Proctor and Gamble’s Organization 2005: a strategic business case analysis
Category : Procter & Gamble
Proctor and Gamble’s Organization 2005: a strategic business case analysis
Wherever you see a successful business,
someone once made a courageous decision.
Success in any company that operates for marketing and profit acquisition lies on the ability of the management in positioning and establishing the products/services being offered. This is the usual and incomplete general believe. Furthermore, the ability of the company and its management to compete and maintain a competitive edge among its competitor is another basis to say that it is successful. The constant development and innovation on the product line and the growing number of clientele also define the corporate standing of a company. These are all strategies that Proctor & Gamble are implementing in all their outstanding years of international consumer goods marketing performance dominance.
Proctor & Gamble has been a role model in terms of successful international business management as reflected on their uncontested reputation for outstanding performance. The Company is prominent for its superb marketing (2001). It uses the divisional structure by product, that is, when specific products needed special emphasis. They also use this to implement strategies (2001). This year, Proctor & Gamble was ranked first in Household and Personal Products Company and among top 10 in Fortune’s “America’s Most Admired Companies” (2007). With the constant innovations particularly Organization 2005 in all aspect of management and operations as well as the proper handling of this new strategy, the Company will remain competitive in its defined market position. This paper aims to evaluate the organizational strengths and weaknesses, market opportunities and threats in the implementation of Organization 2005, Thompson et al eight managerial tasks for strategy implementation in relation to the said strategy, and the Company’s acquisition of Gillette in 2005.
Task 1: SWOT ANALYSIS of ORGANIZATION 2005
All organizations have their strengths and weaknesses in the functional area of business (2001). Accordingly, Organization 2005 is “a corporate restructuring program” directed to the inclusive changes in organizational composition, work processes, and employee culture towards increased innovation ( 2003). The emerging trends in the global marketplace during the conception of Organization 2005 are among the main mechanisms that prompted the P&G’s management towards this strategic turn. As early as 1990s, marketing trends seem to create long terms effects on the future of international business sector. Competition and its rapid development among various industries is the most popular if not the primary business concern. (1995) declared that the condition of the global market is in hyper competition mode and its rate is increasing as technological advancement and industry concentration heap on. Organization 2005 aimed to control the presence of the Company in global environment. In the age of globalization and the limitation of domestic market for growth and expansion, a global enterprise has extensive interests that transcend national borders and political institutions (2002). Providing a SWOT analysis for Organization 2005 allows forecasting that serves as an important tool and process of identifying the future consequences of the whole program.
Proctor & Gamble’s Organization 2005, according to (2003) was intended to increase sales and profits through the introduction of new brand products, closing needless production plants and eliminating unproductive jobs. Looking through the marketing and management perspective, there are potentially powerful strengths activated by Organization 2005 including: the corporate ability to create new strategy that is perceived to be inclusive, with top to bottom effects on individualized area of concentration (i.e. production, finance, human resources, etc); a tool in the identification of low performing areas of management; it prompts organizational workforce to work on innovations and competitive advantage; and sustenance of the P&G’s strong global brand.
In details, Organization 2005 offers a corporate ability to create new strategy that is perceived to be inclusive, with top to bottom effects on individualized area of concentration (i.e. production, finance, human resources, etc). , P&G’s CEO in 1999 and the precursor of this new program strategy believed that Organization 2005 is designed for the purpose of growth at a consistently higher level. If the program is to be implemented, positive feedbacks are anticipated in the general managerial and working environments. For, Organization 2005 will “create an environment that produced bolder goals and plans, bigger innovations and greater speed” (2003). On specific areas of the Company for example, the new program will be financially beneficial as one of its prime objectives is the boosting of sales and profits while in work processes, the aspect of automation is indispensable as new technologies will be used to replace traditional processes of production. Human resources in regards to Jager’s redesigning of the rewards system is considered in support of the Company’s workforce. However, there is a need to create and maintain a balance of costs and the employment issue on human resources is inevitable to exist and complicate after. Organization 2005 is said to be inclusive as it caters to the future needs of the whole Company.
It also served as tool in the identification of low performing areas of management. The mere fact that Jager came up with such initiatives meant that there are some areas of management that should be reconsidered. This new program served the needed purpose by explicating weaker areas that constantly need further improvement. Organization 2005 was able to predict unproductive jobs, departments, and other applications related to the overall operation of P&G, if not on immediate but long-term basis and degree of implementation.
The new program strategy prompts organizational workforce to work on innovations and competitive advantage. Involving the overall aim of Organization 2005, that is to improve P&S’s competitive position and operating efficiencies through more ambitious goals (2003 ), the management functions will be refueled with further entrepreneurial vigor as there is a requirement to meet set goals and satisfactorily achieve if not exceed expectations. Everybody is expected to work and do their particular share in the program and its implementation. Innovations are key factors for development in particular management and production areas.
