Procter and Gamble IB

7/17/2019 Procter and Gamble IB

http://slidepdf.com/reader/full/procter-and-gamble-ib 1/21

Operations:

As of July 1, 2014, the company structure has been categorized into four Sectors and fie Selling !

"ar#et Organizations $S"Os%&

• Sector

• 'eauty (are

• 'aby, )eminine, and )amily (are

• )abric and *ome (are

• *ealth and +rooming

• S"Os

• Asia

• urope

• -ndia, the "iddle ast, and Africa $-"A%

• .atin America

• /orth America



Part I: STRATEGIC ANALYSIS

External general and Industry environment analysis

Strategic analysis o P!G Com"any

-n 1, 3illiam rocter and James +amble formed a humble but bold ne5 enterprise& 3hat beganas a small, family6operated soap and candle company gre5 and thried, inspired by !+7s purpose

of proiding products and serices of superior 8uality and alue&

Strategic analysis of + (ompany includes 2 factors: +eneral enironment and -ndustry

enironment&

#$ General environment

9hese are ery effectie tools to #no5 about the po5er balance bet5een organization and each

enironment factors: political, economic, socio6cultural, technological, legal and enironmental as

macro6leel $S9.%&

Political environment:

9he !+ Political Action (ommittee $!+ A(% is a oluntary, nonpartisan political action

committee& egistered 5ith the ;&S& )ederal lection (ommission $)(% and appropriate state

offices, the A( allo5s !+ employees to pool personal, oluntary financial contributions to support

candidates at the federal, state and local leel, 5ho support issues important to the business and the

8uality of life in the communities in 5hich they lie and 5or#&

!+ A( operations are transparent and compliant 5ith all applicable la5s& 9he A( is goerned

by a set of byla5s and superised by a dierse board of (ompany senior managers, ;&S&

+oernment elations personnel, and .egal counsel&

Support of candidates is based on their support of !+ issues and sustained constituent

relationships& 9he A( generally does not contribute to residential candidates< industry, association

or leadership A(s< or multiple candidates running in the same race& -n 200=, the !+ A(

contributed >2=0,0 to candidates running for office& 9he aerage contribution per candidate 5as

>1,?&

Social environment:

!+ leaders are e@pected to build an inclusie 5or# enironment that 5elcomes and embraces

diersity an enironment 5here people feel comfortable being 5ho they are, regardless of their

indiidual differences, talents or personal characteristics& 9his is an enironment that proideseeryone e8ual access to information, opportunities and inolement so each person learns, gro5s,

e@cels and ma@imizes his or her personal contribution&

9raining, policy and sensing systems are utilized to reinforce deelopment of an inclusie culture&

)ocused diersity trainingBlearning processes are utilized to e8uip leaders to alue and nurture

differences in e@periences, styles of leadership and problem6solingBdecision6ma#ing approaches&

All employees hae access to supportie and enabling policies and practices in the areas of fle@ible



5or# arrangements, family care, resourceBreferral serices and 5ellness management to improe

5or#Blife integration and personal productiity& mployee sureys and culture sensing, as 5ell as the

dierse leadership net5or#s, proide adisory data and leanings to top leadership about ho5 to be

more effectie at leeraging local customerBemployee practices and perspecties&

Tec%nological

!+Cs +lobal "edical organization adises and assists management and employees to assure a

safe, healthy 5or# enironment& +lobal medical deliers preentie health serices to all employees,

at all sites& -t manages health issues that may affect employees, technologies and brands&

As !+ is a principles6drien company, all medical system 5or# follo5s this order of priority:

1& Sae a .ife $rotect !+ eople%

2& Obey the .a5 $rotect !+Cs eputation%

& rotect Dey 9echnologies $rotect 'rand -ntegrity%

4& nhance Speed to "ar#et $rotect merging 9echnologies%

?& Optimize mployee roductiity

All medical standards of performance

9hey recognize that enironmental progress is a neer6ending Eourney of continuous effort and

improement& 'y focusing on improing the lies of consumers through innoatie technologies that

5or# better and more efficiently, they beliee they can continue to sustain both the gro5th of their

business and the health of the enironment&

Environment

!+ supports the goals of (limate &&S&O&.&F&& $esponsible nironmental Steps, Opportunities

to .ead by Foluntary fforts%& en 5ith the slight increase in emissions, they hae met the 2012

goal, but this 5ill not stop their sole to continue reducing greenhouse gas emissions&9heir actual

emissions in 200 are less than the emissions in 2002 2,G0,000 s& a base of ,21?,01& 9his

