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P&G was founded in 1837 by William Procter and James Gamble as a maker of soaps and candles. P&G was known in Corporate America as a company to be admired and imitated. In addition, it was envied for its profitability as well as strong brand name. P&G has a long standing reputation as having life long employees. This dedication and loyalty by P&G's employees created the notion that outside sources were unwelcome and all products and ideas must come from within, however, this is not the way of the future.
Durk I. Jager was named CEO in January 1999 but tried to accomplish too much too fast. Jager entered into this position at a very difficult time in P&G's history and tried everything he knew to keep the company going. He introduced new high end products, which did not fit within P&G's culture. His solution to keep P&G going was to cut costs, however this was not a long term solution. He alienated the employee population in 17 short months. Acknowledging Jager's failure, P&G's board forced him to submit his resignation.
P&G employees needed a face lift and fast. A.G. Lafley, a Harvard graduate who spent his entire career with P&G was named CEO. He showed P&G employees that a family culture within the company was still attainable. Lafley focused on the employees and ensured the employees maintained focus on the consumers, as consumers are the basis of the market. He slowly began to change the old views of P&G. Not long after Lafley's appointment to CEO he replaced more than half of the company's top 30 officers and cut 9,600 jobs. P&Gs old view of internal creation was halted by Lafley. He acquired Clairol in 2001; P&Gs largest acquisition in its history. He also outsourced P&G's information-technology operation to help maintain its focus on the consumer and its brands. Lafley was able accomplish these non-traditional moves without alienating the family that was P&G.
Although Lafley has had success, the underlying problem remains. How will Lafley return P&G to its rightful place in Corporate America? P&G's solution to its problems is through product line extensions, expansion into non-premium brands, as well as acquisitions, licensing, reinforcing market orientation through consumer focus, and outsourcing. This recommendation was based on following items;
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Understanding the problems at hand,
Analysis of alternatives and key criteria for each alternative provided, and
Final analysis of each alternative.
The macro portion of the situation analysis paints a picture of a very competitive and dynamic industry. P&G is currently competing in five different areas; fabric and home care, beauty care, baby and family Care, health care, and snacks and beverages. Each segment is characterized by major competitors who are eagerly vying for market share, as well as driving prices down. This has forced P&G to re-think how they do business. Currently, they are in the process of outsourcing manufacturing on a number of items. This outsourcing is a cost saving method that P&G employed to stay competitive in markets such as fabric and home care, and baby and family care. P&G is also acquiring new companies and product lines such as Clairol. These acquisitions help to maintain competitiveness in lower end markets of the beauty care industry.
P&G must also deal with a variety of economic and political factors. P&G has recently begun the outsourcing of non-core business functions and manufacturing to reduce costs. However, P&G is behind the curve as many competitors have been outsourcing for some time and have an edge on these cost cutting measures. The prices of commodities have been rising steadily over the past few years and are projected to continue to rise in the near future. These increases, in the cost of doing business, will have to be hedged through other cost cutting measures or passed on to the consumer. Passing costs to consumers is not plausible in some of P&G's more competitive markets. For example, in the baby and family care market, Kimberly-Clark is aspiring to dominate the disposable-diaper market by continuing to drive prices downward.
The higher prices of commodities in connection with rising inflation have reduced the levels of disposable income available to the American consumer. In turn, this has caused a trend toward lower priced options and discount big-box stores such as Wal-Mart. Wal-Mart's power in the supply chain has grown exponentially and it is now the most powerful member of the supply chain. This has caused P&G to reduce margins in order to secure prime locations in Wal-Mart stores in order to have its products accessible to consumers. P&G is essentially putting all of its eggs in one basket by relying on Wal-Mart to provide a large portion of its revenues. In recent years P&G has faced unfavorable currency rates. The value of the dollar has fallen, giving it less purchasing power, and has caused raw materials and goods purchased outside of the United States to be more expensive.
Over the past several years many new markets have opened. Demand for P&G products in these new markets, such as India and China, have exploded. P&G has been racing with its competitors to secure relationships in these countries, which will allow them to produce and distribute its products in these new markets.
There are also new societal trends affecting P&G's brands. One trend has been in men's healthcare, which has recently evolved into a key market of interest. Another trend is in fabric and home care, which has shifted with consumer's needs for user friendly products. A prime example of this is the new Swiffer line of home care products, which is dominated by extra features and ease of use.
The markets in which P&G are currently competing have also under-gone changes within the past few years. These markets are being consolidated by large companies such as P&G and Kimberly-Clark. These companies are buying smaller companies in an effort to increase product lines and expertise. This new trend is reducing the number of competitors in the market causing an increase in competition and a reduction in prices.
From a micro perspective, analysis of the situation indicates P&G has shifted focus to what they do best. Concentrating on distinctive capabilities such as, branding and marketing, training and management, and market research and R&D, has enabled P&G to avoid distraction and gain momentum in the marketplace. The results, since Lafley took over in 2000, includes significant stock price increases compared to the market, higher profits, more sales, and above average volume growth. The above results will be accomplished by placing the spotlight on reaching customers in new markets if necessary and then living up to the highest expected levels of service.
Lafley has looked at P&G's business through the customer's eyes and is slowly altering the culture of the company. He painstakingly reviews P&G's seven management layers to make sure each one of them feels the "hot breath of the consumer" (Cravens, 612). Lafley accomplished this by replacing many of the company's top executives, often bringing women into high level positions. Lafley, like many CEOs, wants to ensure every P&G employee adds value to products the company takes to market. In some cases, outside sources can add more value than those inside. When this is the case outsourcing has been embraced; for example, Ivory Soap, which is now made by an outside company. Manufacturing does not provide the only use for outsourcing. When Lafley took over he made a concerted effort to acquire input on research and development (R&D) from outside sources, going from 10 percent to 20 percent of P&G's R&D through external sources. The goal, set by Lafley, for the company is to have as much as 50 percent of P&G's R&D outsourced.
For well over 150 years P&G has been a highly regarded company. The company's ability to groom management from within played a large role in this success and continues to serve as a core competency today. Equally significant, is the company's ability to research new ideas and determine which will succeed in the marketplace. P&G's future success depends on keeping its distinctive capabilities intact. Chief among these capabilities is P&G's skill at branding and marketing. Although, many view the word "brand" as being synonymous with P&G, CEO Lafley reminds each employee that "the consumer is boss." He then focuses their attention on the "first moment of truth" when a customer sees a product sitting on the store shelf, and the "second moment of truth" when they try it at home (Cravens, 616).