Case Study Analysis

The Evolution of Strategy at Procter & Gamble

Founded in 1837, Cincinnati-based Procter & Gamble (P&G) has long been one of the world's most international companies. Today, P&G is a global colossus in the consumer products business with annual sales in excess of $80 billion, some 54% of which are generated outside of the United States. P&G sells more than 300 brandsincluding Ivory soap, Tide, Pampers, IAMS pet food, Crisco, and Folgersto consumers in 180 countries. Historically, the strategy at P&G was well established. The company developed new products in Cincinnati and then relied on semiautonomous foreign subsidiaries to manufacture, market, and distribute those products in different nations. In many cases, foreign subsidiaries had their own production facilities and tailored the packaging, brand name, and marketing message to local tastes and preferences. For years, this strategy delivered a steady stream of new products and reliable growth in sales and profits. By the 1990s, however, profit growth at P&G was slowing. The essence of the problem was simple: P&G's costs were too high because of extensive duplication of manufacturing, marketing, and administrative facilities in different national subsidiaries.

The duplication of assets made sense in the world of the 1960s, when national markets were segmented by barriers to cross-border trade. Products produced in Great Britain, for example, could not be sold economically in Germany due to high tariff duties levied on imports into Germany. By the 1980s, however, barriers to cross-border trade were falling rapidly worldwide, and fragmented national markets were merging into larger regional or global markets. Also, the retailers through which P&G distributed its products were growing larger and more globalized. Wal-Mart, Tesco (from the United Kingdom), and Carrefour (from France) were demanding price discounts from P&G.

In the 1990s, P&G embarked on a major reorganization in an attempt to control its cost structure and recognize the new reality of emerging global markets. The company shut down some 30 manufacturing plants around the globe, laid off 13,000 employees, and concentrated production in fewer plants that could better realize economies of scale and serve regional markets. It wasn't enough.

Profit growth remained sluggish, so in 1999, P&G launched its second reorganization of the decade, "Organization 2005," with the goal of transforming P&G into a truly global company. P&G replaced its old organization, which was based on countries and regions, with one based on seven self-contained, global business units, ranging from baby care to food products. Each business unit was given complete responsibility for generating profits from its products and for manufacturing, marketing, and product development. Each business unit was told to rationalize production, concentrating it in a few large facilities; to try to build global brands wherever possible, thereby eliminating marketing differences among countries; and to accelerate the development and launch of new products. P&G announced that, as a result of this initiative, it would close another 10 factories and lay off 15,000 employees, mostly in Europe where there was still extensive duplication of assets. The annual cost savings were estimated to be about $800 million. P&G planned to use the savings to cut prices and increase marketing spending in an effort to gain market share, and thus further lower costs through the attainment of scale economies.

However, P&G's Group CEO is worried whether this new strategy will work since the previous strategist was not able to implement the strategy appropriately. P&G's future remains more uncertain than ever before.

Using the case above, answer the following Questions:

1.(a) Using evidence from the case to help support your answer, name and briefly describe the

global strategy P&G was pursuing when it first expanded overseas before the 1990's.

1.(b) Using evidence from the case to help support your answer, name and briefly describe the

global strategy P&G was now pursuing in 1999.

2) Using evidence from the case to help support your answer, briefly describe four problems P&G

experienced by using this global strategy.

3) Pretend you have just been hired by the CEO of P&G as the strategic manager. Briefly describe

to the CEO three (3) key recommendations for strategy implementation within P&G to help P&G

realize its newly chosen strategy. Justify your recommendations. A full answer will

encapsulate recommendations for the core areas of strategic control, organizational design and

strategic leadership.

4) Pretend you have just been hired by the CEO of P&G as the strategic manager. You learnt that

in the past, the company shut down some 30 manufacturing plants around the globe and laid off

13,000 employees. This may have had a negative impact on the organization. As a result, your

CEO is keen on creating a learning organization to build and motivate staff morale. Briefly

describe to the CEO two key elements for creating a learning organization in P&G.