Operations:

As of July 1, 2014, the company structure has been categorized into four Sectors and five Selling &
Market Organizations (SMOs).

Sector

Beauty Care

Baby, Feminine, and Family Care

Fabric and Home Care

Health and Grooming

SMOs

Asia

Europe

India, the Middle East, and Africa (IMEA)

Latin America

North America

Part I: STRATEGIC ANALYSIS

External general and Industry environment analysis
Strategic analysis of P&G Company
In 1837, William Procter and James Gamble formed a humble but bold new enterprise. What began
as a small, family-operated soap and candle company grew and thrived, inspired by P&G's purpose
of providing products and services of superior quality and value.
Strategic analysis of PG Company includes 2 factors: General environment and Industry
environment.
1. General environment
These are very effective tools to know about the power balance between organization and each
environment factors: political, economic, socio-cultural, technological, legal and environmental as
macro-level (PESTLE).
Political environment:
The P&G Political Action Committee (P&G PAC) is a voluntary, nonpartisan political action
committee. Registered with the U.S. Federal Election Commission (FEC) and appropriate state
offices, the PAC allows P&G employees to pool personal, voluntary financial contributions to support
candidates at the federal, state and local level, who support issues important to the business and the
quality of life in the communities in which they live and work.
P&G PAC operations are transparent and compliant with all applicable laws. The PAC is governed
by a set of bylaws and supervised by a diverse board of Company senior managers, U.S.
Government Relations personnel, and Legal counsel.
Support of candidates is based on their support of P&G issues and sustained constituent
relationships. The PAC generally does not contribute to Presidential candidates; industry, association
or leadership PACs; or multiple candidates running in the same race. In 2006, the P&G PAC
contributed $260,880 to candidates running for office. The average contribution per candidate was
$1,335.
Social environment:
P&G leaders are expected to build an inclusive work environment that welcomes and embraces
diversity an environment where people feel comfortable being who they are, regardless of their
individual differences, talents or personal characteristics. This is an environment that provides
everyone equal access to information, opportunities and involvement so each person learns, grows,
excels and maximizes his or her personal contribution.
Training, policy and sensing systems are utilized to reinforce development of an inclusive culture.
Focused diversity training/learning processes are utilized to equip leaders to value and nurture
differences in experiences, styles of leadership and problem-solving/decision-making approaches.
All employees have access to supportive and enabling policies and practices in the areas of flexible

work arrangements, family care, resource/referral services and wellness management to improve
work/life integration and personal productivity. Employee surveys and culture sensing, as well as the
diverse leadership networks, provide advisory data and leanings to top leadership about how to be
more effective at leveraging local customer/employee practices and perspectives.
Technological
P&Gs Global Medical organization advises and assists management and employees to assure a
safe, healthy work environment. Global medical delivers preventive health services to all employees,
at all sites. It manages health issues that may affect employees, technologies and brands.
As P&G is a principles-driven company, all medical system work follows this order of priority:
1. Save a Life (Protect P&G People)
2. Obey the Law (Protect P&Gs Reputation)
3. Protect Key Technologies (Protect Brand Integrity)
4. Enhance Speed to Market (Protect Emerging Technologies)
5. Optimize Employee Productivity
All medical standards of performance
They recognize that environmental progress is a never-ending journey of continuous effort and
improvement. By focusing on improving the lives of consumers through innovative technologies that
work better and more efficiently, they believe they can continue to sustain both the growth of their
business and the health of the environment.
Environment
P&G supports the goals of Climate R.E.S.O.L.V.E. (Responsible Environmental Steps, Opportunities
to Lead by Voluntary Efforts). Even with the slight increase in emissions, they have met the 2012
goal, but this will not stop their solve to continue reducing greenhouse gas emissions.Their actual
emissions in 2007 are less than the emissions in 2002 2,970,000 vs. a base of 3,215,031. This
was during a time when global sales increased from $40 billion to $77 billion. The most recent
acquisitions Wella and Gillette are in the most recent years but not in the base year.
Procter & Gamble believes that there is growing scientific evidence linking greenhouse gas (GHG)
emissions and global climate change. As a global citizen, P&G is concerned about the potentially
negative consequences of climate change and believes prudent and cost-effective action by
governments, industry and citizens to reduce emissions to the atmosphere are justified.
They will focus their efforts in two main areas:
Reduce the intensity of greenhouse gas emissions from their own operations through
continued energy efficiency measures throughout our facilities.
continuing to transition fuels sources toward cleaner alternatives.

 setting goals to drive continued improvement in their GHG emissions.

