Strategic Analysis of Procter& Gamble Basic Business Profile P&G is one of the oldest surviving global companies in U. S. , and it gained a remarkable global presentation through organizational expansion (recently mainly by acquisition) and has made its oversea operation an increasing part that tends to constitute more percentage of its total revenue, from nearly a third (3. Billion out of 10,772 million) to over half (40 billion out of 39,951 million). In recent years, it is focusing on the goal to become a truly global company, and has Just been poised for a global merger. External Analysis: Industry Structure P&G competes with other companies that satisfy the same basic customer needs for consumer goods in the global consumer goods industry. Use Porter’s five forces model to analyze its threats and opportunities.
First, the consumer goods industry does not have a high level of technology-know-how lock-out, but since companies are competing on both higher customer perceived value and lower cost, and the established companies are becoming more consolidated that made some oligopolies in the global market, so the economies of scale are becoming increasingly important actor, as small-scale entrants cannot cover the cost of marketing and advertising costs without large volume of output to reduce unit cost.
Also, although there is no switching cost to change brands, many customers have brand loyalty based on the their own tastes or psychological needs. Moreover, it is overall in the mature stage, to conclude, the threat from entrants is low. Second, the demand keeps from replacement demand, but it is consistent, and the cost conditions and exit barriers are relatively high, as large input for production post more threat for rivalry among established firms. Third, the bargaining power of suppliers is medium, mainly because the overall increasing prices for materials may increase the risk.
And bargaining power of buyers is increasing as large retailers are also consolidating to get more power from scale. Finally, as the consumer goods are necessities, the threat from substitute goods is relatively low. To conclude, the threats are mainly from the organizational process for P itself and the power of buyers, with the opportunity to expand its medium-low level market (Brazil). Internal Analysis: Recourses and Capabilities To build up P’s distinctive competencies, it possesses two complementary sources: the firm-specific resources and unique capabilities.
P&G Resources: The firm-specific resources held by P&G are divided into tangible and intangible resources. Part 1: tangible resources: The tangible resources of P&G mainly relied on its internationally located offices (real estate), including the land, office buildings and factories (such as regional headquarters, R&D centers, regional service centers), production equipment and inventory of all its sub brands, and money that backed by al company activities.
Those tangible resources contribute significantly to P&G at any point of its expansionary strategy, as they act as the fundamentally physical supports of its growth, also, they represent the fixed costs that P&G has made, so by taking great care to track and manage these invested capital that P&G already made, it can keep resources: Tithe nonphysical entities of P&G are the creation from its management and other employees, mainly focused on two axes. Axe 1: Company Reputation and its established brand names. P&G owns many world-level leading brands, such as Tide, Head& Shoulders,
Chairman, Pampers, and Principles, which made its products ranged from household and personal goods to laundry and foods. These established brands under the flag of P&G has made P&G a leading global company that is known as superior value of products, with a good company reputation of improving the lives of consumers. Also, their brand names cover more people under the scope of functions, that can break down its customer groups for each market segment, allowing P&G to have a competitive advantage by adopting the Differentiation strategy and act as a broad differentiator who offers a product designed for each market niche.
Moreover, P&G cut excess operating costs under Leaflet, such as closing plants and outsourcing to third parties, putting efforts in reaching the large base of lower income consumers in emerging markets (represented by the actions taken in P&G Brazil), thus P&G is moving towards the differentiation and cost leadership strategy with the use of flexible manufacturing method. To conclude, the intangible resources of P&G reputation and brand names has made it outstanding and more competitive.
Axe 2: Highly inspired employees in P&G and their knowledge P&G retains a strong power for their employees and place them “at the center”, according to ” Ten things I believe” by A. G. Leaflet. P&G has a long tradition of being community centered and valued its people, supported by its POP essentials, it uses the promote-from-within policy to ensure the employees are developed like minded principles and values and innovation motivated. P&G’s policies to protect its people (especially during crisis, compared with the behavior of other companies, such as Lebanon case) make the employees more inspired and committed to the company’s growth.
