Strategic Business Analysis
Introduction
Procter and Gamble (P&G) is presently considered as one of the largest companies worldwide. Base on its 2003 company report, P&G markets nearly three hundred product brands. Whisper, Tide, Clairol, Downy, Pantene and Pampers are some of the world renowned brands marketed by the company. The success of P&G is not only evident by its wide product coverage but by the amount of its sales obtained from about a hundred and sixty nations. In addition, the company’s growth has also been made evident by its hundred and fifteen manufacturing plants scattered in eighty countries. The progress of the P&G is also attributable to its workforce, which is made up of more than ninety thousand employees. One of the keys to the company’s present success is the business strategies it has implemented over the years. One of the strategic changes which are remarkable in the industry is its launch of Organisation 2005. Primarily, the goal of this paper is to analyse the launch of Organisation 2005 within the industry. The paper will discuss the factors that trigger the initiation of Organisation 2005 using SWOT analysis. In addition, this case study analysis also aims to relate the Organisation 2005 with the eight managerial Tasks for strategy execution, a model which has been formulated by and his colleagues.
Task 1 SWOT ANALYSIS
It is a common fact that competition in the business world is very tough. Hence, the management of different organisation are trying to find the best way in order to be successful and achieve their organisational goal. For example, business, nowadays, have to cut cost to the bone by downsizing, outsourcing, offshore IT development and management. The growth and success of an industry now depends on its ability to innovate to execute new business strategy effectively. Many organisations see that changing the business strategy must become a part of the core competency of every part of the organisation and its network of business partners (2003). It is noted that management adheres to different changes because of some factors. Like any other organisations or industries, Procter & Gamble has also been able to initiate change in their business strategy. In order to address the company’s problems due to the changes in the industry, P&G tried to develop a new strategy that will basically allow the company to have competitive advantage. The company also wanted a strategy that will improve its ordering and billing systems as well as quality of services for the consumers. This part of the paper provides insightful details regarding the organisational factors that drive or triggers them to initiate Organization 2005 strategy. The organisational factors will be analysed using SWOT (Strengths, weaknesses, market opportunities and threats.
The strengths and weaknesses actually characterize the internal analysis of the company. Issues such as the reputation of the company, the type and quality of its product, manufacturing costs, the effectiveness of their sales team, profitability, innovativeness on research and development, market share and other issues of the company’s capabilities are recognized as strengths and weaknesses ( 1997).
Organisational Strengths
As mentioned, the main objective of P&G is to have a new business strategy that will enable them to sour growth in the mature market (2005). One of the organisational strengths that trigger the initiation of Organization 2005 is the ability of the management of P&G to develop a new strategy that will enable them to outgrow or compete with the emerging competitors and the ability of the management to identify the important aspects of the business to be changed. In addition, strength of the company that triggers them to pursue Organization 2005 is the ability to anticipate stakeholders needs which can be done by restructuring the organisational structure. Furthermore, P&G is also known as a company with much ambition when it comes to outgrowing their rival companies, in this regard, their strengths that triggers or generates the initiation of Organization 2005 is the perseverance of its personnel and staff to enhance the marketing strategy of P&G in the global market. The company possesses a strong brand name in the industry that represents both value and quality. This strength emphasizes P&G capability to still attract customers even after the initiation Organization 2005.
Organisational Weakness
Although, P&G has their organisational strengths that trigger the initiation of Organization 2005, which involved changes in their business strategy, the company also encompasses some weaknesses. One of the weaknesses that can be attributed with P&G is the inability to sustain business strategy change because of some management issues and problems. Based on the case, Jager has not been able to sustain effectiveness in his initiation of Organization 2005, which affects the whole strategy execution. Furthermore, the inability of the management to anticipate cross-cultural conflicts and issues because of employee transfers can also be considered as a weakness for the company.
While the internal side of the company represents its strings and weaknesses, the opportunities and threats on the other hand is external in nature. Opportunities may be recognized in rising markets, extending service networks, growing economies or capitalizing on the competitor’s flaws. Threats on the other hand, represents issues such as the introduction of new competitors, changing market trends, alliances formed by competitors as well as the transforming demographics. Both of these factors are interrelated with the company’s strengths and weaknesses. Opportunities may be used in the maximization of the company’s strengths. Though the company is already operating globally; however, the number of its international branches are only limited to a few countries. This then does not optimize the ability of the company to effectively operate internationally even with its Organization 2005 approach. In addition, as a diversified organisation, the strategy may affect the launch of Organization 2005, especially when the management have not been able to integrate the value of diversity with the new strategy.
