The report gives an insight & detailed analysis of the Case study of Procter & Gamble (P&G).Major theories and concepts have been used to explain their Organisational Issues, strategic plans & organisational challenges face by P&G. The aim is to critically evaluate the Issues of P&G and give strategic recommendation to support P&G achieve strategic development goal and HR policies for long term sustainability in a global business environment. To achieve this aim, the author has applied models like SWOT Analysis for a better understanding of the report.
The US based Procter and Gamble (P&G), one of the leading fast moving consumer goods (FMCG) companies in the world. Established in 1837 by William Procter and James Gamble when they decided to begin small work which consisted of manufacturing soap and candles, P&G was globally famed for its people centric policies. It was the first company to introduce a shorter workweek over 100 years ago and also had oldest profit sharing planning US. Employees were entitled to stock options in P&G. Over the decades, P&G had built a strong, traditional & conservative corporate culture.
Where P&G stands today? [case study]
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Organisational culture can be defined as shared values, beliefs and norms that form the character of an organisation (Bratton & Gold 2007:53). The organisational culture in the P&G case study is described as risk-averse, tradition bound, conservative and resistant to change. Based on a very strict code of conduct, employee interaction and cross-departmental interaction is not encouraged which hinders innovation.
Makes it more difficult to implement change and to innovate
Less risk-taking behaviour decreases the chance of experiencing a loss
Adherence to past procedures makes it more difficult to implement new ones
Employees are more likely to identify themselves with the company
Conservative management style
Employees are not motivated
Resistant to change
Makes is difficult to adapt company to future challenges
Perfection work enables economies of scale
Structure distinguishes parts of an organisation and the relationship between them. It is the pattern of communication, control and authority (Wilson & Rosenfeld, 1990:215). According to Hofstede's cultural dimentions the P&G structure shows an inequality of power distribution. Power distance refers to the degree to which people accept inequalities in power distribution. A high score indicates that people accept the fact that power is not equal among individuals. E.g. Managers would use superior tea cups than bottom managers.
The P&G case study shows a tall bureaucratic structure, based on the following elements (Senior 2002:72):
â- Work is finely divided between specialised jobs
â- Management hierarchy
â- Employees fulfil their jobs according to clearly defined rules
â- Activities rely on rules, procedures and written records and the decision of the superior
P&G's structure shows a high degree of centralisation. This reflects in the fact that decision-making authority is primarily held at the top management level of the organisation. If the company structure would change in a more horizontal, team-based structure, communication within the organisation could be increased (Bratton et al.)
P&G's structure can further be classified as being departmentalised by product. This is shown by the fact that the company's leadership council is organised according to different product categories, such as "Home Care" or "Feminine Care". It also shows elements of departmentalisation by location as some managers are not only responsible for a specific product category but also for a geographic area, for example "Kerry Clark: Feminine Care and Asia". Although this mixture between structures was merely refined by the CEO Lafley, it might have caused administrative difficulties under CEO Jager. Here some advantages and disadvantages of both structures (Senior 2002:82-84):
Departmentalisation by product
- maximises employee's skills and knowledge
Always on Time
Marked to Standard
- staff is able to specialise more
- room for innovation
- product differentiations allow to focus on different customers
- overlap of functions from one product division to another
- high administration costs
- difficult for top management to control product divisions
- complex coordination across product divisions
Departmentalisation by location
- decentralisation of decision making speeds up operation
- allows for cross-functional teams
- higher flexibility to adapt to changes
- high administration costs
- confusion of responsibility over projects
- potential for conflict as more communication required
hierarchical, centralisation of decision-making
- high degree of control on higher management level
- influences employee motivation and commitment
Ranked #6 among the "Global Most Admired Companies"
Ranked #3 on the "World's Most Respected Companies List"
Ranked #12 among the "World's Most Innovative Companies"
Named to list of the Global 100 Most Sustainable Corporations in the World, with top rankings from 2000-2010
Ranked #13 among the Global 100 Most Sustainable Corporations in the World
Recognized by the National Association for Female Executives as one of the Top 50 Companies for Executive Women
Supplier diversity is a fundamental business strategy at P&G. In 2010, P&G spent more than $2 billion with minority- and women- owned businesses. Since 2005, P&G has been a member of the Billion Dollar Roundtable, a forum of 17 corporations that spend more than $1 billion annually with diverse suppliers. <http://www.pg.com/en_US/company/external_recognition.shtml>
Supplier diversity is a fundamental business strategy at P&G. In 2010, P&G spent more than $2 billion with minority- and women- owned businesses. Since 2005, P&G has been a member of the Billion Dollar Roundtable, a forum of 17 corporations that spend more than $1 billion annually with diverse suppliers.< http://www.pg.com/en_US/company/core_strengths.shtml>
Structure & governance
Unique organizational structure of P&G offers the global scale benefits of an international company and the local focus to be relevant for consumers in approximately 180 countries where P&G brands are sold. Corporate structure P&G provides the framework that allows company to tap the benefits of a global organization with speed and efficiency. P&G's global operations keep the company in touch with its local communities. And strong governance practices in P&G ensure that company conduct its operations with consistently high standards and integrity.