Sustaining the P&G’s strong global brand reputation is a tough job. Through the integration of the deliberate ambitions of Organization 2005, this will serve as reinforcement to the already effective strategy that the whole Company employs. Regardless of unprecedented drawbacks of the program, Organization 2005 as new business strategy is perfectly designed for long-term entrepreneurial benefits and competitive purposes.
On the contrary, Organization 2005 seems to be ambitiously crafted and hastily implemented that led to various difficulties in management. Among the immediate pitfalls of the new business strategy is the inability of Jager to anticipate sudden outburst of management implications. Other issues in management sized up and Jager decided to resign from his post. The initial stages of the new strategy resulted to downgrading of P&G’s from $117 in January 2000 to $90 the next month. The expected good results turned out to be the reverse effect. In relation to management functions, managers suffered too much pressure that affected certain processes like the delivery of products to market faster. There are also major moves that are credited to be a part of the program (i.e. dual acquisition of Warner-Lambert and American Home Products). Organization 2005 affected human resources and overall employment as there is massive transfer of employees to various countries that resulted to the difficulty of adapting to changes. The confrontational management style of Jager was also seen as a weakness during that time. Human resources management is among the most remarkable weakness of Organization 2005 as it created avertable rift between upper level management and common manpower staff. Lastly, Jager’s failure to conduct more intensive research and development (R&D) efforts sprouted difficulties on the seemingly perfect Organization 2005 program strategy.
Considering Proctor & Gamble’s position in the global marketplace, it is not difficult to specify Organization 2005 market opportunities. Opportunities lay upon the effectiveness of the Company to implement its policies on the new program strategy. The new program strategy paves way for a reinforcing effect particularly on the conditions of growing markets, extended service networks, emergent economies or capitalizing on the basis of competitor’s imperfections. Companies like P&G employ detailed business plans and strategies in order to gain several benefits from its competitors such as increased profits and enhanced customer relations as company objectives. According to (1985), balance between enhanced company processes and renewed objectives should be critically appraised in order to ensure the success of the company. The opportunity for Organization 2005 to create a newly advanced management functions with the integration of information technology (IT) is promising. Production technologies become itinerant wherein the developed technology within the regional and local research facilities is transferred to specific plant that has high requirement for such technology.
Another opportunity in the transformation to the strategic arrangement of organizational structure into business units with five key elements namely global business units (GBUs), market development organizations (MDOs), global business services (GBS), corporate functions, and company culture. The said restructuring will determine areas of development that needed improved and focused attention from managers and related personnel. The opening of doors for strategic alliances or takeovers is also feasible. Using Organization 2005 as new program strategy, it addresses the opportunity to expand its operations and even potential business cooperation. The opportunity to stand as number one in the line of industry is also posed through the initiatives of managers and implementers of policies of Organization 2005.
The inability to handle change management particularly on the implementation of strategy poses great threat to the overall functions of the Company. Amidst the financial capacity of P&G to sustain the needs of the program, it will not stand credible if and only if the affected stakeholders are not able to decipher and go along with the changes at hand. On the party of human resources whom serving the main fuel of production, their inability to deal with sudden changes is risky. This occurrence will potentially affect the entire production and corporate management activities.
Furthermore, the unprecedented business trends and rapid competition is never taken out of the list of most popular threat in any business regardless of geographical coverage. It is acknowledged that development among worldwide industries is deliberate and seems to be a top priority. For industries like P&G, the threat of unprecedented trends in business like international trade policies and economic factors, changing consumer culture and smart buying behavior may lead to uncertainty. Technological difficulty may also affect business operations even if Organization 2005 looks forward for comprehensive and state-of-the-art technological innovations since the constant improvement in IT will make new facilities not longer to be obsolete. On the aspect of competition, more and more companies will try to challenge the market status of P&G. With international cooperation of businesses and strategic alliances, competition will be the ultimate survival of the fittest in form.
Task 2: THOMPSON et al EIGHT MANAGERIAL TASKS FOR STRATEGY EXECUTION
(2000) comprehensively define strategy as “a plan that integrates an organization’s major goals, policies, decisions and sequences of action into a cohesive whole.” The coverage and area of application is related to all levels in an organization like P&G including any of the functional areas of management. This is also inherent to production, financial, marketing, personnel and corporate strategies, as relevant examples. It is also concerned with success rather than efficiency and is the process of analyzing the corporate environment and designing the fit between the organization, its resources and objectives and the environment (2000). The formulation of strategy (see Appendix 1) like Organization 2005 considers its ways of implementation and execution. In strategy execution, Thompson and colleagues devised a model that embodies the most crucial parts where managerial tasks are needed and to be used in the case analysis of Organization 2005 (see Appendix 2).