Organisational Opportunities
Because of the strategies that Procter & gamble has implemented throughout the years, the company has many opportunities ahead which can be considered as factors that triggers their initiation of Organization 2005. One of the organizational opportunities that P&G possess is in terms of the growing interest of the management with technological facilities. The new business strategy (2005) requires the use of information technology, especially in acquiring and managing data. This interest on technology will enable P&G to meet its goal as it implements Organization 2005. The integration of the business units of P&G can also be considered as an opportunity for the implementation of the new strategy. Furthermore, the company has the resources to support the business strategy, which includes technological support for better marketing activities are which is included in the business strategy (2005). Forming strategic alliances, merging or taking over other local and global industries is also another possible opportunity for the company to strengthen its operations, overcome competitors and support its future success through its Organization 2005.
Threats
Even if Procter & gamble have various strengths to pursue Organization 2005, the company has also some threats which may affect its implementation. This includes the experience of P&G when it comes to having low sales throughout the 1990s. In addition, it has been mentioned in the case the Procter & gamble are experiencing product decline because of the existence of rival companies which have faster innovative abilities and effective management strategy. As the company is starting to change the entire business strategy, other threats or conflicts may not be met even after its initiation of Organization 2005.
The organisational strengths, weakness, opportunities and threats that has been mentioned above, can be considered as essential factors on determining the needs of initiating Organization 2005 within Procter & gamble. The strengths that have been mentioned in the above analysis can be said to be good factors that will help the company have a successful implementation for Organization 2005. On the other hand, the weaknesses that has emphasized can be noted to be a major obstacle for Procter & Gamble to pursue it their change management approach through the Organization 2005.
The opportunities serves as a guiding forces for Procter & Gamble to continuously believe on the benefits of pursuing Organization 2005 in spite of their weaknesses in some aspects, while the threats can also be considered as a guiding aspects to be given attention by the management of Procter & gamble to ensure that their initiation of Organization 2005 will guarantee success and will be able to meet their organizational objective of being the number one industry in household and healthcare and hygiene products.
Task 2: Eight Managerial Tasks
Perhaps, every organisation wants to initiate a management system and strategy that could maintain the organization’s capability, strength and competitiveness. Several trends such as globalisation and the advancement of information and communication technologies (ICT) have changed the way people run their lives and how businesses perform their services. These changes have made the competition tougher and business organisation should be able to find a way to cope to these changes in the market environment by enhancing or improving their organisational performance.
The outstanding profitability performance of a growing number of firms is not accidental—these firms profit because they have built world-class management systems. This does not mean that there is anything mechanical or bureaucratic in the way they operate. Quite the opposite; these firms shape their processes and methods so that they work together for high performance. These firms perform well because they are designed to grow in profit, size and management capability. Their managers focus on the behaviors, strategies, processes and measures that must work together as a system to find and satisfy customers.
Organizational change is an important aspect of business establishments and companies as this concept allows operational improvement. By means of organizational change, companies are able to adapt new technologies and implement more effective strategies. In turn, this results to increased profitability, higher market share, better internal and external customer relations, enhanced operations and other significant advantages. Generally, the beneficial outcomes brought about by organizational change direct businesses to growth and progress. Moreover, this helps companies overcome major challenges. In considering a strategic change, the management must also consider the aspect of strategy implementation. Strategy implementation has been heralded as the key to corporate strategic success. It has been said that in order to strategically implement an organisational change, it is essential that the management should consider the eight managerial tasks for strategy implementation (See Appendix 1) formulated by (2005). Using this model, the Procter & Gamble initiation of Organization 2005 will be assessed.
The eight managerial tasks include (1) allocating resources, (2) building a capable organization, (3) exercising strategic leadership, (4) shaping corporate culture to fit strategy, (5) tying rewards to achievement of key strategic targets, (6) installing support systems, (7) instituting best practices, and (8) establishing strategy supportive policies.
