The Strategic Development of Procter and Gamble into a Global Giant Posted on April 29, 2012 by Sam Warren
Procter and Gamble (henceforth P & G) is one of the largest manufacturers and distributors of consumer products in the world with a global reach for it 300+ brands of 180 countries !uring the 1""0#s the company made some signi$cant alterations to its corporate strategy% it aimed to reduce its cost structure and deelop its di'erentiated businessleel strategy in an attempt to increase reenues and pro$ts *he rapid deelopment of international marets and globalisation demanded a corporate ,shae up- .oreoer the reduction of trade barriers and tari's indicated that to retain a competitie adantage globally the company had to deelop an e'ectie /nternational strategy whilst bene$tting from economies of scale rossfunctional integration and speed of innoation increasingly became imperatie to corporate strategy /n this article / will loo at the ey deelopment that too place in thus process and turned P&G into such a powerhouse *he cohesion between between the the strategy strategy and the structure structure of of the company is crucial *he structure structure will align the company with the strategy strategy it wishes to pursue% pursue% and along with the company#s culture and control systems will utilise the alue chain competencies and capabilities and facilitate increased competitieness pro$tability and superior return on /nestment Procter and Gamble identi$ed the increasing globalisation of business and resultantly altered their business strategy and structure in order to maimise eposure in more countries in order to2 remain competitie internationally bene$t from economies of scale% and to maimise reenues pro$ts share price and return on inested capital *o facilitate the implementation of their global strategy 4 5a6ey changed the structure from a ,Global Product 7tructure- which is often associated with a standardisation strategy and implemented a ,*ransnational- global strategy and implemented a hybrid organisational
structure that considered the geographical dispersion of multiple maretplaces respectie specialisation for particular brands and specialisations and economies of scale in particular alue creating functions onald 9ean !egen has termed this a :;ront
cient customer responsieness% adapting to local tastes and epectations as they ary across nations *he nature of this strategy dictates that some functions are centralised and some are decentralised *his has been chosen as it supports the empowerment of the arious leels of management in the company#s Global cient decisions whilst autonomy was gien to ey functions that re@uired local customisation &! and innoation were ery much the spearhead of P&G#s corporate strategy so the & ! function remained centralised so that control could be eerted oer it *he globalmatri structure that 5a6ey adopted to support the transnational strategy is a comple structure that re@uires signi$cant cohesion from all members of the worforce and comple controls 5a6ey realised the signi$cance of worer#s morale contrary to his predecessor and implemented a culture that would support the structure 5a6ey is noted to hae implemented payincenties that tied employees to the performance of the company 5a6ey#s strategic leadership ensured that crossfunctional coordination created a signi$cant adantage oer competitors% as distribution channels logistics supply chain and manufacturing were all coordinated across nations% thus P&G was able to lower costs *he complementation of the culture and the global matri structure adanced the changing nature of the corporate strategy and deeloped their international competitie adantage =oweer crucial to these elements were sophisticated systems for coordination which 5a6ey recognised would be essential and championed the use of /* systems een setting up a deal with isco systems to tae full adantage of their comple systems systems support% in order to reduce /* costs through economies of scale A spreading their system globally
5a6ey reported signi$cant $nancial progress in B000% ,Ce#e had three maDor ac@uisitions including lairol Cella and Gillette% and we hae tripled the pace of our business initiaties oer this same period- 5a6ey therefore decided to further restructure the business units to accommodate these strategic ac@uisitions and increase competitieness thusly *he global business units were reduced from $e to three2 :global beauty care% global health baby and family care% and global household care# *his complimented the transnational global strategy well as proiding sharper focus of the respectie target consumers% whilst complimented by a decentralised empowerment of regional subsidiary and functional managers which was supported by the e'ectieness of cross functional coordination and interlining of comple /* systems The use of integrating mechanisms in general, and use of knowledge management in particular, to gain a competitive advantage E transnational global strategy re@uires close coordination with ey areas of the business for increased e>ciency and competitieness ross functional co ordination at P&G allows them to organise and utilise their resources to optimal e'ect *he calculation of demand should accurately match supply and so the supply chain logistics and distribution channels can be e'ectiely coordinated to manage increasedFdecreases in demand% hence a 9ustin*ime inentory control system can be implemented to reduce costs .oreoer these integrating mechanisms support the transnational global strategy employed by the $rm as local managers can @uicly relay changes in tastes in their particular regions and the products can be updatedFaltered or inentory leels can be corrected accordingly more e>ciently and e'ectiely .oreoer as 5a6ey has identi$ed that esearch and !eelopment and Product /nnoation is ey to pioneering the competitieness of the corporate strategy% integration mechanisms allow fast communication between mareting and &! Edditionally interbusiness function (mareting n! 5ogistics ;inance etc) communication facilitates alue creating propensity between manufacturing and mareting ;urthermore inter function coordination is crucial as line functional business diisional and corporate leel managers within the same functions must be able to @uicly communicate between one another in order to mitigate against ,information distortion- especially when spread across many nations
P&G facilitates the e'ectie implementation of integration mechanisms through ,direct contact- with one another *his is a simple cost e'ectie way to communicate problems and ensures that opinions and concerns are oiced .oreoer it is essential to hae direct contact between di'erent functions especially those that must cooperate considerably onersing directly between one another ensures cohesion of the products and the maret with the oerall strategy *his reduces ,hando'- and ,transfer- problems =oweer this can increase bureaucratic costs and it may not always be iable to conerse with di'erent employees face to face all oer the globe although such technological adances such as ideo *eleconferencing may help ,5iaison roles- are a good way of handling hando' and transfer problems when structures become comple and will help coordinate diisions and functions .eeting at a regular time interals ensure regularity Edditionally liaison roles ease tensions between functions and can ferry information from one to another ,*eams- are used when twoFmore functions share common problems and these can help reliee tensions or aid in $nding a solution
P&G could use teams
when they hae problem coordinating particular functions in a large region for eample Esia *eams may proide insightful solutions to problems ie e>cient logistics eferenced from ./* 7loan .anagement eiew P&G accredit considerable success to the cohesion of their function team coordination :what made the teams wor was the mutual interdependency that grew# *hus demonstrating how integrating mechanism are ital for communication across a global business in order for P&G#s transnational strategy and ;< global matri structure wor e'ectiely ;urthermore the importance of /* must be accredited to the e'ectieness of this coordination% as many of the systems and integrating mechanisms rely heaily this interwoen web of technology 5a6ey was correct to hae championed it as he did
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