WHY PROCTER AND GAMBLE INITIATED CHANGE
Procter and Gamble initiated change in their organisation because it was simple, globalisation, international competition and the spread of information technology. These factors led to escalated competition and this inspired the need to change in order to maintain competitive advantage. The organisation realised that they had to be faster, more responsive, and produce higher quality. Procter and Gamble is one of the companies that utilises change in the organisation in order to become one of the most distinguished and recognised product producers in the whole world.
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. 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 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
Assuming that the candidate was involved in this organisational change, she would attempt to evaluate the following aspects of the general environment that had a huge effect on the business of Procter and Gamble which were:
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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 toward business, the regulation of the business and labour, and the budget and conditions. Also, 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.
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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.
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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 that 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.
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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 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 to these Asian countries in order to supervise and transform the offices or factories of Procter and Gamble.
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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 it is very crucial, because their belief and value system is different from the main headquarters, example the attitude of a Chinese worker towards his/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.
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International developments - 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 be transformations on some of the factories of Procter and Gamble in other parts of the world.
Competitive Environment
An assumption would also be made on the competitive environment of Procter and Gamble. This would be done so that the organisation must be analysed and understood in order to keep up with their competitors. The company can utilise the Porter’s 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:
Table 1 Showing the Five-force analysis on Procter and Gamble
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 challenges such as the World War II and the Great Depression. The approach of the management of Procter and Gamble was centralized. However, having a centralised management have become more of a liability than an asset in the company. That is, Procter and Gamble have decided to decentralise the management and its 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 cost of production, increase the sales, and research and the 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.
The Porter model is a category scheme in which it is composed of the 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
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. Also, apart from cheap suppliers and labour, the company must also guarantee that their products either new or old must not be copied by the competitors or possible competitors.
Differentiation Strategy
The 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 producing the diapers, the company must develop new styles and forms of diapers that would be more beneficial to consumers. In order for the 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 unique then Procter and Gamble will gain more profits due to the fact that the price elasticity of demand will decrease the prices of the products. The consumers will purchase, which will then 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, the organisation 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
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 utilise 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 markets 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.
INTERNAL ANALYSIS
It is not only the changes in external factors, which may necessitate organisational changes; any change in organisation’s internal factors may also necessitate changes.
Leadership
The pre-dominant leadership or management style in P&G is that of participatory, delegating, and empowerment. Management has decentralised decision making process in such a manner that middle level management at most times do not have to wait for headquarters approval and funding; in order to embark on certain key innovative projects. Because of the empowerment given to mid and senior level management within this multinational corporation, it is much easier for management to customise products and customer services internally. It is abundantly clear that, the success of this giant corporation can be closely tied to its management and leadership style. This is a clear customer focus leadership style which was brought within the corporation to strengthen employee morale and to refocus employees’ attention to providing the needs and wants of customers in this ever changing global market.
The reason why leadership is critical for innovation, creativity and change at P&G is that innovation or change occurs from top down. This sends a clear message to everyone that if the entire leadership has changed to accommodate innovation, it’s about time for them to change also (employees). Management makes employees creative and innovative by hyping innovation and making it a priority. To encourage creativity and innovation within an organisation, leadership must encourage it; institute a reward system to compensate creative employees and link innovation and creativity to the broader mission and vision of the organisation.
Culture
P&G has demonstrated that its success depends on its customers, people, and innovation. Each and every employee is brought together by the company’s common culture, values, and goals. The company recognises its diversity as a unique characteristic and strength and it’s been able to maximise the talents and creativity from these people. P&G has also demonstrated that it is not just in business to increase shareholders wealth but it’s also a social responsible company.
Valuing their Customers
Understanding customer needs and building lasting relationships are important in helping an organisation innovate. Businesses innovate through unmet customer needs. Customers express their needs that have not been met and companies innovate to meet those needs. This is why P&G is still leading the domestic product industry because, it listens to customers unmet needs and innovates aggressively to meet those needs. For instance, when babies were wearing cloth diapers, they were very leaky and labor intensive to wash; at that time, mothers needed an innovative product on the market to help fix the labor intensive part of washing the cloth diapers as well as the leakage. P&G answered this innovative call by introducing a revolutionary product called “Pampers” into the market.
Adapting to the Change
P&G ensures that the length and breadth of all its units understand the impact of any change mostly at the professional level. Management ensures that everyone involved is interested in the change process. The more employees are interested in the change process the greater the success of the change or innovation. The most important element here is motivation. Management must let employees see a win-win situation in the change process.
Conclusion
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 be acquainted with their 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 suit the needs of particular portions of the market.
References
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MBA Knowledge Base (2011), Factors Affecting Organisational Change, available online at , accessed on 26/04/2011
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