Allocating Resources
Resource allocation often confronts organizations whether public or private inn which decision-makers are challenged to choose the most appropriate means of obtaining success. The most common resource that organization managers attend includes the company’s assets in the form of money, workforce, and technological infrastructures. Of these resources, financial management is common since money serves as the lifeblood of firms particularly those in the profit-seeking ventures. Resource allocation decisions normally involve the presence and participation of the stakeholders of the organization in order to undertake proper assessment and evaluation of options and alternatives. Often times, key strategic resource allocation decisions confront the administrative people when it comes to financial investments of the organizations that are held accountable for whatever output the decisions result to. In Organization 2005 strategy of Procter & Gamble, it can be noted that the management has been able to allocate resources effectively. Although there are some obvious glitches in the management of Jager, the case has also shown that the management have allocated the resources appropriately. In terms of financial resource, the new strategy involved substantial costs. In this regard, of the estimated $1.9 bn in costs, only $400 mn were planned to be used in 1999 and $1 bn over the next two fiscal years (2002-2004). In line with their human resource, the company has been able to allocate its manpower intensively, though part of the strategy is to cut cost by eliminating 10,000 positions in fiscal 2001 and another cost-cutting of 5, 000 employees after 2001.
On one hand, during the management of the new CEO has also give attention to allocate IT infrastructure as part of the change strategy for implementing Organization 2005. P&G Information technology spending had reached $1 bn in 2002 and still increasing. As part of the strategy, Lafley had incorporated various information technology initiatives which include collaborative technology in order to facilitate planning and marketing, Web-enabling P&G’s supply chain, and data standards, business-to-consumer E-commerce and data warehouse project to be able to deliver timely data to desktops worldwide. In doing so, Procter & Gamble had decentralized its 3,600-person IT department to ensure that 97% of their employees now worked in the company’s individual product, market and business teams, or were part of global business services, which supported shared services that includes infrastructure to P&G units. The remaining 3% worked in corporate information technology.
Building a Capable Organisation
As noted in the case, it has been said that the main objective of implementing Organization 2005 is to accelerate the growth of the company. Organization 2005 includes comprehensive innovations in the structure of Procter & Gamble, work processes as well as culture to enable the employees to make themselves become more flexible and speed up the innovation. In addition, the company also aims to leverage the global presence of the company and become competitive in the global market. In terms of the first managerial tasks, it can be said that, based on the case study, the management o Procter & Gamble has been able to build a capable organisation. First, the management of P&G has been able select the most appropriate individual who will handle or managed the said organisational change. In this regard, as a CEO and as the main person who initiate the Organization 2005, Jager has been able to choose the most appropriate individual that will implement the changes. However, since the Organization 2005 has some flaw during its execution, it can be attributed to the inability of the chosen individuals to meet the real objective of the strategy. In terms of human resources the imperative tasks that has been implemented during the change process include the designing of the work environment and organization structure to move from present departmental structure to the new team based structure, develop new Human resources policies and programs to help employees make the transition and upgrade current employee skill sets and/or hire new employees with relevant skills.
In order to build a capable organisation, it is also essential that the management must ensure that they are able to dientify the core competency of the business to initate the changes. For all practical purposes, “core competencies” seem to be the same concept as “critical capabilities,” “resources,” and the other possible fads since they all advocate the building of competitive advantage based on “something” internal to the firm. Typically, a core competence is defined in relation to the competitive impact of its output; that is, a core competence provides the firm with (sustainable) competitive advantage via the way it is executed (1991) or via its attributes; for example, a core competence is firm-specific and hence difficult to imitate (1991). However, even if these definitions are useful in terms of competition and strategy, they are not very operational (1992), which sometimes create some serious difficulties in identifying and developing the core competencies of a firm (2000). Hence, organization must be able to determine its core competencies in an operational manner. Once the company has identified its core competency, the next thing to do is to develop all other aspects which can be helpful for achieving the organizational goal, i.e. growth.
Core competencies of the company also represent its competitive advantages; these include features of the company that enable it to overcome business competition and other relevant challenges that they may encounter during the implementation of Organization 2005. In Procter & gamble’s case, one of these core competencies is its workforce or people. Talent and skills are among the most important factors a P&G must look for in its employees.
Based on the case study, upon the implementation of Organization 2005, the company also considered to have a support-team to make sure that the strategic change will meet its goal. In building capable organisations, the company have been able to think all the important aspects of selecting employees suitable for implementing Organization 2005. Although Jager has experienced problems which led to his resignation, Lafley, on the other hand, have taken over the position and have continued what Jager has started but with some changes.
Exercising strategic leadership
In managing strategic implementation, one must also consider how the management exercise strategic leadership. Accordingly, leadership is an important aspect of management. As stated by a few authors (2005), managing strategic implementation requires full leader participation and involvement instead of designating individual groups who will shoulder all the responsibilities. The involvement of leaders serves a number of purposes. For instance, this helps in preventing the resistance of employees to changes brought about by the implementation of a new strategy. The enthusiasm and determination of the leaders to make the strategy work can positively influence other company staff. Furthermore, this also helps in creating a sense of commitment and loyalty (2005).
