Role of Reengineering in Project Management

Strategic Management

Submitted to: Sir Raja Mazhar Hameed Submitted by: Abdullah Awais (12063) Akbar Khan (12170) Nabeel Ali (12280) Jawad Khan (12061) Hamid Arshad (12156)

Table of Contents
1-Introduction: ................................................................................................................................ 3 1.1-What is a Business Process? ................................................................................................. 3 1.2-PR Business Model ................................................................................................................ 4 1.2.1-Business process improvement: ........................................................................................ 4 1.2.2-Business process reengineering......................................................................................... 4 1.2.3-Business process architecture: .......................................................................................... 5 1.3-Business Process Reengineering (BPR): .................................................................................... 5 1.3.1-Definition for Business Process Reengineering/Redesign ............................................. 6 1.4-Scope of BPR ......................................................................................................................... 6 1.4-How to implement a BPR project: ........................................................................................ 7 1.5-Benefits of BPR:..................................................................................................................... 8 1.6-Drawbacks of BPR ................................................................................................................. 8 2.1-History of P&G: ......................................................................................................................... 9 2.1-Introducing Innovative Employee Benefits ......................................................................... 10 2.2-Paper Products Push Included Pampers ............................................................................. 11 2.3-Key Dates: ........................................................................................................................... 11 3.1-History of Gillette: .................................................................................................................. 13 3.1-Entrepreneurial Beginning .................................................................................................. 13 3.2-Wartime Production ........................................................................................................... 14 3.3-Takeover Threats in the 1980s............................................................................................ 15 3.4-Razor Wars: Late 1990s and Beyond .................................................................................. 16 3.5-Key Dates: ........................................................................................................................... 16 4-Merger and Acquisition: ............................................................................................................ 17 4.1-P&G and Gillete:.................................................................................................................. 17 4.2-Importance of merger and acquisition for companies: ...................................................... 18 5-SWOT analysis:........................................................................................................................... 19 Strengths ................................................................................................................................... 19 Weaknesses ............................................................................................................................... 19 Opportunities ............................................................................................................................ 19 Threats....................................................................................................................................... 19 6-Conclusion: ................................................................................................................................ 19
Strategic Management Page 2

1-Introduction:
Many organisations around the globe are undergoing major changes in their structure and management in order to stay alive in todays highly competitive environment. Hence, a number of firms are undertaking such Business Process Reengineering (BPR) in order to bring the much needed innovations to change the outdated business processes. Therefore, it is very much necessary to study about Business Process Redesign (BPR) in order to run any organisation efficiently in todays highly competitive business environment. Hence, the objective of this report is to analyse the Business Process Redesign (BPR) with its importance and to understand about different methods that we can use for reengineering an organisation. Before we move forward on BPR; let us clarify the definition as to what a Business Process is, so that we can understand the importance of BPR well. 1.1-What is a Business Process? A Business Process is a collection of activities designed to produce a specific output for a particular customer or market. It implies a strong emphasis on how the work is done within an organisation, in contrast to a products focus. A process is thus a specific ordering of work activities across time and place, with a beginning, an end, and clearly defined inputs and outputs: a structure for action. A Business process: 1.Has a goal 2.Has specific Inputs 3.Has a specific output 4.Uses resources 5.Has a number of activities that are performed in some order 6.Many affect more than one organisational unit. Horizontal organisational impact 7.Creates value of some kind for the customer. The customer may be internal or external