Help consumers to reduce their own GHG emissions through the use of our products via
product and packaging innovations that enable more efficient consumer product use and energy
consumption.
consumer education.
Laws and Regulations
There are numerous health, safety and environmental requirements worldwide. Plants are subject to
emission limits and operating requirements embodied in these statutes, regulations, laws and
permits. It is P&Gs intent to comply with both the letter and the spirit of statutes, regulations, laws
and permit requirements. Identified compliance issues are treated seriously, and all non-compliance
matters are resolved as soon as possible.
P&G is subject to various lawsuits and claims with respect to matters such as governmental
regulations, income taxes and other actions arising out of the normal course of business. They are
also subject to contingencies pursuant to environmental laws and regulations that in the future may
require them to take action to correct the effects on the environment of prior manufacturing and
waste disposal practices. Accrued environmental liabilities were not material.
While considerable uncertainty exists, in the opinion of management and their counsel, the ultimate
resolution of the various lawsuits and claims will not materially affect our financial condition, cash
flows or results of operations.
2. Industry environment
Industry life cycle
Fristly ,we can look deeply about Industry life cycle:
Growth
Maturity
Decline
Time
Industry sales
Industry life cycle Model
The 165-year-old Procter And Gamble Company (P&G) is a recognized leader in the development,
distribution and marketing of products in nearly 50 categoriesfrom laundry products and
toothpaste, to diapers and bone disease therapies. P&G products consist of nearly 300 individual
brands used by customers in over 160 countries.P&Gs supplier diversity network is comprised of
over 1,250 minority- and women-owned businesses. The company first established a minority
supplier development program in 1972. In the past ten years, minority purchasing at P&G grew

almost ten-fold from $115 million in 1989-1990 to almost $1.0 billion in fiscal 2001-2002. During the
decade of the 1990s, P&Gs spending with minority and women-owned businesses exceeded $4
billion dollars for the period.
In the year 2007, P&G has upheld its unique manufacturing mind-set and focused on developing
human resources, consolidating foundations and looking forward management strategies. Moreover,
the company also concentrates on strengthening the international competitiveness of production and
a range of initiatives to consolidate foundations and realize future growth.P&G company is
committed to steadily improving its value by continuing to pursue farsighted innovations and building
a solid management platform.
b/ Porter five forces analysis:
Secondly,Michael Porter developed a framework consisting of five competitive forces,which analyze
how industry factors impacts a company's strategy. These factors are: the threat of new entrants,
power of suppliers, power of buyers, availability of substitutes and competitive rivalry.
Under Procter & Gamble's name, the sheer scale of products that are distributed creates a challenge
for new entrants. Since the Company has a significant amount of many market shares around the
world, a company without the capital for heavy marketing or research and development(R&D), would
hardly be able to compete.
However, there is concern about firms that specialize in specific markets. This type of company
could become a threat to P&G's corresponding business segment. Proctor and Gamble must
continue to expand its operations internationally, due to the decline of the US dollar to other
currencies and the emergence of new markets, such as India or China.
A codependent relationship exists between P&G and its suppliers. In order to generate above
average revenues the Company needs various quality materials for product production at the best
prices available. Suppliers of these materials also need key customers like P&G for profitable
revenue generation but will most likely have little bargaining power because of its size. P&G can use
its generous size and available cash to its advantage during the current credit crisis. Rising interest
rates and the declining availability of credit should not affect P&Gs relationship with its suppliers.
The companys successful history and large market share can be used to back its borrowings,under
the assumption that P&G continues to maintain its current market share.
Although P&G is a very large company, its future is dependent on buyers. Wal-Mart and affiliates
represent 15% of the firm's total revenue in 2006. This percentage of total revenue gives Wal-Mart
the ability to bargain with the Company for lower prices, which would result in lower earnings. The
current credit crisis will not have a significant impact on P&G because of the diversity and
recession-proof status of its products. Theproducts that P&G offers can sustain a slowdown or
recession in the US economy because of the their product types. Consumers will continue to
purchase these goods through an economic correction. While P&G had disappointing 2nd quarter
earnings due to higher commodity costs, analysts reported strong sales forecasts and growth
opportunities.