5as during a time 5hen global sales increased from >40 billion to > billion& 9he most recent

ac8uisitions 3ella and +illette are in the most recent years but not in the base year&

rocter ! +amble beliees that there is gro5ing scientific eidence lin#ing greenhouse gas $+*+%

emissions and global climate change& As a global citizen, !+ is concerned about the potentially

negatie conse8uences of climate change and beliees prudent and cost6effectie action by

goernments, industry and citizens to reduce emissions to the atmosphere are Eustified&

9hey 5ill focus their efforts in t5o main areas:

H educe the intensity of greenhouse gas emissions from their o5n operations through

continued energy efficiency measures throughout our facilities&

continuing to transition fuels sources to5ard cleaner alternaties&



setting goals to drie continued improement in their +*+ emissions&

H *elp consumers to reduce their o5n +*+ emissions through the use of our products ia

product and pac#aging innoations that enable more efficient consumer product use and energy

consumption&

consumer education&

La&s and Regulations

9here are numerous health, safety and enironmental re8uirements 5orld5ide& lants are subEect to

emission limits and operating re8uirements embodied in these statutes, regulations, la5s and

permits& -t is !+Cs intent to comply 5ith both the letter and the spirit of statutes, regulations, la5s

and permit re8uirements& -dentified compliance issues are treated seriously, and all non6compliance

matters are resoled as soon as possible&

!+ is subEect to arious la5suits and claims 5ith respect to matters such as goernmental

regulations, income ta@es and other actions arising out of the normal course of business& 9hey arealso subEect to contingencies pursuant to enironmental la5s and regulations that in the future may

re8uire them to ta#e action to correct the effects on the enironment of prior manufacturing and

5aste disposal practices& Accrued enironmental liabilities 5ere not material&

3hile considerable uncertainty e@ists, in the opinion of management and their counsel, the ultimate

resolution of the arious la5suits and claims 5ill not materially affect our financial condition, cash

flo5s or results of operations&

'$ Industry environment

Industry lie cycle

)ristly ,5e can loo# deeply about -ndustry life cycle:

+ro5th

"aturity

Iecline

9ime

-ndustry sales

Industry lie cycle (odel

9he 1=?6year6old rocter And +amble (ompany $!+% is a recognized leader in the deelopment,

distribution and mar#eting of products in nearly ?0 categoriesfrom laundry products and

toothpaste, to diapers and bone disease therapies& !+ products consist of nearly 00 indiidual

brands used by customers in oer 1=0 countries&!+Cs supplier diersity net5or# is comprised of

oer 1,2?0 minority6 and 5omen6o5ned businesses& 9he company first established a minority

supplier deelopment program in 1G2& -n the past ten years, minority purchasing at !+ gre5



almost ten6fold from >11? million in 1GG61GG0 to almost >1&0 billion in fiscal 200162002& Iuring the

decade of the 1GG0Cs, !+Cs spending 5ith minority and 5omen6o5ned businesses e@ceeded >4

billion dollars for the period&

-n the year 200, !+ has upheld its uni8ue manufacturing mind6set and focused on deeloping

human resources, consolidating foundations and loo#ing for5ard management strategies& "oreoer,the company also concentrates on strengthening the international competitieness of production and

a range of initiaties to consolidate foundations and realize future gro5th&!+ company is

committed to steadily improing its alue by continuing to pursue farsighted innoations and building

a solid management platform&

)* Porter ive orces analysis:

Secondly,"ichael orter deeloped a frame5or# consisting of fie competitie forces,5hich analyze

ho5 industry factors impacts a company7s strategy& 9hese factors are: the threat of ne5 entrants,

po5er of suppliers, po5er of buyers, aailability of substitutes and competitie rialry&

;nder rocter ! +amble7s name, the sheer scale of products that are distributed creates a challengefor ne5 entrants& Since the (ompany has a significant amount of many mar#et shares around the

5orld, a company 5ithout the capital for heay mar#eting or research and deelopment$!I%, 5ould

hardly be able to compete&

*o5eer, there is concern about firms that specialize in specific mar#ets& 9his type of company

could become a threat to !+7s corresponding business segment& roctor and +amble must

continue to e@pand its operations internationally, due to the decline of the ;S dollar to other

currencies and the emergence of ne5 mar#ets, such as -ndia or (hina&

A codependent relationship e@ists bet5een !+ and its suppliers& -n order to generate aboe

aerage reenues the (ompany needs arious 8uality materials for product production at the bestprices aailable& Suppliers of these materials also need #ey customers li#e !+ for profitable

reenue generation but 5ill most li#ely hae little bargaining po5er because of its size& !+ can use

its generous size and aailable cash to its adantage during the current credit crisis& ising interest

rates and the declining aailability of credit should not affect !+Cs relationship 5ith its suppliers&