Strategic Management

Page 3

1.2-BPR Business Model: BPR develops all its products based on the following business model. The key components of this business model are innovation, organisation and achievement. The Three Levels of Process Activities are: 1.Business process improvement 2.Business process reengineering 3.Business process architecture The most basic process activity is Business Process Improvement and the most complex is Business Process Architecture. As you increase the scope of process activity the investment, the risk and the time requirement also increase. 1.2.1-Business process improvement: This is equivalent to re-decorating a house. The starting and finishing points of the process are usually within a single department. The effort supports the business departments business plan and annual objectives. The results affect the performance of that department. When the project is finished, the nature of the business, and the organisational structure and boundaries remain unchanged. The departments employees have to modify their routine and new skills are often needed to make the new process improvements work. 1.2.2-Business process reengineering Reengineering results in companies being re-modelled: Projects can be expensive in scope. The starting point and finishing point of a targeted process are usually in different departments, making it cross-functional. Areas involved are those which have an impact on, or are impacted by, the process being reengineered.
Strategic Management Page 4

A reengineering effort supports the companys Business Plan. The focus is to achieve benefits in support of mid-term targets which are three to four years in the future. The results of a successful project contribute to corporate performance and should be tracked to the bottom line within a year of implementation. 1.2.3-Business process architecture: It is comparable to getting an old building or constructing a new one. You start with a clean sheet of paper, with the objective being to achieve an overall change. Experts are needed, the investment and the risk are substantial, the project can take years to complete and there are no guarantees of achieving the desired returns. This type of effort is unlimited in scope. The focus is on the entire business. Example: The re-architecturing of General Electric (GE) is frequently cited in the literature as one of the classic examples of a successful, complete overhaul of a large corporation. An architecture effort is a platform for innovation because there are few restrictions in determining what could be possible. Regan James Crunch Time, How to Reengineer your Organisation. An overview of Business Process Redesign (BPR) Reengineering is the radical redesign of business processes for dramatic improvement Hammer, M., Beyond Reengineering, Harper Business, 1996.

1.3-Business Process Reengineering (BPR):

A systematic, disciplined improvement approach that critically examines, rethinks, redesigns, and implements the redesigned processes of an organisation. BPRs goal is to achieve dramatic improvements in performance in areas important to customers and other stakeholders. BPR is also referred to by such terms as business process improvement (BPI) or business process development, and business process redesign. While the term can be applied to incremental process improvement efforts, it is more commonly and increasingly associated with dramatic or radical overhauls of existing business processes. BPR typically relies on information technology to achieve breakthrough results. Therefore, we can understand that if any business does not run as it has been planed earlier, there should be a problem in terms of the way it runs at present. As a result, we have to modify the present process of the business along with its procedures. At this juncture, the BPR concept helps us to identify our present situation of the business that
Strategic Management Page 5

we engaged with and it will provide the necessary solutions to overcome the identified issues/limitation with regard to the business process. 1.3.1-Definition for Business Process Reengineering/Redesign According to Hummer and Champy, Business Process Reengineering (BPR) is the fundamental rethinking and radical redesign of business process to achieve dramatic improvements in critical and contemporary measures of performance, such as cost, quality, services and speed. There are four key components: 1.Fundamental rethinking 2.Radical redesign 3.Dramatic improvement 4.Critical and contemporary measures of performance 1.4-Scope of BPR The impact of Business Process Reengineering (BPR) generally depends upon proper coverage of business process in terms of breadth (scope of the business) and depth (linkage with other aspects) according to western experience. Ex: European Commercial Banks reengineering effort as described by Hall, Rosenthal and Wade in 1993. The Bank has failed since, it had overlooked many other back office process in planning the redesign. Successful redesign of a process with high depth involved a complete restructuring of all the key drivers of behaviour so that the actual results measures up to the plan. Methodology There are wide range of methodology in which seek to synergise some of the idea implicit in the reengineering concept. COBRA method: COBRA stands for: C- Constrains, O Opportunities, B Business, R Restructuring, A Analysis This is an approach adopted by the commission of the European communities in 1994. As outlined by Coulson-Thomas. Its a six stage of BPR methodology designed to be implemented by a technocratic approach with due regard to people issues.
Strategic Management Page 6