THE ORGANISATIONAL ISSUES THAT AFFECTS THE PERFORMANCE OF P&G?
Issues( organisational issues discussed in group presentation)
The staff was not willing to change according to the CEO Durk Jager's aggressive management (eg; Organization 2005) (case study p.8).Â The new CEO's cultural change was through a soft approach (Case study p.9).
Â The practice at P&G was traditional, conservative and bureaucratic management style.(case study p.5).
Â Â The individual appraisal system was changed from conservative goal setting plan to a extended stretch goal setting plan (case study p.5).Â
Â Product development efforts were focused on IT rather than understanding the employee and consumer requirements (case study p.8).
Some staff were forced to integrateÂ IT tools in the new corporate structure.
Strict code of conduct, restricted interaction between inter departments and employees
Â Previous practice of treating employees as family was suggested to change with the conservative management style stating there is a lack of employee retention techniques.
Â Lack of innovation let Â competitor more room in launching new products while P&G revising old products.
Â Change might also be resisted because employees do not see the need for change (Hussey 2000:13).
Â P&G's IT investment was about $1 billion annually--and increasing which was faster than sales growth.
Â How these issues effects P&G performance?
As discussed on the case study under the CEO Durk Jager's management style introduced the Organization 2005 program in order to foster the growth and innovation in the P&G. Programme 2005 was also directed towards revamping the work culture of the company so as to focus on its new Stretch, Innovation and Speed (SIS) philosophy (case study, pg 5). The employees were not willing to change as fast as they were in disagreement with the new aggressive management style (case study p.8). The new CEO (Lafley) who took over in year 2000 attempted to change the organizational culture through a soft approach (Case study pg.9). As the employees of P&G were practising a traditional and conservative management style since a long time, which was bureaucratic and slow moving culture (case study pg.5). The organization 2005 was introduced by Jager as he was expecting a fast moving dramatic change in structure and work processes of P&G.
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The company followed individual appraisal system since long time and under programme 2005 changed it rapidly from conservative goal setting plan to a more extended stretch goal setting plan by Jager during his CEO period (case study p.5).
Under the 2005 programme a new IT system was introduced in P&G and the product development efforts were more focused on IT rather than understanding the employee and consumer requirements (case study p.8). The process of cultural change forced some staff or employee to integrate IT tools in the new corporate structure to create more cross shearing of information. This was done without considering the previous deep routed conservative culture of P&G. This was difficult for the employee to follow or adapt so fast. As a very strict code of conduct followed in P&G, this restricted interaction between departments and employees and the limited information flow. This lead to all account for the decrease in innovation in the company. The resistance to take on risks is another contributor. Originally, P&G treated employees like family members, focused on the development of its people and encouraging lifetime employment. However, a conservative management style was introduced by Jager to foster the growth and innovation in the company but it was too drastic change in a very short time (case study, pg 2) and an increase in employee turnover suggest that employees are not motivated and that there was a lack of employee retention techniques in the execution of 2005 programme (case study, pg 2).hence the slowdown in revenue growth and for the first time in eight years P&G faced 18% decline in the net profit this might partly be connected to the lack of innovation. While competitors launched new products, while P&G following its Risk-averse culture keeps on revising old products. The drastic change might also be resisted because employees do not see the need for change in the company (Hussey 2000:13). This requires a high amount of communication from top management to make staff understand why and where change is needed and what intended outcomes must be of the change. P&G lacked the communication between the top management and the employees or staff. Therefore the employees were not aware of the objectives or the reasons for such drastic change hence were not ready or prepared to accept it. Under the 2005 programme, using IT as a catalyst for change P&G made a huge investment in IT technology about $1 billion annually--and increasing which was faster than sales growth of the company.