1. Building an organization with the competences, capabilities, and resource strengths to execute strategy successfully.
Having a capable organization is a must in any strategy execution. On the case of P&G, its corporate and organizational management and reputation is undisputedly outstanding. As previously stated, P&G is among America’s most admired companies and can also extended globally. Organization 2005 strategy upon its implementation will further build the competencies, capabilities, and resource strengths given that strategic options are taken not for granted. The said strategy will restructure the marketing and management functions of the Company with ardent hopes of increasing sales and profits. This corporate restructuring program, on first look, is capable of building a reputable and powerful organization. By means of the identification of specific goals, appointment of right persons for key job areas, and strengthening weak businesses and reinforcement of well-performing business units, which are all embodied on the new strategy program, the process of building up an organization is certain. Jager is decisively wants to implement the Organization 2005 strategy program that will create new growth opportunities for the whole company. As the key person behind it, Jager had an abrupt take-off for the new program strategy. This action resulted to uncontrolled effects like the decrease in revenue growth, difficulty of P&G’s premium brands in competing markets, inability of managers to perform well in their tasks and other human resources issues, and unsuccessful new products. Organization 2005 is headed for improvement of the firm’s performance or simply to accelerate growth of the Company. With the emerging drawbacks on the strategy implementation, there is a sudden need to select competent individuals who will handle or manage organizational change. Then again, there are flaws in building up a strong organization in relation to the case, as the selected individuals are unable to provide what is expected of them. The changes that occurred during the period of strategy implementation vary in every specific business unit. For example in human resources management, there is an urgent attempt of designing the work environment and organization structure to move from present departmental structure to the new team based structure. The development of new human resources policies and programs to help employees make the transition and upgrade current employee skill sets and/or hire new employees with relevant skills is also evidently established.
The role of IT in the implementation of this managerial task is significantly related to the changes that occured in the whole period. The Company spent almost $1 billion in 2002 for its IT including collaborative technology to facilitate planning and other marketing functions. Based on the case study, Organization 2005 upon its implementation undergone changes in terms of building up a strong organization. Among these changes is the resignation of Jager as CEO of the Company and the immediate tenure of Alan George Lafley. The new CEO took a second analysis on the rationale of the whole strategy. He created immediate solutions to the mounting problems brought about by the seemingly perfect strategy. He considered having a support-team to make sure that the strategic change will meet its goal. Unlike Jager, Lafley concentrated more on big countries and products. In building capable organizations, the Company is successful in IT efforts. However, Jager and the failure of management to think all the important aspects of selecting employees suitable for implementing Organization 2005 is taken into account. Jager has experienced increasing challenges and problems in the implementation of organization 2005 which led to his resignation, Lafley, on the other hand, have taken over the position and have immediately devised imperative actions to address problems at hand, then continued what Jager has started but with some organizational-bounded changes stated above. It could be said that the changes in relation to this first managerial tasks and strategic objectives are met.
2. Marshaling resources behind the drive for good strategy execution and operating excellence.
The Company has allocated $1.9 billion for this six-year corporate restructuring program. This huge amount of money is not actually an issue for firms like P&G as they hold a massive supply of economic and financial resources. Initially, the allocation of resources is often a critical issue in every organization. The most common resource that corporate managers consider includes financial capital, personnel, and technological infrastructures. Among these popularly known resources, financial capital counts most and receives the greatest attention for the sole reason that money keeps the organization functioning. In the case of P&G’s Organization 2005 strategy, the corporate management intelligently allocated their given resources. It is also recognized that Jager’s administration encountered some obvious glitches yet the succeeding efforts compensate such problems. The new program strategy involved large costs where only $400 million is planned to be used in the early years of implementation (1999) and $1 billion over the next two fiscal years (2002-2004). The management handled balance and cost effectiveness in both marketing and management functions. The personnel case similarly have a cost-effective allocation of its manpower, though part of the strategy is to cut cost by eliminating 10,000 positions in fiscal 2001 and another cost-cutting of 5,000 employees after 2001. This is actually an ambivalent issue in terms of Organization 2005’s success.
Most of the resource allocation on this new strategy program is on acquiring IT in replacement of the traditional processes of production. During Lafley’s administration, increased attention was given on IT infrastructures as part of the change strategy. The Company in relation to its IT efforts had decentralized its 3,600-person IT department to ensure that 97% of their employees now worked in the company’s individual product, market and business teams, or were part of global business services, which supported shared services that includes infrastructure to P&G units as the remaining 3% worked in corporate IT (2003). All in all, allocating resources in the Organization 2005 new program strategy is consistent and fell on the prescribed and initial budget for the 5-year duration. There were just small changes yet these are all negligible. Therefore, all changes met all strategic goals previously imposed.
3. Instituting policies and procedures that facilitate strategy execution.
Organization 2005 upon its execution includes strategy-supportive policies that played major controlling role for the initiation of the new strategy. In Jager’s time, strategy-supportive policies are not case-specific. Among the most common policies that were not taken into account if not neglected are risk management or risk prevention policy; monitoring system, feedback system and research and development (R&D). In details, risk management efforts that the Company can apply include the assurance that all project management requirements are available (i.e. professional expertise, financial resources, feasible schedule and proper monitoring techniques). These are the essential elements of ensuring a successful strategy execution. Jager, for instance, did not use any strategy-supportive policies to address and resolve the problems that have been foreseen in the execution of the new program strategy.