1.Establishing an organisations approach to BPR 2.Identifying the opportunity 3.Analysis of an existing process 4.Process re-design 5.Implementation of the change 6.Performance monitoring According to Peter Carter Business Process Reengineering (often referred to by the acronym BPR) is the main way in which organisations become more efficient and modernise. Business process reengineering transforms an organisation in ways that directly affect performance The impact of BPR on organisational performance The two cornerstones of any organisation are the people and the processes. If individuals are motivated and working hard, yet the business processes are cumbersome and non-essential activities remain, organisational performance will be poor. BPR is the key to transforming how people work. What appears to be minor change in processes can have dramatic effects on cash flow, service delivery and customer satisfaction. Even the act of documenting business processes alone will typically improve organisational efficiency by 10%.

1.4-How to implement a BPR project:

The best way to map and improve the organisations procedures is to take a top down approach, and not undertake a project in isolation. That means:

Starting with mission statements that define the purpose of the organisation and describe what sets it apart from others in its sector or industry. Producing vision statements which define where the organisation is going, to provide a clear picture of the desired future position. Build these into a clear business strategy and thereby derive the project objectives. Defining behaviours that will enable the organisation to achieve its aims. Producing key performance measures to track progress. Relating efficiency improvements to the culture of the organisation Identifying initiatives that will improve performance.

Strategic Management

Page 7

1.5-Benefits of BPR: 1.Can save a company which is running at a loss 2.By changing the present process through BPR a losing business can make profits 3.Can find new business dimensions 4.BPR will open up new dimension into the existing business 5.Continues improvements will enhance the business performance 6.Over all change could enhance the performance of the business 7.Improves quality 8.Improves the quality of service delivery and customer satisfaction 9.Speedier

1.6-Drawbacks of BPR 1.Could be a costly process 2.Need to invest huge sum of money to introduce such a system 3.Time consuming process 4.It takes lot of time to design such a system and some time take years to plan properly 5.Extensive planning required 6.Need experts to implement and monitor 7.Lack of experts 8.It is bit difficult to find real experts on BPR, since; you are going to invest a huge sum of money you need to have such experts to run the show

Strategic Management

Page 8

2.1-History of P&G:
P&G was established in 1837 when candle maker William Procter and his brother-in-law, soap maker James Gamble merged their small businesses. They set up a shop in Cincinnati and nicknamed it "Porkopolis"because of its dependence on swine slaughterhouses. The shop made candles and soaps from leftover fats. By 1859, P&G had become one of the largest companies in Cincinnati, with sales of $1 million. The company introduced Ivory, a floating soap, in 1879 and Crisco, the first all-vegetable shortening, in 1911. The Procter & Gamble Company (P&G) is a giant in the area of consumer goods. The suggestion for the partnership apparently came from their mutual father-in-law, Alexander Norris, who pointed out that Gamble's trade, soap making, and Procter's trade, candle making, both required use of lye, which was made from animal fat and wood ashes.Procter & Gamble first operated out of a storeroom at Main and Sixth streets. Procter ran the store while Gamble ran the manufacturing operation, which at that time consisted of a wooden kettle with a cast-iron bottom set up behind the shop. Early each morning Gamble visited houses, hotels, and steamboats collecting ash and meat scraps, bartering soap cakes for the raw materials. Candles were Procter & Gamble's most important product at that time. Procter & Gamble was in competition with at least 14 other manufacturers in its early years, but the enterprising partners soon expanded their operations throughout neighboring Hamilton and Butler counties. Cincinnati's location on the Ohio River proved advantageous as the company began sending its goods downriver. In 1848 Cincinnati was also linked to the major cities of the East via rail, and Procter & Gamble grew. Around 1851, when P&G shipments were moving up and down the river and across the country by rail, the company's famous moon-and-stars symbol was created. Because many people were illiterate at this time, trademarks were used to distinguish one company's products from another's. Company lore asserts that the symbol was first drawn as a simple cross on boxes of Procter & Gamble's Star brand candles by dockhands so that they would be easily identifiable when they arrived at their destinations. Another shipper later replaced the cross with an encircled star, and eventually William Procter added the familiar 13 stars, representing the original 13 U.S. colonies, and the man in the moon. The moon-and-stars trademark became a symbol of quality to Procter & Gamble's base of loyal customers. In the days before advertising, trademarks were a product's principal means of
Strategic Management Page 9

