Strategic Business Analysis: Procter & Gamble Case Study
Strategic Business Analysis: Procter & Gamble Case Study
Overview of the Company: Procter & Gamble
Procter & Gamble is one of the most successful companies in the industry today. It manufactures and produces a variety of products that features not only high standard of quality, but practicality and value for money as well. Procter & Gamble was founded by William Procter, a candle maker, and James Gamble, a soap maker in 1873. By 1879, they have developed Ivory, an inexpensive while soap, thus, enabling them to establish their own laboratory, being the first in the United States. By 1930, the company was able to purchase a British soap manufacturer, Thomas Hedley & Sons, and by 1935, it was able to establish a factory in the Philippines.
At present, Procter & Gamble sells more than 300 leading brands, such as Pampers, Ariel, Tide, Whisper, Pringles, Downy, Camay, Cover Girl, Pantene, Iams, Crest, Duracell, Puffs, Secret, Wella, Eukanuba, Bounty, Folgers, Gilette, Hugo Boss, Mr. Clean, Oral-B, Old Spice, Clairol, Actonel, Lacoste, Joy, Max Factor, Zest, and Olay. It markets its products to over 160 countries worldwide, and operates a total of 115 plants in more than 80 countries all over the world. Its headquarters are located in Cincinnati, Ohio, USA. It employs more than 98,000 employees worldwide. Aside from a wide variety of products, Procter & Gamble has also been active in producing radio and television shows, such as Dawson’s Creek, Shirley Jones and Down to Earth ( 2007).
The global business units of the company is divided into five, namely, fabric and home care, being its biggest division, beauty care, the second biggest, baby and family care, health care, and snacks and beverages. The fabric and home care division of the company is its most profitable division, contributing to a total of $2.1 billion in 2004.
However, the increasing number of competitor companies forced Procter & Gamble to implement far-reaching initiatives that aim to produce changes in terms of the company’s organizational culture, work processes, culture, production, and operations. Procter & Gamble are aiming at this through its implementation of ‘Organization 2005’, which would enable the company to strengthen its global presence. As such, this paper aims to make an analysis of the business strategies of Procter & Gamble, including its strengths and weaknesses as a company. It also aims to evaluate and assess the performance of the company, based on a specific period, until the implementation of its new business strategy. In this regard, the latest business strategy of the company, ‘Organization 2005’ would be analyzed and evaluated.
Identification of Organizational Strengths and Weaknesses
One of the potential strengths of Procter & Gamble is the wide variety of products, following the five different business segments the company is offering its consumers. The wide variety of products the company offers its consumers enabled the company to operate in almost 200 countries worldwide, thus, strengthening the second potential strength of the company, which is establishing a dominant market position. The dominance of the products and the name of the company in the market and among consumers help the company to become a stable reputation in the market, being an already known and established manufacturer of products in the industry. It has been reported that companies achieve marketplace distinction through their size and dominance, and such advantages can be achieved through a combination of brand-name recognition, accessibility, capacity, broad expertise, and the ability to create advantage through sheer marketplace muscle ( 2003). These characteristics contributed to the strengths and market advantage of the company. Another potential strength of the company is its continuous modification of structure and internal processes, which aims to maximize its global advantage. Through continuous modification and restructuring, the company is able to adapt to the continuous changes that are happening both internally and externally. Because changes in the business sector are continuous, a certain international and multinational company must be able to have different approaches in order to cope with such changes.
Another potential strength of the company is its ability to launch various initiatives to facilitate knowledge exchange and best practices in the company, leading to the strengthening of the Organization 2005 initiative. This emphasizes the highly effective value chain of the company, being able to facilitate the exchange of knowledge and information, thus, enhancing the company’s ability to transfer best ideas, assemblies, parts, and process data that can be easily and readily shared (2006). Facilitating best practices and knowledge exchange in the company enables it to reinforce its next potential strength, which is improving and developing its workforce through IT initiatives, reward systems, supply chain management, and training programs. In this regard, the company is able to develop the potentials, skills, talents, and knowledge of its employees, thus, helping them to become empowered and more motivated.
However, despite its strengths, several weaknesses can also be determined. One of the weaknesses of Procter & Gamble is that its implementation of new strategies involves substantial and significant costs. Additional costs for the company would enable it to allocate larger amounts of money, thus, contributing to the additional problems of the company. In this regard, significant allocation and budgeting must be adjusted in order to cope with additional costs. Another weakness of the company is the retrenchment being done, thus, affecting the morale of employees. Due to cost cutting, an organization may have the option to retrench, relocate or even fire their employees to be able to cope with the needed changes being faced by the company. However, because of such actions, many employees would be threatened, not only in terms of their performance in the company, but in their individual skills and abilities as well. In this regard, this is being treated as a weakness of the company, as it provides fear and anxiety to employees, being included in the retrenchment and job reduction initiatives. Another weakness is the company’s ability for lower realization. Lower realization means the inability of the company to think about the different problems and solutions that might be implemented. In this regard, low realization of the company entails inaction and passive approach in terms of problems and challenges.
