Proctor_&_Gamble_Company

Introduction In a highly competitive industry where continuous product innovation, the availability of a wide range of products and a strong brand name are mandatory, strategic management has become a dominant factor of success in today’s globalized businesses. It became impossible to find a surviving business that lacks the availability of corporate and business level strategies that provide the business with guidance on achieving its objectives. In fact, a successfully implemented strategy is playing an important role in helping firms survive fierce competition and gaining a competitive edge in the market. This paper attempts to analyze the current strategic orientation of Proctor & Gamble. We will be conducting this strategic audit using various tools and techniques such as: PEST, Porter’s 5+1 forces, SWOT and others. Moreover, by performing our analyses, we will be providing recommendations for allowing the company to maintain a sustainable competitive position in the future. Company’s background The 177 year old leading company of household products in the United States, Procter & Gamble, was founded in 1837 by William Procter and James Gamble and was incorporated in Ohio in 1905. William Procter, who arrived from England, was a candle maker in Cincinnati while James Gamble, arriving from Ireland was a soap maker. They became business partners by forming a joint venture on October 31, 1837 that founded Procter & Gamble with an initial asset base of $7,192.24. Proctor and Gamble is a product driven business, its core business is to provide branded consumer packaged goods characterized with superior quality and value to improve the lives of consumers around the world. According to the SEC Filings industry classifications, the company is operating in the Consumers Goods (Non-cyclical) sector, and within the Personal & Household Products industry. Brands offered fall in six main categories: laundry and cleaning (detergents), paper goods (toilet paper), beauty care (cosmetics, shampoos), food and beverages (coffee, snacks), feminine care (sanitary towels) and health care (toothpaste, medicine). As for their key product categories, the company’s 2010 annual report has indicated that in 2010, the laundry and diapers categories represented more than 10% of total net sales, 17% and 11% respectively. More specifically, many of P&G’s brands are billion-dollar sellers, including Fusion, Always, Braun, Bounty, Charmin, Crest, Downy, Gillette, Iams, Olay, Pampers, Pantene, Tide, and Wella, among others (Hoovers). Moreover, the company currently serves 4.2 billion consumers and spends $350 million in understanding consumers annually. Their customers include grocery stores, drug stores and mass merchandisers in addition to the end consumers. However, their key customer is Wal-Mart as sales to it have represented 16% of total revenue in the past three years (SEC filings). As for geographical expansion, P&G operates in 180 countries through 50 leadership brands out of a range of 250 brands and with 127,000 employees operating worldwide (refer to appendix 1 for a list of P&G’s products). According to P&G’s annual report, the company classifies its business operations by business segment, geographical region and market maturity (refer to appendix 2 for an illustration of sales distribution). First, P&G divides their business activities into three different business segments: • Beauty & Grooming • Health & well-being • Household Care (P&G 2010 Annual Report) Second, P&G divides their operations into five geographical regions: 1) North America 2) Western Europe 3) Central & Eastern Europe, Middle East and Africa 4) Latin America 5) Asia (P&G 2010 Annual Report) Finally, the company divides its business activities by market maturity into: • Developed markets • Developing market P&G has engaged in many mergers and acquisitions throughout its history, but the transaction that is considered the largest is the merger with Gillette in 2005. In fact, this transaction is one of the largest mergers in the history of the personal & household products industry. The company announced its acquisition of Gillette for $57 billion. Here, P&G, a highly innovative company, wanted to expand its product lines and hence, this merger that was done with another innovative firm gave P&G access to new products and markets. The reason is that Gillette offers a wide variety of products and not only the known razors but also brands such as Duracell batteries, Braun and dental care products such as Oral-B. Gillette’s largest shareholder, Warren Buffett commented on this merger saying “This merger is going to create the greatest consumer products company in the world.” (Fortune 500, 2005) As for stock prices, the company has witnessed significant increases in stock prices from the date it was incorporated up to today which is an indication that P&G has grown continuously and have been able to meet consumers demand and exceed their expectations. Mission, Vision, Goals and objectives We have obtained Proctor & Gamble’s mission statement from the company’s official website www.pg.com. The company does not state its vision; however, goals and objectives set in 2007 are clearly stated. We will be presenting the company’s mission statement and goals and objectives in addition to a brief analysis of each. Mission Statement: “We will provide branded products and services of superior quality and value that improve the lives of the world’s consumers, now and for generations to come. As a result, consumers will reward us with leadership sales, profit and value creation, allowing our