There are considerable substitutes for all of P&G's product offerings, creating an intense competitive
environment. In order to differentiate itself, the firm must continue to provide new, innovative
products and branding to the customer. P&G notes that working collaboratively with customers and
developing deep shopper and consumer understanding will improve the in-store presence of its
products and win the "first moment of truth." This happens when customers choose which brands to
buy. Winning the "second moment of truth," when consumers decide whether P&G products deliver
on the brand promise, is essential for growth in such a competitive environment.
P&G has a presence in a variety of industries; Personal Goods, Household, Paper, Healthcare, and
Food products. Companies in all of these industries are always fighting for their share of the market.
Currently, the firm is a leader in numerous markets. The release of P&G's 2007 1Q Earnings report
illustrated that the firm has a 40% share of the U.S. shampoo market and a 61% share of the U.S.
laundry detergent market. This diversity in product development allows P&G to sustain cyclical
economic events, such as the current credit crisis, because their products are spread out over
different sectors.
Also, the type of products they sell are considered recession-proof, in that they will
continue to sell despite a slowdown in consumers markets because of their nature
(personal health, food, etc).
To keep its current percentages of market share, P&G needs to place high priority on continued
growth and research and product development activities. Marketing strategies and brand name
awareness will set the Company apart from its competitors. An important growth factor is the
implementation of their products to internationally emerging markets. This is for two reasons:
Markets, such as India, are taking to American culture and consumerism and provide a budding
market for US retailers. The decline of the US dollar to foreign currencies makes international trading
promising due to the changeover of exchange rates. Growth in foreign markets will provide P&G with
strong revenue, along with its recession-proof products available to American consumers.
c. Summary of general environment
Opportunities

Threats

- Well defined market niche, just in time

manufacturing technology, wide range of
demography, and the removal of trade barriers in
some foreign countries.

- New entry into the household product industry,

use of substitute products, increased trade
barriers in some developing nations,
unfavorable business laws and political
instability.

- The removal of trade barriers in some foreign

countries has enabled the company to operate
- Investors do not like uncertainty. They want to
competitively without much government intervention ensure that there is democracy and stable
government in whatever country they invest and
- Trade barriers historically has been known to be
most importantly, they should be able to
one of the biggest threats for most multinational
repatriate their profits without much restrictions
businesses because of hostal takeovers by some
foreign governments, difficulty of entry, corruption

among government officials and bribery, and

unhealthy business environment.
II. Internal Analysis
1. Company Resources
a.Services quality: They deliver their objectives with the integrated efforts of market and customer
logistics, distribution organization, , customization, market planning and their customer service
operations. Customer Service/Logistics owns the flow of products and information between P&G
sites and retail customers. Their mission is to satisfy consumers needs by ensuring that all products
are available in the right place at the right time and at the right cost and quality
b.Human resources capacity:. Human Resources ensures that P&G has the employees,
organizational design and work culture to deliver business productivity and to continually improve
consumer, employee and shareholder value. They provide recruiting, training, development,
diversity, benefits and compensation coordination for the Company.
c.Capital sources: based on the Annual report 2007, The Company reported net earnings of $10.3
billion for the fiscal year ended June 30, 2007, an increase of 19 percent compared to $8.68 billion in
2006. Diluted net earnings per share were $3.04 in 2007, compared to $2.64 in 2006.Net sales were
$76.5 billion in 2007, up 12 percent from last year. P&G has grown sales from $39 billion to $76
billion in the past seven years.Theyve more than doubled the number of brands that generate $1
billion or more in annual sales and more than quadrupled the number of brands that generate at
least $500 million.
d.Department: P&Gs world headquarters is located in Cincinnati, Ohio, U.S.A. The Company
markets more than 300 brands in nearly 130 countries. We have on-the-ground operations in more
than 80 countries and employ 138,000 people.
P&G is a publicly owned company. Its stock is listed and traded on the New York and Paris
exchanges.
As of June 30, 2007, there were approximately 2,220,000 common stock shareowners, including
shareholders of record, participants in the Shareholder Investment Program, participants in P&G
stock ownership plans and beneficial owners with accounts at banks and brokerage firms.
2. Company Culture:
P&G leaders are expected to build an inclusive work environment that welcomes and embraces
diversity an environment where people feel comfortable being who they are, regardless of their
individual differences, talents or personal characteristics. This is an environment that provides
everyone equal access to information, opportunities and involvement so each person learns, grows,
excels and maximizes his or her personal contribution.
3. Organizational Structure:
Global Business Units(GBUs): In the financial year 2006-2007, three GBUs are Beauty and Health,
Household Care and Gillette GBU. For the next year, the GBUs will be structured as: Beauty, Health