For the employment of a monitoring system in the strategy execution, there is nothing applicable as strategy-support policy. There is no clear monitoring or evaluation team. If there are such, the flaws of Organization 2005 in its initial take-off are minimized if not eradicated. A monitoring team can also actively participate in risk management procedure. Regularity is needed as a definite monitoring schedule should then be set and followed. Lastly, the feedback system in connection to the monitoring system is deemed vital. In this new program strategy which include various businesses, quality team leaders are expected to report on the performances per business unit. With the failure to do so, slight damages are created thus resulting to bad image of the seemingly perfect program strategy.
As stated in the initial finding, the Organization 2005 new program strategy somewhat oversee the importance of R&D mechanisms specifically in marketing during Jager’s time when he introduced new products in underdeveloped markets. It is given that the structured method of marketing research has enabled countless of producers and consumers alike to better understand their relationship ( 1995; 2004). Generally, the role of marketing research in every business environment is to provide information that are necessary in the decision making processes for the development and benefit of the company. The value of information in decision making is proven especially in enhancing performance, reducing uncertainty, and processing business plans (1982; 1991; 1991). The information collected through marketing research, may it be qualitative or quantitative in nature is essential in the overall being of the company. Decisions based on marketing research information are an important factor in overall business success (1990;1990). For instance, exceeding expectations mean doing more for the customer than is expected under normal circumstances. This includes largely the notion of research and development, innovation and searching for ways to expand the products or services that can be provided to enhance the customer’s business but generally also the supplier company’s business. Hence, exceeding a customer’s expectation is not always solely an altruistic act on the part of the supplier company. P&G feels that when it pleases customers with product innovation and consistent value, it earns loyalty to its brands (1994). Focus on quality, productivity and profitability, is being practiced by the Company. They found that a focus on quality creates loyal customers, drives cost out of the system, increases responsiveness to customers and increases both the individual and collective capability of the organization (1994). So, the role of marketing research in the decision-making process of the company is to provide imperative information that is very vital in the growth, success and survival of the marketing course of the product in relation to the business as a whole
Formalization of policies and procedures that facilitate strategy execution is a challenge. There has to be a great amount of knowledge on the imperative factors that affect the overall implementation. In a study conducted by (1994), he identified ten (10) strategies employed by companies particularly on improving their operations and profitability in both short and long term perspectives. These strategies are to be seen in Appendix 3. These strategies are seen evidently on the execution of Organization 2005. Having these said, the changes that occurred on this managerial task worked to the achievement of strategic goals posed by P&G’s management.
4. Adopting best practices and striving for continuous improvement in how value chain activities are performed.
P&G is accurate in their idea that there is still a tremendous potential to grow in international market due to the fact that the global market for household products is not as mature as it is in the Unites States (2003). For instance, using the rationale of Organization 2005 on the creation of new products or even intensification of existing brand names, P&G must identify its chosen strategic intent. A company’s success may be rooted in an extensive background or knowledge of the strategic intent of customers, suppliers, partners, and competitors ( 1995). P&G’s main and strongest competitor among others is Uniliver. Thus, it is recommended that with the application of Organization 2005, P&G’s management must integrate all necessary mechanism towards all strategic intent.
P&G has been divesting its non-core brands ( 2003). In the recent years, P&G diversified in an effort to increase sales as many of their products, for instance Pantene shampoo, compete in mature market. Some of the products resulting from the diversification, such as its Olay line of cosmetics and artificial cooking fat Olestra, have failed. When the new CEO A. G. Lafley managed the Company, he decided to sell off the performing poorly brands and refocus on P&G’s core, higher-profit making businesses by backing the Company out of the food product business and other failed undertakings. Meanwhile, P&G has formed over 10 strategic alliances in the recent years (2003). The Company tie-up with Dana Undies to make Pampers cotton underwear, with Magla to make Mr. Clean disposable gloves and mops, and with GM to distribute its Tempo car clean-up towels (2001). Also, it agreed to partner with Whirlpool to develop a new clothes “refresher product” and appliance.
As mentioned, P&G diversified products beyond its capabilities to manage the diversification. The Company has a strong historical success in its consumer soaps, including Tide and Ivory, and in Crest toothpaste. However, other products like its Olay cosmetics and Olestra artificial cooking fat have not been successful. This results in the firm’s recent decision to refocus on its “core” brands or the ones that performs very well in the market. P&G’s refocusing may suggest that its diversification level was producing poor returns. With the aid of Organization 2005, the corporate management is able to leverage its global presence by focusing on products and the market and then eventually become competitive in the global marketplace.
