It’s All About Innovation: Embracing Shared Services, Data, and Cultural Change at Procter & Gamble

An Insight from the 2016 Federal Leadership Summit

Part of a Series

This Insight is a part of the 2016 Federal Leadership Summit Report.

To see the complete report, click here.

In the late 1990s, senior officials at Procter & Gamble realized that their firm was approaching a high-stakes inflection point. Since its inception as a family business in 1837, P&G had evolved into a global leader in manufacturing home and personal care products. However, company officials recognized that P&G would need to revamp its business model and culture to thrive in a 21st-century economy likely to be marked by rapid technological change and increasingly intense competition. One of the officials leading this transformation was Filippo Passerini, a long-time P&G employee who in 2003 became the President of Global Business Services (GBS), a recently created unit that had been established to consolidate a range of back-office functions (e.g., finance and IT). Passerini, who in 2004 added the role of CIO to his portfolio, spearheaded an effort to consolidate and standardize more than 70 services, integrate numerous IT systems into global platforms, and move P&G toward the CEO’s vision of becoming one of the most technologically advanced and data-driven businesses in the world. Under Passerini’s leadership, GBS saved the company over $1 billion; more importantly, he helped to effect the strategic and cultural changes that have enabled P&G to sustain its elite status in a rapidly changing 21st-century economy.

The story of how Passerini and his colleagues effected this change is instructive for federal officials hoping to lead similarly far-reaching reform across the four stages of the framework for harmonizing strategy and culture:

“We didn’t need to run faster. We needed to change the way we ran.”
Filippo Passerini
Procter & Gamble (retired)

Procter & Gamble (P&G) began as a quintessential mom-and-pop shop: the company was created in 1837 when, at the encouragement of their father-in-law, William Procter and James Gamble combined their soap- and candle-making businesses. More than 175 years later, P&G is a massively successful, global behemoth. In 2011, it was the largest consumer packaged goods company in the world, selling products to 4.2 billion people in 180 countries and generating $80 billion in annual revenue. More recently, Forbes identified P&G as one of the largest, most profitable companies in any sector worldwide.

Unfortunately, size, scope, and profitability do not necessarily translate into a company being efficient, agile, and technologically adept. This is the challenge that confronted Filippo Passerini, a P&G leader who was charged in 2003 with spearheading key parts of Organization 2005, a company-wide reform effort. He was initially tasked with leading the Global Business Services (GBS) unit, a P&G division created to consolidate back-office support functions (e.g., accounting, payroll, employee services, order management, and logistics) across the company’s sub-units. Passerini soon expanded his portfolio, moving many services to external providers. He also took on the role of Chief Information Officer—a post from which he could streamline the company’s data platforms and create a more nimble, data-driven, analytical, and innovative culture.

12 years later, Passerini (who retired from P&G in June 2015) and the reform efforts he led have transformed the company. In under a decade, GBS saved P&G more than $1 billion. In addition, the creation of new data management tools, platforms, and spaces (such as the business sphere, a spherical room with massive screens and user-friendly data portals) has sharpened P&G’s use of predictive analytics and other data-driven decision-making techniques. These changes have created a healthy restlessness in the firm’s culture. “We use change as a strategy,” Passerini remarked in 2013. “We obsolete our current model. We think it’s important to do that when we’re in a position of strength.”

This success was not guaranteed when Passerini began his reform initiative. Instead, he had to wrestle with numerous challenging questions. How would he create a vision for shared services, data, and cultural reform? How would he design the reform initiatives, obtain buy-in from company stakeholders, and pace reform? As the reform effort gained momentum, how would he scale it? Finally, how would he ensure that the effort sustained momentum as he prepared to retire?

Developing A Vision for Change – 1999-2002

In 1999, P&G launched Organization 2005, a multi-year effort to restructure the company, which then consisted of hundreds of small, quasi-independent businesses around the world. The goal of the reorganization was to streamline decision-making and critical work processes and amplify the firm’s ability to innovate. More concretely, the effort involved reorganizing the company into four groups: Global Business Units (GBUs), which would serve as the loci of commercial activity; Market Development Organizations (MDOs), which would sharpen the firm’s understanding of particular locales and therefore inform marketing campaigns; Global Business Services (GBS), which would complement MDOs’ local focus with a central organization that could consolidate and increase the efficiency of back-office functions; and Corporate Functions, a small group that focused on select, high-level issues. By 2002, P&G had completed substantial portions of Organization 2005, including establishing GBS and folding more than 70 back-office functions (e.g., IT infrastructure, finance, and accounting) into the unit.

The consolidation of back-office functions generated significant savings; nonetheless, company leaders saw this as just the first step in a long-term transformation process. They believed that P&G was approaching an “inflection point” where in a world marked by (among other things) increasing volatility and uncertainty, the company could either reinvent itself and thrive or remain stagnant and decline. P&G executives therefore began developing a vision for a business that would minimize tradeoffs between traditionally opposed traits like “scale and agility”; “cost savings and quality service”; and “innovation and operational excellence.” “We didn’t need to run faster,” Passerini explained. “We needed to change the way we ran.”