The presence of leadership in strategic change is also one effective factor in addressing technical and non-technical issues. It is important however that the appropriate leadership style is used. In the case of the implementation of Organization 2005, it can be said that there are two leaders who have been responsible for the initiation of the new business strategy: Jager and Lafley. Based from the case study, Jager has become a good leader at the start of the implementation. However, the inability of Jager and his team to anticipate possible dilemma upon Organization 2005 implementation has impacted the whole change process which makes the strategy fail and have forced Jager to resign from his position. As said in the case, there are certain problems that have been encountered in the leadership of Jager. First, Jager had tried to put too much pressure on the Procter & Gambles managers into bringing their products to market faster. The inability of Jager as a leader to decide strategically is also an issue. This can be seen in the dual acquisition of Warner-Lambert and American Home Products, which were useless during that time. In addition, Jager has also become a leader who became reckless in all his action hoping that he will regain what they have lost.
The next leader who handled or managed Organization 2005 is Lafley, a veteran in the company. As saw the mistakes of the previous leader of Procter & gamble, he made it sure that he will lead P&G to achieve success. In addition, Lafley can also be noted to use a distinctive leadership style. Leadership style is the pattern of behavior used by a leader in attempting to influence group members and make decision regarding the mission, strategy, and operations of group activities (2000). In this regard, it is said that Lafley has been able to apply the right leadership style in the right moment and situation to effectively implement Organization 2005. By acting as a responsible leader, has been able to inspire employees to put the good of the whole organization above self interest. In addition, upon the implementation of the Organization 2005 Lafley also stimulate employees to be more innovative, and he also take personal risks and are not afraid to use different types of methods in order to achieve the objective of implementing Organization 2005.
Corporate Culture
Many definitions have been used to characterize corporate culture. Probably, the most common was the one based on Schein’s point of view in which his fundamental assumptions comprise the core and most important aspect of corporate culture. He defined corporate culture as the pattern of creating shared common assumptions that the organization learned as it resolves problems of outer adaptation and inner integration that has been considered valid making it possible for others to pass it down to new members as the appropriate way to think, perceive and feel organizational concerns (1992). In this perspective, Schein appears to emphasize on having a common goal or unified direction among organizational members which is based on the past challenges and experiences the business had successfully overcame. These common goals are then achieved through past practices and strategies that are guaranteed to work. In line with the implementation of Organization 2005, it can be argued that Jager has been able to have unified corporate culture to implement the new strategy.
Through the Procter’ & Gamble’s corporate culture, the company has been engaged in sharing of learning upon implementation of Organization 2005. Sharing of thoughts and experiences with others implies that corporate culture in Procter & Gamble promotes a certain level of stability among the members of the organization to achieve the goal of Organization 2005. This can be seen under the management of Lafley than in the management of Jager.
Corporate culture is founded by certain elements. In this case, values within the Procter & Gamble are the main foundation of corporate culture. The value of the organization serves as its defining elements where symbols, practices, standards and other related matters are derived. Values can be defined as a consistent belief that a certain mode of personal or sociable conduct is preferable against a contradictory mode of conduct. Through this element of corporate culture, employees of Procter & Gamble are able to establish a social identity which in turn generates meaning and connectedness.
Tying Rewards to Achievement of Key Strategic targets
In strategy implementation, the management of the company must be able to ensure that they are able to have a reward system. The employee reward policy is intended to align employees with organizational strategy by providing incentives for employees to act in the firm's interest and perform well over time. Expectancy theory carries a clear message that employees must feel confident that their effort will affect the rewards they receive. Perceptions of equity are therefore crucial in an employee's decision to remain and produce valuable work. Equity is a multidimensional construct, embracing external equity (the degree to which a firm pays employees the rate they would find in the external labour market), internal equity (the degree to which a firm differentiates pay between employees on the basis of performance in similar jobs), and individual equity (the degree to which employees are rewarded proportionately to their individual performance) (1993).
In the case of Procter & gamble, it can be said that although the goal of the Organization 2005 is to reduce the units of the business structure by laying off some of its employees, other part of the strategy also have a reward and motivational approach, to motivate the performance of the remaining employees. Lafley, in particular, have used a reward approach to increase organizational performance and effectiveness. The company’s reward approach is known to be capable of reinforcing the behaviours crucial to the implementation of Organization 2005 strategy.