identification, and in 1875 when a Chicago soap maker began using an almost-identical symbol, P&G sued and won. The emblem, which was registered with the U.S. Patent Office in 1882, changed slightly over the years until 1930, when Cincinnati sculptor Ernest Bruce Haswell developed its modern-day form.

During the 1850s Procter & Gamble's business grew rapidly. In the early part of the decade the company moved its operations to a bigger factory. The new location gave the company better access to shipping routes and stockyards where hogs were slaughtered. In 1854 the company leased an office building in downtown Cincinnati. Procter managed sales and bookkeeping and Gamble continued to run the manufacturing. By the end of the decade, the company's annual sales were more than $1 million, and Procter & Gamble employed about 80 people. The leading maker of household products in the United States, P&G has operations in nearly 80 countries around the world and markets its nearly 300 brands in more than 160 countries; more than half of the company's revenues are derived overseas. Among its products, which fall into the main categories of fabric care, home care, beauty care, baby care, family care, health care, snacks, and beverages, are 16 that generate more than $1 billion in annual revenues: Actonel (osteoporosis treatment); Always (feminine protection); Ariel, Downy, and Tide (laundry care); Bounty (paper towels); Charmin (bathroom tissue); Crest (toothpaste); Folgers (coffee); Head & Shoulders, Pantene, and Wella (hair care); Iams (pet food); Olay (skin care); Pampers (diapers); and Pringles (snacks). Committed to remaining the leader in its markets, P&G is one of the most aggressive marketers and is the largest advertiser in the world. Many innovations that are now common practices in corporate America--including extensive market research, the brandmanagement system, and employee profit-sharing programs--were first developed at Procter & Gamble. 2.1-Introducing Innovative Employee Benefits In 1885 the young Procter recommended that the workers be given Saturday afternoons off, and the company's management agreed. Nevertheless, there were 14 strikes over the next two years. In 1887 the company implemented a profit-sharing plan in order to intertwine the employees' interests with those of the company. Although the semiannual dividends were received enthusiastically by employees, that enthusiasm rarely found its way back into the workplace. The next year William Cooper Procter recommended tying the bonuses to employee performance, which produced better results. In 1890 The Procter & Gamble Company was incorporated, with William Alexander Procter as its first president. Two years later the company implemented an employee stock-purchase program, which in 1903 was tied to the profit-sharing plan. By 1915 about 61 percent of the company's employees were participating. The company introduced a revolutionary sickness-

Strategic Management

Page 10

disability program for its workers in 1915, and implemented an eight-hour workday in 1918. Procter & Gamble has been recognized as a leader in employee-benefit programs ever since.

2.2-Paper Products Push Included Pampers Morgens oversaw Procter & Gamble's full-scale entry into the paper-goods markets. A new process developed in the late 1950s for drying wood pulp led to the introduction of White Cloud toilet paper in 1958, and Puffs tissues in 1960. Procter & Gamble's Charmin brand of toilet paper was also made softer. Procter & Gamble's paper-products offensive culminated in the 1961 test marketing of Pampers disposable diapers. The idea for Pampers came from a Procter & Gamble researcher, Vic Mills, who was inspired while changing an infant grandchild's diapers in 1956. The product consisted of three parts: a leak-proof outer plastic shell, several absorbent layers, and a porous film that let moisture pass through into the absorbent layers, but kept it from coming back. Test market results showed that parents liked the diapers, but disliked the 10 cents-per-Pamper price. Procter & Gamble reduced the price to six cents and implemented a sales strategy emphasizing the product's price. Pamper's three-layer design was a phenomenal success, and within 20 years disposable diapers had gone from less than 1 percent to more than 75 percent of all diapers changed in the United States. Procter & Gamble improved the technology over the years, and added a premium brand, Luvs, in 1976. The company expanded its food business by entering the coffee market through the 1963 acquisition of the Folgers brand and by introducing the stackable Pringles potato chips, which were shipped in resealable cans. 2.3-Key Dates: 1837: William Procter and James Gamble form Procter & Gamble, a partnership in Cincinnati, Ohio, to manufacture and sell candles and soap. 1851: Company's famous moon-and-stars symbol is created. 1878: P&G introduces White Soap, soon renamed Ivory. 1890: The Procter & Gamble Company is incorporated. 1911: Crisco, the first all-vegetable shortening, debuts. 1931: Brand management system is formally introduced. 1946: P&G introduces Tide laundry detergent. 1955: Crest toothpaste makes its debut.
Strategic Management Page 11

