Procter Gamble: Organisation And Development

Procter Gamble: Organisation And Development INTRODUCTION Procter Gamble was created in 1837 by William Procter who was a candle maker and James Gamble who was a soap maker. Since then the company was growing bigger and bigger as years past by. Nowadays, Procter Gamble is a multinational organization operating in more than 180 countries and producing over 300 products. Firstly, at this report, the strategic development of PG will be clearly evaluated and it will be followed by the evaluation of its resources and competences. Then, the evaluation of the companys external environment will be analyzed through the use of swot analysis, pest analysis and 5 forces analysis. Subsequently, a strategic group analysis of the industry that PG is engaged to will be carried out to illustrate their differentiate characteristics from other companies. Finally, the longer term strategy of PG will be clearly demonstrated with some future recommendations that could be supportive. Pattern of strategic development Since 1837 when Procter Gamble was founded, the company continued to grow and following the changes at the external environment, the corporate strategy of PG was changing as well. From 1945 to 2020, PG has three stages of corporate strategy, which are: Product diversification strategy (1945-1980), Globalization strategy (1980-2003), and Sustainable Development Strategy (2003-2020). Product diversification strategy (1945-1980) In 1946, PG introduced Tide washing powder. Tides performance was better than the similar products in the market and so it soon got as a big success. Subsequently, PG launched a lot of new products. The first fluoride toothpaste Crest Obtained certification by American Association of Dental Prevention, then it became the leading toothpaste brand quickly. In 1961, PG introduced Pampers which is disposable baby diapers, it is still one of the top product that PG sells (Ifeng Finance, 2010 ). The disadvantage of this strategy is that it is too difficult for the company to control and manage so many products and the company may over pursuit the market share and might not pay attention to develop the star products which have core competitiveness. As a result, the original core competitiveness is weakening and the company does not have its own characteristics, the concept of the companys image and product become blurred. Globalization strategy (1980-2003) Through the acquisition of Norwich Eaton pharmaceutical company  ¼Ã‹â€ 1982 ¼Ã¢â‚¬ ° and Rechardson-Vicks company ¼Ã‹â€ 1985 ¼Ã¢â‚¬ °Ã‚ ¼Ã…’PG is active in personal care products industry. In the late 80s, early 90s, through the acquisition of Noxell ¼Ã…’Max Factor ¼Ã…’and Ellen Betrix, PG plays an important role in cosmetics and fragrances industry (Ifeng Finance, 2010 ). These acquisition activities have accelerated the process of PG globalization. Moreover, Pampers, Whisper, Pantene, Tide, Ariel, Crest, and Olay and other brands has become a world-renowned brands. However, the biggest problem when a company involved into other countries, is the cultural differences which will lead to different reactions on product on the consumers, thus the marketing strategies need to be changed accordingly. Also, the different national legal systems and the differentiation in consumers budgets is also greatly affecting the conduct of globalization strategy. Sustainable Development Strategy (2003-2020) At the current stage, the tenet of PGs organization strategy is sustainability which means improving peoples life quality. In order to achieve this strategy, PG to start work from the following aspects: Products: PG developed and sold sustainable innovation products which can significantly reduce environmental pollution. In 2007, PG replaced the packaging of detergent as half of the originals, and adjusted the solution to double concentrated formula. The method saved the use of packaging materials and reduced wastes. PGs purpose is to make the environment a better place (Adweek, 2007). Operations: PG established the sustainable development team in the offices. Through green recycling box, the company recycled more than 4800 kilograms of waste paper, and in exchanged for 69,000 new pieces of paper, moreover, the companys power consumption dropped by 10%, saving 17 million kWh which is equivalent to 560 families a months electricity consumption. In addition, in some factories and distribution centers, PG also installed solar power and rainwater collection and processing device, to further reduce energy consumption. (21ST CENTURY BUSINESS HERALD, 2009) Social Responsibility: In 2009, PG signed United Nations Framework Convention on Climate Change and developed a global reduction in carbon footprint by 2012, and that will be published the results of carbon reduction stage. (21ST CENTURY BUSINESS HERALD, 2009) So far, all of the efforts which PG has done are win-win situation of business and environment. When the company set up the environmental value chain, it will get financial gains from using energy efficiency and reducing wastes. Resources and Competences PG as we know it, is one of the worlds largest consumer products company but what does makes PG so successful while it competes in the huge consumer products industry? This part of the report is mainly focuses on the PGs resources and competences and how the resources and competences works together creating a competitive advantages for the firm. Resources Tangible resource The tangible resource is easy to be identified by looking at the financial report. Their net sale was $ 78. 9 billion in 2010, which is markedly stable by compared with the last two years net sales ($ 76.7million in 2009 and $79.3 in2008 respectively). The net earnings were $ 12. 