The company creates reward policy in order to motivate and encourage the workers and employees to render their performances to the very best they can and to make a difference individually or by group or teams to ensure that the objective of Organization 2005 strategy will be achieved. The policy also gives recognition to those employees whose works is exemplary or that employee who has contributes to outstanding achievements and accomplishments of the mission and objectives the implemented strategy. The incentives used by Procter & Gamble may be monetary or non-monetary.
All in all, it can be said that rewards and recognition go a long way to keeping employees motivated, satisfied, and committed. Management should recognize employees for both their progress toward and achievement of desired performance goals. It should show appreciation for small accomplishment as well as big ones. The recognition must be ongoing to reinforce employees' need to feel that they're doing a good job. Moreover, the best forms of recognition typically have little or no cost.
Employees are one of the driving-forces that generally contributes for the success or failure of any organization. Therefore the company should be able to create an overall policy that will make the employees feel that they are being valued so that they will be encourage and motivated to provide quality services and help in achievement of Organization 2005 goal.
Installing Support systems
In order to ensure that the implementation of the strategy will be successful, the management must be able to install support systems. In line with the implementation of Organization 2005, it can be uttered that the management of Procter & Gamble has been able to install a support system to initiate the changes. Based on the case presented, part of the support system made by Lafley is its restructuring of the management team. Herein, Lafley restructure the positions of the company to streamline the operations and to be able to meet the objective of Organization 2005 strategy.
In addition, as part of the support system Lafley also invest on information technology. It is said that through the alignment of information technology and business strategy within Procter & Gamble, the business value of the company could be maximized, and the competitive threat can be minimized (1997;1996). Herein, strategic alignment used by Lafley by investing to IT as a support for Organization 2005 can be distinguished as the process that provides a long-term engagement of the business strategy and the Information Technology resources ( 1998).
Wognum & Lam, (2000) stated that strategic alignment addresses whether the program concept of a certain business is aligned with the relevant organisations' goals, strategies, problems, and developments. Moreover, to ensure strategic alignment in business, an organisationally paying attention, formative evaluation model should include training stakeholders, such as trainees' managers and upper-level management, in early stages of design when training content is determined.
Some studies suggest that no business or corporate strategy is complete if there is no information systems strategy. For most firms it is the business strategy that increasingly is dependent on, or made possible by, investment in
appropriate information systems. For some, however, the corporate strategy may be linked closely to information systems, especially if information technology provides the infrastructure through which the firm positions itself in its sector or plans to diversify or integrate into another sector. Planning for strategic information systems should be an important and integral part of the firm's competitive strategy development process which has been done during the management of Lafley. This point has been emphasized as more and more cases have been documented of businesses exploiting IT for competitive advantage and building their competitive strategy upon information systems which limit or enhance the competitive forces operating in their market place. Planning for information systems can no longer be treated as either a budgetary exercise or a longer range resource allocation process. Information systems planning becomes a strategic exercise concerned with alignment of IT with business needs, identifying strategic opportunities from IT and ensuring appropriate levels of investment in IT and information systems are made.
Instituting Best Practices for Continuous Improvement
The conception of best practice conceives the subsistence of collection of highly commendable performance of work practice which enhances the overall performance of the organisation that implements its notion (1994; 1995). Best practices may include but not limited to different management approaches such as knowledge management, strategic management, supply chain management, performance management, information technology management and others. Having been able to realise the importance of having a new strategy within Procter & Gamble to increase sale, it can be said that before Jager and his team implemented Organization 2005, this strategy adheres to best practices.
Best practice is the process of specifying an organisation’s objectives, developing policies and plans to achieve these objectives, and allocating resources so as to implement the plans. In this regard, it can be said that the implementation of Organization 2005 has been able to follow the aspects. Before implemented Organization 2005, he made it sure that the objectives has been set, and different policies has been made to support the objective.
Accordingly, successful strategy requires the firm to choose the markets in which its distinctive capabilities yield competitive advantage. But the adaptive,
incremental nature of strategy means that the starting-point is where the
firm is now, specifically in terms of best practice management approach. Strategy is the direction and scope of an organisation over the long term: which achieves advantage for the organisation through its organization of resources within a changing market environment, to meet and satisfy the needs of the markets and fulfil the expectation of stakeholder expectations. Best Practice helps Procter & Gamble and the management to answers both the questions "where do you want to go?" and "how do you want to get there?" but the first question is answered when Jager and the management team has set the objective of Organization 2005 and the second is answered when the management plan the strategies. While developing a corporate strategy that adheres to best practice for any profit organisation, the management have kept in mind the demand of the customers and the marketability of the products and services offered. However, base on the case, it can also be noted that some of the products and decisions made by Jager did not adhere to the objectives which leads to the failure of achieving the objective of Organization 2005.