P&G Capabilities: On the whole, what distinguishes P&G and made it survive is the unique capability to manage all the resources it holds in a highly productive way, which matches the global trend and satisfies customer needs in the long run. The company’s skills at coordinating it resources and making them into productive use focuses on two aspects. Part 1: P’s long-period evolved global matrix structure and organizational system. This capability played a big part to realize P&G’s goal to become truly global.
On the one hand, P extended towards a global matrix structure to drive its future growth, and it has made the efforts to achieve incremental organizational adaptations to ensure P can present globally as well as act locally in regional operations, thus P could be easily adapted to local markets outside the U. S. Considering its continually increasing share of revenues from foreign markets, from nearly one third in 1980 to over half in 2000,its efforts of global market adaptations are significant to drive P’ global expansion in the long term.
On the other hand, driven by its POP, its organizational restructure laid the foundation for P&G to create the organizational layout it needs to succeed globally. Its 0-2005 project divide the many into four entities, followed by a further organizational consolidation led by Leaflet, were expected to foster a behavioral shift from risk-averse and myopic to an an essential capacity that enabled P&G to realize faster growth and well adapting itself facing both external and internal challenges.
Part 2: P&G cultural norms and procedures. POP is the center post that guides P&G orientation during its globally stretching progress; its significant effect to the company can be seen in its two operating aspects: The first one is P&G’s human resources management. Based on its promote- room-within policy, P experienced leadership restructures, which provided it with more externally focused, inspirational and internally experienced management team, it enabled P to be advanced in its organic growth.
Also, P’s organizational culture promoted greater integration and consistent values in daily lives among its employees; this culture guided the company’s collaboration and decision-making processes. The second one is the company culture-guided operating procedure and business practice. Just like the implementation of P’s motivating award system and TTS management programs, POP offers a guidance system and creates its unique capacity and skill that ensure stronger and reasoned decision-making, thus utilize its resources with potentially highest efficiency.
Moreover, P&G’s culture norms serve as the discipline for its innovation strategy and global sustainability growth. Comprehensive Strategic Analysis Part one: Strategies adopted and introduction to Key Issue From the business-level strategy point of view, P focused more on the premium market segments (from its leading brands and R investment we can see), opening TTS operations in the emerging market (Brazil) and is expected to spread to projects across the globe for use in bottom-of-the pyramid markets, thus it offers unique products for many groups of customers, strategically positioned itself as a Broad Differentiator.
Also, if we look at its industry life cycle, since P is the largest manufacturer of consumer goods, most of its products locate in the mature stage, the market is saturated and demand is limited to replacement demand, and given its already huge operation scale globally, it is very uneasy for P to keep a sustained growth rate. To take it deeper, although it is the largest market share maintainer, to seek for more strengths that may benefit its global expansion.
P keeps its acquisition strategy to realize its significant economies of scale, also to use the Product Proliferation strategy in this overall mature industry to deter entrants and manage competition. The timeline that run through all its recent expansionary strategy is by acquisition of other firms. However, when P met another best-in- class company like Gillette, it faces problems that it has never encountered before.
Both of them are strong players in the industry and possess their own guiding organizational cultures, which are unique but different from each other’s. Thus, it introduces the key issue below that P&G faces to deal with the issue with its culture and global merger. Key Issue: What can P&G do for the giant- to- giant acquisition to ensure its unique values and culture can ensure itself sustainable competitive in the fiercely competing industry?
Part two: Analysis of three Strategic Alternatives Strategic Alternative 1: Progressively combine and integrate the two giants’ superior resources, such as the capabilities, while keep their corporate values and culture as original with mutual aspect, in order to avoid morale conflicts in the acquisition process to ensure a successful merger. Analysis: This makes a comprehensive consideration to cover all the factors that may influence an acquisition, since both P and Gillette have unique and strong corporate values, while not forcing a cultural merger can be a good choice.
