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Proctor and Gamble’s Organization 2005: a strategic business case
analysis
Wherever you see a successful business,
someone once made a courageous decision.
Success in any company that operates for marketing and profit acquisition
lies on the ability of the management in positioning and establishing the
products/services being offered. This is the usual and incomplete general
believe. Furthermore, the ability of the company and its management to compete
and maintain a competitive edge among its competitor is another basis to say
that it is successful. The constant development and innovation on the product
line and the growing number of clientele also define the corporate standing of a
company. These are all strategies that Proctor & Gamble are implementing in all
their outstanding years of international consumer goods marketing performance
dominance.
Proctor & Gamble has been a role model in terms of successful
international business management as reflected on their uncontested reputation
for outstanding performance. The Company is prominent for its superb marketing
(2001). It uses the divisional structure by product, that is, when specific products
needed special emphasis. They also use this to implement strategies (2001).
This year, Proctor & Gamble was ranked first in Household and Personal
Products Company and among top 10 in Fortune’s “America’s Most Admired
Companies” (2007). With the constant innovations particularly Organization 2005
in all aspect of management and operations as well as the proper handling of this
new strategy, the Company will remain competitive in its defined market position.
This paper aims to evaluate the organizational strengths and weaknesses,
market opportunities and threats in the implementation of Organization 2005,
Thompson et al eight managerial tasks for strategy implementation in relation to
the said strategy, and the Company’s acquisition of Gillette in 2005.
Task 1: SWOT ANALYSIS of ORGANIZATION 2005
All organizations have their strengths and weaknesses in the functional
area of business (2001). Accordingly, Organization 2005 is “a corporate
restructuring program” directed to the inclusive changes in organizational
composition, work processes, and employee culture towards increased
innovation ( 2003). The emerging trends in the global marketplace during the
conception of Organization 2005 are among the main mechanisms that prompted
the P&G’s management towards this strategic turn. As early as 1990s, marketing
trends seem to create long terms effects on the future of international business
sector. Competition and its rapid development among various industries is the
most popular if not the primary business concern. (1995) declared that the
condition of the global market is in hyper competition mode and its rate is
increasing as technological advancement and industry concentration heap on.
Organization 2005 aimed to control the presence of the Company in global
environment. In the age of globalization and the limitation of domestic market for
growth and expansion, a global enterprise has extensive interests that transcend
national borders and political institutions (2002). Providing a SWOT analysis for
Organization 2005 allows forecasting that serves as an important tool and
process of identifying the future consequences of the whole program.
Organizational Strengths
Proctor & Gamble’s Organization 2005, according to (2003) was
intended to increase sales and profits through the introduction of new brand
products, closing needless production plants and eliminating unproductive jobs.
Looking through the marketing and management perspective, there are
potentially powerful strengths activated by Organization 2005 including: the
corporate ability to create new strategy that is perceived to be inclusive, with top
to bottom effects on individualized area of concentration (i.e. production, finance,
human resources, etc); a tool in the identification of low performing areas of
management; it prompts organizational workforce to work on innovations and
competitive advantage; and sustenance of the P&G’s strong global brand.
In details, Organization 2005 offers a corporate ability to create new
strategy that is perceived to be inclusive, with top to bottom effects on
individualized area of concentration (i.e. production, finance, human resources,
etc). , P&G’s CEO in 1999 and the precursor of this new program strategy
believed that Organization 2005 is designed for the purpose of growth at a
consistently higher level. If the program is to be implemented, positive feedbacks
are anticipated in the general managerial and working environments. For,
Organization 2005 will “create an environment that produced bolder goals and
plans, bigger innovations and greater speed” (2003). On specific areas of the
Company for example, the new program will be financially beneficial as one of its
prime objectives is the boosting of sales and profits while in work processes, the
aspect of automation is indispensable as new technologies will be used to
replace traditional processes of production. Human resources in regards to
Jager’s redesigning of the rewards system is considered in support of the
Company’s workforce. However, there is a need to create and maintain a
balance of costs and the employment issue on human resources is inevitable to
exist and complicate after. Organization 2005 is said to be inclusive as it caters
to the future needs of the whole Company.
It also served as tool in the identification of low performing areas of
management. The mere fact that Jager came up with such initiatives meant that
there are some areas of management that should be reconsidered. This new
program served the needed purpose by explicating weaker areas that constantly
need further improvement. Organization 2005 was able to predict unproductive
jobs, departments, and other applications related to the overall operation of P&G,
if not on immediate but long-term basis and degree of implementation.
The new program strategy prompts organizational workforce to work on
innovations and competitive advantage. Involving the overall aim of Organization
2005, that is to improve P&S’s competitive position and operating efficiencies
through more ambitious goals (2003 ), the management functions will be refueled
with further entrepreneurial vigor as there is a requirement to meet set goals and
satisfactorily achieve if not exceed expectations. Everybody is expected to work
and do their particular share in the program and its implementation. Innovations
are key factors for development in particular management and production areas.
Sustaining the P&G’s strong global brand reputation is a tough job.
Through the integration of the deliberate ambitions of Organization 2005, this will
serve as reinforcement to the already effective strategy that the whole Company
employs. Regardless of unprecedented drawbacks of the program, Organization
2005 as new business strategy is perfectly designed for long-term
entrepreneurial benefits and competitive purposes.
Organizational Weaknesses
On the contrary, Organization 2005 seems to be ambitiously crafted and
hastily implemented that led to various difficulties in management. Among the
immediate pitfalls of the new business strategy is the inability of Jager to
anticipate sudden outburst of management implications. Other issues in
management sized up and Jager decided to resign from his post. The initial
stages of the new strategy resulted to downgrading of P&G’s from $117 in
January 2000 to $90 the next month. The expected good results turned out to be
the reverse effect. In relation to management functions, managers suffered too
much pressure that affected certain processes like the delivery of products to
market faster. There are also major moves that are credited to be a part of the
program (i.e. dual acquisition of Warner-Lambert and American Home Products).
Organization 2005 affected human resources and overall employment as there is
massive transfer of employees to various countries that resulted to the difficulty
of adapting to changes. The confrontational management style of Jager was also
seen as a weakness during that time. Human resources management is among
the most remarkable weakness of Organization 2005 as it created avertable rift
between upper level management and common manpower staff. Lastly, Jager’s
failure to conduct more intensive research and development (R&D) efforts
sprouted difficulties on the seemingly perfect Organization 2005 program
strategy.
Market Opportunities
Considering Proctor & Gamble’s position in the global marketplace, it is
not difficult to specify Organization 2005 market opportunities. Opportunities lay
upon the effectiveness of the Company to implement its policies on the new
program strategy. The new program strategy paves way for a reinforcing effect
particularly on the conditions of growing markets, extended service networks,
emergent economies or capitalizing on the basis of competitor’s imperfections.
Companies like P&G employ detailed business plans and strategies in order to
gain several benefits from its competitors such as increased profits and
enhanced customer relations as company objectives. According to (1985),
balance between enhanced company processes and renewed objectives should
be critically appraised in order to ensure the success of the company. The
opportunity for Organization 2005 to create a newly advanced management
functions with the integration of information technology (IT) is promising.
Production technologies become itinerant wherein the developed technology
within the regional and local research facilities is transferred to specific plant that
has high requirement for such technology.
Another opportunity in the transformation to the strategic arrangement of
organizational structure into business units with five key elements namely global
business units (GBUs), market development organizations (MDOs), global
business services (GBS), corporate functions, and company culture. The said
restructuring will determine areas of development that needed improved and
focused attention from managers and related personnel. The opening of doors
for strategic alliances or takeovers is also feasible. Using Organization 2005 as
new program strategy, it addresses the opportunity to expand its operations and
even potential business cooperation. The opportunity to stand as number one in
the line of industry is also posed through the initiatives of managers and
implementers of policies of Organization 2005.
Market Threats
The inability to handle change management particularly on the
implementation of strategy poses great threat to the overall functions of the
Company. Amidst the financial capacity of P&G to sustain the needs of the
program, it will not stand credible if and only if the affected stakeholders are not
able to decipher and go along with the changes at hand. On the party of human
resources whom serving the main fuel of production, their inability to deal with
sudden changes is risky. This occurrence will potentially affect the entire
production and corporate management activities.
Furthermore, the unprecedented business trends and rapid competition is
never taken out of the list of most popular threat in any business regardless of
geographical coverage. It is acknowledged that development among worldwide
industries is deliberate and seems to be a top priority. For industries like P&G,
the threat of unprecedented trends in business like international trade policies
and economic factors, changing consumer culture and smart buying behavior
may lead to uncertainty. Technological difficulty may also affect business
operations even if Organization 2005 looks forward for comprehensive and state-
of-the-art technological innovations since the constant improvement in IT will
make new facilities not longer to be obsolete. On the aspect of competition, more
and more companies will try to challenge the market status of P&G. With
international cooperation of businesses and strategic alliances, competition will
be the ultimate survival of the fittest in form.
Task 2: THOMPSON et al EIGHT MANAGERIAL TASKS FOR STRATEGY
EXECUTION
(2000) comprehensively define strategy as “a plan that integrates an
organization’s major goals, policies, decisions and sequences of action into a
cohesive whole.” The coverage and area of application is related to all levels in
an organization like P&G including any of the functional areas of management.
This is also inherent to production, financial, marketing, personnel and corporate
strategies, as relevant examples. It is also concerned with success rather than
efficiency and is the process of analyzing the corporate environment and
designing the fit between the organization, its resources and objectives and the
environment (2000). The formulation of strategy (see Appendix 1) like
Organization 2005 considers its ways of implementation and execution. In
strategy execution, Thompson and colleagues devised a model that embodies
the most crucial parts where managerial tasks are needed and to be used in the
case analysis of Organization 2005 (see Appendix 2).
1. Building an organization with the competences, capabilities, and
resource strengths to execute strategy successfully.
Having a capable organization is a must in any strategy execution. On the
case of P&G, its corporate and organizational management and reputation is
undisputedly outstanding. As previously stated, P&G is among America’s most
admired companies and can also extended globally. Organization 2005 strategy
upon its implementation will further build the competencies, capabilities, and
resource strengths given that strategic options are taken not for granted. The
said strategy will restructure the marketing and management functions of the
Company with ardent hopes of increasing sales and profits. This corporate
restructuring program, on first look, is capable of building a reputable and
powerful organization. By means of the identification of specific goals,
appointment of right persons for key job areas, and strengthening weak
businesses and reinforcement of well-performing business units, which are all
embodied on the new strategy program, the process of building up an
organization is certain. Jager is decisively wants to implement the Organization
2005 strategy program that will create new growth opportunities for the whole
company. As the key person behind it, Jager had an abrupt take-off for the new
program strategy. This action resulted to uncontrolled effects like the decrease in
revenue growth, difficulty of P&G’s premium brands in competing markets,
inability of managers to perform well in their tasks and other human resources
issues, and unsuccessful new products. Organization 2005 is headed for
improvement of the firm’s performance or simply to accelerate growth of the
Company. With the emerging drawbacks on the strategy implementation, there is
a sudden need to select competent individuals who will handle or manage
organizational change. Then again, there are flaws in building up a strong
organization in relation to the case, as the selected individuals are unable to
provide what is expected of them. The changes that occurred during the period of
strategy implementation vary in every specific business unit. For example in
human resources management, there is an urgent attempt of designing the work
environment and organization structure to move from present departmental
structure to the new team based structure. The development of new human
resources policies and programs to help employees make the transition and
upgrade current employee skill sets and/or hire new employees with relevant
skills is also evidently established.
The role of IT in the implementation of this managerial task is significantly
related to the changes that occured in the whole period. The Company spent
almost $1 billion in 2002 for its IT including collaborative technology to facilitate
planning and other marketing functions. Based on the case study, Organization
2005 upon its implementation undergone changes in terms of building up a
strong organization. Among these changes is the resignation of Jager as CEO of
the Company and the immediate tenure of Alan George Lafley. The new CEO
took a second analysis on the rationale of the whole strategy. He created
immediate solutions to the mounting problems brought about by the seemingly
perfect strategy. He considered having a support-team to make sure that the
strategic change will meet its goal. Unlike Jager, Lafley concentrated more on big
countries and products. In building capable organizations, the Company is
successful in IT efforts. However, Jager and the failure of management to think
all the important aspects of selecting employees suitable for implementing
Organization 2005 is taken into account. Jager has experienced increasing
challenges and problems in the implementation of organization 2005 which led to
his resignation, Lafley, on the other hand, have taken over the position and have
immediately devised imperative actions to address problems at hand, then
continued what Jager has started but with some organizational-bounded changes
stated above. It could be said that the changes in relation to this first managerial
tasks and strategic objectives are met.
2. Marshaling resources behind the drive for good strategy
execution and operating excellence.
The Company has allocated $1.9 billion for this six-year corporate
restructuring program. This huge amount of money is not actually an issue for
firms like P&G as they hold a massive supply of economic and financial
resources. Initially, the allocation of resources is often a critical issue in every
organization. The most common resource that corporate managers consider
includes financial capital, personnel, and technological infrastructures. Among
these popularly known resources, financial capital counts most and receives the
greatest attention for the sole reason that money keeps the organization
functioning. In the case of P&G’s Organization 2005 strategy, the corporate
management intelligently allocated their given resources. It is also recognized
that Jager’s administration encountered some obvious glitches yet the
succeeding efforts compensate such problems. The new program strategy
involved large costs where only $400 million is planned to be used in the early
years of implementation (1999) and $1 billion over the next two fiscal years
(2002-2004). The management handled balance and cost effectiveness in both
marketing and management functions. The personnel case similarly have a cost-
effective allocation of its manpower, though part of the strategy is to cut cost by
eliminating 10,000 positions in fiscal 2001 and another cost-cutting of 5,000
employees after 2001. This is actually an ambivalent issue in terms of
Organization 2005’s success.
Most of the resource allocation on this new strategy program is on
acquiring IT in replacement of the traditional processes of production. During
Lafley’s administration, increased attention was given on IT infrastructures as
part of the change strategy. The Company in relation to its IT efforts had
decentralized its 3,600-person IT department to ensure that 97% of their
employees now worked in the company’s individual product, market and
business teams, or were part of global business services, which supported
shared services that includes infrastructure to P&G units as the remaining 3%
worked in corporate IT (2003). All in all, allocating resources in the Organization
2005 new program strategy is consistent and fell on the prescribed and initial
budget for the 5-year duration. There were just small changes yet these are all
negligible. Therefore, all changes met all strategic goals previously imposed.
3. Instituting policies and procedures that facilitate strategy
execution.
Organization 2005 upon its execution includes strategy-supportive
policies that played major controlling role for the initiation of the new strategy. In
Jager’s time, strategy-supportive policies are not case-specific. Among the most
common policies that were not taken into account if not neglected are risk
management or risk prevention policy; monitoring system, feedback system and
research and development (R&D). In details, risk management efforts that the
Company can apply include the assurance that all project management
requirements are available (i.e. professional expertise, financial resources,
feasible schedule and proper monitoring techniques). These are the essential
elements of ensuring a successful strategy execution. Jager, for instance, did not
use any strategy-supportive policies to address and resolve the problems that
have been foreseen in the execution of the new program strategy.
For the employment of a monitoring system in the strategy execution,
there is nothing applicable as strategy-support policy. There is no clear
monitoring or evaluation team. If there are such, the flaws of Organization 2005
in its initial take-off are minimized if not eradicated. A monitoring team can also
actively participate in risk management procedure. Regularity is needed as a
definite monitoring schedule should then be set and followed. Lastly, the
feedback system in connection to the monitoring system is deemed vital. In this
new program strategy which include various businesses, quality team leaders are
expected to report on the performances per business unit. With the failure to do
so, slight damages are created thus resulting to bad image of the seemingly
perfect program strategy.
As stated in the initial finding, the Organization 2005 new program
strategy somewhat oversee the importance of R&D mechanisms specifically in
marketing during Jager’s time when he introduced new products in
underdeveloped markets. It is given that the structured method of marketing
research has enabled countless of producers and consumers alike to better
understand their relationship ( 1995; 2004). Generally, the role of marketing
research in every business environment is to provide information that are
necessary in the decision making processes for the development and benefit of
the company. The value of information in decision making is proven especially in
enhancing performance, reducing uncertainty, and processing business plans
(1982; 1991; 1991). The information collected through marketing research, may it
be qualitative or quantitative in nature is essential in the overall being of the
company. Decisions based on marketing research information are an important
factor in overall business success (1990;1990). For instance, exceeding
expectations mean doing more for the customer than is expected under normal
circumstances. This includes largely the notion of research and development,
innovation and searching for ways to expand the products or services that can be
provided to enhance the customer’s business but generally also the supplier
company’s business. Hence, exceeding a customer’s expectation is not always
solely an altruistic act on the part of the supplier company. P&G feels that when it
pleases customers with product innovation and consistent value, it earns loyalty
to its brands (1994). Focus on quality, productivity and profitability, is being
practiced by the Company. They found that a focus on quality creates loyal
customers, drives cost out of the system, increases responsiveness to customers
and increases both the individual and collective capability of the organization
(1994). So, the role of marketing research in the decision-making process of the
company is to provide imperative information that is very vital in the growth,
success and survival of the marketing course of the product in relation to the
business as a whole
Formalization of policies and procedures that facilitate strategy execution
is a challenge. There has to be a great amount of knowledge on the imperative
factors that affect the overall implementation. In a study conducted by (1994), he
identified ten (10) strategies employed by companies particularly on improving
their operations and profitability in both short and long term perspectives. These
strategies are to be seen in Appendix 3. These strategies are seen evidently on
the execution of Organization 2005. Having these said, the changes that
occurred on this managerial task worked to the achievement of strategic goals
posed by P&G’s management.
4. Adopting best practices and striving for continuous improvement
in how value chain activities are performed.
P&G is accurate in their idea that there is still a tremendous potential to
grow in international market due to the fact that the global market for household
products is not as mature as it is in the Unites States (2003). For instance, using
the rationale of Organization 2005 on the creation of new products or even
intensification of existing brand names, P&G must identify its chosen strategic
intent. A company’s success may be rooted in an extensive background or
knowledge of the strategic intent of customers, suppliers, partners, and
competitors ( 1995). P&G’s main and strongest competitor among others is
Uniliver. Thus, it is recommended that with the application of Organization 2005,
P&G’s management must integrate all necessary mechanism towards all
strategic intent.
P&G has been divesting its non-core brands ( 2003). In the recent years,
P&G diversified in an effort to increase sales as many of their products, for
instance Pantene shampoo, compete in mature market. Some of the products
resulting from the diversification, such as its Olay line of cosmetics and artificial
cooking fat Olestra, have failed. When the new CEO A. G. Lafley managed the
Company, he decided to sell off the performing poorly brands and refocus on
P&G’s core, higher-profit making businesses by backing the Company out of the
food product business and other failed undertakings. Meanwhile, P&G has
formed over 10 strategic alliances in the recent years (2003). The Company tie-
up with Dana Undies to make Pampers cotton underwear, with Magla to make
Mr. Clean disposable gloves and mops, and with GM to distribute its Tempo car
clean-up towels (2001). Also, it agreed to partner with Whirlpool to develop a new
clothes “refresher product” and appliance.
As mentioned, P&G diversified products beyond its capabilities to manage
the diversification. The Company has a strong historical success in its consumer
soaps, including Tide and Ivory, and in Crest toothpaste. However, other
products like its Olay cosmetics and Olestra artificial cooking fat have not been
successful. This results in the firm’s recent decision to refocus on its “core”
brands or the ones that performs very well in the market. P&G’s refocusing may
suggest that its diversification level was producing poor returns. With the aid of
Organization 2005, the corporate management is able to leverage its global
presence by focusing on products and the market and then eventually become
competitive in the global marketplace.
For P&G, the objective of their related-constrained firm is to “think globally,
act locally”. This is supported, for example, by a cooperative structure of five
global business product units (i.e. baby, feminine and family care, fabric and
home care, food and beverage, and health and beauty care) and seven market
development organizations (MDOs) which are formed around a region of the
world such as Northeast Asia. Using the five global product units identified in the
creation of strong brand equities through ongoing innovation is how the Company
thinks globally while interfacing with customers to ensure that a division’s
marketing plans are fully capitalize on local opportunities is how they acts locally.
The information is shared between areas like the product-oriented and the
marketing-oriented efforts to enhance the Company’s performance. In follows
that some corporate members should be responsible for focusing on making
certain that knowledge is meaningfully categorized regardless of purposes it may
serve and then rapidly transferred throughout P&G’s businesses and units
(2007). In terms of such identified changes, the strategy execution in relation to
this managerial task is effective as it achieved most strategic objectives
presented at hand.
5. Installing information and operating systems that enable company
personnel to carry out their strategic roles proficiently.
Practically, support systems like information and operating will ensure
successful strategy implementation. On the case of Organization 2005, P&G’s
management had installed a support system to initiate the changes, that is, effort
in restructuring of the management team. Herein, the new CEO redistributed the
positions of the company to update and improve operations and meet the
strategic objectives of Organization 2005.
The intensification in IT is also considered as important part of the
support system. Lafley, through the alignment of technological infrastructures
and general business strategy, P&G’s business value could be maximized, and
the competitive threat can be minimized. Investing on IT include computerization
of areas of management and production. The goal of these systems is derived
from the organization’s vision or mission, and could either be short term or long
term in effect (1994). These computer-based information systems used within an
organization consist of the network of all paths of communication within an
organization which assists management in collecting, manipulating, and
analyzing data or information for decision-making. It operations include input of
data, processing of data, storage of data and information from raw input, and the
creation of management outputs such as reports and business analysis (1999).
Lafley’s IT support for Organization 2005 is the type of commitment to
continuously improved efficiency and effectiveness that has spurred the
Company on and made it possible for to become competitive on a global scale.
In relation to changes, there were major ones as directly associated in the
achievement of strategic objectives.
6. Tying rewards and incentives directly to the achievement of
strategic and financial targets and to good strategy execution.
In strategy execution, P&G’s management established a reward system.
This is primarily intended to support employees in relation to the organizational
strategy of providing incentives in exchange to actions that will work on the firm's
interest and performance over time. According to the expectancy theory,
employees expect and need to be rewarded according to the work they do, and
will help them to develop their capability, help them to work up to a higher level
so that they can be better rewarded. Employees expect organizations to have
compensation systems that they perceive as being fair and commensurate with
their skills and expectations ( 2002). The compensation may, in some cases, act
as employee motivators. These compensations that employees receive may be
value-added compensation including direct compensation, such as salary,
incentives and commissions; and indirect compensation, such as insurance
benefits, employee recognition programs, flexible work hours, and vacation
benefits. To improve performance, the system theory assumes a synchronized
work environment. To synchronize the parts of the organization, it is necessary
for the productivity of the Company in ensuring the effectiveness of the
Organization 2005 execution.
Here comes the controversy on the public perspective of the new
program strategy. In this case, the goal of the Organization 2005 is to trim down
the units of the business structure by laying-off some of its employees yet
offering a justifiable reward and motivational approach, and to motivate the
performance of the retained ones. In the execution of this managerial task, Lafley
incessantly used a given reward approach with aims of increasing productivity
and effectiveness. The incentives used by P&G are both monetary and non-
monetary. Looking at the changes that obviously occurred in the Company, it
undeniably served for the purposes of achieving the strategic goals of
Organization 2005.
7. Shaping the work environment and corporate culture to fit the
strategy.
The corporate culture of P&G is also a role model. (1992) defined
corporate culture as “the pattern of creating shared common assumptions that
the organization learned as it resolves problems of outer adaptation and inner
integration that has been considered valid making it possible for others to pass it
down to new members as the appropriate way to think, perceive and feel
organizational concerns” (). The case of Organization 2005 looked further on
having a general goal or united strategic direction among areas of management.
Specifically, the goal of this new program strategy is to improve P&G’s
competitive position and generate operating efficiencies through more ambitious
goals, nurturing greater innovation, and reducing time-to-market by substantially
restructuring the overall organizational setup, work processes, culture and pay
structures (2003). These corporate shared goals are then achieved through past
practices and strategies that are guaranteed to work and are embodied in
Organization 2005. Upon its initial stages of implementation, Jager had a shared
approval and unified corporate culture to implement the new strategy is present.
According to (1999,2005) research on the Company, she found that their
cultural change required not only a shift in internal values, but changes in
attitudes about external beliefs as well. She notes that Proctor and Gamble was
pursuing aggressive use of KM and BI technology in its supply chain. To be
successful, says that the organization must change their cultural beliefs about
sharing information and decision-making techniques with outsiders. That is, the
company must change its relationships with its suppliers and with its customers,
from one of passive market acceptance to one of proactive sharing of knowledge
and data. The function of strategic management and planning is also apparent.
Strategic management for (2002) has provided a useful set of tools and
techniques to draw on and adapt to enable them to be more focused, to create a
stronger sense of unity and direction, to understand the external environment
better and to manage more effectively the development of the organization.
The consideration of P&G’s corporate culture paved way to the distribution
of learning on the expense of Organization 2005. There has been a communal
knowledge and information sharing through experiences with others. The
occurrences during the strategy execution imply that the Company supports a
definite level of stability among the upper and lower areas of management.
However, this is remarkably manifested under the management of Lafley in
contrast with Jager. The changes that occurred in this managerial task are
directed to a distinct corporate culture. P&G has commitment towards
sustainability, product safety, environment responsibility, social responsibility,
community care, privacy, and corporate governance. With the implementation of
the said program strategy, the corporate culture of the Company is guided with
their “Purpose, Values and Principles” or PVP wherein it focuses on personal
integrity, respect for the individual and doing what is right long term (2007). Over
the past 165 years, the Company used this culture as seen evidently on the
execution of Organization 2005. There are minimal changes but it could be said
that they are all directed to the achievement of strategic objectives that are
previously identified.
8. Exerting the internal leadership needed to drive implementation
forward and keep improving on how the strategy is being
executed.
Leaders primarily work through and with other people. They also help to
establish the conditions that enable others to be effective. Leadership is a
function more than a role. Although leadership is often invested in – or expected
of – persons in positions of formal authority, leadership encompasses a set of
functions that may be performed by any different persons in different roles
throughout an organization ( 2002; 2000). On this case, it is specified that there
are two leaders and two different leadership style used in the strategy execution.
, who spearheaded the Organization 2005 new program strategy, is a
good leader in the first stages of execution. His failure and his team to anticipate
possible drawbacks upon the strategy implementation created negative impacts
to the whole change process. This made the strategy unsuccessful and
instigated Jager’s resignation from his position. According to (2002), leaders
have the ability to view the future. They are equipped with compelling abilities to
visualize where things will naturally end or lead to. Unlike other people,
individuals with leadership abilities see things that are not noticeable or obvious
to others. In addition, leaders have the ability to build and establish confidence to
others. Hence, in order to be a good leader, a person needs to have a personal
sense of efficacy and confidence (2002). Obviously, Jager failed on this
leadership attribute and qualification. Evidently shown in the case study,
problems include autocratic tendency when he tried to put too much pressure on
the P&G managers into bringing their products to market faster and strategic
decision-making and taking. When Jager forced his managers to rapidly deliver
their products to the market resulted to unsatisfactory effects. His inability as a
leader to decide strategically was seen on the event of dual acquisition of
Warner-Lambert and American Home Products, which were futile during those
times.
Meanwhile, Lafley, being a veteran in the company, could be said more
effective than his predecessor. As Lafley saw the mistakes of the previous P&G
leadership, he redirected and redefined success. Lafley immediately acted upon
urgent matters at hand when he already had his tenure as CEO. He has his own
set of goals yet they are not far from the original strategic objectives of
Organization 2005. Among his significantly remarkable action are his improved
operations and renewed management team. He hailed different heads of P&G’s
operating businesses and corporate functions in 13 countries. While Jager
focused on taking new initiatives in underdeveloped markets, Lafley took
increased attention on big countries and P&G’s big and core products. This made
a distinct difference. Lafley can also be categorically given credit to effective use
pf a unique leadership style. He is able to be appropriate in exercising the right
leadership style on the right point in time and circumstance. In relation to the
Organization 2005, he also improved the P&G’s competitive advantage and
revitalize long-term growth initiatives by streamlining the Company cost structure
by further reducing overhead and manufacturing costs. This was considered as
expansion of Organization 2005 original strategic intent. The encouraging
leadership in which Lafley employed served as inspiration and strong motivator
for employees to excel on their management functions. The renewed
management team looks forward to the welfare of the whole organization over
self-interest. Upon the execution of the Organization 2005 under Lafley,
employees are more dedicated towards innovations. All in all, the changes that
occurred in this managerial task contributed to the eventual success of the new
program strategy. Indeed, such changes do not only archived but also surpassed
the given strategic objectives.
Task 3: PROCTOR & GAMBLE AND GILLETTE ACQUISITION
(a) Acquisition as a Sensible Strategy for Diversified Company
Merger and takeover is the process that happens when a company with
greater resources acquires the rights and properties of another company in an
effort to save the latter from further financial handicap (2002). Also, it is
considered as the consolidation of two organizations into a single organization,
while acquisition means the purchase of one organization from another where
the buyer or acquirer maintains control. It is said that both partners pursue a
“strategic fit” or the similarity between organizational strategies or complementary
organizational strategies setting the stage for potential strategic synergy. More
often than not, merger is closely associated with acquisition. The new wave of
merger and acquisition activity concerns some of the acquiring companies and
their financial intermediaries (1998). It is a sensible strategy for diversified
company in the following ways:
Acquisition (or merger) is considered a strategic action of firms to obtain
several advantages from integration of activities and resources. One of the
strengths of the merger is its ability to strengthen the competitiveness of the
merged company. Such could promote cost-efficiencies and even give the newly-
formed firm value-adding capabilities (synergies) that would not be attained
individually. It is a formal strategic agreement between two business
organizations to pursue a set of private and common interests through the
sharing of resources in contexts involving uncertainty over outcomes (2001).
Practically, the combining efforts of two companies were expected to reap
many benefits. In this case, merger and takeover includes several benefits
particularly in addressing common yet challenging issues on the business
operations. Some of these benefits include the importance the said process in
terms of competition, financial management, innovation, and other related
factors. Merger and takeover is an effective solution and way to combat the
widening competition any specific business or industry (Market Research, 2000).
The merger boosts any company by providing the needs to attain tremendous
growth and positioned its products and services as dominating forces in the
particular area of operation. It is all in cost-saving expectations that create
important expenditure and selling synergies. According to (1979 ) there are
reasons for mergers including different kinds of efficiency improvement such as
replacement of inefficient management product, financial, and tax synergies.
Strategic alliances like acquisition has helped pressure some firms to link
with others. It has also meant many new players looking for ways to follow their
customers. Further, it helps to mitigate external environmental uncertainties and
potentially avert price wars ( 1992). The degree of strategic alliances may range
from a simple licensing agreement, to joint marketing effort, to establishing
consortium, to combining resources for joint ventures, to the ultimate form of
mergers and acquisitions. Companies may be interested in alliances to capitalize
on different expertise, build strategic synergies, mitigate risks, speed up a
venture with combined resources, and develop scope economies ( 1998). Merger
and takeover increases the feasibility of innovation and increases the core
competencies of companies. Interactions between innovation of knowledge,
marketing and management are increasingly being recognized as essential
elements in the evolution of economic order and the emergence of new social
structures (2003). The management is no longer serving the singular role of
producing products; this role is complemented by other critical functions. It
redefines corporate boundaries, corporate growth, capabilities, and
consolidation.
Meanwhile, (1991) said that in order to keep up with the rapidly changing
technologies; gain access to specific foreign markets and distribution channels;
create new products; and ease problems of worldwide excess productivity
capacity, strategic alliances are being used with increasing frequency. (2000)
said it can be easily said that corporate takeover is a means of survival for
companies. They continued that in this new environment, ownership matters, and
managerial control stems from equity position rather than relational ties. There is
a potent increase of company resources. Resources are believed to be important
when they allow an organization to conjure up of or put into practice strategies
that perk up the organization's competence or efficiency ( 1991). (2004) stated
that the deal is beneficial because not only is there a lower cost base, but also
stapled securities provide a better alignment of management and investor
objectives with no conflict of interests from related third parties. Other benefits of
merger and acquisition are establishment of a niche because of the expansion of
products offered and increased productivity and profitability through increase
output with unchanged fixed costs, yielding higher profit.
(b) Strategic Business Benefits in the Acquisition of Gillette
Historically, (1993;2004) proposed that mainly corporate combination
activity since the mid-1970s has been initiated by technological and supply
shocks that scored in excess productive competence in various industries.
Merger, as a corporate strategy of companies, can be examined in two aspects:
the financial considerations and the profitability and gains of the company in
merging, and the employment issues it generates, specifically, the existing
employees of the company before the merger. According to (1999), worldwide
mergers have increased by five folds from 1994-1998 and have fully gained their
momentum by 1999. Reports from the (2001) states that mergers and
acquisitions (M&As) is a global phenomenon with an estimated 4,000 deals
according to the taking place every year. It is an accepted strategic option in a
competitively aggressive post-industrial economy. The end result is a broader
range of services and talents for the combined firm's clients. Their primary
concerns are legal and financial - how much a company is worth, what terms to
negotiate, how to structure the transaction, and how to get regulators to go along
with it. Balance sheets are scrutinized, projections of demand and capacity are
studied, and cost-cutting requirements are at the forefront of consideration. Most
of the analysis concerns valuation and the financial contours of the deal. Also,
(1992) stated that alliances involve co-operative agreements between
enterprises in which the parties co-operate on an equal footing. Such
collaboration requires a pooling of human, technological, productive,
informational, or financial resources leading to a mutual commitment. (1995)
also stated that a strategic alliance through mergers is providing a “trading
partnership that enhances the effectiveness of the competitive strategies of the
participating firms by providing a mutually beneficial trade in technology, skills
and/ or products”.
This trend according to (1999) is attributed to synergy – greater
productivity and efficiency gained by the companies through combined
operations. It is like two competing companies joining forces to become bigger
and more powerful companies and probably, to dominate the present market.
Though (1999) added that corporate merger has its downside since it creates
monopoly among the consolidating firms. This leads to reduced competitions and
the eventual demise of weaker and smaller corporations. The M&A strategy are
largely believed to be an advantageous strategic option for organizations ( 1996).
Basically, the motive of mergers is to achieve a global presence, growth,
diversification, and achieving economies of scale (1993; 1992).
According to an article in (2006) journal, “the innovation model at Proctor
& Gamble (P&G) places even greater emphasis on alliances. The company has
forged a global network of partners that has transformed product development to
better meet customer demands. Connect and develop (C&D) involves finding
established ideas from around the world and then applying P&G’s own
capabilities in such as research and development (R&D), marketing and
purchasing in order to improve them further” (). This is particularly evident on the
acquisition of Gillette as a strategic way of building global alliances. However,
there are identified disadvantages in terms of the organizational structure, the
financial arrangements and human resources particularly, the emotional and
psychological adjustments among the employees before and after a merger.
A merger can sufficiently transform the structures, cultures, and
employment prospects of one or both of the firms such that they cause
organizational members to feel stressed, angry, disoriented, frustrated, confused,
and even frightened. For the individuals involved, these feelings can lead to a
sense of loss, psychosomatic difficulties, and marital as well as personal discord.
Yet, what is often overlooked is that M/A’s not only disrupt the lives of individuals
but inevitably destabilize the organizations involved as well.
Inter-firm consolidations often precipitate lowered employee commitment
and productivity, increased dissatisfaction, high turnover, leadership and power
struggles, and a general rise in dysfunctional behaviors such as sabotage. In
addition, another disadvantage that merger and acquisition may bring within the
company is the tendency for the company to not give enough focus to its
products because of many products that it offers in the market. In this manner,
the company may not have that assurance of sustaining the competitiveness of
other products.
Another weakness can be attributed to the cultural context. The
consequences of culture become particularly apparent in cross national
operations, mergers, and acquisitions, where not only different organizational
cultures but also organizational cultures rooted in different national cultures meet
(1996; 1991). When organizational members from diverse cultures interact and,
especially, when one culture is required to adopt the methods and practices of
the other culture, disruptive tensions emerge. These have been described in
terms of the concepts of “acculturative stress” or “culture clash” (1996). The
conflicts mostly result from the introduction of new management methods that
are incongruent with the values underlying existing practices (1983; 1981). An
organization’s culture determines the ability of out-group members to perform
within the organization. According to (2000) national differences can magnify the
cultural differences inherent in any acquisition, heighten employee resistance,
and make the integration even more difficult. Hence, the risk of failure of a
merger is even greater than with a domestic acquisition. With several factors
demanding consideration of a newly merged company, the work force with
different work ethics and priorities in dealing with their jobs will lead to a disaster.
(1999) asserted that mergers are not necessarily job cutters. He
suggested that it does not necessarily follow that when companies merge, the
result shall be lay off of employees. Though, this assumption had been prevalent
among employees. Downsizing arises from the need of the consolidating firms to
reduce costs by streamlining their workforce of redundant positions, departments
or even entire factories. Mass lay off however, had been proven in some of the
world's biggest mergers in history. A paper published by the Center for Research
on Globalization and Labor Markets in the UK claimed that the impact of merger
on employment in terms of job cuts depends on the merger type being
considered. If the type of merger is a hostile one such as those in the cases of
job loss cited earlier – wherein which the market for corporate control operates
so as to redirect assets into the hands of more diligent or talented managers--
cost economics and labor savings may realistically follow ( 2000).
More often than not, the newly merged or acquired business entities don't
really have an easy time adjusting to the changes brought about by the
acquisition or take-over. As a result, these entities engage in activities that are
somehow resisting to changes. Therefore, the major activities of the company
such as the manufacturing of products, product development, production and
distribution become severely hampered (2001). A typical personnel problem that
occurs during mergers involves the difficulty in getting people in the acquired
company to work comfortably with new management.
In merging companies, another challenge is evident in the financial
management aspect. The challenge now for the financial mangers is to explore
the options and take advantage of the opportunities while taking caution in
managing the risks. Financial management is the determination, acquisition,
allocation and utilization of financial resources with the aim of achieving a
particular goal (1999). It consist of analyzing the financial situations, making
financial decisions, setting financial objectives, formulating financial plans and
providing a system of effective financial control to ensure the progress of the
plans towards the attainment of the company aims and objectives. The
organization, in order to effectively execute any business strategy or plan, should
be able to determine first and identify the resources that are available. Studying
and examining the opportunities of the available resources will help in
constructing a business plan which will be profitable. The characteristics of the
business should be clearly laid out and the ideas that will be made available
should be thoroughly researched. This will provide relevant information that the
general management can utilize so as to be able to allocate the funds of the
group in the most effective way. All the changes that will be made aim to achieve
the goals and objectives of the business organization or company. That is why it
is highly important that the firm knows the direction it intends to take. Making a
financial decision and taking a stand to support the possibility of exploring the
strength and advantages of a particular resource of the organization will be
handy if the financial personnel is decisive and practical enough with a daring
character to challenge and the social and economic conditions in the
organization.
On the case of P&G and Gillette, the identified beneficial as well as
harmful ways in the previous discussion are said to be evident. However, they
were all justified by managerial decisions undertaken by the upper management.
The importance of strategic management planning is seen to be relevant in this
case. Strategic planning could be only successful if the circumstances of the
investment that will be made are well examined and researched. This will
prepare the whole business in the problems and issues that the company may
confront during the execution of the project or plan. However, this does not
assure that there will be no problems that will exist and confront the business
venture. The above discussion provides the advantages and disadvantages of
merger and acquisitions particularly on the case of P&G and Gillette.
APPENDICES
Appendix 1
Corporate Strategy Formulation and Implementation
Source: (2002) A Guided Tour through Kenneth R. Andrews’ the Concept of
Corporate Strategy (1980),
Appendix 2
Eight Managerial Tasks for Strategy Execution Model
by Thompson and colleagues
Appendix 3
Pegel’s Strategies in Improving Company’s Operations and
Profitability in Both Short and Long Term Perspectives
(1) Maintain continuous contact with customers to understand and
anticipate their needs.
(2) Develop loyal customers by not only pleasing them but by
exceeding their expectations.
(3) Work closely with suppliers to improve their product/service quality
and productivity.
(4) Utilize information and communication technology to improve
customer service.
(5) Develop organization into manageable and focused units in order
to improve performance.
(6) Utilize concurrent or simultaneous engineering.
(7) Encourage, support and develop employee training and education
programmes.
(8) Improve timeliness of all operation cycles (minimize all cycle times).
(9) Focus on quality, productivity and profitability.
(10) Focus on quality, timeliness and flexibility.