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. Though this conservative and traditional cultures posed problems for the company's performance in terms of responding to the changing business needs to maintain a competitive advantage by means of innovation, which was quite evident in the case of P&G as the company failed to show major product development activities in the mid-1990s. As company was so relied on its past practices and procedures, it failed to show any real innovation to maintain its dominance. As a result most of the newer products of the company were just the improved versions of the older ones (Gupta, 2004).
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Hence this report has done explication of various issues and agendas addressed by the company in order to bring about a new strategic orientation and how the company has done the strategic human resource development in line with its emergent strategy. In order to do so, the report has first highlighted the key organisational issues of the company and the challenges faced by the company in a developing global business environment. In the end the report has done requisite recommendations to the company senior executives and leaders about how to deal with certain challenges to maintain its dominant position.
Key organizational reforms
Organisational culture can be defined as shared values, beliefs and norms that form the character of an organisation (Bratton and Gold, 2007). The organisational culture in the P&G case was 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 behavior 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
The above mentioned limitations are all indicators of a culture where prospering innovation is a tranquil task.
Gary Hamel in his book The Future of the Management emphasised on the fact of
CEOs pressing concern over the last decade or so is innovation. As per Leavy
(2010) Design thinking is one of the developing or new constructs for innovative
strategy and this as per him P&G adopted the same strategy to deal with the
challenge. However in order to reinforce any design thinking strategy, cultural
norms and the way things are seen in the company is seen as the major barrier (Leavy, 2010) . And this is what Jager aimed at, a total cultural reform and for this Jager launched organisation 2005 program that was aimed at changing the company's methodological, bureaucratic, conservative and slow moving culture to fast moving, dynamic and IT savvy culture. Under the new programme a lot of changes were made in the company's traditions as well like instead of the previously prevailed strict dress code, the employees were given the choice of their work attire, the appraisal systems were changed to be more aggressive (Gupta, 2004).
Structure distinguishes parts of an organisation and the relationship between them. It is the pattern of communication, control and authority (Wilson and Rosenfeld, 1990). According to Hofstede's cultural dimensions the P&G structure showed 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):
Always on Time
Marked to Standard
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 showed a high degree of centralisation. This reflects in the fact that decision-making authority was 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., 2010)
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):
Departmentalisation by product
- maximises employee's skills and knowledge
- 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
Under Organisation 2005 program there was a thrust to make drastic change in the organisational structure to support and foster the kind of innovative the company aimed at. The company's corporate structure was reorganised from four geographic business units to five global business units based on product categories. And at the same time the company used IT as a catalyst to bring about such a dramatic change by expediting the decision making process enabling innovation and eliminating bureaucracy (Gupta, 2004).
While the efforts of the then CEO Jager were concentrated more on the internal changes to the company's culture, work practices and the structure, Lafley who replaced him in the 2002, also emphasized on the external factors to foster innovation. He realized the intersection of the company's innovation intent and increased worldwide collaboration and he then opened up the once-secretive company to finding partnerships with inventors, suppliers and customers around the world. He recognized a goal of achieving half the company's innovation through collaboration with firms outside of P&G. And to this effect the company formed a company called InnoCentive that specializes in making such collaborations possible in order to accomplish its open innovation strategy (Bate, 2010). This is has been agreed by a Journal of Strategic direction, which states that to maximize the pool of ideas the company dramatically increased its invention from external sources by encouraging alliances with entrepreneurs and even competitors ( Procter and Gamble's innovation success, 2005).
Few of these changes had faced issues which were performance determinants, the next part of the report lists those issues and does elucidation of how it affected the performance. In order to do that the report has used SWOT as a tool to explicate the HR policies and to address those issues
SWOT ANALYSIS OF HR POLICIES
Strengths of the HR policies:
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 HR practice in P&G has been people centric from the early beginnings which helped them to attract the best talents in the world (Gupta, 2004). The following were broadly the areas of strengths:
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Treats employees like family members
Core values, purposes and principles and vision focussed on the development of people.
P&G followed a comprehensive recruitment process
P&G introduced profit sharing plan for the P&G employees.
P&G introduced guaranteed forty eight weeks of pay in a year for the employees.
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.
New recruits interpretative and reasoning skills are tested with M test introduced by company.
P&G past experience used to examine leadership, problem solving, initiative and ability to work with others as a team.
Culture emphasised on doing the right things and avoiding risks
New recruits are given early responsibility and helped in rapid development of career
In P&G, Superiors were encouraged in the training and development of subordinates.
P&G introduced work and development planning system (W&DP)
In P&G, W&PD supplemented with informal ongoing coaching
Employees W&DP linked to OGSM (Objectives, Goals, Strategies and Measures)
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.
Weaknesses that effected the performance:
The employees were resistant to change according to the CEO Durk Jager's aggressive management (eg; Organization 2005) (Gupta, 2004).
The practice at P&G was traditional, conservative and bureaucratic management style that created hindrance to innovation.Â Product development efforts were focused on IT rather than understanding the employee and consumer requirements ((Gupta, 2004).
Strict code of conduct restricted the interaction between inter departments and employees.
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 competitor more room in launching new products while P&G revising old products. Â
Change was also resisted because employees did not see the reason for the change which is also agreed by Hussey (2000) who stated unexplained change can well become the reason for the resistance. Â
How these issues effected P&G's 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 (Gupta, 2004). The employees were not willing to change as fast as they were in disagreement with the new aggressive management style (Gupta, 2004). The new CEO (Lafley) who took over in year 2000 attempted to change the organizational culture through a soft approach (Gupta, 2004). 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 (Gupta, 2004). The organization 2005 was introduced by Jager as he was expecting a fast moving dramatic change in structure and work processes of P&G.