Many mergers that happened in real business world ultimately failed because people doing the merger plan only focus on the financial implications but fail to consider factors such as corporate values and cultures that may have huge effects on employee moraleвЂ”conflicts in organizational cultures may denominate employees, slow down productivity and progress of innovations, loose the roots of the company’s four building blocks (efficiency, quality, innovation and customer responsiveness) that constitute competitive advantage, finally Jeopardize both companies’ profitability and market position.
To avoid this, make the acquisition sustained on the mutual benefits of competitive strengths, and keep both companies’ routine, value and culture as operating alone. Strategic Alternative 2: Realize truly acquisition with their values and cultures’ integrity. Analysis: Both companies are globally operated giants, maintain the merger on the surface with only resources and information sharing cannot make a real merger, especially for P, the little benefits will probably make the huge acquisition cost cannot be paid off, making the merger meaningless or even a severe financial hurt for P.
Strategic Alternative 3: P should not do this risky acquisition with another globally operated large scale and unique culture enriched company. Analysis: Acquisition will make P bear huge amount of cost realize, and it is even more risky hat most acquisitions happened finally failed. Also, P do not have this kind of experience to acquire another global company; a distinct culture may ruin its own values and principles that serve as guidance for its international expansion. Consider the two factors, P should quit this acquisition.
Part Three: Analysis of final Strategic Recommendation Strategic Recommendation: choose alternative two as final recommendation– Realize truly acquisition with the two companies’ values and cultures’ integrity. First, although consider managing cultural issues is very important in mergers, take P&G acquire Gillette as example, P&G’s ability to handle the massive cultural assimilation progress will largely decide the success or failure of the acquisition, however, to some extent, the giant-to-giant merger may not show virtual conflicts, as they are all U.
S. Based companies and have geographic proximity. Second, as both global giants operating in consumer goods industry, they may have similarities in company growing experience and advances (technologies, innovations) based on similar models, also as both successful players in the global market, the two companies would have common places in cultural and values that led their previous glorious growth. Thus, integrate the two cultures into a better one through their common area is possible, and will make such as “1+1>2” powering consistent growth.
Finally, back to the very beginning to see the motivation of the merger, it is a calling for both companies to face the increasing pressure from retailers as there is a trend for their industry, the threat of obsolete goods due to technology advances and innovations, etc. The merger will bring “win-win” results as I can make they realize significant economies of scale, thus decrease threats of bargaining power from suppliers and buyers, also lower their cost in marketing and advertising when they play as a Joint.
Moreover, with different segmentation focuses, companies can diversify their products; adopt the products proliferation strategy to keep their unique strength and develop new competitive advantages. However, all the merits mentioned above has to be achieved from a “truly’ acquisition, because a superficial merger that avoid conflicts by ignoring cultural combination will inhibit the realization of all the meanings of the merger.
To conclude, a Real merger with cultures and values assimilation is possible for the merger of two global companies, and culture can act as an enabler if it is facilitated properly. Part four: Next steps for its implementation Step 1: plan ahead with thoughts to the cultural ramification; make specific plans and thorough strategy that enable the combination of strengths in two cultures, identify and retain the best practices, policies and system of the two cultures, making the merger keep employees’ morale as highest as possible.
Step 2: hire professionals with extensive knowledge and experience to assist the cultural assimilation work, involve employee in the process to realize the learning-by-doing, and make both companies’ people get better understanding of each other, and ultimately help the two cultures work well with each other.
Step 3: set up communication system to ensure frequent exchange of feedbacks from both organizations, thus the acquisition management can identify problems and provide solutions with the shortest response time. Step 4: give time for the merger and nurture the organizations to be responsible for the process, during which exploit more opportunities that may benefit it into a more efficient and successful merger.