Establishing Strategy-Supportive Policies
Part of strategy implementation is to establish strategy-supportive policies which will serve as a guidelines and control system for the initiation of the new strategy. Strategy-supportive policies adhere to the needs of the organisation on having a policy that will standardise the implementation of the strategy. In the case of Procter & gamble’s Organization 2005, it can be said that Jager has not been able to have a strategy-supportive policies. One of these policies is the risk management or risk prevention policy. In relation to Organization 2005, one of the main risk management efforts that Procter & Gamble can apply is the assurance that all project management requirements are available. Professional expertise, financial resources, feasible schedule and proper monitoring techniques should be used by the business so as to ensure smooth project planning and implementation. Efficient planning procedures should be followed by the members of P&G. Information about the strategy should be properly disseminated to other employees so as to obtain their opinions and useful insights about the new business strategy. It is also important that possible problems that could arise during the implementation of the Organization 2005 should be identified. In addition, the Organization 2005 fails because Jager did not use any strategy-supportive policies to address and resolve the problems that have been foreseen in the implementation of the new strategy.
In this regard, it can be said that before implementing a strategy, business should always note and consider all possibilities or problems that can occur in relation to the changes or development and provide a policy to lessen the impact of the conflict.
For strategy implementation, one applicable strategy-support policy that the company may use is the employment of a monitoring system. Through established monitoring systems, problems or possible causes of future problems can be detected easily. It is important that the members of the monitoring team actively participate in this risk management procedure. In a monitoring effort, regularity is important. A definite monitoring schedule should then be set and followed.
Another strategy-support policy is the implementation of a feedback system. In this strategy, quality team leaders will be assigned per company unit; it is the responsibility of these leaders to take note of the developments of the quality systems project of the company. Information from employees or management regarding defective processes may be immediately reported to the leaders. The feedback system then allows the immediate resolution of quality problems even when monitoring procedures are not scheduled.
Furthermore, the company may also use other strategy-support policy which is related to mentoring and coaching. In order for the employees of P&G to contribute for the success of the new strategy, it is important that they are given sufficient information and training. This then makes mentoring and coaching an important element of strategy implementation. These two concepts are particularly important before the new strategy is fully integrated in the operations. How to handle customer concerns, ensure product safety, deliver accurate and timely services and prevent product errors are some aspects of Organization 2005 that need proper mentoring and coaching.
In order to apply these two concepts into the project, the company may conduct training sessions for every department unit. Knowledgeable speakers will be invited to discuss the important activities, changes and responsibilities involved in quality management systems. During these sessions, visual aids will be used to promote effective learning. It is important that during these teaching procedures, the specific duties of the staff are explained in detail. These sessions will also allow the department staff to voice out their queries about the project. Once the project has already been implemented, team leaders assigned for each department will provide assistance to their subordinates. New project updates will also be relayed through the team leaders.
Mentoring and coaching, though most people mistake them as synonymous, are two different terms. In mentoring, it is the responsibility of the mentors to teach basic skills and knowledge to their mentee. According to Watt (2004), the objective of the mentors is to enhance the present knowledge of the mentee. In addition, it is also the aim of the mentors to encourage the individual development of their mentees and provide learning guidance. By means of mentoring, open and effective communication is established, which is very useful not only in educating employees how to integrate quality into their daily duties but also to address the problem on the new strategy.
Task 3 Procter & Gamble Acquisition of Gillette
A unique business phenomenon that is slowly becoming commonplace is consolidation between firms wanting to attain strategic value for their respective organisations. Merger and acquisition (M&A) deals have become part of daily business according to (2000), to the point where news reporters anticipate ‘merger Mondays’ (a phrase that refers to the usual flurry of such activity at the beginning of the week). Industry-wide consolidation has now grown so pervasive that it in fact has spawned its own lingo, with such terms as bolt-on, roll-up, tuck-under, and carve-out describing various types of transactions. In M&A announcements, it will be frequently claimed that the deal is a true 'merger of equals' that creates superior access to resources and provides a strong global platform to accelerate growth, and will, in all certainty, create significant value for shareholders and represents an outstanding opportunity for customers and employees alike. A number of companies have deemed that through M&A, they will be able to achieve this. Others observed that while examples of failed mergers far outnumber examples of successful ones, there are some companies that have learned how to integrate acquisitions well. Since the aim of the company is to create value for its shareholders, the company has to create a competitive advantage to exploit its inconsistencies in the markets in which it operates – both its trading environment and its financial environment.