and Well-Being, Household Care.The GBUs leverage their consumer understanding to develop
overall strategy for our brands. They identify common consumer needs, develop new products and
build their brands through effective marketing innovations.
Global Operations
The Maket development organizations (MDOs)develop go-to-market plans at the local level,
leveraging their understanding of the local consumer and customer. MDOs are organized along
seven geographic regions.
Global Business Services(GBS)
GBS operates as the back office for the GBU and MDO organizations, providing world-class
technology, processes and standard data tools to better understand the business and better serve
consumers and customers. GBS personnel, or highly efficient and effective third-party partners,
provide these services.
Strengths

Weaknesses

-Strong financial position both in the

domestic and foreign markets.

-Lack of effective distribution system in some segment

as well as poor location in some foreign countries and
high cost of inputs.

- the company has the ability and capability

to push innovation to commercialization
-Another area of weakness is the employment of foreign
faster than any other competitor in the
based local management who doesnt have any
industry.
international business experience. This makes
collaboration with headquarters a little difficult because
- Another unique strength of P&G is its pool
of their inexperience in the global business arena.
of skilled labor.
- P&G has a track record of producing high
quality products which is very difficult to
match or beat.
-P&G has significant scale advantages. It is
the global leader in all its four core
categories - fabric and home care, beauty
care, baby and family care, health care
III. Assessment the performance of company
In this part, the performance of the company in terms of returns to investors and efficiency,
effectiveness by providing the P&G Companys financial index within 3 years: 2005, 2006 and 2007
will be mentioned. The data is obtained from P&G company three - year financial history.
a. Returns on investment (ROI)
Return on investment is a performance measure used to evaluate the efficiency of an investment or
to compare the efficiency of a number of different investments. The table below will show the returns
on investment of P&G within 3 years: 2005, 2006 and 2007:

2007

2006

2005

ROI =

10,340,000 * 100

8,684,000 *100

6,923,000 * 100

Net profit after tax * 100

138,014,000

135,695,000

61,527,000

Total assets

= 7.49%

= 6.39%

= 11.25%

From the table, we can see that the returns on investment were raised up 1.17% from 2006 to 2007.
It means that in 2007, the amount of money that PG used for investing activity is increasing.
b. Effectiveness and efficiency of PG
To assess the performance of the company in terms of efficiency and effectiveness, I will calculate
and analyze the financial ratios of PG Company within 3 years from 2005 to 2007, following by my
comments and opinions based on the computation of the financial ratios.
Financial Ratios

2007 2006 2005 Comments

Current Ratio =

0.78 0.33 0.47 The current ratio is highest in 2007 that means in 2007, PG had
more sufficient current assets but also can be in liquidity.
Current ratio in 2006 seemed diminish and increase again in
2007 but not much. Anyway, PG was in a comfortable position
with this amount number of the ratio.