9he companyCs successful history and large mar#et share can be used to bac# its borro5ings,under

the assumption that !+ continues to maintain its current mar#et share&

Although !+ is a ery large company, its future is dependent on buyers& 3al6"art and affiliates

represent 1?K of the firm7s total reenue in 200=& 9his percentage of total reenue gies 3al6"art

the ability to bargain 5ith the (ompany for lo5er prices, 5hich 5ould result in lo5er earnings& 9he

current credit crisis 5ill not hae a significant impact on !+ because of the diersity andLrecession6proofM status of its products& 9heproducts that !+ offers can sustain a slo5do5n or

recession in the ;S economy because of the their product types& (onsumers 5ill continue to

purchase these goods through an economic correction& 3hile !+ had disappointing 2nd 8uarter

earnings due to higher commodity costs, analysts reported strong sales forecasts and gro5th

opportunities&



9here are considerable substitutes for all of !+7s product offerings, creating an intense competitie

enironment& -n order to differentiate itself, the firm must continue to proide ne5, innoatie

products and branding to the customer& !+ notes that 5or#ing collaboratiely 5ith customers and

deeloping deep shopper and consumer understanding 5ill improe the in6store presence of its

products and 5in the Nfirst moment of truth&N 9his happens 5hen customers choose 5hich brands to

buy& 3inning the Nsecond moment of truth,N 5hen consumers decide 5hether !+ products delier

on the brand promise, is essential for gro5th in such a competitie enironment&

!+ has a presence in a ariety of industries< ersonal +oods, *ousehold, aper, *ealthcare, and

)ood products& (ompanies in all of these industries are al5ays fighting for their share of the mar#et&

(urrently, the firm is a leader in numerous mar#ets& 9he release of !+7s 200 1 arnings report

illustrated that the firm has a 40K share of the ;&S& shampoo mar#et and a =1K share of the ;&S&

laundry detergent mar#et& 9his diersity in product deelopment allo5s !+ to sustain cyclical

economic eents, such as the current credit crisis, because their products are spread out oer

different sectors&

Also, the type of products they sell are considered Lrecession6proof,M in that they 5ill

continue to sell despite a slo5do5n in consumers mar#ets because of their nature

$personal health, food, etc%&

9o #eep its current percentages of mar#et share, !+ needs to place high priority on continued

gro5th and research and product deelopment actiities& "ar#eting strategies and brand name

a5areness 5ill set the (ompany apart from its competitors& An important gro5th factor is the

implementation of their products to internationally emerging mar#ets& 9his is for t5o reasons:

"ar#ets, such as -ndia, are ta#ing to American culture and consumerism and proide a budding

mar#et for ;S retailers& 9he decline of the ;S dollar to foreign currencies ma#es international trading

promising due to the changeoer of e@change rates& +ro5th in foreign mar#ets 5ill proide !+ 5ith

strong reenue, along 5ith its Lrecession6proofM products aailable to American consumers&

c$ Summary o general environment

+""ortunities T%reats

6 3ell defined mar#et niche, Eust in time

manufacturing technology, 5ide range of

demography, and the remoal of trade barriers in

some foreign countries&

6 9he remoal of trade barriers in some foreigncountries has enabled the company to operate

competitiely 5ithout much goernment interention

6 9rade barriers historically has been #no5n to be

one of the biggest threats for most multinational

businesses because of hostal ta#eoers by some

foreign goernments, difficulty of entry, corruption

, /e5 entry into the household product industry,

use of substitute products, increased trade

barriers in some deeloping nations,

unfaorable business la5s and political

instability&, -nestors do not li#e uncertainty& 9hey 5ant to

ensure that there is democracy and stable

goernment in 5hateer country they inest and

most importantly, they should be able to

repatriate their profits 5ithout much restrictions



among goernment officials and bribery, and

unhealthy business enironment&

II$ Internal Analysis

#$ Com"any Resources

a$Service-s .uality: 9hey delier their obEecties 5ith the integrated efforts of mar#et and customer

logistics, distribution organization, , customization, mar#et planning and their customer serice

operations& (ustomer SericeB.ogistics o5ns the flo5 of products and information bet5een !+

sites and retail customers& 9heir mission is to satisfy consumersC needs by ensuring that all products

are aailable in the right place at the right time and at the right cost and 8uality