The next significant weakness of the company involves the leadership and management skills of Jager, who puts too much pressure on the managers of Procter and Gable for marketing their products. This means that the leadership and management style of the company’s past CEO does not fit the corporate culture of the company. It has been reported that leadership is regarded as the most important element of directing the function of management, and a supportive function to other managerial functions, thus, in this regard, good leadership is important to effective management (2004). The lack of good leadership on the part of Jager has contributed to the weaknesses of the company, as his strategic decisions are out of timing, leading to more problems for the company. In addition, his decisions for employee transfers and relocations resulted to employee behavioral problems. As such, these weaknesses further contribute to the problems of the company in terms of lower sales and profits and lower market recognition during the period from 1995 to 1999.
Identification of Organizational Opportunities and Threats
To complete the analysis of the performance of the company, both its opportunities and threats are needed to be recognized. The major opportunity of Procter & Gamble is the taking over of George Lafley being the company’s CEO. The new management of Lafley focused on taking new initiatives in underdeveloped markets, thus, focusing and prioritizing the market profitability of top-selling brands. The dominance of the products and the reputation of the company dictate its advantage in the market, being established and stable in the industry. As the pioneer in a product or market segment, Procter & Gamble has a large installed base of their products or numerous facilities in key locations ( 2003), thus, enabling the company to obtain relevant information regarding a certain target market. Another potential opportunity for the company is its ability for the improvement of operations, profitability and rebuilding its management team, which are essential factors in improving its competitiveness and in revitalizing its long-term growth. This was done by the company through IT initiatives and investment, through improvement and development of workforce, and through introduction of new products and new technologies. The continuous improvement and development of the IT industry in many countries have provided Procter & Gamble to improve and hasten its operations and production processes, thus, providing larger opportunities for participating in globalization. This is a good opportunity for the company, as it helps increase economic interdependence between countries and leads to an increased flow of goods, capital and knowledge across borders ( 2006). Another opportunity for the company is the reduction for overhead and manufacture costs, which would enable the company to allocate more resources to its other functions, and not only in the operations and production departments. Better allocation and budgeting of the company’s resources would provide better savings and monetary advantage for the company, thus, dictating and determining the ability of the company to allocate resources effectively for the benefit of the whole company.
Along with the opportunities are the threats presented to the company, which serve to be the future problems Procter & Gamble is able to face. The primary and main threat to the company and to any other company is the increase in competition. The increase in the competition against Procter & Gamble is the increase in the production of generic brands, which are the cheaper versions of the company’s core products. The increase in competition in the industry was triggered by the lack of introduction of the company for new products for a long time. In this regard, products sit in one place without adding value (1997), thus, not enhancing the users themselves. In terms of beauty, home and healthcare products, they must continuously be changed and modified to continuously cater to the changing needs of the consumers. Without the introduction of new products in the market, the consumers would have the notion of stagnation of the company, which would provide realization that the things they do not like about the product would remain all throughout. The next threat for the company is the falling stock prices, from which the prices of the company are dependent upon. Because Procter and Gamble is involved in supplying the needs of its consumers, the prices of its commodities then is dependent on the demand of its consumers. In this regard, if the stock prices or the prices of the commodity would fall, then the overall profit, sales, and operations of the company would be affected, leading to significant drop of earnings. The next threat to the business of the company is the increase in the prices of the costs of raw materials. The increase in the prices of raw materials would provide significant threats to the company, as this significant increase would also affect the pricing of the company’s commodities or products, which would may illicit negative and unwanted responses from consumers. The increase in the prices of raw materials would mean a direct effect or increase in the prices of end-products in the market. Another threat determined is the failure of the company’s dual acquisition, which can be regarded as a waste of time, effort, money and energy. Lastly, one of the most important and significant threat to the company is its internal problems, particularly in its human resources.
Identification of the Eight Managerial Tasks for Strategy Execution
(2005) reports of the eight components of implementing and executing strategy of managerial tasks. The eight components include Allocating Resources, Building a Capable Organization, Exercising Strategic Leadership, Shaping Corporate Culture to Fit Strategy, Establishing Strategy-Supportive Policies, Instituting Best Practices for Continuous Improvement, Installing Support Systems, and Trying Rewards to Achievement of Key Strategic Targets. Such components are important to take note off, as they enable the organization to achieve their goals and objectives through effective planning and organizing, based on such components. Specifically, using such components, the organization would be able to fit how the organization conducts its operations to the requirements of the strategy, generate commitment, so an enthusiastic crusade emerges to carry out strategy, see that the activities are done in a manner tightly matching first-rate strategy execution, and unite the whole organization behind the chosen strategies (2005). In this regard, it can be perceived that such elements or components are crucial in determining and executing the different strategies of organizations in order to help them attain and achieve all their goals and objectives.
