Why P&G's CEO will succeed by doing what scares healthcare CEOs

What healthcare can learn from the leading consumer goods company and its decision to sell half its brands

In August, Proctor & Gamble announced it would sell off up to 100 of its nearly 200 brands — roughly half of its product portfolio.

Those brands with limited growth in recent years will be on the chopping block, said P&G leaders. While no brands have been specifically named for divestiture, Duracell and Braun are likely candidates, according to a Business Insider report.

The move is expected to reduce costs, improve profitability and reduce the complexity of the organization's structure and brand portfolio. Investors supported the move: P&G shares rose 3 percent after the company announced its intention to shed the brands.

"Reducing the breadth of brands will allow the company to dramatically simplify its operating structure and processes. Management will be reorganized into four sectors, each containing only a few business units. Research and development will be able to focus on core product types. Marketing will have fewer brands to maintain. And manufacturing and the supply chain can be streamlined," writes Kenneth Kaufman, chair of Kaufman Hall, of the decision in a blog post.

If P&G can't be all things to all people, can hospitals?
Hospitals historically made the same play as the P&G we've long known: Be all things to all people. Bigger is better, and so is a diverse portfolio, even if it means holding on to lackluster lines and maintaining multiple offerings in one category. But, this level of complexity can be a "major barrier to success in a transformative environment," writes Kaufman.

"Taking into account all of these factors, hospitals need to consider whether the all-things-to-all-people model is still viable and relevant, or whether they need to apply a Procter & Gamble-style review to the portfolio of services," he says.  
 
Many hospitals and health systems are beginning to realize what P&G, and its CEO A.G. Lafley, already have: Only so much efficiency can be realized by focusing on the profitability of all existing products/service. Much greater efficiency can often be realized by eliminating duplicative offerings and discontinuing products or services that others can offer at a lower cost and higher quality.

"Like Procter & Gamble, hospitals need to reexamine their portfolio of services based on strategic fit, quality and contribution margin," writes Kaufman. "A.G. Lafley offers a valuable message for hospital leadership: Simplifying structure and operations is a critical first step in preparing for even more dramatic changes to come."

 

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