Strategic Analysis of Proctor&Gamble - Essay Example

 P&G Strategic Analysis Company Profile Procter & Gamble (henceforth P&G) is a well-known American multinational consumer goods companywhich is head quartered in downtown Cincinnati, Ohio, USA. The great company was founded around 1837 by a soap maker, James Gamble and a candle maker, William Procter. These two investors had settled in Cincinnati, where they had married sisters Elisabeth and Olivia Norris. The father of the sisters convinced the in-laws to become business partners (P&G, 2008). P&G is among the biggest distributors and manufacturers of consumer products in the world with a global reach of 300+ brands in 180 countries. In 2012, the company was with net sales of nearly USD 84 billion, and more than USD 10 billion in net earnings. P&G’s 50 brands that foster leadership are among the most famous brands in the world, including Ariel, Pantene, Head & Shoulders, Fabreze, Sunny Delight, and OIL and Olaz. These brands account for about 90% of the sales of P&G, which bring above 90% profit to the company. Each of these brands generate more than $1 Billion in sales annually, hence the brands can easily be termed or described as Billion-Dollar Brands (P&G, 2012). This essay will take an in-depth analysis of the organization’s structure, international and corporate-level strategy so as to effectively know how this leading company competes successfully on both the global and domestic markets. Structure The structure P&G adopted changed from a “Global Matrix” to a hybrid organizational structure. Roald Jean Degenalso termed it as “Front-Back Hybrid Matrix organization” structure. The structure focusses on two key areas in its operations; namely the customer markets designed on the front end and the end products designed on the back end. Therefore, it can combine both customer focus and responsiveness, and the global-scale economies together. Regions P&G has four major divisions with each having a sub-division. These include Europe consisting of Middle East/Africa, Western Europe and Central Europe. North America has the United States/Puerto Rico and Canada. Latin America has Asia/Australia. Lastly, Greater China, with its headquarters at Singapore, has Northeast Asia, Australia and India/ASEAN. Product divisions (which refers as Global Business Units) Baby care/family care, healthcare, snacks and beverage, beauty care /feminine care and fabric/homecare. Corporate functions The organization functions from an additional matrix across two parallel organizations. Key areas of focus here include finance and accounting, information technology, customer business developments, product supply, external relations, consumer and market knowledge, research and development, legal and human resources. There are unit managers charged with two responsibilities. These include looking after the product, as well as the other region (Harris, 2006, p. 120). In this matrix structure, the power between different business units is balanced by reporting higher up in the hierarchy for example, the product-category country units being reported to regional managers, who then report to the CEO. In contract to the matrix structure P&G used to adopt, the four-dimension front-back hybrid matrix solved problems for the old structure. First, it was vital in the creation of a balance between product and customer focus dimensions. Second, it presented a unified sales contact for customers, which focuses on all products growth. Third, despite the product category business units having profit and loss duties, they do have full control over key functions. Fourth, there are the third and fourth dimensions which consist of the service and corporate functions. Fifth, the above mentioned functions also form the third and fourth aspects with two key dimensions. International strategy P & G practices a transnational strategy which yields to both the pressures---global integration and local responsiveness. The need for global integration hinders the centralization of operating decisions namely R&D, as well as production. Additionally, decentralization of operating decisions to subsidiaries, for instance marketing, is hindered by the need to adopt local responsiveness. Consequently, there is a tendency for companies to mix decentralization of operating decisions while at the same time decentralizing others (Aswathappa, 2010). P&G started with multi-domestic strategy in 1980s. By 1990s, the largest soaps and detergents manufacturer switched to transnational strategy. P&G now co-ordinates its skills and resources to reduce costs across countries and increase its differentiation advantage inside each country as well. The new strategy gives P&G a competitive advantage over its arch rival, Unilever. A typical case of this strategy is in how the company approaches in operations. The adopted approach is to think globally while acting locally. As such, P&G’s global strategy views the world as a single market. Furthermore, the company tries to operate in areas with low costs of operation while each of its unit being so efficient hence making the whole organization functional. Worldwide, there are approximately 125 manufacturing plants. Recently, a new plant was commissioned in Tuas, Singapore. The plant specializes in the production