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Thursday, 17 November 2011

Organizational Change of Procter and Gamble

Organisational Change of Procter and Gamble


Structural and organisational changes is a common aspect in any company may it be small, medium or large scale. An organisation undergoes change in order to ensure the products and services that will be given to consumers are excellent, as well as, the performance of the employees within the company. Change in an organisation can happen on the upper management, the employees, and products. Organisational Change, according to  (2006) is the idea in which the organisation changes its system in a wider scale, as opposed to smaller transformations in the company such as adding a new person, or altering a program. Changes in the organisation are provoked by external forces of the organisation; usually an organisation undergoes organisational change in order to evolve to a higher level of entrepreneurial activity. Procter and Gamble is one of the companies that utilised change in organisation in order to become one of the most well-known product producers in the whole world.

            This paper examines the implementation of change that is concerned with the strategic development of Procter and Gamble. The current state of Procter and Gamble will be determined by applying the concept of External Environmental Analysis.

            According to Procter and Gamble (2007) the company is one of the leading organisations in terms of producing household products. One of the most popular products of the company is the disposable diaper, due to the fact that Procter and Gamble was the first company to create and develop it. The company was established in the year 1837 wherein its main headquarters is in Cincinnati. The company has evolved into one of the most reputable manufacturers of consumer products. In addition, the company has already produced more than 300 brands world wide. Products of Procter and Gamble range from laundry detergents, beauty products, and dental care. The company was formed by the in-laws William Procter, who was a candle maker and James Gamble and soap maker. In the year 1859, the merged company of Procter and Gamble grew and became one of the largest companies in Cincinnati. From then on, the company became a success, spanning generations from generations and even across the world.

            Even though, Procter and Gamble became a huge success in the household product industry, it has its own share of criticisms and controversies. One of the biggest controversies that Procter and Gamble has faced was the Toxic Shock Syndrome acquired from using the Rely tampon in 1980 wherein it resulted to 38 deaths. Instead of losing the business due to this controversy and other criticisms that plagued the company, Procter and Gamble have rose and become one of the largest manufacturers of cosmetic products. Procter and Gamble even introduced to the public the cosmetic companies Noxwell in 1989 and Max Factor in 1991. Although Procter and Gamble have surpassed one of the biggest challenges in their company, there are other aspects in business that pose as threats and challenges therefore a change in the structure of the organisation is needed in order to address those issues.

            Prior to making a statement regarding the changes in organisation made by Procter and Gamble, an analysis of the current state in organisation will be determined through External Environmental Analysis. According to  (2003) organisations whether small or big are affected by the conditions in the external environment and the managers must be aware of these conditions so that the company would be able to take advantage of the opportunities that will eventually lead to higher profits and decrease the impact of threats that could be a great danger in the future of the organisation.

External Environmental Analysis- in the external environment of Procter and Gamble there are two areas that needs to be analysed and these are the General Environment and the Competitive Environment.

            General Environment- one of the aspects of the general environment that would have a huge effect on the business of Proctor and Gamble is the political and legal conditions of the country in which the company has established an office and factory. The legal conditions include the policies of the government towards business, the regulation of the business and labour, and the budget plans and conditions. The political stability and the legal conditions of the government in which Procter and Gamble have established their business plays an important role in the change in the organisation. If the legal and political condition is not good, Procter and Gamble may retrench employees or in worst cases close down the factories and set-up in another location.

Another factor in the general environment is the demographics of the nation or society. The characteristics of the population of the country such as the size of the population, income distribution, education levels and geographic distributions play an important role in making changes within the organisation. If the country has a relatively young population with a high purchasing power, more products will be developed and created in order to address the specific needs of a particular nation or population.

Third factor in the general environment is the Technology, the developments in the information technology is also significant in making a change in the organisation. The accessibility of a country in technology in which the company has invested in is important in order to address and identify the needs of the market. Relevant technological development includes the internet, telecommunications, product and process innovations, and on-line training. An example is, Procter and Gamble is able to enter new markets and develop new products that will suit the particular needs of every type of consumer because of new technologies, and the feedback from consumers can be easily received by the company through sophisticated computer programs and internet.