Allocating Resources. Allocation of resources refers to the effective, budgeted, and proper distribution of resources in an organization, and involves the effective and efficient skills of a manager. Resources or assets of the company include physical assets, such as land, facilities, buildings, and equipments; financial assets, such as cash and credit rating; operations assets, such as machinery, systems, and processes; human assets, such as employees, and their qualities and skills, marketing assets, such as distribution penetration, marketing, expertise, market positioning, market knowledge, customer loyalty, brand name, reputation, and relationships with distributors; and legal assets, such as patents and copyrights, systems-management information systems, and decision support mechanisms (2003). Given the number of different assets or resources of a company or organization, it can be perceived that the managers of the organization must be able to budget effectively in order to distribute and dissipate adequate resources to all the different functions of the organization. In this regard, proper allocation of resources of a specific organization depends on the ability and skills of the managers to allocate resources effectively, and the organization’s ability to profit from its market, from which the bulk of the resources of the company would come from.
Building a Capable Organization. Building a capable organization serves to be one of the top priorities of managers. This is because a capable organization is characterized as having all the necessary elements that would enable the employees of the organization and its market to coexist effectively. A number of components are recognized, as essential factors that are required in building a capable organization. Such factors include staffing the organization, building core competencies and competitive capabilities, and structuring the organization and the work effort. Staffing the organization means that to build a capable organization, the company must be able to put together a strong management team, and recruit and retain talented employees (2005). Staffing the organization involves the effective recruitment and selection process, where the main goal is to acquire people who possess the ability and competence to successfully accomplish the duties and responsibilities not only of the job to be filled out but also of the potential to grow with the company, and to be assigned to a job which the person’s ability, character, and temperament suit the job given to him or her (2003). The second element involves building core competencies and competitive capabilities of the company, which involves the development, updating, and reshaping of the competence and capability portfolio of the employees and the whole organization itself, based on the external conditions and the changes in the strategies to be adopted (2005). The last element is the structuring of the organization and work effort, which involves the concept and process of Organizational Development. It has been reported that Organizational Development is a long-range effort planned, systematic, organization-wide, and managed from the top, aimed to increase organization effectiveness and health through planned interventions, including usage of behavioral science knowledge to the adaptive development, improvement and reinforcement of such organizational features as the strategies, structures, processes, people, and cultures that lead to organization effectiveness (2005). In this regard, in order to build a capable organization, the employees and top management with their effective and efficient skills, and the whole organization itself must be integrated and coordinated in order to achieve its goals and objectives.
Exercising Strategic Leadership. Leadership is a key issue in the development of groups, organizations, and nations. Leadership is the ability of a specific individual to direct and guide a group of individuals in order to achieve goals and objectives. In relation to this, strategic leadership becomes relevant, as it enables a leader and his followers to focus on a specific goal using their skills and capabilities. In exercising strategic leadership, the roles and characteristics of the team leader and his or her team members matter. The team leader must be responsible in planning, organizing, and controlling the activities of the team and must possess a number of skills. Such skills include the ability to develop people, has excellent communication and interpersonal skills, the ability to handle stress, good problem-solving skills, and time management skills (2005). Similarly, the team members must also be responsible, and support and contribute to the success of the whole team and its team leader. Teamwork, trust, cooperation and coordination of the whole team can be achieved through team’s cohesiveness, development, clear understanding of team objective, clear expectations of roles and responsibilities, and high degree of cooperation, collaboration and trust (2005). In this regard, to be able to implement and exercise strategic leadership, the coordination, cohesion, and cooperation on the part of the team leader and the team members must be achieved.
Shaping Corporate Culture to Fit Strategy. The corporate culture of an organization determines much of the way that “things get done”, and encompasses the company’s values, goals, and dominant ideologies. It is hard to explicitly grasp, but can be expressed through the organization’s myths, heroes, stories, jargon, rites, and rituals (1984). In addition, a mission or vision statement of the organization is a summation of the ideal corporate culture, and differs from the real corporate culture, which acts in many specific and powerful ways to shape, limit and focus its members (2001). Based on such facts, it can be perceived that shaping the corporate culture of an organization depends on the different factors that intertwine and interact within the organization, including the values, perceptions, beliefs, and practices of its employees, the leadership and motivation styles of the top management, and the compensation and reward system of the organization. Because many factors affect the shaping of the corporate culture of an organization, its strategy is also entirely affected. In this regard, the strategies of an organization must be able to be designed and shaped, based on the corporate culture of the organization, which cannot be changed and altered easily. As such, the organization’s strategy must be the one be adjusted to fit the corporate culture of the organization.
