2014
Strategic Management
“We will provide branded products and services of superior quality and value that improve the lives of the world’s consumers, now and for generations to come. As a
result, consumers will reward us with leadership sales, profit and value creation, allowing out people, our shareholders, and the communities in which we live and work to prosper.”
“We will provide branded products and services of superior quality and value that
improve the lives of our consumers around the world and the environment we live in, now and for generations to come. By giving best opportunities to our employees and providing them best resources, we will go for innovations. As a result, consumers will reward us with leadership sales, profit and value creation, allowing out people, our shareholders, and the communities in which we live and work to prosper .”
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An external factor evaluation (efe) is the strategic tool used to evaluate firm existing strategies, efe matrix can be defined as the strategic tool to evaluate external environment or macro environment of the firm include economic, social, technological, government, political, legal and competitive information. Matrix includes both opportunities and threats. Following are the opportunities and threats of p&g.
1. 2. 3. 4.
Growth of global market. Customers in developing markets are increasingly willing and able to purchase expensive items. Growth in the use of advertising Population growth Increased demand of beauty and health products for customers. Supplier diversity in the market Increased amount of customers (male) Increased effectiveness in social media and internet marketing
Local consumer goods producers. Cheaper brands in market Increase in global industry regulations Rising costs of raw material & labor Customer unwillingness to try new products New and competitive consumer products are constantly being introduced.
Poor. Average. Above average. Superior.
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Weight
Rating
Weighted score
0.1
4
.4
2. Customers in developing markets are increasingly willing and able to purchase pricey items
0.1
3
0.3
3. Growth in the use of advertising
0.05
3
0.15
4. Population growth
0.05
1
0.05
.1
4
.4
0.05
3
.15
0.08
1
.08
8. Increased effectiveness in social media and internet marketing
0.05
3
.15
THREATS 1. Local consumer goods producers.
0.08
2
0.16
2. Cheaper brands in market
0.08
3
0.24
3. Increase in global industry regulations
0.04
2
.08
4. Rising costs of raw material & labor
0.08
2
0.16
5. Customer unwillingness to try new products.
0.06
1
0.06
0.08
2
.16
OPPORTUNITIES 1. Growth of global market.
5. Increased demand of beauty and health products for customers. 6. Supplier diversity in the market 7. Increased amount of customers (male)
6. New and competitive consumer products are constantly being introduced.
Company’s total score is 2.54; it’s very near to average. It does not shows very good
performance of company but still it is able to avail opportunities and avoid threats .
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The internal factor evaluation matrix is a popular strategic management tool for auditing or evaluating major internal strengths and internal weaknesses in functional areas of an organization or a business.. Listed below are the strength and weaknesses of P&G.
High market share Strong reputable brand name Customer brand awareness High quality products Strong research and development. Worldwide distribution of products Profitable acquisition of competitor brand companies Diversification of product line
P&G’s weak balance sheet, highly leverage 73.3% and low liquidity ratio.
Lack of product variety of green products that are environmental friendly. Business ethics lack of women leadership in the executive board.
4. Major strength.
3. Minor strength. 2. Minor weakness 1. Major weakness.
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Weight
Rating
1. High market share 2. Strong reputable brand name
0.08 0.1
4 4
Weighted score .32 0.4
3. Customer brand awareness
0.07
3
0.21
4. High quality products
0.08
3
0.24
5. Strong research and development.
0.13
4
0.52
6. Worldwide distribution of products 7. Profitable acquisition of competitor brand companies 8. Diversification of product line
0.1
4
0.4
0.08
3
.24
0.1
3
.3
0.1
4
.4
0.08
3
0.24
0.08
2
0.16
STRENGTHS
WEAKNESSES 1. P&G’s weak balance sheet, highly leverage 73.3% and low liquidity ratio. 2. Lack of product variety of green products that are environmental friendly. 3. Business ethics lack of women leadership in the executive board.
Company’s total score is 3.43, it shows that it is trying to retain its strengths and
overcome its weaknesses.
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is a tool that compares the firm and its rivals
“
and reveals their relative strengths and weaknesses.” In order to better understand the external environment and the competition in a particular industry, firms often use CPM. The matrix identifies the firm’s key competitors and compares them using industry’s critical succe ss factors. The analysis also reveals company’s relative strengths and weaknesses against its competitors, so the
company would know which areas it should improve and which areas to protect.
4 = Major strength. 3 = Minor strength. 2 = Minor weakness. 1 = Major weakness.