Current Assets
Current Liabilities
Return on Equity
(ROE) =

0.15 0.13 0.37 PGs return on Equity was much higher in 2005 than in 2006
and 2007. The higher PGs return on equity, the better. So in
this ratio, it is clearly that PG was better in running business in
Net Profit after Tax
2005.
* 100
Shareholders
Equity
(%)
Net Profit Margin = 0.1350.13 0.122From the result shown the Net Profit Margin of Apple was
raised 1.1 time in 2007 compared to 2005. PG has been
Net Profit after Tax
always in generates and retains money since 2007.
*100
Net Sales
(%)
Earnings Per
Common Share
(USD per share)

3.04 2.64 2.53 Companys Earnings per share was increased up to 1.2 time
from 2005 to 2007. It means amount of money left for
shareholders after taxes of PG was higher and PG was getting
more profitable.

Cash Ratio =

0.17 0.33 0.25 A cash ratio is below 5.0 might mean that PG was having cash
flow problems, possibly because of a significant backlog in

Cash + Cash
Equivalents

account receivable.

Current Liabilities
Gross Profit Margin 33.9728.9829.01In 2006, PGs Gross Profit Margin seemed to be decreased a
=
bit but it increased again in 2007. It means from 2006 to 2007,
PG could make a reasonable profit on sales.
Gross Profit * 100
Sales
(%)
Asset Turnover =
Sales
Total Assets
Inventory to Net
Working
Capital =

0.95 1.12 1.21 The result is shown that from 2005 to 2007, PG Companys
Asset Turnover was reducing 22%. The lower the Asset
Turnover, the higher the Net Profit Margin. As we can see that
the Net Profit Margin of PG was raised up year to year.
0.03 0.03 0.02 The inventory to net working capital of PG was quite low in 3
years. It was stable in year 2006 and 2007 with the ratio is
0.03. The number of ratio is low shows that the companys
business was not carrying too much inventory

Inventory
Current Assets
Current Liabilities
Quick (Acid Test)
Ratio =
Current Assets
Inventory

2.32 2.21 2.91 Quick Ratio of PG was fluctuating among 3 years. PG company
might be relative high liquidity in 2005. Its ratio was lower in
2006 and still increased again in 2007but not much as 2005.

Current Liabilities
Let I have calculated and the comments above as from the result of financial ratios, we can see that
the PG Companys finance from full year 2005 to full year 2007 was noticeable increasing especially
in 2007. And moreover, based on the PGs income statement in year 2008 that I have seen and
examined, PG is still continuously developing and expanding greatly in running business through
year to year.
IV. Strategic options available to PG and recommendations:
In order to remain competitive and achieve growth, they must be able to retain customer loyalty
which has contributed to their success. Besides, the company should exploit new market segments
and opportunities to support for the concentrated growth strategy, gain market share, and minimize
the threats of losing market caused by its vibrant external environment and fierce competitive
market. In addition, there are some strategies that PG can implement to improve and solidify its
performance as follow:

Utilize the strengths in research and development and human resource to develop its technological
resource. This will help the company to reduce harmful biological effects on human caused by
electromagnetic emissions, meet Safety standards and government regulations about
electromagnetic emissions, and minimize the threat of substitutes due to the rapidly changes in
technological environment.
Utilize the strengths in financial resource, invest more in marketing to build up reputation with
consumers and minimize the threat of losing market due to its high extent of competitive rivalry.
They have also sustainabily strategies and goals for next years such as: Delight the consumer with
sustainable innovations that improve the environmental profile of their products, Improve the
environmental profile of P&Gs own operations and childrens lives through P&Gs social
responsibility programs.And more, engage and equip all P&Gers to build sustainability thinking and
practices into their everyday work.Finally, Shape the future by working transparently with their
stakeholders to enable continued freedom to innovate in a responsible way.
V. Recommendations for structures, systems and policies:
Innovation, flexibility, free-flowing of information, and adaptability are key factors to implement these
strategies successfully. It due to the large size of the company and the high level of environmental
uncertainty, technological complexity, and geographic dispersion that PG Company is facing.
Therefore, an organic organizational structure is most suitable for the company.
Further more,The degree of formalization is low in organic organizational structure,. It has less
written policies, rules, procedures, job descriptions, and other documents specify what actions are
(or are not) to be taken under a given set of circumstances. Rules and regulations often were not
written down or, if written down, were ignored. People must find their own way through the system to
discover what to do. In other words, the employees in organization will encourage the innovation f
they have more freedom in their work.
In addition, decision-making authority was decentralized. Power and decision making authority are
delegated to lower levels of an organization. It leads to faster decision making at the lower levels,
because most decision do not have to be referred up the top organizational levels. Thus, by adapting
organic organizational structure, PG company will be able to increase their flexibility and adaptability.
Finally, in organic organizational structure, the hierarchy of authority is not clear and simple. There
are just a few layers of management level. Therefore, the exchange and transfer of information
process within the company will be better.
PART II: Assessment of the usefulness of strategic management models for the analysis
1/P.E.S.T.E.L :
PEST Analysis is a simple, useful and widely-used tool that helps company understand the "big
picture" of your Political, Economic, Socio-Cultural and Technological environment. As such, it is
used by business leaders worldwide to build their vision of the future. PESTEL analysis is a standard
way of environmental scanning. Successful managers need an all-round view of their environment