of perfume/fragrance for renowned brands like Olay Skin moisturizers, Downy fabric softeners, Pantene, and Head and Shoulders Shampoo (Min, 2008). The top management in headquarters is responsible for all important decisions to reduce costs and help business units generate profits. The regional plant is located along the coast of Tuas (Moneycontrol.com, 2008), which benefits the firm in terms of the business environment and logistics. As per the company’s Asian President Deb Henretta, the choice of Singapore for the construction of the perfume was due to the fact that there is an innovative business environment which is supported by a strong infrastructure (Economic Development Board, 2008). Moreover, it is easy to have the ships and trucks pick up and deliver the products in the shortest time possible. To add on this, the company has located its regional headquarters in a downtown area with large business potential. The suitability of the location lies in the fact that there is a nearby local authority that passes bylaws affecting the company’s operations. By so doing, there is consolidation of local resources to be used in production. Another classic example of strategic location is the Hyderabad manufacturing plant in India. This is P&G’s largest manufacturing plant in India. The move is based on Cincinnati-based firm's global mandate to set up over 20 production centers and acquire one billion new consumers in emerging markets by 2015. The location of P&G in India is based on the fact that the country is the world’s largest manufacturer, as well as exporter of menthol. Local production is essential in the reduction of production costs and speeds up product launch. Manufacture of Vicks products is undertaken by Richardson Hindustan Limited (RHL), which was acquired in 1985 (P&G, 2012). There has been the streamlining and standardization of business services like information technology and finance and accounting. On the other hand, there has been customization of marketing, R&D and products. However, human resources has been standardized and customized. For instance, despite each region being autonomous as far recruitment, employment of local managers is because they understand the local market better. This is as per the company’s Organizational 2005 program. On the contrary, the M test, also called the Graduate School Admission Test, is still being used by P&G. Both the bottom-up and top-down forms of communication are used in the company (Icfaian School of Management, 2001). The set of values is also standardized throughout the whole business. The key values of P&G are a passion of winning, trust, leadership and ownership. Value setting acts as a standardized guideline for company employees when it comes to decision making, as well as day to day operations (Sasha, 2011). Corporate Strategy P&G like other multinational organizations began with a simple structure of selling a single product-- the Ivory Soap integrated to a large corporation selling 300+ brands products in 180 countries. In order to overcome the challenges of the growing size and complexity, corporate strategy was deployed in various times to manage a multiplicity of businesses, partners, geographic markets, technologies and customers under the same corporate umbrella. In order to examine P&G’s corporate level strategy, we will study the relationship between P&G and its subsidiaries, and the fit and scope of P&G’s portfolio. A key issue of corporate level strategy is the value adding role of the corporate parent; hence we will scrutinize how effective P&G is as a parent (P&G, 2012). Fit and scope of Portfolio business The parenting matrix can be used to assess corporate portfolios. The guiding principle here is that corporates should have a sufficient “feel” for the critical success factors as well as how businesses benefit from resultant opportunities, capabilities and characteristics of the parent (Goold, Campbell, & Alexandere, 1994). P&G has six Global Business Units which include health care, beauty, grooming, home and fabric care, and Baby Care and Family Care, which suggest that the “feel” between business units would be low. For example, P&G have beauty brands “Olay” and Grooming brands “Gillette.” These two are totally different products category with different technology, raw material and innovation. However, the distribution channel is the same. Both of them can be sold in commercial stores like Boots or Tesco. Since the product category of P&G is so diverse, the knowledge know-how and Bio-technology of Health Care may give some helps for the innovation of Olay. So, for P&G, even the diverse businesses can be assigned as heartland business units that can increase the value of the whole business (P&G, 2001). From another point of view, although diversification brings lots of advantages to the fit of parenting units, it can also lead into trouble to certain extend. Analysis by BCG Matrix shows that increasing product category will become the question mark with reduced share of the market and high growth of the market. This is because lots of investments are required in the new market, and the market is usually very competitive. Also, there is high risk of wasting resources therefore causing problems. Few P&G subsidiaries can be defined as Alien businesses. It