STRATEGIC DEVELOPMENT PLANS OF P&G (HR Policies):
<http://www.icmrindia.org/casestudies/catalogue/Human%20Resource%20and%20Organization%20Behavior/Managing%20Cultural%20Change%20at%20P%20HYPERLINK "http://www.icmrindia.org/casestudies/catalogue/Human Resource and Organization Behavior/Managing Cultural Change at P & G-Human Resource Management Case Study.htm"&HYPERLINK "http://www.icmrindia.org/casestudies/catalogue/Human Resource and Organization Behavior/Managing Cultural Change at P & G-Human Resource Management Case Study.htm"%20G-Human%20Resource%20Management%20Case%20Study.htm>
From a positive perspective, culture in P&G can be said as one of the best simply considering the fact that the company has been successful for such a long time. The case study outlines the fact that the HR practice in P&G has been people centric from the early beginnings which helped them to attract the best talents in the world. (Case study)
â€¢ Treats employees like family members
â€¢ Core values, purposes and principles and vision focussed on the development of people.
â€¢ P&G followed a comprehensive recruitment process
P&G introduced profit sharing plan for the P&G employees.
â€¢ P&G introduced guaranteed forty eight weeks of pay in a year for the employees.
â€¢ Life time employment was offered to P&G employees.
P&G recruits people based on their aptitude for leadership, problem solving, behaviour based by the managers of the company.
â€¢ New recruits interpretative and reasoning skills are tested with M test introduced by company.
â€¢ P&G past experience used to examine leadership, problem solving, initiative and ability to work with others as a team.
â€¢ Culture emphasised on doing the right things and avoiding risks
â€¢ New recruits are given early responsibility and helped in rapid development of career
â€¢ In P&G, Superiors were encouraged in the training and development of subordinates.
â€¢ P&G introduced work and development planning system (W&DP)
â€¢ In P&G, W&PD supplemented with informal ongoing coaching
â€¢ Employees W&DP linked to OGSM (Objectives, Goals, Strategies and Measures)
â€¢ P&G Hired non management graduates.
Employee's growth not restricted by geographical limits.
Employees are provided with opportunity to work across brands and boarders.
Employees are Provided expatriates with training to learn local culture , language and social and business environments.
SWOT of HR policies (appendix)
GLOBAL BUSINESS ENVIRONMENT:
Definition: The Global Business Environment examines key political, economic, and cultural developments and institutions that constitute the global business environment(Tayeb. 1992)
Challenges of GBE in relation to P&G:
An article published in the Mckinsey Quarterly (2008), signify a wide gap between the perception and certainty of having a truly global workforce. McKinsey separately interviewed executives of US corporations and senior managers of 22 global organizations to uncover trends in regards to managing global talent. The core findings of the project came up with the following challenges:
Achieving greater cultural diversity- P&G a multinational corporation operating internationally contends with cultural nuances which are not always overcome by having a standardized corporate culture across different markets. The article clearly stated that the differentiation between P&G having a multinational manager who can speaks the right languages in comparison to one who maintains a true open-mind, while working within the international framework of P&G.
Overcoming barriers to international mobility- Mckinsey found out that managers had trepidations about working overseas because of "...the expectation that employees will be demoted, after repatriation to their home location". Some of the managers interviewed also had concerns about international employees not meeting standards set by home employees. For example, a manager of an IT team in Silicon Valley could have concerns about bringing on an expatriate trained in India, because of concerns that the Indian professional may not be up to par. Additionally, when the leadership team in an organization did not actively promote internationally mobility.
