THE CHANGE PROCESS IN THE PROCTER AND GAMBLE-GILLETTE MERGER

 

THE CHANGE PROCESS IN THE PROCTER AND GAMBLE-GILLETTE MERGER
Table of Contents

 

I.      Introduction.. 3

II.     Diagnosis.. 4

A.    External Change drivers. 4

1.     Threat of New Entrants. 4

2.     Intensity of the Competition. 5

3.     Pressure from Substitutes. 5

4.     Bargaining Power of the Buyers. 5

5.     Bargaining Power of the Suppliers. 6

B.    Internal change drivers. 6

1.     Existence. 7

2.     Survival 7

3.     Success. 7

4.     Take-off 8

5.     Resource maturity. 8

C.    Current State. 9

1.     Shared Values. 9

2.     Strategy. 9

3.     Structure. 10

4.     Systems. 10

5.     Staff 10

6.     Style. 11

7.     Skills. 11

D.    Sources of resistance (Transition Curve) 11

1.     Endings. 12

2.     Neutral Zone. 13

3.     New Beginnings. 13

E.    Styles of leadership/management (Leadership Theory) 13

III.        Prognosis.. 14

IV.       Conclusion.. 15

V.    References.. 15

 

I.                    Introduction

In order of actual development to take place, one must realise that change is a necessary ingredient. However, it is important to know first what exact part of the company needs changing. Otherwise, the company runs the risk of altering what works perfectly fine for the organisation which could essentially lead to disastrous outcomes. Thus before a decision whether to induce change, organisations have to be fully aware of the change needs of the company. More specifically, they have to be fully conscious of the actual settings taking place in both internal and external environments of the organisation. The following report seeks to provide just that.

Recently, Procter and Gamble have acquired Gillette as part of their company. However, there are certain problems on which the company has to deal with upon the merger. A detailed discussion of the external and internal environment of Procter and Gamble will be provided. More specifically, an account of the possible changes on the product line of the company as well as the implications on the overall organisation will be taken into account.  

On the diagnosis part of this report, an environmental analysis, evaluation of the growth stages, as well as the analysis of the current state of the company will be carried out. In the same regard, issues on management as well as with the workforce will be taken into consideration to determine whether there is a fit with the possible changes in the company or not. The arguments and observations made in the diagnostic part are to be used to establish a sound prognosis on the matter.     

II.                  Diagnosis A.                External Change drivers

In this part of the report, Porter’s Five Forces Model will be used to provide a clear picture on the change drivers of the company. Specifically, an analysis of the environment will be made to illustrate the external environment where P&G-Gillette operates. To this end, the level of attractiveness of the global market will thus be established. (Shermann and Black 2006, 29) For the purposes of this diagnosis part, the case study of Madapati (2001) regarding P&G-Gillette will be the primary source.  

1.      Threat of New Entrants

Proctor and Gamble is one of the top players in the consumer product industry all over the world. Its grasp on the said industry is so vast that they could afford to create segments on their operations. These segments are divided into fabric and home care; baby, feminine, and family care; beauty care; health care; and food and beverage. (Madapati 2003) In the case of new entrants, they may not be that much of a threat for the company given that P&G’s products has a strong following thus a stable market share. In addition, new entrants are normally miniature compared to the company thus could only contend merely with certain segments of P&G and not with its entire market share.  

2.      Intensity of the Competition

On its own, P&G is considered a giant in the consumer product industry. Though the products are normally interchangeable, the differentiation of brands of the existing companies counts for their hold on their core consumers. (Madapati 2003) With the recent merger with Gillette, their competitors in Unilever, Kimberly-Clark and Colgate-Palmolive would be something short of flabbergasted as the company has become a monolith in the industry.  

3.      Pressure from Substitutes

The inclusion of Gillette on the list of brands that Procter and Gamble controls makes the largest company in the consumer product industry. In the same regard, as Gillette and the lines under P&G have their own loyal customers, they may well have the largest market share in the consumer product industry. (Madapati 2003) Thus, substitutes for their products could only be located on their direct competitors or even companies that provide alternative products similar to what they are offering. Such companies would be boutiques and other clothing lines that offer toiletries and other grooming products for their loyal customers. However, unlike those offered by the P&G and Gillette, these substitutes are rather pricey thus making their target market limited to those who could afford such luxuries.