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Johnson & Johnson Critical Success Factors
Procter & Gamble
Unilever
Weights
Rates
Weighted score
Rates
Weighted score
Advertising
.2
2
.4
4
.8
1
.2
Product quality
.1
2
.2
4
.4
3
.3
Price competitiveness
0.1
1
0.1
3
0.3
2
0.2
Management
0.1
3
0.3
4
0.4
2
0.2
Financial position
0.15
4
0.6
3
0.45
2
0.3
Customer loyalty
0.1
3
0.3
3
0.3
4
0.4
Global expansion
0.15
2
0.3
4
0.6
3
0.45
Market share
0.1
3
0.3
4
0.4
2
0.2
Rates
Weighted score
Unilever and Johnson & Johnson’s total scores are approx equal while score of p&g is
significantly higher than both. The factor having highest weight is advertisement for which unilever is rated only 1,while for some other factors having lowers weights unilever is rated highest such as; customer loyalty. This may be the reason of unilever’s lowest score. P&G is having highest score among its competitors, however, Johnson &Johnson has better financial position and unilever is having better customer loyalty than both. P&G is rated 4 for most of the factors comparatively of higher weight and the factors for which it is rated less than 4 are weighted 0.1 only. This is the reason P&G has got the highest rating.
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1. High market share. 2. Strong reputable brand name. 3. Customer brand awareness 4. High quality products. 5. Strong research and development. 6. Worldwide distribution of products. 7. Profitable acquisition of competitor brand companies. Diversification of product line.
1. P&G’s weak balance sheet, highly leverage 73.3% and low liquidity ratio. 2. Lack of product variety of green products that are environmental friendly. 3. Business ethics lack of women leadership in the executive board.
1. Growth of global market. 1. Go for market development. 2. Customers in developing markets (S5,O2,O5,) are increasingly willing and able to 2. Introduce new products for purchase expensive items. men. (S2, S5, S6, O7). 3. Growth in the use of advertisement. 4. Population growth. 5. Increased demand of beauty and 3. Introduce new beauty and health products. (S2, S4, S5, health products for customers. O5, ) 6. Supplier diversity in the market. 7. Increased amount of customers (male). Increased effectiveness in social media and internet marketing.
1. Develop new herbal products and create a new product line of green products. (W2, O2, O5).
1. Local consumer goods producers. 1. Reduce ineffective and 2. Cheaper brands in market Increase inefficient workforce to in global industry regulations. 3. Rising costs of raw material & labor. minimize cost. (S2, T2) 4. Customer unwillingness to try new products. 5. New and competitive consumer products are constantly being introduced.
1. Undergo a cost effective
2. Consider recruitment of women to be an equal opportunity provider. (W3, O1).
control system to increase profit and to generate more cash inflows.(W1,T2,T3).
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Factors of SPACE Matrix : o
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Competitive Position FACTORS
Rating -6=Low ; 0=High
Market share
-4
Product quality
-1
Customer loyalty
-3
Control over distributors and suppliers
-2
Promotional activities
-1
Product price
-3
TECHNICAL KNOW-HOW
-1
TOTAL
-15
Average
-2.14=-2
Industry Position FACTORS
Rating 0=Low ;+6=High
Growth potential
5
Profit potential
3.5
Financial stability
4
Technological know how
5
Resources utilization
2.5
EASE OF ENTRY INTO MARKET
4
TOTAL
24
Average
4
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Environmental Position FACTORS
Rating -6=Low ; 0=High
Technological changes
-3
Rate of inflation
-2
Barriers to entry into market
-3
Competitive pressure
-1
Demand variability
-5
Price elasticity of demand
-3
Total
-17
Average
-2.83=-3
Financial Position FACTORS
Rating 0=Low ;+6=High
ROI
5
Financial and Operating leverage
2.5
Inventory turnover
4
Cash flow
5
Working capital
5
Liquidity ratios
2.5
TOTAL
24
Average
4
Score on X axis Competitive Position = -2 Industrial Position = +4 Total Score on x-axis = -2 + (+4) =+2 o
Score on Y axis Financial Position = +5 Environmental Position = -3 Total Score on y-axis = -3 + (+5) = +2 o
Coordinates (+2;+2)
Financial position of company seems to be good but not so strong, competitive position is however very strong. Company has acquired many of its competitor’s successfully and
is able to maintain its position. Company is operating in stable market and industrial position is also good. Here company should focus on integration, intensive and diversification strategies.
o
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As industry has rapid growth and company has strong competitive position so here it should first focus on intensive strategies then should go for integration and then for related diversification strategies.