For P&G, the objective of their related-constrained firm is to “think globally, act locally”. This is supported, for example, by a cooperative structure of five global business product units (i.e. baby, feminine and family care, fabric and home care, food and beverage, and health and beauty care) and seven market development organizations (MDOs) which are formed around a region of the world such as Northeast Asia. Using the five global product units identified in the creation of strong brand equities through ongoing innovation is how the Company thinks globally while interfacing with customers to ensure that a division’s marketing plans are fully capitalize on local opportunities is how they acts locally. The information is shared between areas like the product-oriented and the marketing-oriented efforts to enhance the Company’s performance. In follows that some corporate members should be responsible for focusing on making certain that knowledge is meaningfully categorized regardless of purposes it may serve and then rapidly transferred throughout P&G’s businesses and units (2007). In terms of such identified changes, the strategy execution in relation to this managerial task is effective as it achieved most strategic objectives presented at hand.
5. Installing information and operating systems that enable company personnel to carry out their strategic roles proficiently.
Practically, support systems like information and operating will ensure successful strategy implementation. On the case of Organization 2005, P&G’s management had installed a support system to initiate the changes, that is, effort in restructuring of the management team. Herein, the new CEO redistributed the positions of the company to update and improve operations and meet the strategic objectives of Organization 2005.
The intensification in IT is also considered as important part of the support system. Lafley, through the alignment of technological infrastructures and general business strategy, P&G’s business value could be maximized, and the competitive threat can be minimized. Investing on IT include computerization of areas of management and production. The goal of these systems is derived from the organization’s vision or mission, and could either be short term or long term in effect (1994). These computer-based information systems used within an organization consist of the network of all paths of communication within an organization which assists management in collecting, manipulating, and analyzing data or information for decision-making. It operations include input of data, processing of data, storage of data and information from raw input, and the creation of management outputs such as reports and business analysis (1999). Lafley’s IT support for Organization 2005 is the type of commitment to continuously improved efficiency and effectiveness that has spurred the Company on and made it possible for to become competitive on a global scale. In relation to changes, there were major ones as directly associated in the achievement of strategic objectives.
6. Tying rewards and incentives directly to the achievement of strategic and financial targets and to good strategy execution.
In strategy execution, P&G’s management established a reward system. This is primarily intended to support employees in relation to the organizational strategy of providing incentives in exchange to actions that will work on the firm's interest and performance over time. According to the expectancy theory, employees expect and need to be rewarded according to the work they do, and will help them to develop their capability, help them to work up to a higher level so that they can be better rewarded. Employees expect organizations to have compensation systems that they perceive as being fair and commensurate with their skills and expectations ( 2002). The compensation may, in some cases, act as employee motivators. These compensations that employees receive may be value-added compensation including direct compensation, such as salary, incentives and commissions; and indirect compensation, such as insurance benefits, employee recognition programs, flexible work hours, and vacation benefits. To improve performance, the system theory assumes a synchronized work environment. To synchronize the parts of the organization, it is necessary for the productivity of the Company in ensuring the effectiveness of the Organization 2005 execution.
Here comes the controversy on the public perspective of the new program strategy. In this case, the goal of the Organization 2005 is to trim down the units of the business structure by laying-off some of its employees yet offering a justifiable reward and motivational approach, and to motivate the performance of the retained ones. In the execution of this managerial task, Lafley incessantly used a given reward approach with aims of increasing productivity and effectiveness. The incentives used by P&G are both monetary and non-monetary. Looking at the changes that obviously occurred in the Company, it undeniably served for the purposes of achieving the strategic goals of Organization 2005.
7. Shaping the work environment and corporate culture to fit the strategy.
The corporate culture of P&G is also a role model. (1992) defined corporate culture as “the pattern of creating shared common assumptions that the organization learned as it resolves problems of outer adaptation and inner integration that has been considered valid making it possible for others to pass it down to new members as the appropriate way to think, perceive and feel organizational concerns” (). The case of Organization 2005 looked further on having a general goal or united strategic direction among areas of management. Specifically, the goal of this new program strategy is to improve P&G’s competitive position and generate operating efficiencies through more ambitious goals, nurturing greater innovation, and reducing time-to-market by substantially restructuring the overall organizational setup, work processes, culture and pay structures (2003). These corporate shared goals are then achieved through past practices and strategies that are guaranteed to work and are embodied in Organization 2005. Upon its initial stages of implementation, Jager had a shared approval and unified corporate culture to implement the new strategy is present.
According to (1999,2005) research on the Company, she found that their cultural change required not only a shift in internal values, but changes in attitudes about external beliefs as well. She notes that Proctor and Gamble was pursuing aggressive use of KM and BI technology in its supply chain. To be successful, says that the organization must change their cultural beliefs about sharing information and decision-making techniques with outsiders. That is, the company must change its relationships with its suppliers and with its customers, from one of passive market acceptance to one of proactive sharing of knowledge and data. The function of strategic management and planning is also apparent. Strategic management for (2002) has provided a useful set of tools and techniques to draw on and adapt to enable them to be more focused, to create a stronger sense of unity and direction, to understand the external environment better and to manage more effectively the development of the organization.