Establishing Strategy-Supportive Policies. A number of policies are being implemented in the organization, and are basis for effective and efficient operations. Establishing policies in the organization would enable employees and the top management to execute actions and processes based on the protocol and regulations set by the organization, thus, promoting discipline and compliance on the part of the employees. Similarly, the implementation of strategy-supportive policies in an organization would enable the organization follow protocols based on the chosen, planned and organized business or marketing strategy that would force the employees in the organization to follow and comply with the policies. To be able to do so, the strategy must be integrated with processes to update plans, policies and programs ( 2005).
Instituting Best Practices for Continuous Improvement. This component involves the concept of Total Quality Management, which is a corporate culture characterized by increased customer satisfaction through continuous improvements, in which all employees in the firm actively participate ( 1995). Its aim is to improve and develop the system and approach of an organization for customer and employee satisfaction, where the form of management determines the quality and extent of service that the organization can offer their customers. Based on the concept of Total Quality Management, best practices can be implemented in the organization, through improved efficiency of the employees, reduced operational and production costs, better product and service quality, and greater customer satisfaction. Through best practices and adoption of Total Quality Management, continuous improvement can be achieved. (1995) reports that if the desire for individual improvement is transferred to systems within the workplace, then these systems will improve. In addition, the continuous improvement of the system management and its employees, increase in productivity will be achieved by the whole company, which will make the company more stable in terms of sales and profit. Through total quality management, the employees will be more improved in terms of skills and knowledge regarding their work in the field. Improvement will give them the advantage of possessing an important and highly effective skill, which they could use in their edge. Improvement in performance covers development in work ethics, improvement in quality of product, creating an environment encouraging teamwork, and respect for one’s abilities.
Installing Support Systems. Support systems refer to information and communication technologies that can be used by the organization to support their operations and production processes. Support systems of today transform all aspects of our lives, including how we work, shop, play, and learn, and thus, transform our economic infrastructure by revolutionizing methods of supply, production, distribution, marketing, service, and management. The use of Information and communication technologies represents nothing less than a fundamental redesign of the entire supply chains of most industries and indeed a fundamental restructuring of many industries themselves ( 2002). It is essential for an organization to use and adopt support systems for a number of reasons. Reasons include becoming updated with the use of the latest technology, keeping a record of all the needed and essential data of the organization, improving and developing effective communication within the organization, hastening production processes, effectively communicating with consumers, hastening the delivery and distribution process, and effectively meeting the demands and needs of consumers. The installation of support systems may involve substantial costs for the organization due to continuous updates and expensive materials, such costs would be replaced, as the organization is able to adopt the support system in their internal processes. In this regard, success and financial revenues would be increased, thus, assuming the effectiveness of the installed support system.
Trying Rewards to Achievement of Key Strategic Targets. Rewards and compensations are integrative and essential elements in the workplace environment, as it aims to motivate individuals to get a job done. It has been reported that it is based on the Instrumentality Theory, which states that people will be motivated to work if rewards and penalties are tied directly to their performance. It is also based on the theory of reinforcement, stating that with experience in taking action to satisfy needs, people perceive that certain actions help to achieve their goals while others are less successful (2002). In this regard, it can be understood that providing rewards to individuals motivate them to achieve and attain their goals. Similarly, this principle goes to be applicable to the whole organization, as it becomes generally motivated and driven, given the fact that the achievement and fulfillment of their goals would allow them to sustain and maintain their financial and industry status. As such, the key strategic targets of organizations refer to their goals and objectives, and thus can be achieved and attained through positive reinforcements. However, the success of the whole organization lies on the individual motivation and achievement of its employees, making individual reinforcements and rewards essential.
Using the Model to Describe Organization 2005
Based on the above discussion, eight components of managerial tasks can be used in strategy execution. Such components can be used to describe and evaluate the strategy of Procter & Gamble on implementing Organization 2005 in their system. Organization 2005 aims to improve the company’s competitive position and generate operating efficiencies through more ambitious goals, nurturing greater innovation, and reducing time-to-market, and such goals were to be accomplished by substantially redesigning Procter & Gamble’s organizational structure, work processes, culture, and pay structures (2005). Using the eight components of strategy execution, carrying out of the company’s strategy can be described.