Rapid Market Growth
Weak Competitive Position
Strong Competitive Positive
Slow Market Growth
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Sales /Revenue ($ millions)
%
Profit ($ millions)
%
IFE
EFE
19,491
24
2,712
23
3.4
3
7,631
10
1,477
13
1.2
2.8
11,493
14
1,860
16
1.6
2
4
Snacks and Pet Care
3,135
4
326
3
2.9
1.6
5
Fabric Care/ Home Care
23,805
30
3,339
28
3.5
3
6
Baby Care/ Family Care
14,736
18
2,049
17
3.8
4
80,291
100
11,763
100
Division Beauty
1 2 3
Grooming Health Care
Total
3
3
2
1
2
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This division has highest sales among all; its IF and EF both are strong so company needs to hold and maintain this division. Most effective strategies for here would be integration and intensive strategies.
IF of this division are weak, while, its EF are medium, company should by retrenchment reduce cost or should divest this division.
This division is also in 6 th cell, so, here also company should either go for retrenchment or for divestiture.
IF of this division are average, while, its EF are low, here also company should either go for retrenchment or for divestiture.
IF of this division are strong and its EF are also high, it show s company is performing well in this division, so for its growth company should focus on integration and intensive strategies.
According to IFE and EFE this is company’s strongest division, here also integration
and intensive strategies would grow and build this division.
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Sales /Revenue ($ millions)
Market Industry share Growth %
%
Profit ($ millions)
%
19,491
24
2,712
23
60
14
7,631
10
1,477
13
20
13
11,493
14
1,860
16
30
12
3,135
4
326
3
10
5
Fabric Care/ 5 Home Care
23,805
30
3,339
28
80
3
Baby Care/ Family Care
14,736
18
2,049
17
40
10
80,291
100
11,763
100
Division
1 2 3 4
6
Beauty Grooming Health Care Snacks and Pet Care
Total
o
o
As this division is in star it so, most effective strategies for it would be intensive and integration.
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This SBU is a question mark for company, so if company wants to turn it as star SBU Company can go for intensive strategy to increase its market share.
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For health care division also company should increase its market share through intensive strategies.
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Because of high market share companies home care SBU is its star unit and for its maintenance company should focus on integration strategy.
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MARKET DEVELOPMENT
Worldwide distribution of products
0.08 0.1 0.07 0.08 0.13 0.1
Profitable acquisition of competitor brand companies
0.08
High market share Strong reputable brand name Customer brand awareness High quality products Strong research and development.
Diversification of product line
0.1
P&G’s weak balance sheet, highly leverage
0.1
73.3% and low liquidity ratio.
2 4 2 2 4
.16 .4 .16 .26
MARKET PENETRATION
3 2 3 1 -
.24 .2 .24 .13
.4
-
2
PRODUCT DEVELOPMENT
4 3 4 3 -
.32 .3 .32 .39
.2
-
3
.3
-
Lack of product variety of green products that are environmental friendly.
0.08
2
1
Business ethics lack of women leadership in the executive board.
0.08
-
-
0.1 0.1
4 -
.4
3 -
.3
2 -
.2
0.05
4
.2
3
.15
2
.1
0.05
-
.1
3
0.05 0.08
2
0.05
-
0.08 0.08 0.04 0.08
.32
0.06
4 -
0.08
4
.32
Growth of global market. Population growth Customers in developing markets are increasingly willing and able to purchase pricey items. Growth in the use of advertising Increased demand of beauty and health products for customers. Supplier diversity in the market Increased amount of customers (male) Increased effectiveness in social media and internet marketing Local consumer goods producers. Cheaper brands in market Increase in global industry regulations Rising costs of raw material & labor Customer unwillingness to try new products. New and competitive consumer products are constantly being introduced.
.08
2
.16
1
.2
4
.4
.08
4
.32
3 -
.24
2
.32
-
.3
4
2 -
.16
.16
3
.24
FORWARD INTEGRATION
HORIZONTAL INTEGRATION
High market share
0.08
-
-
Strong reputable brand name
0.1
-
-
Customer brand awareness
0.07
-
-
High quality products
0.08
-
-
Strong research and development.
0.13
-
-
Worldwide distribution of products
0.1
-
-
Profitable acquisition of competitor brand companies
0.08
1
Diversification of product line
0.1
-
0.1
3
Lack of product variety of green products that are environmental friendly.
