Case Study:


Background (2001-03)

> Jim Kilts was appointed Chief Executive of Gillette following over four years of flat revenues, 40% decrease in shareholder value, and consistently missed earnings targets to investors

> Previous management had been playing the “EPS Game” and new management needed to refocus on the “value game”

Our Relationship and Approach

> Mr. Kilts began implementing the strategic, operating and organizational improvement program that had previously led to the successful turnaround of Nabisco under his leadership

> It was readily apparent that maximizing the profitable growth of Gillette would require revitalization of profitable growth in its core Blades & Razor (B&R) business which comprised over 80% of Gillette’s total shareholder value

> The first step was to conduct an in-depth strategic review of B&R, where even though the company had superior brands, inferior business models were not translating a consumer advantage into financial and capital market advantage

Granular Understanding of Sources and Drivers of Value
Value contribution was highly concentrated. Even though the company had superior brands, inferior business models were not translating a consumer advantage into financial and capital market advantage
Gillette_Value Concentration

> Each business was then tasked with replicating the strategic review process within their business to identify their value improvement agendas

Establishing Differentiated Business Models
A granular understanding of the sources and drivers of value allowed management to set priorities and make the right business model changes
Gillette Performance Requirements

> In addition, we worked with senior leadership to conduct a comprehensive assessment of organizational practices and capabilities


> Kilts refocused the corporation on long-term economic profit growth and stopped quarterly earnings calls with investors

> Over the next 24 months, Kilts and his direct reports:

  • Significantly increased the new product pipeline, launching several new global products
  • Dramatically increased advertising investment
  • Refocused its marketing strategy with increased focus on sample and trial
  • Focused on strengthening the mutual economics of its core customer relationships
  • Dramatically reduced costs and improved asset turns through product and facility rationalization

Results (subsequent 5 year performance)

> Net sales increased from $8.1 billion in 2001 to $11.4 billion in 2005, a 9 percent compounded annual growth rate

> Earnings before interest, taxes, depreciation, and amoritization increased from $2.2 billion to $3.7 billion

> Operating margins increased from 21 percent in 2001 to 26 percent in 2005, reflecting profitable top-line growth and better cost management, somewhat offset by higher marketing spending.

> Market shares increased in businesses representing 90 percent of 2005 sales compared to only 30 percent of sales in 2001

> Economic profit grew from $700 million to over $1.6 billion

> Gillette’s stock price rose from its low of $25.62 in April 2001 to $53.94 in January 2005 creating $26 billion of incremental shareholder value

The company delivered the forecasted improvements in economic profit growth and shareholder value
Graph: Economic profit growth and shareholder value