In terms resource allocation, it can be perceived that Procter & Gamble was able to improve on this first component through determination of the fact that the development of their company lies on proper allocation of time and effort on human assets, financial assets, and marketing assets of the company. Resource allocation was improved and developed through the implementation of the strategy, as Lafley focused on the improvement of the company’s operations and profitability, and in rebuilding the management team of the company. In addition, the company needs additional financial assets, as substantial costs are involved in the implementation of the strategy. In this regard, it can be assumed that due to the implementation of the Organization 2005 strategy, significant changes can be observed in the company, such as changes in the officers, employees and members of top management, and changes in the operations and production processes in order to improve marketing and financial status. (The effects of such changes can be seen in the financial reports, and sales and earnings of the company, which are shown in the appendices.) From this, it can be observed that such changes have been effective means in meeting the objectives of the strategy. Another component of strategy execution is building a capable organization, which has been one of the successful achievements of Procter & Gamble. It has been mentioned that in order to build a capable organization, a company must be able to staff it, build its core competencies and competitive capabilities, and structure its work effort. Through the Organization 2005 strategy, staffing and structuring of the different functions of the organization was further improved, with the inclusion and integration of new faces in the management of the company, such as as the head of global baby care, as the global marketing officer, and as the head of the global snacks business. This means that with the new staff heads, the implementation of a new style of management would be observed in the company, which would further restructure it, such that would fit the implementation of its new strategy. Along with the changes in the company’s staff and structure is the change in its new core competencies and competitiveness, as each head has new capabilities and skills that would be used by the company to fit the implementation of its new strategy. It has been mentioned that modifying the core competencies and competitive capabilities of an organization tends to be its response to the changing external conditions, which significantly affect and alter the growth and development of the organization. In this regard, the aim of the strategy for the restructuring of the organization has been met, as with the implementation of Organization 2005, significant growth in terms of sales and profits of the company has been attained.
The third component of strategy execution is exercising strategic leadership, which was achieved by Procter & Gamble with the modification and improvement of its management. It has been mentioned that in exercising strategic leadership, the roles and characteristics of the team leader and the team members matter, and thus, contribute to and determine the success of the whole organization. One of the goals of the Organization 2005 strategy is to improve Procter & Gamble’s competitive positioning, and this goal can be achieve through strategic leadership. The changes in the management style of the organization, with the new CEO and the new heads and managers of the different divisions of the organization have prompted Procter & Gamble to exercise strategic leadership in all levels of management in the company. This contributed to the increase of sales and profits of the whole organization. The fourth component of strategy execution involves shaping the corporate culture of the organization to fit its strategy. It has been emphasized that one way to achieve the goals of the Organization 2005 strategy is through redesigning Procter & Gamble’s organizational structure, including its culture and work processes. Changing the corporate culture of the organization has been achieved with the implementation of the Organization 2005 strategy based on five key elements. Primarily, Procter & Gamble placed the responsibility for strategy and profit on its brands, instead of geographic regions, from four to seven global business units or GBUs. Second, the company established eight market development organizations or MDOs to adapt global marketing programs to local markets. Third, a global business services or GBS was founded, incorporating overhead functions, including human resources, accounting, order management, and information technology. Fourth, most of the corporate staff in the company was transferred to one of the new business units. Lastly, the fifth key element aimed at changing Procter & Gamble’s organizational culture is redesigning reward systems and training programs in improving the orientation of employees. All the key elements focused upon by the Organization 2005 strategy are indicated to be important elements in shaping an organization’s corporate culture, as discussed previously. As such, due to the success of the Organization 2005 strategy, it can be assumed that the corporate culture of Procter & Gamble fits its implemented strategy. In addition, it has also been mentioned that under the strategy and the management of Lafley, Procter & Gamble’s competitiveness and long-term growth have been achieved through streamlining the company’s cost structure by reducing overhead and manufacturing costs. Along with such initiatives, the company also reduced staffing by about 9% of the total workforce of the company. Moreover, reductions have to be made through involuntary separations. In line with this, the company continued to review its investments and goals, which may lead the company to incur additional costs (2005).
The fifth component of the strategy execution is establishing strategy-supportive policies, which further supports and reinforces the chosen strategy or strategies of organizations. It has been mentioned that strategy-supportive policies allow the organization to follow protocols based on the chosen, planned and organized business or marketing strategy that would enforce the employees in the organization to follow and comply. In this regard, it can be assumed that because the Organization 2005 strategy has been a successful strategy, policies that support such a strategy have been followed within the organization, and thus, becomes one good means to achieve the goals of the organization. The sixth component of strategy execution is instituting best practices for continuous improvement, which involves the concept of Total Quality Management; wherein corporate culture of the organization is characterized to become focused on the satisfaction of customers through continuous improvement, in which all employees of the organization participates. In this regard, focusing on the individual capabilities and motivation of employees enable the company to build on its overall performance. It has been reported that under the management of Lafley, the company focused on prioritizing and in promoting Procter & Gamble’s top-selling brands, from which the company would be obtaining its increased revenue ( 2005). In this regard, it can be assumed that through this strategy, each employee of the organization is able to contribute significantly to the success of the company, through focusing on their work and selling the top brands of Procter & Gamble. In addition, it has also been mentioned that one of the impacts of Total Quality Management is continuous improvement, which focuses on the improvement of skills and knowledge of the employees of the organization. Improvement will give them the advantage of possessing an important and highly effective skill, which they could use in their edge. Improvement in performance covers development in work ethics, improvement in quality of product, creating an environment encouraging teamwork, and respect for one’s abilities. In this regard, it can be assumed that through the implementation of the Organization 2005 strategy, Total Quality Management has been achieved in the organization, thus, determining the performance of the employees in the organization.