Establishing consistent HR practices in different geographical units- Because of the obvious geographical, cultural, legal and linguistic differences, there are inherent challenges in setting up a standardized HR approach across borders. Spicer (2008), notes that HR is seen as a separate function in the UK, however in France it is a sub-set of the finance department and a sub-set of the legal department in Germany. This reflects a clear difference in orientation based on the aforementioned observation. A further observation is made in Russia, where expatriates there do not have a clear understanding of their total rewards and tax obligations, because of the informal manner in which such matters are handled. As in P&G the HR policies should be as per the people and the location.
Technology- Also since there is a segmentation of HR processes based on domestic or international market needs, there is not always synergy between the Human Resource Information Systems (HRIS).
Risk exposure-Cascio (2006, pg 638), mentions risk exposure as a clear problem with global HR involvement. With the state of global geopolitics, some countries such as Colombia and Iraq provide security concerns for firms that do business in those countries. It also specifies the risk facing culture of an organisation. In P&G as specified earlier P&G had an risk averse culture although Jager took the challenge and try to change this risk averse culture of P&G.
Why go Global?-Mitigating Challenges to Global HR
Mendenhall et al (2007) provide a framework through which organizations can transcend HR challenges in the global environment. The presence of mission integration is central to having a truly global organization. Specifically, P&G's global HR issues must be at the forefront of all issues, P&G managers contend with in their strategic business operations. The mission of the P&G must reflect this reality for it to be an organic part of the corporate culture. Furthermore, a "...indicator of pure integration between global HR and global mission is the diminished distinction between domestic and international HR". This is particularly important if the P&G is focused on a "one-firm" approach to its business regardless of the geographic location. For example, the standardized approach McDonald's uses in its operations globally, making it one of the most distinct international brands regardless of the customizations made to accommodate specific local culture.
Additionally, Mendenhall (2007) adds that (P&G) senior management must be agents of change as far as global HR practices are concerned. A true integration of global HR into the "â€¦strategic and policy crafting processes" is essentially to making this an "organic" part of the HR planning process. It must permeate the P&G organizational culture for it to become a living process and an integral part of all HR business plans. Also as part of workforce planning and leadership development, P&G can create rotational global assignment programs as part of a competency based leadership development program. Such an initiative will encourage more international mobility and generate cross-cultural perspectives necessary for doing business in the global environment for P&G.
WHAT CHALLENGES COULD BE FACED BY P&G IN FUTURE?
Leadership & Employee commitment:
A study by Awan and Mahmood (2010) in 115 University Libraries in Pakistan found that leadership style has definite bearing on the culture and employee commitment of an organisation. Schein (1992) also contends that one of the main factors which forms and or change culture is the influence of leadership. Yiing and Ahmad (2009) are of the opinion that leadership behaviour has significant direct effect on organisational commitment and culture has a moderating effect on both. A study by Competency and Emotional Intelligence (2006) in Medway Council finds that a friendly approach to leadership with emphasis on organisational/political awareness, team functioning, employee involvement can extremely help in developing employee commitment. The study states that inspirational leadership is pivotal for obtaining employee commitment and organisational change. The inter relationship between leadership, culture and commitment is very clear from the above findings. This could be one of the reasons why organisations with strong leaders perform better than others. There are a number of examples such as Dell, Apple, Microsoft under Bill Gates, Facebook, Google etc. Leadership have influenced culture and the performance and measurement systems in these organisations and helped to drive employee commitment thereby employee, performance and quality of products and or services. Towards the general leadership development in an organisation, HR can play an important role as most of the leadership development programs would be either HR or HRD related depending upon the nature and importance placed on those functions in an organisation. An example is the learning and development activities such as Coaching, mentoring etc. Through the involvement of line managers in coaching, organisations can make significant progress in the area of leadership development.
Rewards & Employee commitment: (how P&G goining to asses employee performance level?)
Yap et al (2009) argue that individual and group reward systems can have a clear impact on employee commitment to organisational (P&G) well being and productivity. They are important for employees to display in role as well as extra role behaviour which are important when considering the human capital value. Dessler (1997) argues that the reward system should prompt employees to think themselves as partner to a company rather than just employees. This means that the performance of the company (P&G) should have an effect on the reward of employees. Many organisations in UK use this kind of strategy. One of the examples is John Lewis Morrisons. This may be one of the reasons why many companies call their employees partners as they are part owners of the company. A study by Personnel Today (2005) confirms the validity of the statement made by Dessler (1997) that flexible benefits tied to the performance of an organisation (P&G) improve employee commitment and reduce staff turnover. The study cites the example of Barclays which makes use of flexi benefit to drive performance. The psychology behind such kind of schemes is simple; you earn according to your overall commitment to the organisation. This study suggests that flexible benefits would be really useful if it is team based, which is really important for the proper functioning of different systems such as ISO, EFQM, Balanced Score Card, TQM (most of the organisations implement at least one of this).