)$/uman resources ca"acity:& *uman esources ensures that !+ has the employees,

organizational design and 5or# culture to delier business productiity and to continually improe

consumer, employee and shareholder alue& 9hey proide recruiting, training, deelopment,

diersity, benefits and compensation coordination for the (ompany&

c$Ca"ital sources: based on the Annual report 2000 9he (ompany reported net earnings of >10&

billion for the fiscal year ended June 0, 200, an increase of 1G percent compared to >&= billion in

200=& Iiluted net earnings per share 5ere >&04 in 200, compared to >2&=4 in 200=&/et sales 5ere

>=&? billion in 200, up 12 percent from last year& !+ has gro5n sales from >G billion to >=

billion in the past seen years&9heyCe more than doubled the number of brands that generate >1

billion or more in annual sales and more than 8uadrupled the number of brands that generate at

least >?00 million&

d$1e"artment: !+Cs 5orld head8uarters is located in (incinnati, Ohio, ;&S&A& 9he (ompany

mar#ets more than 00 brands in nearly 10 countries& 3e hae on6the6ground operations in more

than 0 countries and employ 1,000 people&

!+ is a publicly o5ned company& -ts stoc# is listed and traded on the /e5 Por# and aris

e@changes&

As of June 0, 200, there 5ere appro@imately 2,220,000 common stoc# shareo5ners, including

shareholders of record, participants in the Shareholder -nestment rogram, participants in !+

stoc# o5nership plans and beneficial o5ners 5ith accounts at ban#s and bro#erage firms&

'$ Com"any Culture:

!+ leaders are e@pected to build an inclusie 5or# enironment that 5elcomes and embraces

diersity an enironment 5here people feel comfortable being 5ho they are, regardless of theirindiidual differences, talents or personal characteristics& 9his is an enironment that proides

eeryone e8ual access to information, opportunities and inolement so each person learns, gro5s,

e@cels and ma@imizes his or her personal contribution&

2$ +rgani3ational Structure:

+lobal 'usiness ;nits$+';s%: -n the financial year 200=6200, three +';s are 'eauty and *ealth,

*ousehold (are and +illette +';& )or the ne@t year, the +';s 5ill be structured as: 'eauty, *ealth



and 3ell6'eing, *ousehold (are&9he +';s leerage their consumer understanding to deelop

oerall strategy for our brands& 9hey identify common consumer needs, deelop ne5 products and

build their brands through effectie mar#eting innoations&

+lobal Operations

9he "a#et deelopment organizations $"IOs%deelop go6to6mar#et plans at the local leel,

leeraging their understanding of the local consumer and customer& "IOs are organized along

seen geographic regions&

+lobal 'usiness Serices$+'S%

+'S operates as the Lbac# officeM for the +'; and "IO organizations, proiding 5orld6class

technology, processes and standard data tools to better understand the business and better sere

consumers and customers& +'S personnel, or highly efficient and effectie third6party partners,

proide these serices&

Strengt%s 4ea5nesses

6Strong financial position both in the

domestic and foreign mar#ets&

6 the company has the ability and capability

to push innoation to commercialization

faster than any other competitor in the

industry&

6 Another uni8ue strength of !+ is its pool

of s#illed labor&

6 !+ has a trac# record of producing high

8uality products 5hich is ery difficult to

match or beat&

6!+ has significant scale adantages& -t is

the global leader in all its four core

categories 6 fabric and home care, beauty

care, baby and family care, health care

6.ac# of effectie distribution system in some segment

as 5ell as poor location in some foreign countries and

high cost of inputs&

6Another area of 5ea#ness is the employment of foreign

based local management 5ho doesnCt hae any

international business e@perience& 9his ma#es

collaboration 5ith head8uarters a little difficult because

of their ine@perience in the global business arena&

III$ Assessment t%e "erormance o com"any

-n this part, the performance of the company in terms of returns to inestors and efficiency,effectieness by proiding the !+ (ompanyCs financial inde@ 5ithin years: 200?, 200= and 200

5ill be mentioned& 9he data is obtained from !+ company three 6 year financial history&

a$ Returns on investment 6R+I7

eturn on inestment is a performance measure used to ealuate the efficiency of an inestment or

to compare the efficiency of a number of different inestments& 9he table belo5 5ill sho5 the returns

on inestment of !+ 5ithin years: 200?, 200= and 200:



(ash (ash

8uialents

(urrent .iabilities

account receiable&

+ross rofit "argin

Q

+ross rofit R 100

Sales

$K%

&G2&G2G&01-n 200=, +Cs +ross rofit "argin seemed to be decreased a

bit but it increased again in 200& -t means from 200= to 200,

+ could ma#e a reasonable profit on sales&

Asset 9urnoer Q

Sales

9otal Assets

0&G? 1&12 1&21 9he result is sho5n that from 200? to 200, + (ompanyCs

Asset 9urnoer 5as reducing 22K& 9he lo5er the Asset

9urnoer, the higher the /et rofit "argin& As 5e can see that

the /et rofit "argin of + 5as raised up year to year&

-nentory to /et

3or#ing

(apital Q

-nentory

(urrent Assets

(urrent .iabilities

0&0 0&0 0&02 9he inentory to net 5or#ing capital of + 5as 8uite lo5 in

years& -t 5as stable in year 200= and 200 5ith the ratio is

0&0& 9he number of ratio is lo5 sho5s that the companyCs

business 5as not carrying too much inentory

uic# $Acid 9est%

atio Q

(urrent Assets

-nentory

(urrent .iabilities

2&2 2&21 2&G1 uic# atio of + 5as fluctuating among years& + company

might be relatie high li8uidity in 200?& -ts ratio 5as lo5er in

200= and still increased again in 200but not much as 200?&

.et - hae calculated and the comments aboe as from the result of financial ratios, 5e can see that

the + (ompanyCs finance from full year 200? to full year 200 5as noticeable increasing especially

in 200& And moreoer, based on the +Cs income statement in year 200 that - hae seen and

e@amined, + is still continuously deeloping and e@panding greatly in running business through

year to year&

I=$ Strategic o"tions availa)le to PG and recommendations:

-n order to remain competitie and achiee gro5th, they must be able to retain customer loyalty

5hich has contributed to their success& 'esides, the company should e@ploit ne5 mar#et segments

and opportunities to support for the concentrated gro5th strategy, gain mar#et share, and minimize

the threats of losing mar#et caused by its ibrant e@ternal enironment and fierce competitie

mar#et& -n addition, there are some strategies that + can implement to improe and solidify its

performance as follo5:



;tilize the strengths in research and deelopment and human resource to deelop its technological

resource& 9his 5ill help the company to reduce harmful biological effects on human caused by

electromagnetic emissions, meet Safety standards and goernment regulations about

electromagnetic emissions, and minimize the threat of substitutes due to the rapidly changes in

technological enironment&

;tilize the strengths in financial resource, inest more in mar#eting to build up reputation 5ith

consumers and minimize the threat of losing mar#et due to its high e@tent of competitie rialry&

9hey hae also sustainabily strategies and goals for ne@t years such as: Ielight the consumer 5ith

sustainable innoations that improe the enironmental profile of their products, -mproe the

enironmental profile of !+Cs o5n operations and childrenCs lies through !+Cs social

responsibility programs&And more, engage and e8uip all !+ers to build sustainability thin#ing and

practices into their eeryday 5or#&)inally, Shape the future by 5or#ing transparently 5ith their

sta#eholders to enable continued freedom to innoate in a responsible 5ay&

=$ Recommendations or structures0 systems and "olicies:

-nnoation, fle@ibility, free6flo5ing of information, and adaptability are #ey factors to implement these

strategies successfully& -t due to the large size of the company and the high leel of enironmental

uncertainty, technological comple@ity, and geographic dispersion that + (ompany is facing&

9herefore, an organic organizational structure is most suitable for the company&

)urther more,9he degree of formalization is lo5 in organic organizational structure,& -t has less

5ritten policies, rules, procedures, Eob descriptions, and other documents specify 5hat actions are

$or are not% to be ta#en under a gien set of circumstances& ules and regulations often 5ere not

5ritten do5n or, if 5ritten do5n, 5ere ignored& eople must find their o5n 5ay through the system to

discoer 5hat to do& -n other 5ords, the employees in organization 5ill encourage the innoation f

they hae more freedom in their 5or#&

-n addition, decision6ma#ing authority 5as decentralized& o5er and decision ma#ing authority are

delegated to lo5er leels of an organization& -t leads to faster decision ma#ing at the lo5er leels,

because most decision do not hae to be referred up the top organizational leels& 9hus, by adapting

organic organizational structure, + company 5ill be able to increase their fle@ibility and adaptability&

)inally, in organic organizational structure, the hierarchy of authority is not clear and simple& 9here

are Eust a fe5 layers of management leel& 9herefore, the e@change and transfer of information

process 5ithin the company 5ill be better&

PART II: Assessment o t%e useulness o strategic management models or t%e analysis

1BP$E$S$T$E$L :

S9 Analysis is a simple, useful and 5idely6used tool that helps company understand the Nbig

pictureN of your Political, Economic, Socio6(ultural and Technological enironment& As such, it is

used by business leaders 5orld5ide to build their ision of the future& S9. analysis is a standard