The seventh component in strategy execution involves installing support systems. It has been mentioned that support systems refer to the application of information and communication technologies that can be used by the organization to support their operations and production processes. In addition, several advantages have also been mentioned in line with the use of support systems in the organization. Such advantages include becoming updated with the use of the latest technology, keeping a record of all the needed and essential data of the organization, improving and developing effective communication within the organization, hastening production processes, effectively communicating with consumers, hastening the delivery and distribution process, and effectively meeting the demands and needs of consumers. With such advantages, it can be perceived that the use of support systems in any organization entails increased productivity and profits. Such advantages were also experienced by Procter & Gamble, with the implementation of the Organization 2005 strategy. It has been reported that the key enabler for the strategy was IT or information technology, which totaled to as much as $1 billion in 2002 and continuously increasing. The implementation of the strategy incorporated a number of IT initiatives in the organization, including collaborative technology that aims to facilitate planning and marketing, business-to-consumer e-commerce, Web-enabling, supply chain, and data standards and data warehouse project that delivered timely data to desktops worldwide (2005). In this regard, it can be perceived that this component serves to be one of the determining components in the success of the implementation of the Organization 2005 strategy. The use of information technology in Procter & Gamble served the company best, thus, enabling the company to achieve its goals and objectives. However, in relation to this, it has been mentioned earlier that one of the impacts of implementing the Organization 2005 strategy is incurring substantial costs. The installation and use of support systems, such as Information Technology, thus, proves to be an expensive strategy of improvement and development of an organization. Installing a software or purchasing machines and gadgets for the production processes and operations of the organization is not as easy as it seems. A company must collaborate with software companies and other IT companies in order to tailor the features of the software program to the needs and processes of Procter & Gamble. This process takes time, effort, and money, as the organization must ensure that their software must be unique, so as not to be copied by their competitors in the industry. The process does not stop there, as the maintenance and updates must still be done to make sure that the software or the IT process continuously fits the production processes of the company. In this regard, it can be perceived that substantial costs can be incurred by Procter & Gamble in order to maintain and sustain their support systems, which is in line with its Organization 2005 strategy.
The last component of strategy execution is trying rewards to achievement of key strategic targets. It has been mentioned that rewards and compensations are integrative and essential elements in the workplace environment, as it aims to motivate individuals to get a job done. In this regard, it can be understood that providing rewards to individuals motivate them to achieve and attain their goals. Similarly, this principle goes to be applicable to the whole organization, as it becomes generally motivated and driven, given the fact that the achievement and fulfillment of their goals would allow them to sustain and maintain their financial and industry status. As such, the key strategic targets of organizations refer to their goals and objectives, and thus can be achieved and attained through positive reinforcements. It has been reported that one of the goals of the implementation of the Organization 2005 strategy is to accelerate annual sales growth to 6 to 8% and annual earnings growth to 13 to 15% (2005). This goal serves to be one of the motivations of the employees and the organization as a whole, as the increase in the growth and sales of the company means the increase in revenues and total earnings of the whole organization, which would provide incentives, rewards, and compensation to all the employees of the organization. Changes in the organization, including all the changes discussed previously, are key changes in the structure and culture of the company. In this regard, it can be assumed that Procter & Gamble offers good compensation and rewards to its employees, which allow them to become effectively motivated in complying with the Organization 2005 strategy. In this regard, based on the assumed compensation and rewards being received by the employees of the company, it can be perceived that through this component, the goals of the Organization 2005 strategy have been attained. This is because through the Organization 2005 strategy brought the much-needed discipline in the company’s global marketing efforts ( 2005). In general, without the implementation of this strategy, Procter & Gamble would not be regarded as one of the most successful companies in the market in the world, which manufactures the best among the best brands.
A. Acquisition: May or May not be a sensible strategy for a diversified company
Merger or acquisitions are a part of a company’s long-range planning and may be considered as the one of the means of implementing company plans and reaching company objectives (2003). It presents crucial benefits or advantages, such as increased stability for the two companies involved, employee diversification, expansion, wider target market and market segment, product variety and innovation, and increase in profit and sales. However, mergers and acquisitions may not always be a sensible or reasonable strategy for a diversified company or organization. A diversified company has features of having a diversified culture, language, practices, operations, and management. In a diversified organization, different types of individuals, having diverse cultures, beliefs, and languages can be encountered, thus, making management and leadership a bit challenging. It has been reported that diversified organizations find it difficult to maintain sufficient resources in areas of capital, information, technology, and human resources, involves high cost of management, lack of overall strategy, lack of authority and capability over resource allocation, and difficulty to achieve synergy to benefit the company as a whole (2004). In this regard, for such kinds of organizations, mergers and acquisitions may serve to a great and tough challenge.