7 billion and net operating income was $16 billion in 2010. This illustrates that PG has enjoyed a stable and healthy profits. Intangible resources The intangible resources are the brand equity, corporate culture and human resources. PG is the 6th Most Admired Company in Fortunes 2010 list; it was also one of the most valuable brands in the world. The corporate culture is unique, tough lives and improve life every day is PGs philosophy which encourages the PGners engaging to improve consumers life. PG is also very good at research develop. PG has invested $2 billion in consumer research over the last decade in order to understand consumers needs and to improve customers satisfaction. Additionally, at the same time RD increases the product innovation. Competences Marketing strategy Product differentiation: each product has different brands, for example shampoo has Rejoice, Pantene, and Head Shoulders. Only one product has more than three brands and detergent has as many as more than nine brands. Product differentiation can lower risk in case if one brand goes wrong. Various functions: one product has different functions and different packaging, for example, some of detergents have fragrance and others with the function of strong cleaning. This strategy will increase the market share for PG, such as in china along, the market share increased from 30% to 40% in 2010. Advertising: PG tends to use celebrities to advertise its products in order to attract young customers. Localization is another strategy that PG has adopted, for example in china, the company sells shampoo by suing Chinese girl who has black long hear, because this can represent the Chinese culture. Consumer understanding PG is a company that did most investigations in consumers and market research. More than 15,000 researches has been conducted each year. PG invested $350 million a year in consumer understanding in order to improve the customer needs. PG is the first company to focus on customer feedback. Innovation PG is the Innovation leader in the consumer products industry. Over the past 15 years, 125 PG innovations have earned a spot on the top 25 Pacesetters list more than six largest competitors combined. Innovation program: connect develop (C+D): PG is always seeking the opportunity to collaborate with people or company who has innovative ideas. The VRIO framework evaluates the competitive advantage from four aspects: valuable, rare, inimitable, and organized. From the evidence above the corporate culture was the Competitive parity. Because each organization has its unique cultures, it is inimitable. Human resources are the short term competitive advantage of the company. People are not fixed assets of one company, they can go to other company as well if they wish to. PGs competitive advantages are its brand equity, RD, marketing strategy, consumer understanding and innovation. External business environment At this part of the report, the evaluation of PGs external environment will take place. This evaluation will be contacted through the SWOT analysis, PEST analysis and Porters Five forces analysis. SWOT Analysis (Opportunities and Threats) SWOT analysis is a way to analyse an organisation and its environment. SWOT stands for Strengths, Weaknesses, Opportunities and Threats. Strengths and Weaknesses are the internal factors, Opportunities and Threats are the external factors. At this report we are only consider about the external factors. Opportunities The increasing demand for the section of male health and beauty goods is one of the biggest opportunities of PG and with the acquirement of Gillette, PG is growing rapidly at this particular market. Moreover, PG has a huge opportunity with its reaction to the enormous technological growth of the internet by utilizing different marketing techniques and online social networks. What is more, taking into consideration their long-term aims, they have been disconnected from some products such as the oral-care toothpaste of Gillette, Zest brand have been acquired by Brynwood Partners, etc. so PG will pay their full attention at brands of their interest. PG is persistently growing into more and more countries so at the moment operates in 80 countries and now due to the recession it is easier to acquire any smaller firms because of their financial problems (Canadian Business 2011, Worldlingo 2011). Threats PG as a global giant company have a lot of competitors like Kimberly Clark, Unilever, Johnsons Johnsons, etc. who in various countries causes large threat at the market share. Moreover, the competitors of PG are increasing their goods range through getting hold of other smaller firms. As a result of the recession, the consumers budget has been decrease and therefore their spending power is limited as well. Also, raw materials prices are rising thus the production cost is rising and the different currency rate place a huge threat on PG. PEST Analysis PEST analysis stands for Political, Economical, Social and Technological factors and it is used by the analysers to identify the external factors that may affect the organisation in an opportunity or as a threat. Political Factors ProcterGamble have created the PG Political Action Committee (PG PAC), which is a scheme that it was created to give the opportunity to the employees of PG to support candidates at the federal, state and local level who contribute to the quality of life at the communities. Moreover, PG by offering economic support contributes in the political process (Procter Gamble 2011). Economical Factors PG is designed to go through any type of economy as they are very capable and they have a commitment to the consumers. Subsequently, even at the time of the recession PG had margins to reduce costs and offer products to consumers ( Business Week 2011). Social Factors With the creation of Live Learn and Thrive Program, PG helps children in need to drink clean water so it helps them to have a healthy beginning in life. Moreover, it is making places, tools and programs available to them for better learning (Procter Gamble 2011). Technological Factors PG as a big organisation and as it is specified in a lot of different markets, they are focusing on more sophisticate technology and they have managed to reduce any unwanted errors. PG have managed to create new products and further improve their existing products (Procter Gamble 2011). Porters Five Forces Model (SlideShare INC. 2011) Porters five forces model is a framework that was created by Michael E. Porter in 1979 and it is consider with the buyers power, supplier power, the treat of new entrants, the