The fourth factor is Macroeconomic wherein the economy of the country has a huge impact on the business; it includes the size of the gross domestic product, inflation rate, unemployment rate and interest rates of the country. In the case of emerging markets such as China and India, Procter and Gamble is setting up new factories and headquarters in order to ride and seize the opportunities of these emerging economies. Therefore, a change in the structure of the organisation could take place, more managers from the West will be sent in these Asian countries in order to supervise and transform the offices or factories of Procter and Gamble.

The fifth factor is the Socio-cultural wherein the values, beliefs and lifestyle of the society have a huge influence over the functions of the business such as the attitudes of individuals toward work. Changing some aspects of the organisation especially if it is in another country is very crucial because their belief and values system is different from the main headquarters, example the attitude of a Chinese worker towards his or her job is different from that of an American or Indian, therefore any change especially in the human resource department must be with respect to the culture and attitudes of the worker. 

The last, factor is the international developments that can have an impact on the business such as the rising trend in globalisation, emerging markets such as China and India, and political events. Changes especially in other factories of Procter and Gamble, due to the cheap labour from China and India, the company may outsource some of the jobs to these countries therefore there will transformations on some of the factories of Procter and Gamble in other parts of the world.

            Competitive Environment- the competition of the Proctor and Gamble must be analysed and understood in order to keep up with the competition. The company can utilise the Porter Five-Forces Model of Competition. According to Horita et al (2007) Michael Porter’s Five-Forces can be utilised in order to give analysis of the industry and help develop and shape the competitive strategy of an organisation. In the Five Forces Model, Procter and Gamble must identify the following:

            Threats of New Entrants- Procter and Gamble must identify the factors that make it easier for new players to enter, such as the low capital requirements, easy access to the distribution channels and little government regulation on these new companies. The company must identify the threats posed new players in the industry in order to make amendments on the products, services or some aspects of the business.

            Supplier Power- the supplier of the raw materials plays an important role in the competition. The suppliers have a huge power over the firms that need the raw materials because only a few firms dominate the industry, the supplier does not care what company is the buyer of the product as long as they will have a great deal, the product of the suppliers are important in creating the products of the company and the supplier can become a future competition. Proctor and Gamble must know these factors in order to play their cards right in the industry; an example is having a great deal with the supplier so that they will not give the products to other buyers.

            Threats of Substitutes- the market in consumer products is very stiff, and there are products that emerge in the market that could perform the same function at a lower price. In order to compete with these substitutes, Proctor and Gamble must identify the factors that indicate the high threat of substitutes and develop countermeasures. The factors include the price of substitute in the market which often times lower than the price of the company’s product, in order to counter this Proctor and Gamble must ensure the quality of their product so that the consumers would be loyal to the product. Another factor is that these firms have high profitability; in order to counter this, promos of the product must be done such as additional contents on the products in order to encourage the consumers to buy the products, thus gaining the company more profits.

            Buyer Power- Proctor and Gamble must determine the reasons why the buyers purchase the products of the company. The factors that contribute to the high purchasing power of the company’s products must be identified in order to intensify the quality of the product and even eradicate the competition. Some of the factors include the indistinguishable products, in order to attract more consumers the packaging and content of the product must be good because most of the consumers buy the products due to attractive package and bigger contents. There are few buyers than sellers, in order to address this issue Proctor and Gamble must advertise the product more aggressively so that the consumers will be more familiar with the product. And the buyer has low profits, Proctor and Gamble must create products that specifically target this bracket of consumers.

            Competitive Rivalry- Proctor and Gamble must identify the intensity of the competition in the consumer products industry. With more companies around the world emerging, competition is really tough in the industry. The factors that lead to the high competition among rivals in the industry are the numerous competitors, slow growth in the industry, lack of differentiation and many more.