Given the different features of a diversified company, the several disadvantages for having a merger or acquisition can be determined. One reason why a merger or acquisition may not be a positive strategy for a diversified organization is the different cultures that exist between the two organizations. In this regard, the difference between the organizational cultures of the two companies may be one of the causes of deeper conflicts and problems, such as language or culture barriers. It has been reported that the lack of human compatibility between the acquirer and the target, and the lack of strategic fit between the companies’ corporate culture is the major driver of the failure of such endeavors ( 2003). Another reason is that the human and economic resources of the target organization may not be as strategic as it seems, thus, contributing to the burden of the acquirer. In this regard, the acquirer must do extensive research in order to obtain relevant information and data from the target organization.
The third reason for mergers and acquisitions not being a sensible strategy for diversified organizations is the presence of social incompatibility with regards to the aggregate values and beliefs held by the managers and employees of the organization. In this regard, the reputation of the acquirer must be known to have participated in mergers and acquisitions in order to gain the trust of target organizations, and have the sufficient experiences and expertise in terms of acquisitions. Another reason is the acquirer’s lack of internal evaluation and assessment if it really needs an acquisition, or if it really needs to merge with another company. The company may not have the proper evaluation on the needs and the resources of the organization, thus, in reality, not really needing any merger with any organization. In this regard, the organization must be able to assess their performance and resources first before deciding to have a merger with any other company.
The fifth reason why mergers may not be a sensible strategy for diversified organizations is the accumulation and addition of risks, which may have adverse changes in the type of management each organization implements. With mergers, the risks each organization has would be combined, thus, doubling the risks. In this regard, the leadership and the management style of each organization matters, as it dictates and determines the kind and type of culture the members may have. As mentioned earlier, leadership and management are important aspects in the operations of an organization, thus, are essential contributory factors for the failure or success of a particular merger or acquisition process. The last reason is the manufacturing and production process that are employed in both organizations. A diversified organization has a diversified process of production and operations, thus, might entirely affect the process of production and operations of the target company. In the event that the production and operations of the target company are significantly different from the acquirer, then problems and challenges would be encountered. As such, extensive and long-term research activities must be prioritized and facilitated effectively to prevent and avoid merger problems and conflicts, not only to the acquirer but to the target company as well. Such researches can be done through internal and external references, thus, allowing both companies involved in the merger to obtain relevant information and data from each other.
B. Strategic Business Benefits of Gillette Acquisition
It has been previously discussed that some acquisitions and mergers for other companies may not be as successful and may not be a sensible strategy. However, the Procter & Gamble’s acquisition of Gillette have been a good one and have served both companies with benefits. In this discussion, the different strategic business benefits of the acquisition, on the perspective of Procter & Gamble would be discussed.
On the perspective of Procter & Gamble, one of the strategic business benefits of the acquisition of Gillette is the addition of new products and brands to the wide variety of products and brands offered by Procter & Gamble. It has been reported that the Gillette Company is the world leader in male grooming, a category that includes blades, razors, and shaving preparations, and also holds the leading position in selected female grooming products in the world, such as wet shaving products and hair epilation devices. Aside from male and female grooming materials, Gillette also holds the leading position in the world, in terms of manual and power toothbrushes and alkaline batteries. Brands of Gillette include Gillette Mach 3, Gillette for Women Venus, Gillette Series, Right Guard, Duracell Copper Top, Oral-B, Braun Oral-B, and Braun” (2005). Through the acquisition, such products have already been added to the long list of products being offered by Procter & Gamble. In this regard, the company, thus, can offer more innovative and practical products providing effective solutions for all its consumers. As such, this acquisition provides the consumers with superior customer service, unmatched by any other manufacturers in the industry. Companies perceive customer service as a benefit, not only to their consumers, but also to their company as well. It means that the company or organization is driven by the goal of providing the customer with the highest level of satisfaction, concentrates on how the customer is better served by the company compared to competitive offerings, and that all processes and activities in the entire organization are integrated and coordinated to accomplish this goal (2003). It serves to be a key factor in the success of any business (2000), as customers look for convenience, cost and quality of the commodity. As such, firms concentrate on the technology and capabilities of employees to provide and deliver customer satisfaction. In this regard, the acquisition further ensures the consumers of both companies or manufacturers of their improved services and products, for their joined forces would mean the best possible products consumers could purchase from the market. In relation to this, the cash flow of the company was increased, and the addition of Gillette’s products in the line of products of Procter & Gamble resulted to an increased in sales, from 8% to $19.7 billion, where Blades and Razors and Fabric and Home Care leading the segments with 8% organic sales growth ( 2007). This also served to be the next strategic business benefit of the acquisition, as Procter & Gamble was able to increase its revenues.