4.      Bargaining Power of the Buyers

As stated in the earlier part of this diagnosis, the products offered in the market often overlaps and interchangeable. (Madapati 2003) The buyers in this industry have some level of bargaining power over the players in the market. However, this power of the buyers are rather curtailed by the top marketing schemes of the companies like P&G, Unilever, Kimberly-Clark and Colgate-Palmolive as they are able to keep a loyal following on their respective brands. Other substitutes come from supermarkets like Tesco who are offering their own line of consumer products that could match the quality of those offered by the major players but with a distinctively competitive pricing strategy. (Child 2002, 135)

5.      Bargaining Power of the Suppliers

Similar with the buyers, the suppliers in the industry has some level of power over the major players. Though they could be readily be replaced by the company with another supplier, it is important in the consumer product industry that a good relationship between the supplier and manufacturer is established. (Madapati 2003) This is done normally through correspondence so as to provide both supplier and manufacturer that capability of using the business knowledge to their advantage. (Hunton 2002, 55)

B.                Internal change drivers

In this part of the report, an account on the growth stages of the Procter and Gamble will be given based on the growth stages of the organisation as presented in the study of Masurel and Montfort (2006, 461). These stages include existence, survival, success, take-off, and resource maturity.

1.      Existence

In the study of Masurel and Montfort (2006, 461), they characterised this stage where the company has trouble acquiring customers and delivering their merchandise to them. In the context of the global operations of Procter and Gamble, they may have encountered a slight impediment akin to this type of stage. However, since they have strong roots in the United States particularly since the early 1800s, there was no doubt that the company is on its way to lead the consumer product industry in the 21st century. (Madapati 2003)

2.      Survival

The survival stage is characterised by Masurel and Montfort (2006, 461) as the period where the company is catering to enough customers and providing them with enough satisfaction to keep coming back. At this point, a balance between the company’s revenues and expenditures is required to keep the company afloat. Normally, the leadership of the company has to address this situation so as to avert any untoward event. (Bennett, Harriman, and Dunn 1999, 3) In the case of P&G, there are Jager and Lafley who have been exceptional leaders and have spearheaded the eventual road to success as seen in their project, Organization 2005. (Madapati 2003)

3.      Success

Masurel and Montfort (2006, 461) indicated that this part of the growth cycle is characterised by two possibilities. They mentioned that at this stage, the organisation could encounter disengagement or growth. In the case of P&G, the organisation is obviously on the process of growth. Madapati (2003) mentioned that the implementation of Organization 2005 has been rather helpful in inducing further success in P&G. For instance, the creation of global business units of P&G is one of the clear indications that the company has been experiencing growth. In this phenomenon, one could notice that the market of the P&G has been expanding at a rather rapid rate.

4.      Take-off

The fourth stage is characterised by the difficulty in monitoring and controlling the rapid growth in which the organisation is experiencing. (Masurel and Montfort 2006, 461) In the same regard, delegation appears to be a credible solution. In the case of P&G and its acquisition of Gillette, Madapati (2003) indicated that it is a significant step for the company to acquire its goal of acquiring a greater market share. In the implementation of Organization 2005, they first secured the international markets and established steady bases and consequently shifted to the acquisition of global brands like Gillette.

5.      Resource maturity

Masurel and Montfort (2006, 461) characterised resource maturity as a stage where the company has a decentralised management, adequately staffed, and possess a developed and extensive system. In the case of P&G they have already established decentralised decision making processes as discussed by Gould, Lerman, and Grein (1999, 7). Basically, this is seen in the attitude of the company towards giving the European brand managers a free reign on these issues. This is the interpretation of CEO Lafley in the company’s Organization 2005 which not only made operations efficient, but also significantly empowered the workforce in the European setting.  

 

C.                Current State

In order to present the current state of the P&G and Gillette, the 7s framework of McKinsey will be used. In doing so, the independent features of the company will be established along with the possible effects they have with each other. (Elkin 1998, 108) At this point, an examination of Organization 2005 will be given as it is the framework of which resulted to the consequent acquisition of Gillette.

1.     Shared Values

Organization 2005 is triggered by the realisation of P&G that their closest competitors are significantly gaining momentum and acquiring competitive advantage in the consumer product industry. (Madapati 2003) Thus, the strategic intent of the company upon implementing this programme is to gain a global market share thus beating their competitors in the international market.   

2.     Strategy

As implied by the case study of Madapati (2003), P&G sought to operate in the international field where a greater market share and more players in the consumer product industry are present. Moreover, their acquisition of the Gillette brand and its products has been a significant step in realising the goal of having a greater global market share.

3.     Structure

As mentioned in the study of Gould, Lerman, and Grein (1999, 7), the structure in P&G is rather decentralised. It is thus expected that the company will provide Gillette an independent decision making body that will manage the operations of the brand.  