for decision-making. PG company uses PESTEL analysis to draw attention to each of the key
external environmental factors.
2/Porters Five Forces analysis:
For understanding where power lies in business situation so it is powerful tools. It is useful because
it enable PG to understand both the strength of the current competitive position and the strength of a
position that PG suppose to be. Moreover, it also helps PG to improve a situation of weakness and
prevent taking wrong ways. As a consequence, Porters Five Forces is an important tool for
assessing the potential for profitability of PG company.
3/SWOT analysis:
The usefulness of SWOT analysis is not limited to profit-seeking organizations. SWOT analysis may
be used in any decision-making situation when a desired end-state has been defined. SWOT
Analysis is a powerful technique for understanding strengths and weaknesses, and for looking at the
opportunities and threats that a firm faces of PG company.
4/Resource based analysis:
A firms research and development activities are dertemined by resources based analysis. It
evaluates the effect of internal or organisational factors on R&D activities. Its also planned
contribution is therefore determined on the analysis of the role of PG's resources and capabilities in
the R&D investment.
5/Company structure:
Every organisation is unique in size, products or services, people, leadership and culture. It can be
useful to think in the general unformed way before plunging into the detail of an organisation design.
New organisations structure can provide new and interesting opportunities for managers and
employees.
6/Financial analysis:
Apply ratio analysis to financial statements to analyse the success, failure, and progress of the
business. Ratio analysis enables the business owner or manager to spot trends in a business and to
compare its performance and condition with the average performance of similar businesses in the
same industry.

Business
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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. During the 1990s the company made some significant
alterations to its corporate strategy; it aimed to reduce its cost structure and
develop its differentiated business-level strategy, in an attempt to increase
revenues and profits. The rapid development of international markets and
globalisation demanded a corporate shake up. Moreover, the reduction of
trade barriers and tariffs indicated that to retain a competitive advantage
globally the company had to develop an effective International strategy, whilst
benefitting from economies of scale. Cross-functional integration and speed of

innovation increasingly became imperative to corporate strategy. In this article I

will look at the key development that took place in thus process and turned P&G
into such a powerhouse.
The cohesion between the strategy and the structure of the company is crucial.
The structure will align the company with the strategy it wishes to pursue; and,
along with the companys culture and control systems, will utilise the valuechain competencies and capabilities, and facilitate increased competitiveness,
profitability and superior return on Investment.
Procter and Gamble identified the increasing globalisation of business and
resultantly altered their business strategy and structure in order to maximise
exposure in more countries in order to: remain competitive internationally,
benefit from economies of scale; and to maximise revenues, profits, share price
and return on invested capital. To facilitate the implementation of their global
strategy CEO, Lafley, changed the structure from a Global Product Structure,
which is often associated with a standardisation strategy and implemented a
Transnational global strategy, and implemented a hybrid organisational
structure that considered the geographical dispersion of multiple marketplaces,
respective specialisation for particular brands and specialisations and
economies of scale in particular value creating functions. Ronald Jean Degen has
termed this a Front-Back Hybrid Matrix organisation structure.
This strategy allowed P&G to simultaneously amalgamate cost reductions in the
firm and retain efficient customer responsiveness; adapting to local tastes and
expectations as they vary across nations. The nature of this strategy dictates
that some functions are centralised and some are decentralised. This has been
chosen as it supports the empowerment of the various levels of management in
the companys Global Business Units (GBUs). Lafley has suggested that this
provides the ability to make faster, more locally responsive and efficient
decisions, whilst autonomy was given to key functions that required local
customisation. R&D and innovation were very much the spearhead of P&Gs
corporate strategy, so the R & D function remained centralised, so that control
could be exerted over it.