The significant increase in revenues of the company due to the Gillette Company acquisition entails more benefits and advantages for the company. Some of these advantages include more effective resource allocation, such as being allocated to other functions of the organization, namely, the human resource, marketing, advertising, and many others. Aside from effective resource allocation, the increased in revenues of the company would enable it to provide more incentives and compensation to its employees, thus, increasing and enforcing their motivation to work for the company. In this regard, the employees would be driven to work more effectively and efficiently in the company, thus, driving the operations and production processes of the company in an active fashion. Satisfied and motivated employees mean that the company would not have many problems in terms of teamwork and interpersonal conflicts. Because the company is giving its employees with more than adequate compensation, it can be perceived that employees would not have any reason to become dissatisfied with their work, leading them to have intra and interpersonal issues, and leave the company. In addition, increased revenues would mean more savings for the company, thus, having more excess resources and savings in case unexpected events happen in the company. In case stock prices fall or earnings drop, the company would not have severe problems that would lead to company bankruptcy. Thus, in this regard, that with a single benefit, it can be perceived that a chain reaction of benefits would be obtained and attained by the company.
Another benefit of the Gillette acquisition is the further establishment and emphasis on the status of Procter & Gamble being a worldwide corporation. Through the acquisition, the names, brands, and products of both companies would be further established and promoted in the market, thus, further strengthening its position in the industry. Prior to the acquisition, both companies have been able to provide their consumers with superior value for their products and services. With their forces joined, it can be perceived that the superior value of their products and services would be further enhanced and improved, thus, providing excellent, superb, and world-class consumer value. It has been reported that providing consumer value means delivering on a whole range of promises to the consumers, where such values can be compared to those of competitors. The concept of ‘value-added’ is relevant in this regard, as it is defined as the component of customer value provided by an individual organization within the overall business system, and derived from the business system in which the organization operates ( 2001). In this regard, it can be perceived that through the acquisition, Procter & Gamble would have be able to provide its consumers with value-added products and solutions, which leads back to the previously discussed benefits, such as increased sales and revenues, establishment and positioning of the company, and product variety.
It has been emphasized that Gillette manufacturing operations are carried out at thirty-four facilities in fifteen countries prior to the acquisition, thus, its products are distributed through wholesalers, retailers, and agents in more than 200 countries and territories around the world (2005). This fact serves to be one of the significant advantages of the acquisition, as Procter & Gamble will not have a hard time focusing on the distribution channels it would use for the distribution and introduction of the company’s product. Because Gillette is already known in its own right, introduction and distribution of Gillette’s products to the market, being an addition to the products of Procter & Gamble would not be hard to do. Gillette already has an established value-added chain and distribution channels that would be effective in reaching their consumers all together. It has been reported that at each stage of the value-chain, there exists an opportunity to contribute positively to the organization’s competitive strategy, by performing some activity or process in a way that is better than one’s competitors, and so providing some uniqueness or advantage (2001). In addition, the value-added chain and established distribution channels of the Gillette Company serves to be an advantage for Procter & Gamble, which would have the edge of using that existing channels for the distribution of other products. It has been emphasized that distribution channel productivity is often a critical success factor for many businesses (2005), as it enables a specific company to serve their consumers better, regardless of distance and boundaries. As such, the company would be able to attain increased revenues and recognition from its consumers.
Lastly, the benefit of the acquisition stresses the aim and the purpose of Procter & Gamble to uphold equality of human rights. Through the acquisition, the company would not only be able to uphold anti-discriminatory policies that address sexual orientation in the workplace ( 2007), but also uphold the equality between genders through the promotion of both female and male grooming products and services. Majority of the products of Procter & Gamble cater to the needs of women, and include home care, beauty, and cosmetic products. With the acquisition of the Gillette Company, the company would also have the opportunity to cater to the needs of the male consumers, through offering innovative solutions and products, including male depilators, batteries, and toothbrush that suit the male gender. This in turn provides the consumer system with an equal chance to purchase the products of Procter & Gamble through the products of the Gillette Company. Given the wide variety of products of the company, consumers, both men and women, old and young, would be provided with more choices and options, thus, giving them the right and the freedom to choose their preferred products, and the products that would suit their lifestyle. This would further provide Procter & Gamble with benefits, as the company would be able to further establish itself not only to the female consumers, but to the male consumers as well, and in this regard, the company would have more competitive advantage over its competitors in the industry.
Appendix A. SWOT Analysis of Procter & Gamble that Triggered Organization 2005
comments powered by Disqus