0.08
-
-
Business ethics lack of women leadership in the executive board.
0.08
-
-
0.1
-
-
0.1
-
-
0.05
-
-
0.05
-
-
.1
3
Supplier diversity in the market.
0.05
-
-
Increased amount of customers (male). Increased effectiveness in social media and internet marketing.
0.08
-
-
0.05
-
-
Local consumer goods producers.
0.08
-
-
Cheaper brands in market.
0.08
3
Increase in global industry regulations.
0.04
-
Rising costs of raw material & labor.
0.08
4
Customer unwillingness to try new products.
0.06
-
New and competitive consumer products are constantly being introduced.
0.08
3
P&G’s weak balance sheet, highly leverage
73.3% and low liquidity ratio.
.08
3
.24
-
.3
1
.1
1.00
Growth of global market. Population growth. Customers in developing markets are increasingly willing and able to purchase pricey items. Growth in the use of advertising. Increased demand of beauty and health products for customers.
.3
.24
1
4
.1
.32
.32
2
.16
.24
4
.32
RELATED DIVERSIFICATION
UN-RELATED DIVERSIFICATION
High market share.
0.08
4
.32
2
.16
Strong reputable brand name.
0.1
2
.2
3
.3
Customer brand awareness.
0.07
3
.21
2
.14
High quality products.
0.08
3
.24
4
.32
Strong research and development.
0.13
3
.39
2
.26
Worldwide distribution of products.
0.1
-
-
Profitable acquisition of competitor brand companies.
0.08
-
-
Diversification of product line.
0.1
3
0.1
-
Lack of product variety of green products that are environmental friendly.
0.08
1
Business ethics lack of women leadership in the executive board.
0.08
-
-
0.1
-
-
0.1
-
-
0.05
2
0.05
-
.1
4
Supplier diversity in the market.
0.05
-
Increased amount of customers (male). Increased effectiveness in social media and internet marketing.
0.08
2
0.05
-
-
Local consumer goods producers.
0.08
-
-
Cheaper brands in market.
0.08
3
Increase in global industry regulations.
0.04
-
-
Rising costs of raw material & labor.
0.08
-
-
Customer unwillingness to try new products.
0.06
-
-
New and competitive consumer products are constantly being introduced.
0.08
3
P&G’s weak balance sheet, highly leverage 73.3%
and low liquidity ratio.
.3
4
.4
.08
4
.32
1.00
Growth of global market. Population growth. Customers in developing markets are increasingly willing and able to purchase pricey items. Growth in the use of advertising. Increased demand of beauty and health products for customers.
.1
3
.15
.4
2
.2
.16
.24
.24
3
2
4
.24
.16
.32
o
From the intensive strategy the product development have high score that is 3.37.
From the integration strategy the forward integration have high score that is 2.97.
From the diversification strategy the unrelated diversification have high score that is 2.97.
o
From the result of QSPM, it is concluded that P&G should prefer product development as it have the highest score of 3.37 among all strategies.
Procter & Gamble (P&G): a widely revered innovation star that invests US$2 billion in R&D annually, 50 percent more than its largest peer. It spends another $400 million each year on what it calls “foundational consumer research” to uncove r opportunities for innovation across nearly 100 countries. PRODUCT DEVELOPMENT STRATEGY: It describes to develop new products or modify the existing products with respect to size, color, packaging, etc. Safeguard is a well-perceived product among the customers, and at this moment, it is available in two sizes; 75gm and 125gm, which cannot satisfy the demand of every segment. While the products of the competitors are available in multiple sizes which provide abundant choices for purchases to customers for example Lifebuoy Gold has 140gm and95gm and Medicare has 80gm soap available in the market. This provides an opportunity to the customer to have multiple choices. It can be a threat for the market share of safeguard. On the other hand, in case of safeguard the choice to customer is very limited. This is what they have analyzed through market survey. Therefore, it is necessary that safeguard should be available in maximum possible sizes to meet the selection criteria of the customer. As far as launching of new product is concerned, it is not necessary for P&G at this moment, but in future, they will require taking this step as well because they have some other soap like ivory, and zest which are very famous in international market. Each company did —and still does —produce plenty of product and service innovation. But these companies didn’t invent the automobile, steel, airlines, carbonated beverages, movie rental
services, and online search. What made these companies great —and what will keep them great in the future—is innovation of the way raw inputs become products and services that customers value.