1957: Charmin Paper Company is acquired. 1961: Test marketing of Pampers disposable diapers begins. 1963: Company acquires the Folgers coffee brand. 1982: Norwich-Eaton Pharmaceuticals is acquired. 1985: P&G purchases Richardson-Vicks Company, owner of the Vicks, NyQuil, and Oil of Olay brands. 1988: Noxell Corporation, maker of Noxema products and Cover Girl cosmetics, is acquired. 1991: Max Factor and Betrix cosmetic and fragrance lines are bought from Revlon, Inc. 1992: Pantene Pro-V shampoo is introduced. 1993: Major restructuring is launched, involving 13,000 job cuts and 30 plant closures. 1997: Company acquires Tambrands, Inc., maker of the Tampax line of tampons. 1998: Organization 2005 restructuring is launched. 1999: Premium pet food maker Iams Company is purchased. 2001: P&G acquires the Clairol hair-care business from Bristol-Myers Squibb Company. 2002: Jif peanut butter and Crisco shortening brands are divested. 2003: Company acquires a controlling interest in German hair-care firm Wella AG.

Strategic Management

Page 12

3.1-History of Gillette:
The Gillette Company is the world leader in the men's grooming product category as well as in certain women's grooming products. Although more than half of company profits are still derived from shaving equipment--the area in which the company started--Gillette has also attained the top spots worldwide in writing instruments (Paper Mate, Parker, and Waterman brands) and correction products (Liquid Paper), toothbrushes and other oral care products (OralB), and alkaline batteries (Duracell products, which generate almost one-fourth of company profits). Gillette maintains 64 manufacturing facilities in 27 countries, and its products are sold in more than 200 countries and territories, with more than 60 percent of sales occurring outside the United States. 3.1-Entrepreneurial Beginning In 1895, an ambitious traveling salesman found that the edge of his straight razor had dulled. King Gillette later said that the idea for an entirely new kind of razor, with a disposable blade, flashed into his mind as he looked in irritation at his dull blade. King Gillette had been searching for the right product, one that had to be used--and replaced--regularly, around which to build a business. His innovation in shaving technology was just such a product. Another safety razor, the Star, was already on the market at the time but, like the straight razor it was meant to replace, its blade needed stropping before each use and eventually had to be professionally honed. Gillette envisioned an inexpensive, double-edged blade that could be clamped over a handle, used until it was dull, and then discarded. Gillette spent the next six years trying to perfect his safety razor. Scientists and toolmakers he consulted were pessimistic, and thought the idea impractical. Gillette, 40 years old at the time and a successful salesman, inventor, and writer, did not give up. In 1901 he joined forces with William Nickerson, a Massachusetts Institute of Technology-educated machinist. Nickerson developed production processes to make Gillette's idea a reality, while Gillette formed the American Safety Razor Company to raise the estimated $5,000 they needed to begin manufacturing the razor. Gillette became president of the company and head of a three-man directorate. Production of the razor began early in 1903. The renamed Gillette Safety Razor Company began advertising its product in October 1903, with the first ad appearing in Systems Magazine. The company sold 51 razor sets at $5 each and an additional 168 blades--originally at 20 for $1--that first year.