The consideration of P&G’s corporate culture paved way to the distribution of learning on the expense of Organization 2005. There has been a communal knowledge and information sharing through experiences with others. The occurrences during the strategy execution imply that the Company supports a definite level of stability among the upper and lower areas of management. However, this is remarkably manifested under the management of Lafley in contrast with Jager. The changes that occurred in this managerial task are directed to a distinct corporate culture. P&G has commitment towards sustainability, product safety, environment responsibility, social responsibility, community care, privacy, and corporate governance. With the implementation of the said program strategy, the corporate culture of the Company is guided with their “Purpose, Values and Principles” or PVP wherein it focuses on personal integrity, respect for the individual and doing what is right long term (2007). Over the past 165 years, the Company used this culture as seen evidently on the execution of Organization 2005. There are minimal changes but it could be said that they are all directed to the achievement of strategic objectives that are previously identified.
8. Exerting the internal leadership needed to drive implementation forward and keep improving on how the strategy is being executed.
Leaders primarily work through and with other people. They also help to establish the conditions that enable others to be effective. Leadership is a function more than a role. Although leadership is often invested in – or expected of – persons in positions of formal authority, leadership encompasses a set of functions that may be performed by any different persons in different roles throughout an organization ( 2002; 2000). On this case, it is specified that there are two leaders and two different leadership style used in the strategy execution.
, who spearheaded the Organization 2005 new program strategy, is a good leader in the first stages of execution. His failure and his team to anticipate possible drawbacks upon the strategy implementation created negative impacts to the whole change process. This made the strategy unsuccessful and instigated Jager’s resignation from his position. According to (2002), leaders have the ability to view the future. They are equipped with compelling abilities to visualize where things will naturally end or lead to. Unlike other people, individuals with leadership abilities see things that are not noticeable or obvious to others. In addition, leaders have the ability to build and establish confidence to others. Hence, in order to be a good leader, a person needs to have a personal sense of efficacy and confidence (2002). Obviously, Jager failed on this leadership attribute and qualification. Evidently shown in the case study, problems include autocratic tendency when he tried to put too much pressure on the P&G managers into bringing their products to market faster and strategic decision-making and taking. When Jager forced his managers to rapidly deliver their products to the market resulted to unsatisfactory effects. His inability as a leader to decide strategically was seen on the event of dual acquisition of Warner-Lambert and American Home Products, which were futile during those times.
Meanwhile, Lafley, being a veteran in the company, could be said more effective than his predecessor. As Lafley saw the mistakes of the previous P&G leadership, he redirected and redefined success. Lafley immediately acted upon urgent matters at hand when he already had his tenure as CEO. He has his own set of goals yet they are not far from the original strategic objectives of Organization 2005. Among his significantly remarkable action are his improved operations and renewed management team. He hailed different heads of P&G’s operating businesses and corporate functions in 13 countries. While Jager focused on taking new initiatives in underdeveloped markets, Lafley took increased attention on big countries and P&G’s big and core products. This made a distinct difference. Lafley can also be categorically given credit to effective use pf a unique leadership style. He is able to be appropriate in exercising the right leadership style on the right point in time and circumstance. In relation to the Organization 2005, he also improved the P&G’s competitive advantage and revitalize long-term growth initiatives by streamlining the Company cost structure by further reducing overhead and manufacturing costs. This was considered as expansion of Organization 2005 original strategic intent. The encouraging leadership in which Lafley employed served as inspiration and strong motivator for employees to excel on their management functions. The renewed management team looks forward to the welfare of the whole organization over self-interest. Upon the execution of the Organization 2005 under Lafley, employees are more dedicated towards innovations. All in all, the changes that occurred in this managerial task contributed to the eventual success of the new program strategy. Indeed, such changes do not only archived but also surpassed the given strategic objectives.
Task 3: PROCTOR & GAMBLE AND GILLETTE ACQUISITION
(a) Acquisition as a Sensible Strategy for Diversified Company
Merger and takeover is the process that happens when a company with greater resources acquires the rights and properties of another company in an effort to save the latter from further financial handicap (2002). Also, it is considered as the consolidation of two organizations into a single organization, while acquisition means the purchase of one organization from another where the buyer or acquirer maintains control. It is said that both partners pursue a “strategic fit” or the similarity between organizational strategies or complementary organizational strategies setting the stage for potential strategic synergy. More often than not, merger is closely associated with acquisition. The new wave of merger and acquisition activity concerns some of the acquiring companies and their financial intermediaries (1998). It is a sensible strategy for diversified company in the following ways:
Acquisition (or merger) is considered a strategic action of firms to obtain several advantages from integration of activities and resources. One of the strengths of the merger is its ability to strengthen the competitiveness of the merged company. Such could promote cost-efficiencies and even give the newly-formed firm value-adding capabilities (synergies) that would not be attained individually. It is a formal strategic agreement between two business organizations to pursue a set of private and common interests through the sharing of resources in contexts involving uncertainty over outcomes (2001).