5ay of enironmental scanning& Successful managers need an all6round ie5 of their enironment



for decision6ma#ing& + company uses S9. analysis to dra5 attention to each of the #ey

e@ternal enironmental factors&

'*Porter-s <ive <orces analysis:

)or understanding 5here po5er lies in business situation so it is po5erful tools& -t is useful because

it enable + to understand both the strength of the current competitie position and the strength of a

position that + suppose to be& "oreoer, it also helps + to improe a situation of 5ea#ness and

preent ta#ing 5rong 5ays& As a conse8uence, orterCs )ie )orces is an important tool for

assessing the potential for profitability of + company&

2*S4+T analysis:

9he usefulness of S3O9 analysis is not limited to profit6see#ing organizations& S3O9 analysis may

be used in any decision6ma#ing situation 5hen a desired end6state has been defined& S3O9

Analysis is a po5erful techni8ue for understanding strengths and 5ea#nesses, and for loo#ing at the

opportunities and threats that a firm faces of + company&

>*Resource )ased analysis:

A firmCs research and deelopment actiities are dertemined by resources based analysis$ -t

ealuates the effect of internal or organisational factors on !I actiities& -ts also planned

contribution is therefore determined on the analysis of the role of +7s resources and capabilities in

the !I inestment&

;*Com"any structure:

ery organisation is uni8ue in size, products or serices, people, leadership and culture& -t can be

useful to thin# in the general unformed 5ay before plunging into the detail of an organisation design&

/e5 organisationCs structure can proide ne5 and interesting opportunities for managers andemployees&

*<inancial analysis:

Apply ratio analysis to financial statements to analyse the success, failure, and progress of the

business& atio analysis enables the business o5ner or manager to spot trends in a business and to

compare its performance and condition 5ith the aerage performance of similar businesses in the

same industry&



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The Strategic Development of

Procter and Gamble into a

Global Giant#oste on April !" #$ by Sam %arren

#rocter an Gamble $hence%orth # & G' is one o% the largest manu%acturers an

istributors o% consumer proucts in the (orl (ith a global reach %or it )**+

brans o% ,-* countries. /uring the ,00*1s the company mae some signi2cant

alterations to its corporate strategy3 it aime to reuce its cost structure an

evelop its i4erentiate business5level strategy6 in an attempt to increaserevenues an pro2ts. The rapi evelopment o% international markets an

globalisation emane a corporate 7shake up8. 9oreover6 the reuction o%

trae barriers an tari4s inicate that to retain a competitive avantage

globally the company ha to evelop an e4ective :nternational strategy6 (hilst

bene2tting %rom economies o% scale. Cross5%unctional integration an spee o%

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innovation increasingly became imperative to corporate strategy. :n this article :

(ill look at the key evelopment that took place in thus process an turne #&G

into such a po(erhouse.

The cohesion bet(een the strategy an the structure o% the company is crucial.

The structure (ill align the company (ith the strategy it (ishes to pursue3 an6

along (ith the company1s culture an control systems6 (ill utilise the value5

chain competencies an capabilities6 an %acilitate increase competitiveness6

pro2tability an superior return on :nvestment.

#rocter an Gamble ienti2e the increasing globalisation o% business an

resultantly altere their business strategy an structure in orer to ma;imise

e;posure in more countries in orer to< remain competitive internationally6

bene2t %rom economies o% scale3 an to ma;imise revenues6 pro2ts6 share pricean return on investe capital. To %acilitate the implementation o% their global

strategy CE=6 >a?ey6 change the structure %rom a 7Global #rouct Structure86

(hich is o%ten associate (ith a stanarisation strategy an implemente a

7Transnational8 global strategy6 an implemente a hybri organisational

structure that consiere the geographical ispersion o% multiple marketplaces6

respective specialisation %or particular brans an specialisations an

economies o% scale in particular value creating %unctions. Ronal @ean /egen has

terme this a Front5Back ybri 9atri; organisation1 structure.

This strategy allo(e #&G to simultaneously amalgamate cost reuctions in the

2rm an retain eDcient customer responsiveness3 aapting to local tastes an

e;pectations as they vary across nations. The nature o% this strategy ictates

that some %unctions are centralise an some are ecentralise. This has been

chosen as it supports the empo(erment o% the various levels o% management in

the company1s Global Business Units $GBU1s&. >a?ey has suggeste that this

provies the ability to make %aster6 more locally responsive an eDcient

ecisions6 (hilst autonomy (as given to key %unctions that reuire local

customisation. R&/ an innovation (ere very much the spearhea o% #&G1s

corporate strategy6 so the R & / %unction remaine centralise6 so that control

coul be e;erte over it.