Question 1:
Acquiring or merging of two companies are said to be a strategic option for diversified companies because of the strategic business benefits that it would bring to the company. According to (2002) merger and acquisition will immediately impact the company with changes in ownership, in ideology, and eventually in practice. In order to have a more successful expansion, the company should provide some marketing strategy for the company in which Citigroup has been able to consider. Hence, one of the strengths of this merger is the diversification strategy imposed by Procter & Gamble right after the merger has been done.
Furthermore, there are three criteria of core competencies which can also be considered as the strength of the merger or acquisition. These core competencies include superior customer value, business similar in way related to core competency and difficult to imitate or find substitutes for. It seems that the creation of a new diversified company through merger has achieved to a certain extend the above criteria in a way that it did provide something different. In particular, reported in Business Magazine that as a result of the merger, some company was able to centralize computer systems, finance, human resource, project management, and procurement. In addition, one of the strengths of the merger is its ability to strengthen the competitiveness of the merged company. Strategic alliances through mergers present an especially attractive avenue for the financial industry since the multinationals will be able to integrate different communications segments quickly, capture a developed customer base, consolidate smaller niches, remove a rival and prevent competition from doing so, and accelerate the implementation of new technologies with combined resources.
Merger became the dominant methods of consolidation and the primary objective was to control assets (assets during those days were the newly invented machinery and equipment, and plants and productive capacity since the economic driver was scale and efficiency of production), and the best way to control assets was to own them (1998).
In addition, mergers enables the surviving entity to combine assets and activities, substantially lower costs, and become a strong competitor-banks merge and close branches, credit companies merge and move down the scale-economies curve; manufacturing companies merge to combine facilities, increase scale economies, and spread the cost of R&D over volume; companies merge to improve the economics of the supply chain-and in all cases, integration of physical assets is vital in achieving the economic objectives of the combination ( 1998). In the company given above, the advantages brought by its implementation of merging: 1) Establish a base. Obtain a going concern in a particular location. 2) Establish a niche because of the expansion of products offered in terms of financial and insurance services. 3) Increase productivity and profitability. Increase output with unchanged fixed costs, yielding higher profit and 4) Expand geographic coverage. Through merging the company has been able to establish a competitive position not only in the local market but also in the global environment.
On the other hand, merging offers the above advantages and additional ones, such as: 1) Succession planning, which is a way to secure retirement through new ownership. 2) Reduced work level: a way to share responsibility among more people and 3) Security of a larger organization. Through this, the company can be able to cope with larger competitors. Merger can create or enhance strategic assets as well as distinctive capabilities. Furthermore, Kay (1993) stated that merging with other businesses can sustain exclusivity, or maintain the value of a competitive advantage, if they inhibit entry.
Question 2
The competition in the business arena has been very stiff and complex. In this regard, the organization must be able to utilize a strategy and management system that will enhance the performance of the business so as to outgrow its rivals (2005). In today’s rapidly changing and improving companies and businesses, individuals at all levels are also increasingly called upon to demonstrate the ability think strategically. As the business wants to expand abroad, there are certain tasks that need to perform. Businesses grow in two distinct ways; by natural so called ‘organic’ means, or by acquisition and merger. The acquisition and merger route is appropriate when growth in traditional products and markets is restricted, due to market size or share, for instance, or when a higher level of growth in turnover is needed, for whatever reason. However, starting up or acquiring businesses outside of current markets and products diversification is an excellent way to strengthen a company.
According to (2003) there are reasons for acquisitions including different kinds of efficiency improvement such as replacement of inefficient management product, financial, and tax synergies. Other possible reasons are the tendency to achieve monopoly power, valuation discrepancies which are caused by information asymmetry as well as a number of agency motives such as growth maximization, free cash flow, and employment risk reduction.
In addition, acquisition allows two previously unrelated companies to achieve economies of scale or synergies. Under the economic theory, two entities, when combined or been merged may be worth more than if they had remained independent. This is especially true where a merger allows the companies to either eliminate overlapping cost centres or may reduce transaction costs between two firms. As a result, the unified firm may reduce costs, improve quality, and boost output. Synergies also result where the combined enterprises is less risky than the constituent corporations.
