Assessing the performance of Proctor and Gamble

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Proctor and Gamble is a multinational firm based in the US, this Fortune 500 company has a head office in Cincinnati, Ohio, in the US it is the fifth largest company when measured in capitalization, and in 2010 the firm was rated sixth in Fortune Magazines Most Admired Companies list (Fortune, 2010).

The firm is active in a number of different markets which are divided into three main product areas; beauty and grooming, health and well being and household care. Within these product segments the organization operates in a global market both local and global brands.

Positioning of the Firm

The positioning of the firm reflects these broad international interests, with a large number of dominant brands. The household care division accounts for 48% of the companies sales (worth $37.3 billion in 2009) and includes brands such as Bounty, Charmin, Pampers, Duracell, Ariel, Downy and Tide. Beauty and grooming accounts for 34% of the sales (worth $26.3 billion in 2009), including brands such as Wella, Pantene, Head and Shoulders, Gillette, Braun, Fusion and Olay (P&G, 2010). The third division is the health and well being which includes snacks and pet foods, this division accounts for 18% of the revenues (worth $14.4 billion in 2009), includes brand such as Pringles, Always, Crest, Oral B, and Iams (P&G, 2010).

Within each of the division many of the brands are billion dollar brand with market leaders and a positioning strategy that demonstrates a strategic approach to the market appealing to different segments of the markets with various brands. The strategy is to create different brands, each with their own string images, which are independent, as such harm to one brand will not reflect on another benefiting from one of the largest marketing budgets in the US to support its home market (Kotler and Keller, 2008).

The firm has grown and attained this position through a combination of organic growth, innovation, research and development as well as acquisition., for example Gillett was acquired in 2005 (Chain Drug Review, 2006), however the strategy has been one of focus on creating valuable and profitable brands, with divestment of the brands that are not fully aligned with this strategy, for example the sale of the branded pharmaceutical products to Warner Chilcott in 2009 (Belfast Telegraph, 2009).

Key Activities and Overcoming Barriers

International Markets

The firm has a number of core competences which are used in the home and international markets. Any international company will have cultural barriers to over come, both as an employer for the way operations are managed as well as in the consumer markets. While there are some which are aimed at having a universal appeal, such as Zest soap, with the idea that everyone needs to wash, there are other products that have more specific targeting, these may still be large markets, for example there have been products developed for different markets from provision for different hair of skin types to the creation of product aimed specifically as certain demographic markets, including ethnic products and those aimed at low income families. In some cases there was an alteration of development on an existing product, for example, the low income market was served with alternation such as the use of cheaper packaging and reducing the size of the product. Overall, new product development appears to be successful as 75% of those that are developed go on to add shareholder value (P&G, 2010). This sees the use of local knowledge and leveraging existing resources and knowledge are used to help develop products, where possible with only marginal costs.

Supply Chain

A key element of such a large and diverse operation is the logical operations and supply chain. It may also be argued that this is key on the success of products as well as the potential success of future products and markets as it determines cost structures and access to markets (Mintzberg et al, 2008).

The way that Proctor and Gamble manage their supply chain can be seen as highly strategic. First, there needs to be a consideration of the goods that are bought and the way goods are created. In many cases there is the ability to manufacture everything that is needed for a product in-house. However this is examined in a case by case basis, and where it is determined that it is most viable there is also the use of outsourcing. This can create a new strand to the supply chain bringing goods in. However, there are some major benefits, there is the potential for cost savings, both directly with the cost of buying in rather than manufacturing, as well as associated costs, such as inventory holding and dealing with many suppliers for the components rather than a single supplier. The firm operates in an alliance with both upstream and downstream, trading partners. For example, when stock at Wal-Mart gets below a specific level an order is automatically generated for P&G, creating a high level of efficiency. The system is based on real time data and as such also has the ability to use forecasts generated by the system to determine the amount that should be delivered (WalMart, 2010).

The synergy of the different Proctor and Gamble products all in the same warehouses to facilitate multiple product deliveries is quite common; however Proctor and Gamble take this further and create value by using the space in the trucks that are traveling to carry goods for other firms, this increased revenues with only a marginal costs, and creates value lowering the effective overhead burden for the Proctor and Gamble goods.

The strategy is one that is embracing technology and seeking to create synergy and may be one that indicates the way that firm is moving with increased use of automation and working with the buyers and suppliers in order to reduce costs and duplicate task to add value.