The global5matri; structure that >a?ey aopte to support the transnational

strategy is a comple; structure that reuires signi2cant cohesion %rom all

members o% the (ork%orce an comple; controls. >a?ey6 realise the

signi2cance o% (orker1s morale6 contrary to his preecessor6 an implemente a

culture that (oul support the structure. >a?ey is note to have implemente

pay5incentives that tie employees to the per%ormance o% the company. >a?ey1s

strategic leaership ensure that cross5%unctional co5orination create a

signi2cant avantage over competitors3 as istribution channels6 logistics6

supply chain6 an manu%acturing (ere all co5orinate across nations3 thus6 #&G

(as able to lo(er costs. The complementation o% the culture an the global5

matri; structure avance the changing nature o% the corporate strategy anevelope their international competitive avantage. o(ever6 crucial to these

elements (ere sophisticate systems %or co5orination (hich >a?ey recognise

(oul be essential an champione the use o% :T systems6 even setting up a

eal (ith Cisco systems to take %ull avantage o% their comple; systems6



systems support3 in orer to reuce :T costs through economies o% scale

spreaing their system globally.

>a?ey reporte signi2cant 2nancial progress in ***3 7We1ve ha three maHor

acuisitions incluing Clairol6 Wella an Gillette3 an6 (e have triple the pace o%

our business initiatives over this same perio.8 >a?ey6 there%ore6 ecie to

%urther restructure the business units to accommoate these strategic

acuisitions an increase competitiveness thusly. The global business units (ere

reuce %rom 2ve to three< global beauty care3 global health6 baby6 an %amily

care3 an global househol care1. This complimente the transnational global

strategy (ell as proviing sharper %ocus o% the respective target consumers3

(hilst complimente by a ecentralise empo(erment o% regional6 subsiiary

an %unctional managers6 (hich (as supporte by the e4ectiveness o% cross%unctional co5orination an interlinking o% comple; :T systems.

The use of integrating mechanisms in general" and use of 'nowledge

management in particular" to gain a competitive advantage(

A transnational global strategy reuires close co5orination (ith key areas o% the

business %or increase eDciency an competitiveness. Cross %unctional co5

orination at #&G allo(s them to organise an utilise their resources to optimal

e4ect. The calculation o% eman shoul accurately match supply6 an so thesupply chain6 logistics an istribution channels can be e4ectively co5orinate

to manage increaseIecreases in eman3 hence6 a @ust5in5Time inventory

control system can be implemente to reuce costs. 9oreover6 these integrating

mechanisms support the transnational global strategy employe by the 2rm as

local managers can uickly relay changes in tastes in their particular regions

an the proucts can be upateIaltere6 or inventory levels can be correcte

accoringly6 more eDciently an e4ectively.

9oreover6 as >a?ey has ienti2e that Research an /evelopment an #rouct

:nnovation is key to pioneering the competitiveness o% the corporate strategy3

integration mechanisms allo( %ast communication bet(een marketing an R&/.

Aitionally6 inter5business %unction $marketing6 Rn/6 >ogistics6 Finance etc'

communication %acilitates value creating propensity bet(een manu%acturing an

marketing. Furthermore6 inter %unction co5orination is crucial as line6 %unctional6



business6 ivisional6 an corporate level managers (ithin the same %unctions

must be able to uickly communicate bet(een one another6 in orer to mitigate

against 7in%ormation istortion86 especially (hen sprea across many nations.

#&G %acilitates the e4ective implementation o% integration mechanisms through

7irect contact8 (ith one another. This is a simple6 cost e4ective (ay to

communicate problems an ensures that opinions an concerns are voice.

9oreover6 it is essential to have irect contact bet(een i4erent %unctions6

especially those that must co5operate consierably. Conversing irectly bet(een

one another ensures cohesion o% the proucts an the market6 (ith the overall

strategy. This reuces 7hano48 an 7trans%er8 problems. o(ever6 this can

increase bureaucratic costs an it may not al(ays be viable to converse (ith

i4erent employees %ace to %ace all over the globe6 although such technological

avances6 such as vieo Tele5con%erencing may help.

7>iaison roles8 are a goo (ay o% hanling hano4 an trans%er problems (hen

structures become comple; an (ill help co5orinate ivisions an %unctions.

9eeting at a regular time intervals ensure regularity. Aitionally6 liaison roles

ease tensions bet(een %unctions an can %erry in%ormation %rom one to another.