The global-matrix structure that Lafley adopted to support the transnational

strategy is a complex structure that requires significant cohesion from all
members of the workforce and complex controls. Lafley, realised the
significance of workers morale, contrary to his predecessor, and implemented a
culture that would support the structure. Lafley is noted to have implemented
pay-incentives that tied employees to the performance of the company. Lafleys
strategic leadership ensured that cross-functional co-ordination created a
significant advantage over competitors; as distribution channels, logistics,
supply chain, and manufacturing were all co-ordinated across nations; thus, P&G
was able to lower costs. The complementation of the culture and the globalmatrix structure advanced the changing nature of the corporate strategy and
developed their international competitive advantage. However, crucial to these
elements were sophisticated systems for co-ordination which Lafley recognised
would be essential and championed the use of IT systems, even setting up a
deal with Cisco systems to take full advantage of their complex systems,

systems support; in order to reduce IT costs through economies of scale

spreading their system globally.
Lafley reported significant financial progress in 2000; Weve had three major
acquisitions including Clairol, Wella and Gillette; and, we have tripled the pace of
our business initiatives over this same period. Lafley, therefore, decided to
further restructure the business units to accommodate these strategic
acquisitions and increase competitiveness thusly. The global business units were
reduced from five to three: global beauty care; global health, baby, and family
care; and global household care. This complimented the transnational global
strategy well as providing sharper focus of the respective target consumers;
whilst complimented by a decentralised empowerment of regional, subsidiary
and functional managers, which was supported by the effectiveness of cross
functional co-ordination and interlinking of complex IT systems.
The use of integrating mechanisms in general, and use of knowledge
management in particular, to gain a competitive advantage.
A transnational global strategy requires close co-ordination with key areas of the
business for increased efficiency and competitiveness. Cross functional coordination at P&G allows them to organise and utilise their resources to optimal
effect. The calculation of demand should accurately match supply, and so the
supply chain, logistics and distribution channels can be effectively co-ordinated
to manage increased/decreases in demand; hence, a Just-in-Time inventory
control system can be implemented to reduce costs. Moreover, these integrating
mechanisms support the transnational global strategy employed by the firm as
local managers can quickly relay changes in tastes in their particular regions
and the products can be updated/altered, or inventory levels can be corrected
accordingly, more efficiently and effectively.
Moreover, as Lafley has identified that Research and Development and Product
Innovation is key to pioneering the competitiveness of the corporate strategy;
integration mechanisms allow fast communication between marketing and R&D.
Additionally, inter-business function (marketing, RnD, Logistics, Finance etc)
communication facilitates value creating propensity between manufacturing and
marketing. Furthermore, inter function co-ordination is crucial as line, functional,

business, divisional, and corporate level managers within the same functions
must be able to quickly communicate between one another, in order to mitigate
against information distortion, especially when spread across many nations.
P&G facilitates the effective implementation of integration mechanisms through
direct contact with one another. This is a simple, cost effective way to
communicate problems and ensures that opinions and concerns are voiced.
Moreover, it is essential to have direct contact between different functions,
especially those that must co-operate considerably. Conversing directly between
one another ensures cohesion of the products and the market, with the overall
strategy. This reduces handoff and transfer problems. However, this can
increase bureaucratic costs and it may not always be viable to converse with
different employees face to face all over the globe, although such technological
advances, such as video Tele-conferencing may help.