One of the recognized acquisitions was the acquisition of Procter & Gamble with Gillette, worth $57 bn. In January 25, 2005, P&G announced that they would acquire Gillette saying that the merger of the two would bring together competitive advantage in marketing and distribution strengths for P&G, whose products are marketed mostly for women together with Gillette’s highly recognised brands which are marketed for men. In the case of Procter & Gamble, it can be said that acquiring Gillette shows some strategic benefits. First, the acquisition recognises and strengthens the existing strategies of both entities by combining complementary businesses and strengths to create an international force in providing products for men and women while maintaining the Company’s commitment to the independent products through enhanced wholesale distribution and retail services. The company’s ultimate aim is to deliver products that make people look and feel their best not only for women but also for men. In order to do so, the company values performance and continuously strives to fulfil promises to shareholders through setting high standards of practice that are recognised by all internal and external stakeholders. It intends to lead the industry with its products while demonstrating expertise in conceptualising, marketing, selling and distributing its brands.
Expansion of the business is an important and interesting aspect that can also be considered as a strategic business benefit of the acquisition of Procter & Gamble with Gillette. Acquisition has been recognised to be one of the strategic ways in business operation growth and expansion. In line with the strategy of Procter & Gamble, it can be said that the used of acquisition have been able to provide the company a more comprehensive, efficient and effective ways to have a sustainable company growth. Mergers and acquisitions allow the company to grow both internally and externally because through mergers the family of the company has increased, not only in its local operation but also in global environment.
Further, through the effective used of merger, Procter & Gamble is able to gain competitive advantage among its rival companies. Competitive advantage only arises from establishing differentiation. According to (2002) the more competitors stake their strategic thinking upon being the lowest price producer or delivering the highest quality, the more they start to look alike in their marketplace, thus losing their competitive edge over one another. In meaning, competitive advantage arises out of a meaningful differentiation from one other player in the market. It is better to understand that developing a successful strategy in standard cycle market proves to be relatively simple for other companies.
However, if looked at too simply, a company will choose a strategy that is too narrow or too broad based on the other factors of choosing a strategy. Determining which customer needs to satisfy is an area where choosing the incorrect strategy can result in a decreased competitive advantage. Hence, with the acquisition of Procter & Gamble with Gillette the company has been able to offer products for men that suit the needs and demands of their respective consumers. Moreover, through acquisition, the company had been able to gain a competitive advantage by making their product readily available in different parts of the world and always unique compared to other rival companies.
Since the company, had gain different ideas on different kinds of products or services demanded by their customers, especially men, the company had also been able to diversify it products and established better brands which are mentioned above. It can be said that effective acquisition is the key factors for the success of Procter & Gamble. The company’s merger and acquisitions strategy allows the whole organisation to perform better in the marketplace.
Yet the ultimate success of the deal may depend on how well the acquirers manage the difficult organizational and human resource integration issues at their newly purchased company. For example, sometimes interpersonal issues can emerge from the top of an organization when key managers cannot agree on a general corporate direction. More often, interpersonal conflict arises because company employees and division managers have different perspectives regarding the needs of the company wants (and needs) from a merger. If these human resource issues are not resolved, they can result in the turnover of key people, people refusing assignments, post-merger performance drops, and morale problems.
Profits and revenues are secondary ventures that could also generate business to compete in the market. According to (2000) companies that diversify too broadly into unfamiliar products or industries can lose their market focus. Acquisition, as a corporate strategy of companies, can be examined in two aspects: the financial considerations and the profitability and gains of the company in acquiring, and the employment issues it generates, specifically, the existing employees of the company before the merger. The inevitability of mergers in the face of the increasing economic competition propelled a bulk of literature addressing the issues and considerations that companies must consider before doing so. In a fast-track economy, many companies are forced to enter mergers or involved in acquisitions in order to compete with the global market. Thus, several companies merge or acquire other companies with the purpose of bringing future financial gains for their companies. At the same time, a merger is also a refuge for company’s failures manoeuvring to keep themselves afloat in the market.
For a long time the trend of merging and acquiring has been happening in the international corporate arena. In the case of Procter & Gamble, the company used merger to stay in the competitive market and perform better within the marketplace, by providing innovative and new products in terms of financial and insurance services through the ideas that the management gain because of merging with other companies. It shows that without such strategy, the company may not be able to expand its business portfolio and reach more and more customers from local to international market. It can be concluded that merging, along with the concept of strategic management and other efficient marketing approach, can make a company to succeed in achieving its goal of providing quality products with their target market. However, decisions should be made strategic also. This means, that the company should have the ability to decide which among the companies can be helpful to the company itself.
Appendix 1
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