Strategic Management

Page 13

In 1904 Gillette received a patent on the safety razor; sales rose to 90,884 razors and 123,648 blades that year. The following year the company bought a six-story building in South Boston. By 1906 the company had paid its first cash dividend. During the years before World War I Gillette steadily increased earnings through print advertisements, emphasizing that with his razor men could shave themselves under any conditions without cutting or irritation. At the same time, Gillette was expanding abroad. He opened his first foreign office, a London sales branch, in 1905. By 1909 he had established manufacturing plants in Paris, Montreal, Berlin, and Leicester, England, and offices in France and Hamburg, Germany. By 1923, foreign business accounted for about 30 percent of Gillette's sales. In 1910 King Gillette decided to sell a substantial portion of his controlling share of the company to the company's major investor, John Joyce. Gillette had succeeded in fighting off challenges for control of the company from Joyce in the past, but this time he took approximately $900,000 and bowed out. Gillette retained the title of president and frequently visited foreign branches, but he no longer played an active role in company management. Joyce was made vice-president, a position he used to manage day-to-day operations. When Joyce died in 1916, his longtime friend, Edward Aldred, a New York investment banker, bought out the Gillette shares left to Joyce's estate and took control of the company. Aldred remained on Joyce's management team. 3.2-Wartime Production During World War I the U.S. government ordered 3.5 million razors and 36 million blades to supply all its troops. In order to meet military supply schedules, shifts worked around the clock and Gillette hired over 500 new employees. Gillette thus introduced a huge pool of potential customers to the still-new idea of self-shaving with a safety razor. After the war, ex-servicemen needed blades to fit the razors they had been issued in the service. In 1921 Gillette's patent on the safety razor expired, but the company was ready for the change. It introduced the "new improved" Gillette razor, which sold at the old price, and entered the lowpriced end of the market with the old-style razor, renamed the Silver Brownie razor, priced at only $1. Gillette also gave away razor handles as premiums with other products, developing customers for the more profitable blades. Expansion and growth continued. The company also continued to expand abroad. In 1922 Gillette became royal purveyor to the Prince of Wales and in 1924 to King Gustav V of Sweden. More favorable publicity followed when the Paris office gave Charles Lindbergh a Gillette Gold Traveler set the day after he completed the first transatlantic flight. By the end of the decade, Gillette faced its first major setback. Auto Strop Safety Razor Company, owned by Henry J. Gaisman, filed suit for patent infringement after Gillette produced a new blade using a continuous-strip process similar to one originally presented to Gillette by Gaisman.
Strategic Management Page 14