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 (Gupta, 2004).
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 (Gupta, 2004). 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 (Gupta, 2004) 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 (Gupta, 2004).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). 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.
Opportunities and Threats in light of global business environment:
The Global Business Environment examines key political, economic, and cultural developments and institutions that constitute the global business environment (Tayeb, 1992). Considering the fact that the world has gone global and internationalisation of the world has intensified the competition, urging the firms to find its competitive edge at all stages to exist, this report has discussed the challenges faced by P&G, which when handled effectively as per the recommendation provided by the report thereafter can be converted into opportunities.
Achieving greater cultural diversity:
P&G a multinational corporation operating internationally contends with cultural degree 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 abroad because of "...the expectation that employees will be demoted, after repatriation to their home location". Standards set by home employees were a concern of some of the managers about international employees not meeting them. 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, internationally mobility was not promoted by the leadership team in an organization.
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 in the UK, HR is seen as a separate function, 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 their location (Geographical).
Cascio (2006), mentions risk exposure as a clear problem with global HR involvement. With the state of global geopolitics, some countries like 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 a risk averse culture although Jager took the challenge and try to change this risk averse culture of P&G.
In order to build opportunities out these challenges the report has made the following recommendation to the company:
Leadership and commitment:
Employee's commitment and culture is significantly influenced by the leadership style (Awan and Mahmood, 2010). This notion has been validated by Schein (1992), who states the cultural change is primarily influence by the leadership. Ying and Ahmad (2009) also agree with this notion based on their research. A friendly leadership approach inducing organizational awareness, team functioning and employee involvement can encourage employee commitment (Competency and Emotional Intelligence, 2006). Hence one can draw an inference about the imperative relationship between leadership, culture and commitment. Hr plays an important role towards development of general leadership by inculcating various leadership programs to foster and develop internal talent across various functions. Also through the involvement of line managers in coaching, organisations can make significant progress in the area of leadership development. These practices if implemented by HR of P&G can meet one of its major challenges.
Rewards and employee commitment:
Commitment to organisational well-being and productivity by an employee is significantly impacted by the individual and group reward systems (Yap et. al., 2009). Dessler (1997) claims that the reward system should induce the employees to consider themselves as partners to a company rather than just employees. This means that the performance of the company (P&G) should have an effect on the employee's rewards. A study by Personnel Today (2005) validates 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. Hence this recommends flexible benefits which are imperative in a team based environment.
Fostering of commitment is considered to be an important in the management of cultural change (Legge,2005). Individuals are likely to be bound by their deeds when their acts are highly visible, outcomes are irreversible and their recognize their acts voluntarily (Salancik, 1982). Senior managers needs to alter the promote the organisational culture values in order to influence its change (Legge, 2005). He also proposes that cultural change efforts should also seek to bind individuals with a behaviour that is coherent with the new values proposed. Adding to same notion Schein (1992) states that in order to make eternal changes to the organisation culture, Management should try to influence the underlying assumption of the employees accordingly. In order to uniformly apply these academic recommendations, this report advises the management of P&G to use quality systems like TQM that caters to and is based on improvement in areas like Team and employee management. Agreeing to this Snape and Redman (1995) TQM can be seen as a HR strategy to foster high commitment.
Management should encourage staff involvement in change by communicating the necessity for it and motivating each employee to contribute towards a future oriented organization. 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. This has been validated by Senior (2002) who states that staff involvement in change facilitates it.
Achieving Trans-cultural Competence:
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. This would assist managers to develop skills to prompt and accurate decision as Trompnaar and Turner (2001) states that international managers and leaders continually reconcile dilemmas. Being an international organization operating across the globe it becomes imperative for the leaders and managers of the company to be emotionally intelligent and develop trans- cultural capability as they have to deal with people from diverse cultures and backgrounds.
P&G's success over the last decade has primarily decided by its ability to be innovative. Innovation was majorly the challenge faced by the company on 1990s which made Jager to introduce Organization 2005 program. However, to foster innovation internally it is important for the company to foster a culture of openness with flattened hierarchy more like Google PLC. To provide the right platform to its people to freely come with new ideas and float those to the management. A hierarchical organizational structure, no matter how employee or people friendly the company is, poses friction to the free flowing ideas and best practices sharing primarily due to the bureaucracy involved in the structure.
The report has done detailed analysis of the organizational issues faced by P&G, steps taken by its senior leaders, challenges faced and challenges in the future with some requisite recommendation done at the end. On the whole, it is quite evident from the case of P&G that the company had strong people centric culture, with the prevalence of hierarchical structure, which later in late 90s posed a challenge to the company's innovation. To induce a program of cultural change Jager Ex-CEO of the company introduced Organization 2005 program by which he aimed at making a drastic cultural change to the organization to effect its innovative capability. However, as the pace at which he wanted the change resisted by the people, showed him negative results and he had to quite claiming the responsibility of his moves. Lafley who replaced him also carried and continued to implement the organization 2005 program, however in soft and more employee friendly way, keeping the core traditions and the customs of the company unchanged. He introduced various other tactics to foster innovation by looking at the external sources rather than depending on the internal sources, which proved to be successful. The company is still in the process of a cultural upheaval and needs to maintain its innovative position at the same time to stay ahead of the competition. Hence at the end report has done certain strategic recommendations to the company to meet the challenges in future.