treat of substitute and the rivalry of a firm. Buyer Power Consumers are well informed for all different brands of a specific product that are available mostly through advertising. Brand name is very important but consumers are very perceptive with price level as well. Thus, buyers power is high so PG organisation must remain competitive to keep being successful. Supplier Power The power of the suppliers to PG organisation can be low because the raw materials are easy to be find from different suppliers and what is more, such big firms have the opportunity to produce their own raw materials. Threat of New Entrants The threat of new entrants is very low since PG and their well known competitors are already huge global firms with very famous brand names and consumers will not just change their brand goods as easily. Moreover, setting up this kind of firm will cost millions. Threat of Substitutes The threat of substitutes that PG have to face is high. That can be seen from the retailers shops and sometimes the substitutes have cheaper prices and same performance. Degree of Rivalry The variety of the goods between different companies started to be similar to each other so the firms must begin a differentiation with offers, vouchers or even better/cooler advertises. Strategic group analysis PG is one of biggest multiple customer goods company in the world. Thus each product could have its own competitors. However, the main competitors of PG are Kimberly-Clark Co, Johnson Johnson and Unilever. Net sale of PG and Unilever The chart above illustrates the net sale of PG and Unilever in the last six years. As it can be seen, Unilever has about 10 billion more sales than PG in 2005. Interestingly, as it can be seen from 2006 to 2010, the net sale of PG is considerably more than Unilever. Furthermore, in 2008, PG reaches the peak showing 20 billion Net Sales more than Unilever ¼Ã‹â€ PG official website 2010, Unilever official website 2009 ¼Ã¢â‚¬ ° Product range and geographical scope Procter Gamble, Johnson Johnson, Unilever and Kimberly-Clark are the major international companies that sells their products all over the world. But as regard their geographic scope we can see huge differences. PG has been selling its products in more than 180 countries. Johnson Johnson is almost the same as Unilever, and they are both over 170countries. However, Kimberly-Clark has been developed up to 150 different countries. The product range of PG holds into 5 main product categories which are: Personal Beauty, House Home, Baby Family, Health Wellbeing and Pet Nutrition. Although the categories of PG are very similar with Unilever ¼Ã…’the food product of Unilever (Hearbrand, Lipton, sim-fast) gained an advantage over the other three companies. However, Johnson Johnson focuses its products on paramedical such as baby care, wound care and vision. In addition, Kimberly-Clark specializes in Health care products (PG official website 2010, Unilever official website 2009, Joh nson Johnson official website 2010, Kimberly-Clark official website 2010) Market share of shampoo in China With the development of shampoo market, the organization of PG became the leader of shampoo in Chinas market. PG basically owns five main shampoo brands which are Rejoice, Head Shoulders, Pantene ¼Ã…’Sassoon ¼Ã…’and Clairol; With these brands PG became the dominant position in many countries. Take china market as an example, PG take up nearly 60% shampoo market share in 2010. However, Unilever only accounted for 23%. The domestic brand C-bon only had 6.3% until 2010 (Bai Du website 2010). Successful factors PG adopts multi-brand strategy. When PG entered the China market, it launched Rejoice, Head Shoulders, Pantene, Sassoon and Clairol successively. What is more, each of these brands has its traits; for instance, the function of Head Shoulder should emphasis getting rid of surf and the function of rejoice is to soften the hair. Adopting the multi-brand strategy could have two advantages; Firstly, multi brand strategy can focus on different target market. Secondly, brand management can became very independent. In addition, at the same time it can reduce the risks. Supposing that one brand of PG frails, it will not affect the reputation of PG too much. On the other hand Unilever adopts the Monolithic Brand Strategy which with this method can save money on many advertisement fees, it lost the market share. PG always build the brand image with a massive advertising campaign. It is not only in newspaper, magazines, but also on major television channels. The advertisement of PG is very pertinence, because each of their brands are emphasizing its unique function (Bai Du website 2010). Long term strategy development of the organization References: Bai Du website (2010 ¼Ã¢â‚¬ °Brand of shampoo strategy in China. [online] available from [20 January 2011] Bai Du website (2010 ¼Ã¢â‚¬ °marketing analysis of PG and Unilever [online]available from [20 January 2011] Bai Du website (2010 ¼Ã¢â‚¬ °PG took up more 60%market share in China. [online]available from [21 January 2011] Business Week (2011) PG is up [online] available from [19 December 2010] Canadian Business (2011) Brynwood Partners [online] available from [7 January 2011] Docstock (2010) PG Analysis [online] available from [29 December 2010] Ifeng Finance. (2010) Procter and Gamble Profile [Online] Available from [10 January 2011] Johnson Johnson. (2010) official website [online]available from [16 January 2011] Kai, H. (2009) Procter Gamble: Environmental Friendly Promoting Innovation. Newspaper of 21st Century Business Herald, 26 Kenneth R. Andrews. (1980) The Concept of Corporate Strategy. Richard D. Irwin, Inc Kimberly-Clark ¼Ã‹â€ 2010 Official website [online] available from [18 January 2011] PG (2010) Official Website [online] available from [5 January 2011] SlideShare INC. (2011) Fluff Pulp Fiction [online] available from [5 January 2011] Sustainable Packaging Coalition. (2007) PG Canada Liquid Laundry Concentrate [Online] Available from [8 January 2010] Unilever (2009) Official Website [online] available from [14 January 2011] Worldlingo (2011) List of Procter Gamble brands [online] available from [6 January 2011]