Practically, the combining efforts of two companies were expected to reap many benefits. In this case, merger and takeover includes several benefits particularly in addressing common yet challenging issues on the business operations. Some of these benefits include the importance the said process in terms of competition, financial management, innovation, and other related factors. Merger and takeover is an effective solution and way to combat the widening competition any specific business or industry (Market Research, 2000). The merger boosts any company by providing the needs to attain tremendous growth and positioned its products and services as dominating forces in the particular area of operation. It is all in cost-saving expectations that create important expenditure and selling synergies. According to (1979 ) there are reasons for mergers including different kinds of efficiency improvement such as replacement of inefficient management product, financial, and tax synergies.
Strategic alliances like acquisition has helped pressure some firms to link with others. It has also meant many new players looking for ways to follow their customers. Further, it helps to mitigate external environmental uncertainties and potentially avert price wars ( 1992). The degree of strategic alliances may range from a simple licensing agreement, to joint marketing effort, to establishing consortium, to combining resources for joint ventures, to the ultimate form of mergers and acquisitions. Companies may be interested in alliances to capitalize on different expertise, build strategic synergies, mitigate risks, speed up a venture with combined resources, and develop scope economies ( 1998). Merger and takeover increases the feasibility of innovation and increases the core competencies of companies. Interactions between innovation of knowledge, marketing and management are increasingly being recognized as essential elements in the evolution of economic order and the emergence of new social structures (2003). The management is no longer serving the singular role of producing products; this role is complemented by other critical functions. It redefines corporate boundaries, corporate growth, capabilities, and consolidation.
Meanwhile, (1991) said that in order to keep up with the rapidly changing technologies; gain access to specific foreign markets and distribution channels; create new products; and ease problems of worldwide excess productivity capacity, strategic alliances are being used with increasing frequency. (2000) said it can be easily said that corporate takeover is a means of survival for companies. They continued that in this new environment, ownership matters, and managerial control stems from equity position rather than relational ties. There is a potent increase of company resources. Resources are believed to be important when they allow an organization to conjure up of or put into practice strategies that perk up the organization's competence or efficiency ( 1991). (2004) stated that the deal is beneficial because not only is there a lower cost base, but also stapled securities provide a better alignment of management and investor objectives with no conflict of interests from related third parties. Other benefits of merger and acquisition are establishment of a niche because of the expansion of products offered and increased productivity and profitability through increase output with unchanged fixed costs, yielding higher profit.
(b) Strategic Business Benefits in the Acquisition of Gillette
Historically, (1993;2004) proposed that mainly corporate combination activity since the mid-1970s has been initiated by technological and supply shocks that scored in excess productive competence in various industries. Merger, as a corporate strategy of companies, can be examined in two aspects: the financial considerations and the profitability and gains of the company in merging, and the employment issues it generates, specifically, the existing employees of the company before the merger. According to (1999), worldwide mergers have increased by five folds from 1994-1998 and have fully gained their momentum by 1999. Reports from the (2001) states that mergers and acquisitions (M&As) is a global phenomenon with an estimated 4,000 deals according to the taking place every year. It is an accepted strategic option in a competitively aggressive post-industrial economy. The end result is a broader range of services and talents for the combined firm's clients. Their primary concerns are legal and financial - how much a company is worth, what terms to negotiate, how to structure the transaction, and how to get regulators to go along with it. Balance sheets are scrutinized, projections of demand and capacity are studied, and cost-cutting requirements are at the forefront of consideration. Most of the analysis concerns valuation and the financial contours of the deal. Also, (1992) stated that alliances involve co-operative agreements between enterprises in which the parties co-operate on an equal footing. Such collaboration requires a pooling of human, technological, productive, informational, or financial resources leading to a mutual commitment. (1995) also stated that a strategic alliance through mergers is providing a “trading partnership that enhances the effectiveness of the competitive strategies of the participating firms by providing a mutually beneficial trade in technology, skills and/ or products”.
This trend according to (1999) is attributed to synergy – greater productivity and efficiency gained by the companies through combined operations. It is like two competing companies joining forces to become bigger and more powerful companies and probably, to dominate the present market. Though (1999) added that corporate merger has its downside since it creates monopoly among the consolidating firms. This leads to reduced competitions and the eventual demise of weaker and smaller corporations. The M&A strategy are largely believed to be an advantageous strategic option for organizations ( 1996). Basically, the motive of mergers is to achieve a global presence, growth, diversification, and achieving economies of scale (1993; 1992).
According to an article in (2006) journal, “the innovation model at Proctor & Gamble (P&G) places even greater emphasis on alliances. The company has forged a global network of partners that has transformed product development to better meet customer demands. Connect and develop (C&D) involves finding established ideas from around the world and then applying P&G’s own capabilities in such as research and development (R&D), marketing and purchasing in order to improve them further” (). This is particularly evident on the acquisition of Gillette as a strategic way of building global alliances. However, there are identified disadvantages in terms of the organizational structure, the financial arrangements and human resources particularly, the emotional and psychological adjustments among the employees before and after a merger.