7Teams8 are use (hen t(oImore %unctions share common problems an these

can help relieve tensions or ai in 2ning a solution. #&G coul use teams

(hen they have problem co5orinating particular %unctions in a large region6 %or



e;ample Asia. Teams may provie insight%ul solutions to problems i.e. eDcient

logistics. Re%erence %rom 9:T Sloan 9anagement Revie( #&G accreit

consierable success to the cohesion o% their %unction team co5orination6 (hat

mae the teams (ork (as the mutual interepenency that gre(1. Thus6

emonstrating ho( integrating mechanism are vital %or communication across a

global business in orer %or #&G1s transnational strategy an FB5 global matri;

structure (ork e4ectively.

Furthermore6 the importance o% :T must be accreite to the e4ectiveness o% this

co5orination3 as many o% the systems an integrating mechanisms rely heavily

this inter(oven (eb o% technology. >a?ey (as correct to have champione it as

he i.

European strategy<

An alternative strategy is to evelop ne( market5speci2c resources6 a more

irect but more costly an probably a slo(er approach than aaptation. This

strategy is starting to be seen in the %orm o% a number o% 9JCs acuiring local

brans that are ae to their port%olio alongsie global counterparts. :n @apan6%or e;ample6 Coca5Cola carries a number o% locally5oriente brans6 such as

Georgia ice co4ee6 that enable it simultaneously to meet local taste segments

an to erive greater economies o% scope %rom its sales an istribution

investments in the country. Alternative local resources that might be evelope

are istribution assets6 such as company5speci2c (arehouses or ?eets o% vans or

even bicycles. #&G took this approach in certain Eastern European markets. :n

these %ormer communist states6 the istribution systems (ere not simply

unevelopeKthey ha completely collapse. RecogniLing that intensive

istribution (as an enabling conition %or the evelopment o% their consumer

goos business6 #&G investe substantial sums in eveloping its o(n

istribution net(ork. :t i so by %uning istributor businesses in the %orm o%

vans6 in%ormation technology6 (orking capital6 an e;tensive training.This

moel6 kno(n (ithin the company as the 79cMan 9oel68 prouce a signi2cant

competitive avantage over both international an local competition3 in Russia6



%or e;ample6 the evelopment o% ) regional istributors6 (ith N- %urther

subistributors6 resulte in #&G having istribution coverage o% some -* percent

o% the population at a time (hen most multinationals (ere still restricte to

marketing in the t(o main cities o% 9osco( an St. #etersburg. This bol

approach illustrates per%ectly the trae5o4 bet(een control an riskK

consierable investment (as reuire to evelop this net(ork in a country

reno(ne as a istribution challenge $being the largest country in the (orl in

terms o% area'6 but by tackling the issue hea5on rather than (aiting %or the

enabling conition to evelop6 #&G gaine huge leas in market share in many

categories. While this avantage has continue in some countries6 the 2nancial

commitment makes #&G %ar more vulnerable to economic shocks6 such as the

Russian 2nancial crisis o% the summer o% ,00-.

Asia Strategy<

China story

Strong distribution channel

3hen !+ entered (hina bac# in 1G?, there 5as ery limited national distribution for

consumer goods& "ost brands and shops 5ere local& So !+Cs challenge 5as to build anet5or# of distributors 5ho could also handle the demands of distributing fast6moing consumer

goods li#e toothpaste, nappies and shampoo& !+ initially focused on the largest $9ier 1% cities

such as +uangzhou, Shenzhen, Shanghai, 'eiEing and 9ianEin 5hich also tended to hae the

largest and most affluent consumer base& *o5eer, by 2010 !+ had e@tended its distribution

net5or# 5ell beyond the biggest cities and 5ere supplying oer ?00,000 shops across much of

(hina using 1?0 distribution centres&

?uilding an +rganisation ?ased on Local Talent ! Investing in CSR

Another #ey feature of !+Cs success has been ho5 it focused on building an

organisational structure and resource based on local employees and managers& )or

e@ample, !+ 5as among the first multinationals to actiely recruit at (hinese

uniersities and it deeloped e@tensie training programmes for its (hina staff&



!+Cs recruitment and staff deelopment approach has follo5ed a similar pattern in

deeloped economies 5here it actiely promotes from 5ithin as a 5ay of instilling a

strong corporate culture, improing staff retention and building staff loyalty& As a result,

by 2010, only around 2K of !+Cs employees in (hina 5ere non6(hinese&

!+ also recognised the need to focus on (S as it deeloped its presence in (hina& -t

5or#ed closely 5ith central and local goernments on proEects in areas such as

education, public health and rural deelopment 5hich 5ere seen as priorities by

(hinaCs leaders&

One proEect of note for !+ in (hina 5as the *ope Schools programme& 'y 2010, !+

had built more than 200 *ope Schools around (hina&

Procter and Gamble IB

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