Liaison roles are a good way of handling handoff and transfer problems when
structures become complex and will help co-ordinate divisions and functions.
Meeting at a regular time intervals ensure regularity. Additionally, liaison roles
ease tensions between functions and can ferry information from one to another.
Teams are used when two/more functions share common problems and these
can help relieve tensions or aid in finding a solution. P&G could use teams
when they have problem co-ordinating particular functions in a large region, for

example Asia. Teams may provide insightful solutions to problems i.e. efficient
logistics. Referenced from MIT Sloan Management Review P&G accredit
considerable success to the cohesion of their function team co-ordination, what
made the teams work was the mutual interdependency that grew. Thus,
demonstrating how integrating mechanism are vital for communication across a
global business in order for P&Gs transnational strategy and FB- global matrix
structure work effectively.
Furthermore, the importance of IT must be accredited to the effectiveness of this
co-ordination; as many of the systems and integrating mechanisms rely heavily
this interwoven web of technology. Lafley was correct to have championed it as
he did.

European strategy:
An alternative strategy is to develop new market-specific resources, a more
direct but more costly and probably a slower approach than adaptation. This
strategy is starting to be seen in the form of a number of MNCs acquiring local
brands that are added to their portfolio alongside global counterparts. In Japan,
for example, Coca-Cola carries a number of locally-oriented brands, such as
Georgia iced coffee, that enable it simultaneously to meet local taste segments
and to derive greater economies of scope from its sales and distribution
investments in the country. Alternative local resources that might be developed
are distribution assets, such as company-specific warehouses or fleets of vans or
even bicycles. P&G took this approach in certain Eastern European markets. In
these former communist states, the distribution systems were not simply
undevelopedthey had completely collapsed. Recognizing that intensive
distribution was an enabling condition for the development of their consumer
goods business, P&G invested substantial sums in developing its own
distribution network. It did so by funding distributor businesses in the form of
vans, information technology, working capital, and extensive training.This
model, known within the company as the McVan Model, produced a significant
competitive advantage over both international and local competition; in Russia,

for example, the development of 32 regional distributors, with 68 further

subdistributors, resulted in P&G having distribution coverage of some 80 percent
of the population at a time when most multinationals were still restricted to
marketing in the two main cities of Moscow and St. Petersburg. This bold
approach illustrates perfectly the trade-off between control and risk
considerable investment was required to develop this network in a country
renowned as a distribution challenge (being the largest country in the world in
terms of area), but by tackling the issue head-on rather than waiting for the
enabling condition to develop, P&G gained huge leads in market share in many
categories. While this advantage has continued in some countries, the financial
commitment makes P&G far more vulnerable to economic shocks, such as the
Russian financial crisis of the summer of 1998.
Asia Strategy:
China story
Strong distribution channel
When P&G entered China back in 1985, there was very limited national distribution for
consumer goods. Most brands and shops were local. So P&Gs challenge was to build a
network of distributors who could also handle the demands of distributing fast-moving consumer
goods like toothpaste, nappies and shampoo. P&G initially focused on the largest (Tier 1) cities
such as Guangzhou, Shenzhen, Shanghai, Beijing and Tianjin which also tended to have the
largest and most affluent consumer base. However, by 2010 P&G had extended its distribution
network well beyond the biggest cities and were supplying over 500,000 shops across much of
China using 150 distribution centres.

Building an Organisation Based on Local Talent & Investing in CSR

Another key feature of P&Gs success has been how it focused on building an
organisational structure and resource based on local employees and managers. For
example, P&G was among the first multinationals to actively recruit at Chinese
universities and it developed extensive training programmes for its China staff.

P&Gs recruitment and staff development approach has followed a similar pattern in
developed economies where it actively promotes from within as a way of instilling a
strong corporate culture, improving staff retention and building staff loyalty. As a result,
by 2010, only around 2% of P&Gs employees in China were non-Chinese.
P&G also recognised the need to focus on CSR as it developed its presence in China. It
worked closely with central and local governments on projects in areas such as
education, public health and rural development which were seen as priorities by
Chinas leaders.
One project of note for P&G in China was the Hope Schools programme. By 2010, P&G
had built more than 200 Hope Schools around China.