3.3-Takeover Threats in the 1980s Mocklers policies led to a higher profit margin and a surplus of cash. Some of this cash was used in 1984 when Gillette added oral care products to its product mix with the $188.5 million purchase of Oral-B Laboratories, Inc.the leading maker of toothbrushes in the United States from Cooper Laboratories, Inc. The excess cash, however, also led to a new threat in the mid1980s: the threat of takeover. In 1986 Ronald O. Perelman, head of Revlon, offered $4.1 billion for Gillette. He was attracted by Gillettes well-known personal-care brands, the possibility of combining the sales and distribution systems of the two companies, and Gillettes expertise in marketing abroad. Gillette rejected Revlons offer of $65 a share and bought back stock from Perelman at $59.50 a share and paid some expenses, for a total of $558 million. Revlon made two other unsolicited requests to buy the company in 1987, both of which were refused by the Gillette board of directors. In response to the takeover threats, Gillette reorganized top management; thinned out its workforce through layoffs; modernized its plants while shifting some production capacity to lower-cost locations; and sold many smaller and less profitable divisions. That was not the end of the takeover threats. In early 1988 Coniston Partners announced that it had acquired approximately 6 percent of the company and was determined to replace four members of Gillettes 12-member board so it could influence company policy. Members of the partnership said they would actively seek offers to sell or dismantle Gillette if they managed to get representation on the board. Coniston Partners battle to get shareholders proxy rights was intense, but in 1988 Gillette came out on top with 52 percent of the votes for directors to Conistons 48 percent. The matter was finally resolved when Gillette instituted a stock repurchase for all shareholders, which included 16 million of Conistons 112 million shares at $45 a share. Finally, in August 1989, Warren Buffetts Berkshire Hathaway bought $600 million of Gillette convertible preferred shares. The deal potentially placed 11 percent of Gillettes stock with Buffett, who had agreed to give the company the right of first refusal on the block, should he wish to sell it. The friendly agreement decreased the threat of takeover, though it tightened up cash flow at the company. Buffetts dividend was $52.5 million a year. With takeover threats behind it and restructuring completed, Gillette returned to emphasizing its powerful brand names and its bread and butter, shaving products. While toiletries and cosmetics represented low-margin items and profitable stationery products accounted for only 9 percent of the companys total profits, razors and blades still accounted for a little over 70 percent of profits. Gillette brought in a new head of shaving operations, John W. Symons, formerly head of

Strategic Management

Page 15

European operations, and developed new ad campaigns to emphasize the more profitable shaving systems over disposable shavers such as its own Good News. 3.4-Razor Wars: Late 1990s and Beyond Gillette introduced a significant innovation in shaving technology--the first major innovation in safety razors since the beginning of the 1970s--with the Mach 3 in 1998. The new safety razor system introduced a third blade into the twin-blade system that had dominated the wet-shaving market for the previous quarter-century. The blades were set at an angle so that each blade shaves closer to the skin, allowing shavers to use fewer strokes to get the same close, comfortable shave. The shaving cartridge was set on a pivot, allowing the head of the razor to move with the angle of the jaw and skin. In addition, the cartridge itself was designed to facilitate cleaning, and the handle was ergonomically designed to make the razor more comfortable in the hand. 3.5-Key Dates: 1901: American Safety Razor is founded by King C. Gillette. 1904: King Gillette's safety razor is patented. 1918: Gillette manufacturers razors and blades for soldiers during World War I. 1942: The Cavalcade of Sports program is formed to oversee the company's various advertising and promotional activities in athletics. 1967: Braun AG is acquired. 1971: Company is organized into four domestic divisions: the Safety Razor Division; the Toiletries Division (featuring Right Guard antiperspirant); the Personal Care Division; and the Paper Mate division. 1991: Gillette ranks 20th among the Fortune 500. 1996: The Company acquires battery manufacturer Duracell.

Strategic Management

Page 16

4-Merger and Acquisition:

4.1-P&G and Gillete: In 2005, it was announced that leading U.S. household product maker Procter & Gamble was set to acquire razor and battery giant Gillette Co. for $57 billion, creating the worlds biggest consumer-products enterprise. The company projected to have revenues exceeding $60 billion, opening the door for greater competition against Walmart and served primarily to combine the strengths of both companies: the marketing and distribution muscle of Procter & Gamble (whose products appeal mostly to women) and the Gillettes high-margin razor brands (which appeal mostly to men.) All told, the merger resulted in about 6,000 jobs being cut, roughly 4% of the combined work force. The P&G and Gillette merger deal, P&G would exchange 0.975 shares of P&G common stock for each share of Gillette. It represented an 18% premium to Gillette shareholders based on the closing share prices on January 27, 2005. However, the merger was subject to approval by the shareholders of both Gillette and P&G. The merger was expected to get regulatory clearance by 2005. P&G planned to buy back $18-22 billion of its common stock immediately after the merger. The buyback process could take around 18 months to complete. This would make the deal structure a 60% stock and 40% cash deal, although on paper it was a pure stock-swap. According to marketing guru, Al Ries, "The extra 18% premium paid by P&G for Gillette's stock is going to make it 18% more difficult for the deal to pay dividends to stock holders."P&G would have to borrow funds to finance the planned repurchase of its stock. In light of this move, credit rating agencies put both companies under a review for a possible downgrade. S&P placed all ratings for P&G on Credit Watch with negative implications based on the likelihood that P&G's leverage would increase significantly due to the merger. As of September 30, 2004, P&G had debts of $21.4 billion and Gillette of $3.1 billion. In 2005, MSNBC announced that leading U.S. household product maker Procter & Gamble was set to acquire razor and battery giant Gillette Co. for $57 billion, creating the worlds biggest consumer-products enterprise. The company projected to have revenues exceeding $60 billion, opening the door for greater competition against Walmart and served primarily to combine the strengths of both companies: the marketing and distribution muscle of Procter & Gamble (whose products appeal mostly to women) and the Gillettes high-margin razor brands (which appeal mostly to men.) All told, the merger resulted in about 6,000 jobs being cut, roughly 4% of the combined work force.

