During 2014, A.G Lafley left the retirement life to try and calm down the upset shareholders of Proctor and Gamble (P&G). Lafley left P&G after working there for thirty years, and shortly after the company’s profits began to decline. The board went wild, and demanded the former CEO return. Coming back has already been shown successful, with P&G seeing an increase in profits by 3% (Ng).
Lafley declares the issues with decreasing profits are a result of not enough specialization and too much vertical integration. An article in Wall Street Journal talks about Lafley’s changes says only a few of its brands produce 90 percent of its profits (Ng). P&G’s move now is to sell off or shut down the less profitable and lesser known brands and reap the benefits of specialization. The goal is that when consumers are making a purchase P&G’s products are the preferred choice, and P&G will rake in profits assisted by specialization.
Chapter six in the textbook warns us of the costs of vertical integration, and P&G is evidence of these costs to the bottom line. With P&G’s loss of profitability so quickly, there is suspicion if vertical integration is not only the issue. While Mr. Lafley has reversed the decline, his forerunner and successor (Bob McDonald) as CEO may have been experiencing some principle-agent issues that plague today’s management decisions.
Ng, Serena (August 1, 2014). P&G to Shed More Than Half Its Brands. Retrieved from: http://www.wsj.com/articles/procter-gamble-posts-higher-profit-on-cost-cutting-1406892304