Launching A Vision for Change – 2003-2008

To realize this vision, P&G planned to leverage its new organizational structure, pursue strategic partnerships, and prioritize technological innovation; however, it also needed strong leaders. A case in point was Passerini, a long-time P&G employee with a strong background in data and analytics who became the head of GBS in 2003. Passerini—who holds a Doctorate in Statistics and Operations Research from the University of Rome—had begun his career with P&G in 1981 as a Systems Analyst in Italy. He then served the company in a variety of domains (e.g., corporate marketing, management systems, and IT) across diverse locales, ranging from Turkey to Latin America to North America. Consequently, when he took the helm of GBS, he possessed a strong understanding of the company’s sub-units; the needs of different markets; and the technological, data, and operational issues that had animated the decision to reorganize.

Still, Passerini faced a challenge. Many of P&G’s sub-units, accustomed to operating autonomously, were wary of ceding too much control to GBS. At the same time, as Passerini explained, the timing was ideal for further reform because P&G had already made the most of the internal benefits of shared services, and P&G did not want to stagnate. Thus, Passerini had to demonstrate to local staff that GBS’s reforms would benefit them, while pacing change so that P&G did not miss valuable opportunities.

Passerini therefore implemented a series of incremental reform measures that would facilitate innovation. In 2003, he began an effort to outsource $4.2 billion in services to external providers. This would allow P&G to leverage greater economies of scale from partners (for example, IBM earned a contract to manage payroll, travel support, and expatriate services; and HP became the outsourcing partner in IT infrastructure) while freeing P&G staff to focus on innovation. For example, in 2004, Passerini folded P&G’s IT services into GBS. The goal of the move—which involved rebranding IT as Information and Decision Solutions (IDS) and led to Passerini taking on the role of P&G CIO—was to transform IT from a service provider to a source of innovation. “I recommend that CIOs weave themselves into the business, thinking [of] themselves as business leaders first, and technology leaders second,” Passerini later said in a comment that reflected this strategy. “…It is up to CIOs to prove their value to become a source of strategic advantage.”

“We use change as a strategy…We obsolete our current model. We think it’s important to do that when we’re in a position of strength.”
Filippo Passerini
Procter & Gamble (retired)

These moves paid dividends. By 2008, GBS had saved P&G $600 million; it had also led the effort to integrate Gillette, a process that only took 15 months to complete (rather than three or four years) primarily because of the foundation for shared services that GBS had created. More broadly, GBS had created palpable excitement across the firm. The best illustration of this came on New Year’s Eve in 2005 as GBS staff worked into the night to complete the Gillette merger but remained upbeat. To Passerini, this illuminated a broader point about how incremental reform can catalyze cultural change. “We can’t commandeer culture,” he explained. “It is the product of organizational design…. My own leadership philosophy is about launching breakthrough ideas and setting goals. It’s about starting with the end in mind and forcing a pace to deliver…. It’s about raising the energy level.”

Scaling Digital and Analytics Services – 2009-2014

In 2009, another veteran P&G leader, newly appointed CEO Bob McDonald, pushed the needle for innovation and integration. Since joining P&G in 1980, McDonald had served in a variety of the company’s divisions across diverse locales. By the time he became CEO, he appreciated the central role that technology would play in the firm’s future; consequently, his stated objective for P&G was for it to become “the most digitally enabled company in the world” primarily because he thought that technological expertise was integral to building P&G’s brand.

Passerini and his team—which by 2011 included 6,000 staff spread across six international hubs—therefore looked for opportunities to innovate and enhance P&G’s use of data and analytics. One innovation was Consumer Pulse, a program that scanned online customer feedback, allowing P&G to respond to consumer sentiment in real time. GBS also developed a digital prototyping process that enabled the company to test a product more quickly and inexpensively than creating a physical mock-up. Meanwhile, to sharpen P&G’s use of data, GBS worked with P&G’s external data providers to ensure that GBS was receiving information rapidly; GBS then created tools—such as a “cockpit” portal for each employee and the “business sphere” spaces—that allowed staff to examine the same data simultaneously in real-time.

At the same time, Passerini and his team prioritized steps that would make the company’s culture more receptive to data-driven innovation. For example, Passerini and his team—which included numerous communications professionals—positioned their reform in a consistent narrative that highlighted P&G’s rich history as an analytics leader; this implied, Passerini noted, that the change was not just a “flavor of the month” that staff could wait out. Passerini and his colleagues also focused on recruiting people who possessed intellectual curiosity. This was in part because they thought that they could teach technological skills more easily than instilling an analytical mindset; they also knew that inquisitive people would be attracted to P&G. “Throw away your MBA textbooks, and we’ll teach you,” McDonald said, in a comment that encapsulated P&G’s pitch. “We’ll give you another MBA.”

Thus, the innovations and advancements that GBS introduced contributed to cultural transformation. As Passerini said, P&G sees innovation as its “lifeblood.” Similarly, the firm had come to place enormous value on data. “It would be heretical in this company to say that data are more valuable than a brand,” Passerini explained, “but it’s the data sources that help create the brand and keep it dynamic. So those data sources are incredibly important.”

Transitioning – 2015 and Beyond

In 2015, Passerini retired from P&G—but not before identifying and grooming his successors, who, like him, had lengthy, diverse careers at P&G. What’s more, Passerini and other former P&G executives have continued to share their expertise in digital innovation and data and analytics. Passerini is now an Operating Executive with the Carlyle Group and is serving as a consultant to several other firms. The move reflects Passerini’s belief that the lessons he and his colleagues unearthed at P&G can be applied to an array of organizations. The implication is that technological, data-driven, and cultural changes, though daunting, are possible. And that is a lesson that federal officials would do well to internalize.

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