The goods that are in the supply chain change as new products are introduced, but the supply chain itself may be argued as benefiting the new products and facilitating their distribution to the retailers. The way that the goods are sold and the ability of Procter and Gamble has resulted I the firm being relativity confident that when they bring out new products they will be able to gain market share, although there will be some degree of cannibalization.

Operations in the Home Market

Communication and Negotiation

Within any organization the way that they compete will be reliant on the human resources and the intellectual capital that is present and can be leveraged within the firm (Mintzberg et al, 2008). To achieve this there is the need for effective internal communications. Many of the key personnel are located in different areas, both inside and outside the US, to link these different employees the firm undertook the development of an internal technology based communication system (Moore, 2001), This was a portal which was referred to as the 'innovation net' linking 18,000 different employees around the global from areas such as research and development, engineering and marketing (Moore, 2001). The company started this in 1996, taking an early advantage, with the aim to increase communication and access to information, including company research and data, but at the early stage it was limited, giving access to data that was already documented. The next stage was to develop the system, to allow increased sharing of employee knowledge, this saw the use of knowledge sharing software called 'AskMe Enterprise' to pool the intellectual resources of the firm (Moore, 2001). This has had a significant impact on the spread of tacit information and has aided the development of new products as well as increasing communication between employees to improve social commitment, which aids the maintenance of a positive cooperate culture (Huczynski and Buchanan, 2007).

Communication take place with the markets with a heavy marketing budget, in addition to this there is also an extensive spend in public relations exercises, in 2009/10 there has been a shift in this communications strategy with marketing budgets being shifted from television advertising to more PR and the use of marketing strategies that will allow for a greater level of direct engagement of consumers, such as the internet (Singleton and Wicks, 2010).

When looking at negotiation there is little doubt that the firm uses its power in the way it negotiates, both with the supply chain and with employees, and many actions are taken in a unilateral manner in order to protect profits (Pogatchnik, 2007). However, there is a high level of use of human relations management techniques in managing the employment relations, supported by way that the firm won the 2007 Computer Weekly, Best Place to Work for IT professionals in the manufacturing and engineering category (Ashford, 2007).

Decision Making, Organization and Delegation

When looking at decision making this is a firm where there is a logical approach to decision making which takes place in a central manner for company wide strategic decision making. The major approach is based on commercial consideration to increase value and support brands.

This process may be seen in the way that the firm has chosen to enter markets. Proctor and Gamble operates with many countries across the Americas, Europe, Africa, Asia and Australia, but it does not operate in all of the countries, for example, Togo has a very low demand for consumer products, so the firm does not operate here (P&G, 2010). In others there is care management of which product lines are offered, many African countries have low disposable income levels, so the product offered are targeted at the low income segments (P&G, 2010). These choices of which countries to operate within, the scale of operations and how to enter and remain in that market, such as exporting only or setting up operations within the country reflect the favourability of the economic and political climate in the country.

Where decision making is delegated this is initially based on the product division and then on the geographical division, following a traditional hierarchy, with the benefit of the technology in the firm to leverage the knowledge of the employees.

Staffing and Discipline

Staffing issues may be seen as highly aligned to many other multinational firms. There have been operations set up in key strategic areas, with manufacturing bases in Europe, Latin America, Mexico, China and Africa, where there is the potential to gain from the benefits of comparative advantage with direct and indirect costs linked to staffing and general operations. In the US staff are recruited directly and through agencies depending on the position and many will undertake training and development, including the attainment of professional qualifications. Recruitment follows a laid down procedure that varies with each position and the way discipline takes place is also undertaken with a set procedure, where possible there are steps take to resolve issues without disciplinary actions, if appropriate warming may be given along with an action plan, for gross misconduct there may be immediate suspicion followed by dismissal.

Issues that are highly relevant in the home nation include the way that the recruitment and employee relations are compliant with local laws, this includes issues such as non discrimination in the way both staffing and discipline takes place. Title VII of the Civil Rights Act (CRA) of 1964 strictly prohibits the use discrimination of race, colour, sex, religion, or national origin when it comes to promotion (Schultz et al, 1998). The problem materialises if one member of one of these groups fails to get a promotion or job due to the selection procedure can then bring a case under this section of the civil rights act (Schultz et al, 1998). This can be brought in two ways, disparate treatment or disparate impact (adverse impact) (Schultz et al, 1998). It is under this later classification that action may be brought. The validity of the measures used can be brought into question by the plaintiff.