Legge (2005) states that development of commitment is considered important in the management of cultural change. Salancik (1982) argues that the degree of commitment a person develops from the extent to which behaviours are experienced as binding. Individuals are more likely to be bound to their acts when the latter are highly visible, when their outcomes are highly irrevocable and when the individuals perceive their acts as voluntary. Legge (2005) contends that strong culture, possessing good values drive exceptional organisational performance. He states that in attempting to change the culture of an organisation, senior managers tend to change two aspects of organisational culture namely artifacts and espoused values. Schein (1992) provides a clear picture of the three different layers of organisational culture.
Legge (2005) is of the opinion that such kind of cultural change initiatives seek to bind individuals to behavioural acts that are coherent with new values proposed. This involves the use bureaucratic controls as well the managing meaning through rituals symbols etc. Legge states that such a kind of initiative naturally involves the Kurt Lewin's force filed analysis and three step model. But Schein (1992) is of the opinion that in order to make lasting changes to the culture of an organisation, it is important that basic underlying assumptions should be managed in a positive way as they are the most powerful. In this regard, it can be said that the use of a quality system such as TQM could be useful as it entails continuous improvement in a number of areas such as customers, team management, employee management, etc. based on the principle of quality. Snape and Redman (1995) are of the opinion that TQM can be seen as a high commitment strategy to human resource management. They state that top management commitment is crucial for the effective implementation of TQM. This is true taking in to consideration some aspects of TQM such as employee empowerment. If the top management is not committed, the line managers would be hesitant to give up authority for the well being of the organisation. In addition to this, TQM is a process which could affect probably every aspect of functioning of an organisation, and in a change program such as that employee commitment in the lower levels would be highly dependent on the visible commitment shown by the top management.
Employee selection & assessment Procedure:
Thomson and Maybe (1994) cites with the help of a case study in a large British based organisation regarding the impact of employee selection and commitment methods found that those who performed well in interview and assessment, showed more commitment than who performed poorly. This may be because of the fact that people who are generally committed and driven to their values tend to perform well in interviews and the subsequent performance in organisations.
Achieving Trans-cultural Competence: (organisational & Group conflicts)
Management should involve staff in the change by communicating the necessity for it and motivating each employee to contribute towards a future orientated organisation .
Instead of applying stretch targets, SMART goals should be formulated so that employees are clear of what is expected of them.
To increase creativity and foster innovation, employees should have access to suggestion boxes where they could submit suggestions for incremental changes in their department.
P&G should follow an open-door policy where employees are free to share their opinion and ideas with high level managers.
Further motivational measures should be applied to retain human capital. Career option should be tailored to meet employee's needs, such as job sharing, flexible working time and training.
In order to pursue diversity, which is the motor for innovation, the company may have to step back from recruiting new employees form university campuses and focus on people in current employment. This would bring in people with experience from different backgrounds.
The EASIER way to lead change should be used: envisioning, activating, supporting, implementing, ensuring, recognising (Hussey 2000:69).
The intorduction of IT systems should have followed the five strategic events (Bratton & Gold: 1999) an organization needs to follow before implementation of a new system or process.
Strategic events (Bratton & Gold 1999)
Innovation needs to be increased in order to stay competitive
Human capital should be retained by decreasing personnel turnover
Slow down in revenue growth needs to be addressed
The resistance to organizational change needs to be overcome
Effective communication needs to be implementedÂ
Tailor career options to meet employee's needs and retain staff
Increase diversity of staff by not exclusively recruiting from university campuses
Creativity teams help foster innovation (Unilever)
Change recruiting policy
Involve staff in change by communicating the necessity for it (Senior 2002)
Change organisational structure to a horizontal, team-based design