Improvement in Procter and Gamble

            The Procter and Gamble Company was only one of the few companies that have remained one of the top players of the field, over the past years. Procter and Gamble was able to surpass some of the world’s greatest challenge such as the World War II and the Great Depression. The approach of the management of the Proctor and Gamble was centralized, however having a centralized management have become more of a liability than an asset in the company. That is why Procter and Gamble have decided to decentralized the management and various representatives from different areas of the company were grouped in teams in order to create proposals which enabled Procter and Gamble to cut the costs of production, increase the sales, and research and development of the product.

A good explanation on the changes that can be implemented in the organisation is through the Porter’s Generic Strategies.  Below is the Illustration of the Porter’s Generic Strategies Framework.

Figure 1.1 Porter’s Generic Strategies Framework.


According to  (2007) the porter model is a category scheme in which it is composed of three forms of strategies that are usually used by the business, and the three strategies are outlined along two dimensions which are the strategic scope and the strategic strength.

Based on the Porter’s Generic Strategies Framework, Procter and Gamble can use it in order to make modifications on the current organisational structure of the company.

Cost Leadership Strategy

            According to  (2007) an organisation that utilises cost-leadership tries to perform a competitive advantage through decreasing the economic costs below its competitors. In this particular strategy, Procter and Gamble must produce high bulk of their products at a low cost, and must be marketed at a large scope of customers. In sustaining the strategy, the company must first look for cheaper suppliers that can provide a cheaper alternative but the same quality of raw materials used in making the products. Another is supplier depends on the volume of the products, and in order to produce large bulk of products, Procter and Gamble must also order in high volume to achieve lower costs. If the supplier is not providing high quality raw materials then Procter and Gamble must shift to another supplier. Aside from the suppliers identifying possible cheap labours in emerging markets such as India and China must be done by Procter and Gamble. Apart from cheap suppliers and labour, the company must also guarantee that their products new or old must not be copied by the competitors or possible competitors.

Differentiation Strategy

            According to e-coach (2007) differentiation strategy is an incorporated actions that are created to provide and deliver products and services that customers view as being different in ways that are relevant to them. In this strategy, Procter and Gamble should develop more unique products that would differentiate it from the competition. Example, in the diapers Procter and Gamble must develop new styles and forms of diapers that would be more beneficial to consumers. In order for differentiation strategy of Procter and Gamble to become successful, the consumers must get the best value for their money. Moreover, if the prices of Procter and Gamble are new and one-of-a-kind products then Procter and Gamble will gain more profits due to the fact that the Price Elasticity Demand will decrease the prices of the products and the consumers will purchase and will even lead to loyalty to the products. This is a good strategy for Procter and Gamble; however it has its downside which is additional costs particularly in the research and development of the products. In addition, Procter and Gamble must assure their consumers that the products are cheaper than that of the competitors and it will not go up.  In sustaining this strategy, it must coincide with Cost Leadership Strategy, wherein the company must develop new cheaper products but have excellent quality, and this can only be done by having an excellent research and development. But, having a good product means a good supply of raw materials which can be more costly, and in order to achieve cheaper prices from suppliers the company must use the Cost Leadership Strategies.

Market Segmentation Strategy

            According to  market segmentation is the process in which the total market is divided into groups that is composed of people that have comparatively similar needs. Although Market Segmentation is often utilised by small and medium sized companies, a huge company such as Procter and Gamble could also utilised this strategy. Procter and Gamble have already done it, in the case of beauty products for females like the Max Factor. Aside from the female market, there is also a huge emerging market for Male products, therefore Procter and Gamble could develop new products for this specific market. Market segmentation is also correlated with the two strategies the cost leadership and differentiation. Procter and Gamble is developing new and unique products for a specific market but it must have a cheap price, at the same time, superior value.


            Procter and Gamble is one of the success stories in the business world today, spanning for almost a century and still continues to dominate and tap the market. The success of Procter and Gamble is due to the constant change of the organisation in order to meet the needs of the consumers. They identified the benefits of decentralising and advertising, and use different strategies in order to identify new markets and competitors. Procter and Gamble constantly provide the consumers quality products because of its good research and development program, and will continue to tap the untouched markets in order to deliver products that will suite the needs of particular portions of the market.


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