The advantage for the plaintiff in bringing this type of case is that they do not need to prove the case was purposeful exclusion, just that it happened (Schultz et al, 1998). The evidence used by the plaintiffs will usually be statistical evidence of which there is a multitude and many different opinions (Schultz et al, 1998). If the plaintiff can also show that the employer is hiring or promoting less than the expected number of minority groups then the burden will shift to the employer as the issue will become the validity of the tests (Schultz et al, 1998). The only defence that an employer can use is business necessity under which they are allowed a certain level of discrimination (Schultz et al, 1998). This is a very dangerous situation for an employer in a discrimination suit. The adverse publicity alone can be very expensive even if they are found innocent.

Performance Assessment

Proctor and Gamble need to undertake performance assessments. For employees to develop and grow in their own interests and those of the employers is much more easily accomplished if it is undertaken with the support and feedback from a constructive employee such as a manager (Colvin, 1999). This also gives the company the information regarding productivity that can be used for an analysis of effectiveness of current measures and systems. From the employees preservative motivation can also be seen as enhanced when a evaluation system is used effectively and efficiently, which will also increase productivity (Colvin, 1999).

Therefore, any system need to have both physical measurements that can be used in terms of benchmarking as well as subjective measurements and allowance for issues that are not direct measurements, but observations of aspects of the system. Measurements are taken at different levels, including plant and brand performance with the measurement against previous years, goals and competitors' performance.

The performance assessment are undertaken with the employees to assess individual performance in a constructive manner, aligned with the human relations school of thought practices. The system used by Proctor and Gamble may be seen as very forward looking, it is an holistic view of the performance, where there are the use of objective performance measures, but also the ability to talk and discuss subjective performance issues as well as career plans, in many cases the employees may even have some choice in the manager that performs the review, which then issued to help personal development and feeds into the department and the organizational resources planning and goals management.

Ethical Dilemmas

In any business there will be different ethical dilemmas or contradictions. One of the main ethical issues in business is to determine the way that firm will deal with issues such as corporate social responsibility and environmentalism. It is argued time and time again that the primary concern of the organization should be the shareholder. An advocate of this argument of was an economist by the name of Milton Freidman. His view was simple and primarily centered around the maximisation of profit. This is widely known as The Shareholder Wealth Maximisation Model.

The Corporate Wealth Maximisation Model is another model unto itself which adopts a different approach. Stonehill and Dullum (1990) have observed that in companies which follow this mode of operation that there appears to be a direct clash with shareholder profit maximisation. In this model the shareholder is still a primary stakeholder but not the only valid stakeholder.

Corporate wealth maximisation recognises the validity of many other stakeholders from employees and local residents to the customers and suppliers off the organisation (Pederson et al, 1997). The job of management, and therefore the type of corporate governance, reflects this very different attitude. The management's responsibility is that of a balancing act, considering and brining all the different stakeholder needs into some form of equilibrium (Pederson et al, 1997). Social responsibility can be seen as a major concern (Pederson et al, 1997). At Proctor and Gamble it may be argued that there is a balance being achieved, but that the ethical approach is clear; the primary stakeholder is the shareholder, as seen where there have been the closure of manufacturing when production has been moved to lower cost areas, such as China and Poland. Other social and ethical actions tare undertaken as they are commercially advantageous or necessary, as seen with many green initiatives as well as the reduction in the use of animal testing in the beauty products ranges, negative publicity for poor performance could lead to a major impact on sales, although the firm is likely to benefit from the use of separate independent branding for the products.

Value and Growth Assessment

When assessing the value of the firm, this may be seen as reflected in the share price, where process increase and demand accelerates there is likely to be expectation of good or improving results, especially in the context of global performance. When looking at this the firm may be seen as one that has been able to create strong brands with global appeal, so there is both diversification of markets and risk as well as the ability to gain from economies of scope and sale leveraged along with synergy of operations. The ability to appeal to different markets and use of local management supports the strong position.

The structure; one that is so centralised may be seen as a constraint as the traditional structure, although having some delegation to local or product decisions which may constrain some of the grow, but it also facilitates increased efficiency and may help reduce the lead time for new products, therefore there is potential growth as ling as the firm is able to overcome the constraints with the possible need for increased delegation and empowerment for the development to take place, the IT and communications structure will facilitate this.