A merger can sufficiently transform the structures, cultures, and employment prospects of one or both of the firms such that they cause organizational members to feel stressed, angry, disoriented, frustrated, confused, and even frightened. For the individuals involved, these feelings can lead to a sense of loss, psychosomatic difficulties, and marital as well as personal discord. Yet, what is often overlooked is that M/A’s not only disrupt the lives of individuals but inevitably destabilize the organizations involved as well.
Inter-firm consolidations often precipitate lowered employee commitment and productivity, increased dissatisfaction, high turnover, leadership and power struggles, and a general rise in dysfunctional behaviors such as sabotage. In addition, another disadvantage that merger and acquisition may bring within the company is the tendency for the company to not give enough focus to its products because of many products that it offers in the market. In this manner, the company may not have that assurance of sustaining the competitiveness of other products.
Another weakness can be attributed to the cultural context. The consequences of culture become particularly apparent in cross national operations, mergers, and acquisitions, where not only different organizational cultures but also organizational cultures rooted in different national cultures meet (1996; 1991). When organizational members from diverse cultures interact and, especially, when one culture is required to adopt the methods and practices of the other culture, disruptive tensions emerge. These have been described in terms of the concepts of “acculturative stress” or “culture clash” (1996). The conflicts mostly result from the introduction of new management methods that are incongruent with the values underlying existing practices (1983; 1981). An organization’s culture determines the ability of out-group members to perform within the organization. According to (2000) national differences can magnify the cultural differences inherent in any acquisition, heighten employee resistance, and make the integration even more difficult. Hence, the risk of failure of a merger is even greater than with a domestic acquisition. With several factors demanding consideration of a newly merged company, the work force with different work ethics and priorities in dealing with their jobs will lead to a disaster.
(1999) asserted that mergers are not necessarily job cutters. He suggested that it does not necessarily follow that when companies merge, the result shall be lay off of employees. Though, this assumption had been prevalent among employees. Downsizing arises from the need of the consolidating firms to reduce costs by streamlining their workforce of redundant positions, departments or even entire factories. Mass lay off however, had been proven in some of the world's biggest mergers in history. A paper published by the Center for Research on Globalization and Labor Markets in the UK claimed that the impact of merger on employment in terms of job cuts depends on the merger type being considered. If the type of merger is a hostile one such as those in the cases of job loss cited earlier – wherein which the market for corporate control operates so as to redirect assets into the hands of more diligent or talented managers--cost economics and labor savings may realistically follow ( 2000).
More often than not, the newly merged or acquired business entities don't really have an easy time adjusting to the changes brought about by the acquisition or take-over. As a result, these entities engage in activities that are somehow resisting to changes. Therefore, the major activities of the company such as the manufacturing of products, product development, production and distribution become severely hampered (2001). A typical personnel problem that occurs during mergers involves the difficulty in getting people in the acquired company to work comfortably with new management.
In merging companies, another challenge is evident in the financial management aspect. The challenge now for the financial mangers is to explore the options and take advantage of the opportunities while taking caution in managing the risks. Financial management is the determination, acquisition, allocation and utilization of financial resources with the aim of achieving a particular goal (1999). It consist of analyzing the financial situations, making financial decisions, setting financial objectives, formulating financial plans and providing a system of effective financial control to ensure the progress of the plans towards the attainment of the company aims and objectives. The organization, in order to effectively execute any business strategy or plan, should be able to determine first and identify the resources that are available. Studying and examining the opportunities of the available resources will help in constructing a business plan which will be profitable. The characteristics of the business should be clearly laid out and the ideas that will be made available should be thoroughly researched. This will provide relevant information that the general management can utilize so as to be able to allocate the funds of the group in the most effective way. All the changes that will be made aim to achieve the goals and objectives of the business organization or company. That is why it is highly important that the firm knows the direction it intends to take. Making a financial decision and taking a stand to support the possibility of exploring the strength and advantages of a particular resource of the organization will be handy if the financial personnel is decisive and practical enough with a daring character to challenge and the social and economic conditions in the organization.
On the case of P&G and Gillette, the identified beneficial as well as harmful ways in the previous discussion are said to be evident. However, they were all justified by managerial decisions undertaken by the upper management. The importance of strategic management planning is seen to be relevant in this case. Strategic planning could be only successful if the circumstances of the investment that will be made are well examined and researched. This will prepare the whole business in the problems and issues that the company may confront during the execution of the project or plan. However, this does not assure that there will be no problems that will exist and confront the business venture. The above discussion provides the advantages and disadvantages of merger and acquisitions particularly on the case of P&G and Gillette.
Corporate Strategy Formulation and Implementation
Source: (2002) A Guided Tour through Kenneth R. Andrews’ the Concept of Corporate Strategy (1980),
Eight Managerial Tasks for Strategy Execution Model
by Thompson and colleagues