will be the snacks business Pringle’s Potato Chips which was sold to the Kellogg Company in 2012. Furthermore, despite the applicability of the accounting guidance of long-lived assets, the food business unit isn’t well understood by P&G, and it’s likely to be damaged by some misfit with P&G’s characteristics. For example, the parent may apply a complex planning process or sophisticated linkage mechanism to the Pringle Chips which is largely independent and too small to bear the overhead burden or to suffer the opportunity cost of losing its managers to head office meetings. Although the Pringle business was still sold worldwide and gaining profit, the headquarter can’t help in the future if the business goes wrong, and it is more likely to be in a struggle situation since the food market is very competitive, especially with the biggest rivals in the market ---Kraft and Pepsi which are even harder for P&G as a consumer goods company to compete with. The relationship between corporate parent and its subsidiaries The reason for P&G to have subsidiaries worldwide is to basically raise the business unit’s overall value within a portfolio than individual business units. In a diversisified firm like P&G, most value is created in the business units and not at the corporate level. The parent corporation has no external customers. It generates costs but no revenue, but it influences business unit decisions and strategies, and it stands between the business and financial markets. The corporate is responsible for M&A activities, which can add to or destroy value. For example, P&G has now increased its market share in Singapore after it acquired laundry brands, making it the third competitor. The four brands were initially owned by Colgate-Pal-molive, Eastern Pte. Lte (P&G, 2012). The acquisition has gone a long way in increasing P&G’s profits, as well as its Singaporean household market share. There are higher profits recorded by the company, hence being a major player in the Singaporean household care market. Additionally, the company can easily enter the Singaporean laundry market while at the same time being able to reward its loyal customers. There has been a reduction in costs when it comes to research, promotions, distribution and storage of products. Moreover, minimal time is spend in carrying out these processes in the company after the acquisition (Euromonitor International, 2008). P&G has a well-proven corporate strategy to balance portfolio of young and mature businesses, ensuring that subsidiaries currently perform well and also perform well in the future based upon the decentralized management approach which allows subsidiaries to act as independent businesses. The autonomy gives subsidiaries flexibility in terms of local responsiveness and encourages creativity to meet the bottom-line which is set by the corporate center. Furthermore, the subsidiaries should have synergy with each other to ensure that the greatest valued can be added. For example, P&G merged with consumer products company Gillette in 2005. It cost P&G approximately USD 57 billion, and this made it the most expensive P&G acquisition. This deal, between Gillette and P&G, was necessary for structure, as well as cost synergy among these companies. There is complementarity of core strengths as far as branding, market, and innovation are concerned which beneficial, according to A.G. Lafley, chairman, president and chief executive of P&G. These companies are also said to have similar operating cultures (P&G, 2012). References Aswathappa, K., 2010. International Business. New Delhi: Tata McGraw-Hill Education. Economic Development Board, 2008. Household Care in Singapore. Available from http://www.euromonitor.com/Household_Care_in_Singapore (Accessed February 25, 2013). Euromonitor International, 2008. Household Care in Singapore. Available from http://www.euromonitor.com/Household_Care_in_Singapore (Accessed February 25, 2013). Goold, M., Campbell, A., and Alexandere, M., 1994. Corporate Level Strategy: Creating Value in the Multibusiness Company. New York: Wiley. Harris, D., 2006. CIMA Learning System 2007 Integrated Management. Oxford: Butterworth- Heinemann. Icfaian School of Management, 2001. Procter & Gamble. Available from http://ismindia.org/cases/pandg.html (Accessed February 25, 2013). Min, C., 2008. P&G Opens first Asia perfume plant in Singapore. The Straits Times. Available from http://www.asiaone.com/News/The%2BStraits%2BTimes/Story/A1Story2008030652941. ht (Accessed February 25, 2013). Moneycontrol.com., 2008. P&G selects Singapore for its perfume plant. Available form http://www.moneycontrol.con/india/news/news/pg-selects-singapore-for-its-perfume- plant/08/54/329471 (Accessed February 25, 2013). P&G, 2012. Annual Report. Available from (Accessed February 25, 2013). P&G, 2012. Heritage Brochure. Available from (Accessed February 25, 2013). P&G, 2008. Corporate Info Structure-Four Pillars. Available from http://www.pg.com/jobs/corporate_structure/four_pillars.jhtml (Accessed February 25, 2013). P&G.com., 2001. P&G History. Available from http://www.pg-india.com/hhcl/history.htm (Accessed February 25, 2013). Sasha, 2011. A Brief Company Overview of P&G. Available from http://www.jewzi.com/articles/pg_profile/ (Accessed February 25, 2013). Read More