people, our shareholders and the communities and which we live and work to prosper.” Mission Statement Analysis: A well-conceived mission statement should identify and address three different questions: Who is being satisfied' What is being satisfied' And how are needs being satisfied' By analyzing P&G’s mission statement, we can see that is has addressed the “Who” question by stating: “World’s consumers.” By not identifying specific characteristics, P&G has clearly communicated its competitive scope of serving consumers of all ages and in all markets. As for the answer to the second question: “What”, P&G did not specifically identify the need that is being satisfied, instead, they used a very powerful statement by saying: “improve the lives of consumers.” Although this statement is powerful, it is also too broad. We believe that the company should have been more specific by mentioning the industry in which it operates in, the product lines it serves or the needs it aims to satisfy. Regarding the last question, “how,” P&G states that needs are satisfied through “branded products and services of superior quality.” Goals and Objectives: Proctor & Gamble has set goals in 2007 and revised them in March 2009 in three different areas which are: Products, Operations and Social Responsibility. These goals respectively are: • Develop and market at least $50 billion in cumulative sales of “sustainable innovation products,” which are products that have an improved environmental profile. • Deliver an additional 20% reduction (per unit production) in CO2 emissions, energy consumption, water consumption and disposed waste from P&G plants, leading to a total reduction over the decade of at least 50%. • Enable 300 million children to Live, Learn and Thrive. Prevent 160 million days of disease and save 20,000 lives by delivering 4 billion liters of clean water in our P&G Children’s Safe Drinking Water program. (P&G official website) Goals & Objectives Analysis: By analyzing the Company’s goals and objectives, we can see that they are consistent with the company’s mission statement and especially the part of the mission that says that P&G wants to “improve the lives of the world’s consumers, now and for generations to come.” All listed goals and objectives revolve around improving sustainability, both socially and environmentally such as increasing product safety and making products environmentally friendly by reducing waste and inefficiency. Also, helping children around the world by providing them with a fresh healthy start and educating them, all contribute towards achieving the company’s mission of improving people’s lives. Board of Directors Board members: The board consists of ten members (refer to appendix 3 for bibliography of each board member). Independence: Each member should be independent in the sense that they should not have any interest in the company that may push them towards working for their own interests rather than the interest of shareholders. Thus, independence of BOD will ensure that agency problems are minimized. In P&G, all members are outsiders except for one member who is an insider. This member is Robert A. McDonald; he serves as the Chairman of the Board and the President and Chief Executive Officer of the Company. This represents a duality which may give rise to conflict of interest and agency problems. Moreover, it came to our attention that one of the board’s directors, Mary Agnes Wilderotter has been serving as a director of Xerox Corporation since 2006 where the CEO and Chairman, Robert Mcdonald also has been serving as a director since 2005. So, we believe that there is a possibility that a close relationship between Mary Wilderotter and Robert Mcdonald exists, (increasing the likelihood of conflict of interest) in which case she might be considered an affiliated outsider. Other than that, all other members are unaffiliated outsiders. Composition: P&G’s board of directors is very diverse with respect to many factors such as age (49-64), gender, international background, experience and ethnic race. For example, the board consists of three women, one is African-American, one is Indian and one is Mexican. Board members are also competent as their collective experience covers a wide range of countries and industries, including consumer products, technology, financial services, media, agriculture, aerospace, and health care. Moreover, they have held important positions in consulting and governmental (Proxy Statement). Compensation: One point worth mentioning here is that directors, who are employees of the company such as Robert Mcdonald, receive no compensation for their services as directors. As for non-employee members, they receive the following compensation for the fiscal year 2010-2011: • A grand of restricted stock units with a fair value of $160,000. These ensure alignment with the company’s long-term interest and interests of shareholders. • An annual retainer fee of $100,000 paid in quarterly increments. • An additional annual retainer paid to the Presiding Director and Chair of each committee: Presiding Director and Chairs of the Audit and Compensation & Leadership Development Committees—$20,000; Chairs of the Governance & Public Responsibility and Innovation & Technology Committees—$15,000. Board of Director’s committees: • Audit committee • Compensation & leadership development committee • Governance and public responsibility committee • Innovation and technology committee The audit committee which consists of independent non-executive directors is responsible for ensuring the quality and integrity of the company’s financial