Strategic Management

Page 17

4.2-Importance of merger and acquisition for companies: The combined company will have more than $60 billion in annual revenues. Here are some key facts about the two firms. Cincinnati-based Procter & Gamble was established in 1837 and made its name selling soap and candles to U.S. government soldiers during the civil war. Boston-based Gillette spends around $600 million annually on advertising. In May the razor-maker paid a reported 40 million pounds ($75.4 million) to sign international soccer star David Beckham to a three-year deal as its global face. Procter & Gamble employs a workforce of 110,000 worldwide and has a market capitalization of $141 billion. Gillette employs 29,400 employees worldwide and has a market capitalization of $45 billion. Gillettes profit beat market expectations last October after Hurricane Ivan spurred the buying of Duracell batteries.

The terms of the deal, Gillette shareholders will receive .975 shares of P&G for each share of Gillette that they hold. According to the press release, P&G plans to repurchase approximately 40% of that newly issued stock (valued at between $18 and $22 billion) within the next 12-18 months. Warren Buffets Berkshire Hathaway stands to benefit the most from this merger, owning 96 million shares of Gillette and announcing that it will buy more in anticipation of the merger. The merger of the two companies will create the worlds largest consumer products conglomerate. Both companies are strong, diversified companies, so one wonders what uncaptured synergies there could be here. The WSJ article points out that P&G is adept at taking innovations from one product and transferring it to another product, so there may be opportunities to improve existing Gillette products. In addition, the companies are stating that the merger will give them more negotiating power with the most powerful buyer of consumer products. The Gillette and Proctor Gamble merger, now this merger makes a lot more sense to me. Gillette is the number 1 in razor accessories and proctor gamble is number 1 in consumer products, a marriage of the best in their respective industries. Ive always liked a good horizontal expansion, now the newly formed company will have products being used in most of the houses in the US (and thats probably an understatement). Those who shave probably use Gillette, those who shower use Pantene pro-v or head and shoulders or the other products from P & G. The merger of the two companies will create the worlds largest consumer products conglomerate. Both companies are strong, diversified companies

Strategic Management

Page 18

5-SWOT analysis:
Strengths
Product variety and diversification Line of shaving /grooming products Supply chain technology

Weaknesses
Constant innovation= higher prices for consumers Expensive products

Opportunities
Globalization Improve existing Gillette products. more negotiating power with the most powerful buyer of consumer products

Threats
Private labels Overlap in management Overlap in P&G-Gillette products (I.e. Crest/Oral-B, Old Spice deodorant and Right Guard deodorant)

6-Conclusion:
The essence of the whole idea of Business Process Redesigning is to achieve dramatic improvements in critical and contemporary measures of performance, such as cost, quality, services and speed. On the other hand it allows an organisation to acquire a competitive advantage over the other firms in the industry competing with each other.

Strategic Management

Page 19