P&G: Group 6 (EPGDIB-VSAT-2014-15)

INTERNATIONAL BUSINESS
STRATEGY
Assignment: P&G Case
Faculty: Dr. K. Rangarajan
Developed by: Group 6
Abhishek Das, Roll No-4
Pratip Kumar Kar, Roll No-37
Saibal Chatterjee, Roll No-45
17-Oct-2014

P&G: Group 6 (EPGDIB-VSAT-2014-15)

The case is about P&Gs revival strategy in early 2000

Case Brief

Aspects to be Assessed

Procter and Gamble (P&G) ran through a

troubled time in early 2000 with as much as
18% decline in profit in one quarter and 7%
drop in yearly revenue guidance resulting
significant fall in stock market

Key elements of the Organization 2005

program and the changes the program
brought about in P&G

P&Gs President and CEO, Durk Jager

launched the Organization 2005 program to
leapfrog over the declining trend

Changes in the marketing strategy of

P&G proposed in the case

However, much of the initiatives provided

poor return leading a premature exit for
Durk Jager

Alan George Leafley, new CEO undertook a

number of promising strategies that
brought P&G back in the path of growth
and profit

Organization structure and its suitability

in view of the overall strategy

Merits and demerits of Organization

2005 program
Leafleys strategy and the measures to be
taken to improve P&Gs growth in
developing markets

P&G: Group 6 (EPGDIB-VSAT-2014-15)

The aspects will be covered in three steps

Aspects to be Assessed
Key elements of the Organization 2005
program and the changes the program
brought about in P&G
Organization structure and its suitability
in view of the overall strategy
Changes in the marketing strategy of
P&G proposed in the case
Merits and demerits of Organization
2005 program

Leafleys strategy and the measures to be

taken to improve P&Gs growth in
developing markets

Steps to Address

1 Why Organization 2005 program

Elements of Organization 2005 program
2
3 Leafleys strategy evaluation

P&G: Group 6 (EPGDIB-VSAT-2014-15)

Why Organization 2005 program?

External Indications

Root Causes
Organization & Governance

Change in revenue guidance

leading to reduction in stock
price causing loss of more
than $40billion market
capitalization
Stagnant revenues
Declining profit to about 18%
reduction sequentially, a
phenomenon in eight years
Lack of competitiveness

Complex organization structure with lack

of clarity on the roles and responsibilities

Excessive decentralization hindering

overall globalization goals

Culture
-

Bureaucratic culture prohibiting

innovation and growth

Processes
-

Fragmented process across geographies

Marketing Strategy

Aging brand lines failing to capture

millennial and new customers

Minimal new launches over long period

P&G: Group 6 (EPGDIB-VSAT-2014-15)

Changes were pervasive with both foundational and

strategic in natures

Strategy

Changes from conservationist strategy to more outward,

revenue focused strategy
IT as a business partner
Focus more on innovation

Process

Marketing

Process:
- Standardization across globe
- Technology aided
Marketing
- New brands
- Promotions

Organization

Culture and People

Organization:
- Structural and functional change
- Centralization
Culture and People
- Innovation
- Rewards based
- Collaborative

P&G: Group 6 (EPGDIB-VSAT-2014-15)

Fundamentally, a conservative strategy was changed into a

dynamic innovation oriented strategy
To

From

Conservative outward strategy

Dynamic outward strategy

Concentration on cash cows

Concentration on new launches

Risk averseness

Concentration on operation and

bottom line

Stronger appetite to risks e.g. Large

acquisitions

Concentration on topline

Physical link with the customer

Virtual link with the customer

Insular inward strategy

-

Open inward strategy

Decision making through hierarchical

communication

Faster decision making

Technology driven supply chain

Traditional supply chain operation

Open and reward based culture

Bureaucracy in culture

IT as a support service

IT as an enabler to business
-

Operation enabler

CRM enabler

P&G: Group 6 (EPGDIB-VSAT-2014-15)

Processes were standardized and IT driven

To

From

Core processes
-

Inefficient processes

Product line
-

Too much focus on old

products as roughly
8% of the products led
to about 85% of the
revenues

Information Technology
-

Minimal use of
technology apart from
the traditional ones

Core Processes
- Improvement in core processes including product
development, supply chain management and
marketing functions
Product line
- Stronger focus on new product development with
greater impetus on innovation, faster time to
market
- Simplification of product lines through
standardization of product formulas and worldwide
packages
Information Technology
- Significant leverage of IT in supply chain, knowledge
management, collaboration
- More focus on technology driven order
management, processing, category management
- Internet based distribution system Web Order
Management
- B2C e commerce with introduction of P&G
Interactive marketing and customer collaboration

P&G: Group 6 (EPGDIB-VSAT-2014-15)

Marketing approach was focused on new launches and

brand
promotion
From

Product

Product

Focus on cash-cow products

Focus on new product launches

Minimal growth outlook on more

than 80% of the product lines

Emphasis on innovation

Price
-

To

Price
-

Pricing strategy decided by country

managers

Place

Price set by GBUs and products sold

worldwide accordingly

Place
-

Centralized decision making by the GBUs

Decisions taken in a federated way

by geographies

Internet based decision making and

collaboration (Web Order Management)

Traditional distribution processes

Improved and faster technology driven

point of sales information to sales people

Promotion
-

Traditional promotion process

mainly focused to core products

Promotion
-

Various discount and reward system for

products

Increased impetus on brand management

P&G: Group 6 (EPGDIB-VSAT-2014-15)

Marketing approach and global perspectives

HIGH

Research

Development

Finances

Centralization of core
functions to leverage
economies of scale and
scope

After Sales
Services

Components Sourcing
Components Manufacturing

GLOBAL
FORCES

Logistics
Marketing

Advertising

Standardization of
packages and product
ingredients

Accounting
Customers Services
Sales

LOW
LOW

LOCAL FORCES

Focusing on new brand

launches across the globe
driven by innovation

Emphasizing rise of
emerging economies

Realigning and
revitalizing global
positioning through value
chain optimization and
structural changes

HIGH

P&G: Group 6 (EPGDIB-VSAT-2014-15)

10

The organization was centralized to enable process change

and ensure faster decision making

To

From

Model
- Geography based
- Profit centers oriented
- 100 profit centers
GBU
- Limited control on the
GBUs
- Limited accountability on
profits for the GBUs
GBS
- Almost negligible or no
presence
Corporate Functions
- No existence

Model
- Product line based
- 5 product based global business units
- 7 profit centers
GBU
- Increased centralization of GBUs with sourcing,
R&D and manufacturing further consolidated
- Direct accountability on profits for the GBUs
- Strengthening of GBU by integrating integrating
with eight regional market development
organizations (MDOs)
GBS
- GBS service for global integration of processes
around accounting, order management, human
resource systems, employee benefits and welfare
and IT services
Corporate Function
- New structure for centralized capabilities for
corporate operations to support GBU and MDO in
collaboration with GBS

P&G: Group 6 (EPGDIB-VSAT-2014-15)

11

An open, innovative reward-based culture was brought in

To

From

Cultural philosophy

Cultural philosophy

Conservative and bureaucratic

Modern, quick moving and internet savvy

Limited focus on collaboration

Technology based collaboration

Misaligned objective with high penalties

for failure

The organization is aligned on common goals

with trust as a foundation

Internal inspection keeps everyone

under control

A focus on coaching and teaching enables

informed risk taking and team collaboration

Risk is avoided and victory is narrowly

defined

Victory is defined as stretch with trust and

candor

Complexity is delegated down

Leaders take on complex challenges

Creating a slow moving organization that

lacks stretch, innovation and speed

An organization driven by stretch, innovation

and speed toward breakthrough goals

Traditional time based performance

reward

Innovation and result oriented reward system

P&G: Group 6 (EPGDIB-VSAT-2014-15)

Merits and Demerits

Innovation and change

Customer oriented drives such as Web order

management, Reflect.com, P&G Adivisors
etc.

Supply chain revamp

-

Customer orientation and cost reduction

-

Large part of centralization helped in decision

making faster

Standard and unambiguous process for

reduced time to market

Introduction of IT in core supply chain to web

commerce to collaboration

Disregard on the core products to focus excessively

on new products
Selling P&G products globally under the same name

Cultural shift raising people nervousness

-

KARS for minimized and just time inventory

Technology driven supply chain
Faster cash to cash cycle

Radical changes in P&G philosophy: leading to

confusions internally as well as externally in the stock
market
Miscalculated large acquisitions in short time:
Warner-Lambert and American Home products
Disproportional focus on revenue increase as
opposed to cost reduction for execution

Far fetched expectations on Product lines &

marketing strategy
-

IT as a business partner
-

Strategy radically different

-

Standardization of processes
-

A push in the direction of change

Innovation on new products

Centralization of decision making

-

12

Significant change from conservationist culture to

Confrontational style of management
Indiscriminate change of reporting hierarchy and
people location
Working environment uncertainties through Job cut

Inadequate organization change management

P&G: Group 6 (EPGDIB-VSAT-2014-15)

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Organization 2005 strategy implication

The strategy was in the right direction for P&G as it helped
Transform the firms overall conservative and insular strategy into dynamic and open
one that eventually was followed by Leafley leading to phenomenal success

New marketing approach helped the firm to determine and evaluate prospective product lines
that can render high return in emerging markets
A productive culture was brought in to help transform overall firms agility
Faster time to market philosophy was heavily reaped for significant benefits subsequently
Uncovering Inorganic growth as a part of P&Gs fundamental growth strategy

Some of the approaches didnt yield the benefit not because of strategy mishap but
more of implementation faults

Change in culture was not properly accepted although needed and fundamentally appreciated
by Leafley
Too many changes, too fast had put a strain on the firm although recreating the roadmap had
brought in desired results

P&G: Group 6 (EPGDIB-VSAT-2014-15)

14

Leafleys Strategy is highly focused towards developed

markets

Typical Developed Country

Trends and Needs

Start of big
acquisitions

Leafleys Strategy

Refocusing on core products and brands such as

Tide, Pampers and Crest to drive up the revenues in
the leading markets

Revitalizing untapped potential of traditional

businesses such as baby care, fabric & home care
and oral care

Ensuring large ($5 billion) but measured acquisition

through Clariol to drive up core competency

Driving various cost reduction initiatives including

job reduction

Realigning corporate culture to open, collaborative

but soft one

Recognizing women power as a major driving

factor

Continuing on the innovation and technology path

laid down by Jager

IT and .com boom

Heavy reliance on
baby, home care
products
Cost cutting as a
measure for profit
boost

P&G: Group 6 (EPGDIB-VSAT-2014-15)

15

Leafleys Strategy and developing markets

Some of Leafleys strategies were equally applicable for developing markets

Focusing on traditional baby care and home care products as the lifestyles were changing for the
developing markets as well
Continuing on the path of innovation and technology rendered much needed lever for
collaboration and faster decision making across the globe
Continuing on the structural reforms but softer people management approaches would have
provided appropriate cultural orientation for Asian markets such as India
Concentration of cost reduction is vital operation strategy for new market entries
Adapting to local market packaging and product requirements with global touch

However, some additional aspects would have been necessary for emerging markets

Continuing the focus and ambition on rising emerging markets so gain early entry advantages
Classifying expansion strategies (e.g., export vs. FDI) for key markets
Realigning and emphasizing needs for certain functions such as HR for local markets
Evaluating the need for local sourcing from certain markets
Localizing brands and meeting local customer needs such as Healthcare and hygiene products
like Vicks, Head and shoulder in India

P&G: Group 6 (EPGDIB-VSAT-2014-15)

Thank You

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