statements and for ensuring the company’s compliance with legal and regulatory requirements. As for the Compensation & leadership development committee, it also consists of independent outsiders except for Mrs. Wilderotter which we suspect that she may not be independent. This committee is responsible for the company’s overall compensation policies and the compensation of the non-employee members of the BOD. The Governance & public responsibility committee is responsible for nominating the members of the BOD. Finally, the Innovation & Technology committee is responsible for overseeing and providing advice on matters of innovation and technology (Proxy Statement). We noticed that each member serves on a committee where most of his expertise and knowledge lie which increases the effectiveness of the committees. Board Meetings: The Board of Directors met eight times during 2010 and the Committees of the Board of Directors held 22 meetings for a total of 30 meetings. According to the proxy statement, the average attendance at these meetings by members of the Board during the past year exceeded 97%. So, we can see that the board meets frequently which makes them more involved and empowered. As a result, we would locate P&G’s board of directors on the active end of the continuum. More specifically, since the board is involved in strategic decisions, we would classify it as a nominal board. External Environment In this section of our paper, we will be conducting an analysis of the external environment, both macro and micro environments surrounding Proctor & Gamble, using different tools such as Porter’s 5+1 forces model and PEST analysis. More specifically, we will be analyzing all trends arising in the personal products industry and consumer products sector to determine afterwards whether Proctor & Gamble’s current strategy is successfully implemented to exploit opportunities and mitigate threats. PEST Analysis This tool is used to scan the Macro environment surrounding Proctor & Gamble. We will be identifying the trends arising from political, economic, sociocultural and technological forces and classifying them as opportunities and threats which will in turn allow us to develop the first part of the company’s SWOT analysis. Political: 1) Global political uncertainty: Since all competitors in this industry operate globally, they are subject to all political issues and instability arising in the significant geographic markets in which they operate in and all other countries where suppliers, retailers and distributers exist. Currently, there is a lot of political instability existing in most regions of the world which imposes a threat to such companies. It puts the world’s economy at stake and reduces consumer demand. Overall, any terrorist activity or political unrest may adversely affect the business and interrupt it. Hence, political instability and uncertainty represents a threat. 2) Removal of trade barriers in some foreign countries: Trade barriers in foreign countries were considered a major threat to the company as well as for most multinational businesses because of hostile takeovers by some foreign governments. Therefore, the removal of trade barriers is a major opportunity. It has allowed the company to operate more competitively and effectively without a lot of government intervention. 3) Regulatory changes: There are frequent changes in laws and regulations related to products. For example, the US Food and Drug Administration (FDA) are imposing more strict quality standards on cosmetics products. These new regulations may cause a delay in releasing new products to the market in addition to higher expenditures. Moreover, there are changes related to accounting standards due to the prospective application of IFRS. For instance, there are changes in taxation requirements; in fact, the effective tax rate has increased after the global crisis which lowered net income by for all companies in addition to a slight decline in distributions to shareholders. Therefore, most of the regulatory changes adversely affect the company which leads us to classify it as a threat. Economic: 1) Economic conditions (Decrease in GDP, disposable income): As a result of the financial crisis in 2008, GDP has decreased and the level of disposable income among individuals has decreased. This led consumers to pull back on discretionary purchases and searched for the best prices on nondiscretionary goods. In other words, consumer spending on P&G’s products and its main competitors decreased. In specific, this crisis resulted in a decline in volume growth in most of P&G’s product categories to an average of 1-2% in 2009 opposed to 3-4% in 2008. Hence, the economic crisis represents a threat since sales, profit and growth rates have declined as consumers have moved to buy less expensive and nondiscretionary goods. 2) Fluctuations in commodity costs and currency exchange rate: The volatility in commodity costs and currency exchange rate represent a threat for companies operating in this industry. That is because volatility results in increased costs and reduced profitability. For example, in 2009, P&G incurred $2 billion in net commodity and energy costs which is a $1 billion increase in costs compared to year 2008. Moreover, weakening of key foreign currencies versus the U.S. dollar has resulted in unfavorable geographic mix of earnings across all reporting segments. 3) Developing markets: Due to the emergence of middle class families and increase in income in developing countries such as India, China, Russia and Latin America, expanding into such developing markets represents a major opportunity. In fact, companies operating in this industry are focusing on growth in emerging markets by opening all of their new manufacturing facilities outside their established markets. For example, P&G is relying heavily on India for growth in selling male grooming products. Also, P&G’s market share in China and Russia has been consistently increasing over the past 5 years. Sociocultural: 1) Environmental concerns: Consumers have become more concerned with the environmental quality of their products due to the degradation of artificial ingredients and other chemicals and production based on genetic engineering methods. This may represent a threat for companies in this industry as it requires higher expenditures in R&D. However, we consider that an opportunity for P&G. The reason is that P&G has a Corporate Environmental Science Department that evaluates the environmental quality of their products and conducts continuous tests to ensure product safety. So by increasing consumer demand on sustainable innovation products with environmental profiles, P&G will be the optimal company for meeting and exceeding their needs. 2) Demographic trends in the U.S.: The aging of baby boomers of the U.S. are being more concerned with beauty to keep them fresh and to feel youth. Therefore, demand for using more beauty and anti-aging products is increasing. Moreover, according to the US Census Bureau, by the year 2030, the number of elderly people is expected to increase to 71.5 million, or 20% of the total population. P&G can benefit from this trend by targeting more beauty products to this target market. Therefore, this demographic trend is considered an opportunity for P&G as the demand for products under its beauty and grooming global business unit is increasing which will allow it to boost its sales in the cosmetic sector. Technological: Emerging new technologies have allowed firms competing in this industry to better serve consumers. For example, technologies that have enabled firms to collect information about consumers have enhanced their marketing strategies. They are now able to provide world-class, high quality products and services that meet and exceed the specific needs identified by customers. Moreover, technology has allowed these firms to reduce their costs and increase their profit margins. For example, Just in time manufacturing technology has decreased the cost of handling inventory and increased process efficiency. Finally, since this industry is a maturing one, companies operating here should be able to continuously introduce new innovations and differentiated products in order to avoid price competition. Thus, technology is definitely an opportunity for businesses in this industry. Summary of Opportunities and Threats: Opportunities Threats Developing markets Global political uncertainty Environmental concerns Regulatory changes Demographic trends in the U.S Economic conditions (Decrease in GDP, disposable income) Innovation Fluctuations in commodity costs and currency exchange rate Porter’s 5+1 Competitive Forces Model After having analyzed the macro environment and scanning the societal environment for opportunities and threats, we will now move further with our analysis of the external environment to scanning the industry (micro environment). This will be done through Porter’s 5+1 forces analysis which determines the attractiveness of an industry through several factors: Intensity of rivalry, threat of new entrants, bargaining power of buyers, bargaining power of suppliers, threat of substitutes and complementor power. Threat of new entrants: Entering into such an industry requires huge capital which makes it hard for new entrants to become as big and as capitalized as large companies like P&G. So, the first factor, capital requirements, indicates a low threat of new entrants. Another factor to be considered is profit margins. Although competition is really intense as the company is operating in a maturing industry, by studying the financial statements of P&G and its major competitors, we found that they still enjoy high and stable profit margins. Therefore, this industry may be considered attractive, increasing the threat of new entrants. However, to be able to survive in such an industry, a new entrant needs to offer products that are highly differentiated to overcome brand loyalty. Research and development becomes one of the critical issues for those who want to enter. All this contribute towards increasing costs and low profitability which reduces the threat of new entrants. Economies of scale is another factor to be considered. Companies in this industry achieve EOS through bulk purchasing, which allows them to reduce costs and devote these savings to R&D expenditure. Recently, the focus on achieving EOS has increased among competitors after the financial crisis as disposable income among consumers has decreased. So, a new company has to enter the industry with a minimum efficient scale in order to be able to compete. This decreases the attractiveness of the industry as supply will be greater than demand and inventory costs will be very high. Hence, EOS decreases the threat of new entrants. Another factor to be considered is access to distribution channels. As mentioned earlier, P&G for example reserves tremendous shelf space of large distributors such as Walmart. And the later in return would prefer to have P&G’s products on its shelves that are highly advertised rather than a new brand that has not yet created demand. As a result, access to distribution channels decreases threat of new entrants. Overall, we can say that threat of new entrants is relatively low. Threat of substitutes: Substitutes are products that have different characteristics and may belong to different industries but satisfy the same need of customers. The first factor to be considered is the availability of substitutes. Most products are necessities that satisfy primary needs which not many substitutes are available. For example, there is no substitute for laundry detergent besides different types of laundry detergent. The same thing applies for diapers. However, some of the segments like beauty products and snacks do have substitutes and hence require companies to continuously introduce innovative products to increase customer loyalty. Another factor to be considered is switching costs. As mentioned earlier, switching costs are moderate since it is a maturing industry, so we believe if a new substitute arises with equal or better quality and performance and lower prices, customers may switch to the new brand. This contributes towards increasing the threat of substitutes. According to our study, the overall threat of substitutes is moderate. Bargaining power of buyers: The first factor to be considered in determining buyers’ power is the number and size of buyers. Buyers consist of both retailers and the end consumers. As for retailers, we mentioned earlier that P&G’s revenue rely heavily on Walmart in addition to other large retailers such as Target and Albertsons. So, we may say that retailers’ power to negotiate prices may be high. But at the same time, we may say that these retailers may not really exercise their power as they prefer reserving shelf space to companies such as P&G as they bring large profit potential. As for the end customers, they are fragmented and buy fewer quantities, hence, have slight influence on price or product quality. Another factor to be considered is backward integration threat. It is very difficult for retailers such as Wal Mart to integrate backwards and produce P&G’s products as they need to achieve economies of scale and incur significant costs. The lack of ability to integrate backwards decreases the power of buyers. The threat of switching to other competitors in the case P&G increases prices or decreases quality increases the power of buyers. Hence, overall, we can say that the bargaining power of buyers is low to moderate. Bargaining power of suppliers: One factor to be considered is the number of suppliers available. Suppliers of companies in this industry provide standardized inputs (commodities); therefore, multiple suppliers are available which offer different qualities and different prices. P&G for example, does not have a concentrated dependence on specific suppliers. This results in decreasing power of suppliers. Another factor to be considered is switching costs. Since suppliers provide the company with standardized inputs (commodities), this decreases switching costs and thus decreases the power of suppliers. Moreover, P&G as an individual buyer is very large, which increases its power to put downward pressure on costs and demand higher quality of inputs from suppliers. Therefore, since the size of individual buyers is large, this contributes towards decreasing supplier power. Based on these results, we can say that bargaining power of suppliers in this industry is low. Complementor Power: “Complementor is a company or an industry whose product works well with a firm’s product and without which the product would lose much of its value” (Bodolica, 2009). We couldn’t really see a link between the consumption of P&G’s products and the availability of complements. The only product we identified was Downy, a liquid fabric softener used with laundry detergent. However, the complement here is a necessity and one which does not have any substitutes so chances that demand for detergents will decrease, are unlikely, which in return reduces complement power. Rivalry: To determine the level of intensity in this industry, we will study several factors before giving an overall estimate. The first factor to be considered is the number of competitors, in other words, the position of the industry on the concentration continuum. There are four major competitors in this industry including P&G, Unilever, Johnson & Johnson, and Kimberly Clark (refer to appendix 4 for the industry strategic group map). Others include Avon, Colgate-Palmolive Company, Energizer Holdings, Henkel and L’Oreal (refer to appendix 5 for an illustration of market share distribution). Also, P&G faces competition from local low-cost manufacturers in developing countries in addition to private labels introduced by large retailers. The high number of competitors results in higher industry rivalry. Another factor to be considered is the growth stage of the industry. P&G operates in a maturing industry which is characterized with low sales and flat profits. Low profits are due to the fact that maturing industries are highly competitive which usually leads to price competition. Another factor that determines intensity of competition is product characteristics. Although products offered in maturing industries are commodities, P&G differentiates its products to distinguish them from other competitors. However, we believe that switching costs for P&G’s are still quite low. The reason is that customers have a wide variety of choices across different brands and may make their decisions based on many factors such as price, brand name and quality as well as other new concepts introduced in markets like “environmentally friendly”. So, as we can see, this factor is an indicator of increasing competition. P&G and its similar competitors have high fixed costs which increases intensity of competition. One last factor to consider is exit barriers. Companies in this industry have made massive investments in capital and fixed assets which are specific to their production processes. This increases the height of exit barriers, and hence, increases competition. Finally, we can say that the intensity of competition in the personal & household products industry is very high. Key Success Factors After conducting the PEST and Porter’s five forces analyses, we are now able to determine the variables that can significantly affect the overall competitive position of Proctor & Gamble within the personal products industry. These variables which are called the Key Success Factors (KSF) are prerequisites that any company competing in this industry should possess in order to succeed and survive competition. Moreover, key success factors are determined by analyzing consumers’ needs and competition in terms of drivers, dimensions and intensity of competition. As a leader in the consumer goods business, P&G should be able to meet consumer needs better than other competitors. KSFs in the personal products industry consist of: Key Success Factors High quality products Strong brand name Innovation/Speed Variety of products Transparent labeling Environmentally friendly Product safety Quality Control Supply Chain Management Low Costs Efficiency Consumer research capabilities Marketing expertise Availability of products Continuous improvement Customization Human capital development We have highlighted some of the KSFs to elaborate more on them. Starting with innovation/speed, companies should be able to introduce new products and adapt to the ever-changing needs of consumers. Moreover, companies should do that quickly to maintain a leading position in the industry or else they become market laggards. As for transparent labeling, customers demand proper communication of product’s features through labeling. Moving on to the KSF, environmentally friendly products, it broadly means that all companies operating in this industry should be committed to continuously increase the environmental quality of their products such as using renewable materials and decreasing product packaging. Evaluation is conducted by the Corporate Environmental Science Department which in turn passes on reports to customers and other stakeholders. Product safety is essential for companies operating in this industry as they should give additional consideration to the health aspects of their products and ensure safety by intense testing. Another important KSF is maintaining a strong brand name to increase customer loyalty and increase switching costs. For supply chain management, companies should be able to deal efficiently with retailers by using web order management systems in addition to maintaining control over distribution systems. This will lead to on-time delivery, prevention from stock-outs and more satisfied customers. Low costs are also a prerequisite through economies of scale, economies of scope and efficient cost management and they are required since customers are not willing to pay a premium for inefficiencies. In response for intense competition and emerging needs of consumers, companies should invest heavily in gathering and analyzing consumer opinions and tastes which gives rise to the last KSF which is consumer research capabilities. Internal Environment After analyzing the entity’s external environment and scanning it for opportunities and threats, we will be completing our SWOT analysis by looking inside Proctor & Gamble to identify strengths and weaknesses. Moreover, we will be identifying and developing the organization’s recourses and capabilities to determine whether P&G enjoys a competitive advantage by exploiting opportunities and mitigating threats. Furthermore, we will dig deeper to become more familiar with P&G’s culture, organizational structure and value chain activities. Strengths and Weaknesses: Strengths 1) Strong brand name The brand name that P&G has successfully built and maintained over the years is one of the major strengths of P&G as it allowed the company to generate a profit margin that is above industry average. The company has built a strong brand portfolio consisting of 50 leadership brands that are among the most well-known household names. Moreover, 23 of these brands generate more than 1 billion dollars in sales each year. 2) Leading market position: P&G is considered to be a global leader in the consumer products sector. It maintains a leading position in many product categories such as beauty, health and personal care. Moreover, P&G is one of the most admired companies in the United States as the company was the 25th largest U.S Company in revenue in 2007 and the 18th largest in profit. Although, P&G operates in a mature and highly competitive industry, it has been able to maintain leadership and high profits through effective and efficient manufacturing processes that include just in time inventory systems. This has led to saving on inventory costs that lead to delivering high quality products by devoting more resources to R&D expenditure. 3) Diversified and innovative product portfolio: P&G has a diversified portfolio around the world with different GBUs including Global Household Care, Consumer Health Care and Beauty & Grooming allowing it to compete in different markets. Its diversified portfolio has helped the company earn honors from the “SymphonyIRI New Product Pacesetters Report” which is the annual list of the biggest innovations in this industry. SymphonyIRI recognized P&G as the most innovative manufacturer in the consumer packaged goods industry for the last decade, presenting the Company with its “Outstanding Achievement in Innovation” award. Moreover, what adds to the company’s strengths is its ability to customize its global products to local needs and preferences. An example of how P&G adapts to the needs of people in developing nations would be the launching of Downy Single Rinse in Mexico, China, Philippines, and 9 other countries. This product is a response to the fact that consumers in these countries wash clothing by hand with limited amounts of water. 4) Strong focus on Research and Development: P&G invests around 2 billion dollars each year on R&D in addition to the thousands of research studies they conduct to understand consumer needs. Moreover, they have 25,000 active patents on their products. The company’s primary objective is to identify new opportunities and better understand customers to introduce new products that will meet and exceed customers’ expectations. Weaknesses: 1) Quality control problem: P&G has quality control problems with some of its products due to the large scale of its operations which makes monitoring more difficult. For example, when P&G introduced a new Pampers baby diapers called “Dry Max,” the company received many complaints. One customer claimed that her daughter was infected by skin redness and reports indicated that these symptoms were caused by chemical burns. Furthermore, the company has placed recalls on other products such as cosmetics made in China. 2) Dependent on Wal-Mart stores for a majority of its revenues: P&G is depending on selling a large amount of its products to a single customer. For example, Wal-Mart is the biggest distribution channel of P&G as revenues that come from Wal-Mart stores represent 16% of P&G’s total revenues. Moreover, only ten customers of P&G are responsible for 33% of P&G’s total sales. This is considered a weakness because this gives Wal-Mart and other major customers more power to affect costs. Moreover, that may adversely affect profitability if these customers decide to exercise their power as costs will increase. 3) Decreasing revenues from Northeast Asia market: P&G has been witnessing a decline in revenues generated in the Northeast Asia’s market. This decline in revenue could lead to a competitive disadvantage against other competitors especially since this market has a high profit potential. Summary of Strengths and Weaknesses: Strengths Weaknesses Strong brand name Quality control problem Leading market position Dependent on Wal-Mart stores Diversified & innovative portfolio Decreasing revenue from Northeast Asia market Strong focus on R&D Organizational Culture: Given the fact that P&G’s success in the consumer products industry depends on innovation produced by its people, management decision making in P&G is decentralized. P&G has created a culture where participation is highly encouraged and delegation and empowerment are dominant. Middle-level managers at P&G do not have to wait for the approval of top management regarding innovative projects. This in fact enables the firm to meet the key success factor of speed which requires introducing new innovative products quickly to the market and responding to customer needs before other competitors do so. Moreover, P&G’s culture is represented by a very diverse workforce including 145 nationalities which allows the firm to have a wider understanding of consumers’ tastes around the world. Also, P&G’s culture is a very supportive one, it encourages employees to share ideas and bring the best out of them. This multinational workforce enables the firm to meet another key success factor which is offering customized products based on local tastes. Furthermore, P&G’s culture which is also described as a winning culture is built on elements of integrity, openness, trust, respect, loyalty, caring and shared experiences which all contribute towards the firm’s ability to improve the lives of consumers around the world. Finally, the firm believes that this diverse workforce at P&G provides it with a sustained competitive advantage, guaranteeing the firm continuous growth. In addition to the numerous values that P&G’s culture adopts, the company has a Worldwide Business Conduct Manual which led us to conclude that P&G operates in a culture that has aspects of both, value-based and compliance-based cultures. The code of conduct imposes rules and policies that will ensure that all employees around the world will respect the government and law, workplace, marketplace, societies and communities and will ensure sustainable development. An example of a policy imposed in the workplace would be the issue of accepting gifts. The manual states clearly that “receiving gifts, entertainment or other gratuities from people with whom we do business is generally not acceptable because doing so could imply an obligation on the part of the Company and potentially pose a conflict of interest.” (Worldwide Business Conduct Manual) Organizational Structure: Proctor and Gamble follows the divisional structure that supports its corporate level strategy (refer to appendix 6). This structure consists of three global business units: Beauty and Grooming, Health & Well-being and Household Care. These GBU’s are responsible for developing strategies for brands and therefore, focus on competitors and consumers to identify needs, build on innovation and promote brands through effective marketing plans. Moreover, the product lines under the GBUs are put into six reportable segments: Beauty, Grooming, Health Care, Baby Care and Family Care. