care, washroom products, and emerging markets. Specifically, management planned to combine the company's North American and European personal care groups under one organi- zational unit. The same would happen for products related to the washroom business. In addition, man- agement planned to create an "emerging markets" business unit to maximize the growth of all Kimberly- Clark's products in Asia, Latin America, and Eastern Europe. As an example of this growth, in 2010 the company announced its first plant in Russia to manu- facture Huggies diapers. By 2010, Kimberly Clark's changes reshaped the company into a consumer product health and hygiene firm. Analysts have reacted well to these changes. In addition, the company announced that its efforts to re- duce costs are likely to exceed its initial estimates. The company and its cost reduction efforts likely to improve its competitive position relative to P&G? Please explain your answer. 163 Sources: "Kimberly-Clark Opens First Plant in Russia," Bloomberg BusinessWeek, June 2, 2010, http://www.businessweek.com; M.

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