4.     Systems

Under the leadership of CEO Lafley, the initial intent of creating opportunities for the company was scrapped and shifted towards diversification to new brands and development of the existing lines under P&G. Madapati (2003) In looking at this scenario, it appears that the P&G has decided to make the most of the brand leadership of the company in order to trigger further developments of its core competencies. (Intagliata, Ulrich, and Smallwood 2000, 12)

5.     Staff

Basically, Organization 2005 programme is an attempt to streamline the operations of the organisation. (Madapati 2003) The keyword is streamline, which also requires the company to un-bloat its workforce. Job cuts are apparently in order, especially when P&G and Gillette decided to merge. Employees from both sides of the fence are losing their jobs for the greater purpose of organisational development. However, those who are retained are given higher incentives, promised better working conditions and higher remuneration to keep them from being demoralised. (Madapati 2003)

6.     Style

Based on the case study of Madapati (2003), CEO Lafley practices a participative leadership style given the complexity of the P&G organisational network. In this regard, the managers of the company experience high levels of job satisfaction, empowerment, and high quality of work life as they are regarded with high esteem by their CEO. (Kim 2002, 231)  

7.     Skills

Aside from brand leadership, P&G is also recognised with other types of core competencies. As indicated in the P&G website, they make sure that their customers have the best product technologies possible, from vegetable shortening to fabric refreshers. (P&G 2007) Along with this, brand equity is also one of the best suits of the company. Basically, this is the part where the company finds a way to position their brands such that the consumers find some commonplace cause to purchase it.

D.                Sources of resistance (Transition Curve)

In order to establish the sources of resistance to change, this diagnosis will use the transition curve.

Figure 1. The Transition Curve

1.     Endings

In this phase of the transition curve, denial of the change of events would be apparent. In the case of the P&G-Gillette merger, employees of Gillette would be the ones who may feel denial and could sense some loss of familiarity as they are the less dominant part of the merger and similarly more probable to encounter job cuts.

 

2.     Neutral Zone

Uncertainty among the Gillette employees prevails at this point. In addition to that, the compounded information both old and new could trigger some breakdown on their part. It is up to the managers to maintain balance and make sure that the employees’ emotions are held at a controllable state. Otherwise, the organisation will eventually be at chaos. On the part of P&G, they should provide Gillette with the freedom to adapt at their own pace and be acquainted with the corporate culture.  

3.     New Beginnings

It is at this point that acceptance of the change is anticipated. Moreover, this also marks a new cycle of change for the employees. In the case of P&G and Gillette, this is the part where integration stops and where functioning at its optimal level starts.

E.                 Styles of leadership/management (Leadership Theory)

As indicated in the earlier part of this paper, the leadership style implemented in the organisation, specifically that presented by Lafley is participative leadership. This is especially connected to Organization 2005 programme as Lafley’s predecessor, Jager, took a different leadership style in implementing it.  Madapati (2003) mentioned in his case study that Jager’s style was rather unique but have some touches of authoritarian flair in it. With the goal of overall development, and its acquisition as soon as possible, Jager may have neglected the culture of the company as he was forced to step down with the poor performance of the firm in the early parts of the new millennium. The shift of leadership style that Lafley introduced in the company no doubt placed greater value on the overall organisation and thus reflected in its performance.   

 

III.                Prognosis

The discussions above have established certain resource capabilities, noticeable resource weaknesses, best opportunities, and external threats of P&G. As seen above, the merger between Gillette and P&G shows great promise as they have created a company that is known to be innovative with the close hold on the overall consumer producing industry. In the same account, the acquisition of Gillette basically solves P&G quandary on the shaving sector of the world, both in men and women. These, among others, has made the merger rather daunting for the rest of the players in the consumer product industry as P&G and Gillette has amassed the greatest company along with the market share of its loyal customers. This improves the economies of scale of the organisation. With P&G’s presence in both developed and developing countries, they can help Gillette in its distribution and thus anticipate higher sales. (Blair and Kuse 2004, 71) The problem that they have to contend with is the apparent overlapping of their products in the market.  

In order to maintain a good standing in the market and maintain the appeal of the Gillette brand, P&G should act opportunely to keep the other players in the market to neutralize the after-effects of the merger. For instance, P&G should make it a point that Gillette stays independent so as to keep its identity in terms of its internal environment and its image in the external environment. On the other hand, a major effect of the merger is the job cuts which the Gillette and P&G should undertake. This will place some level of uncertainty among the general workforce and possibly create untoward animosity with the P&G and Gillette factions. The company have to counteract this by creating a positive atmosphere that will support a more cohesive and positive organisational culture, and eventually avoid conflict on corporate culture, in the future.

IV.               Conclusion

The discussions above have provided the importance of appropriate change management requirements in instances where mergers and acquisitions take place. With the numerous adjustments both in the technical and cultural aspect of the organisation, knowing what to change and how to change it serves as a potent tool for any organisation who seeks to establish an effective organisational development scheme. In the case of P&G and Gillette, their future appears to be rather pleasant. Though there are without glitches in their merger, proper management and good leadership could make the difference between succeeding and failing for this newly merged company.  

 

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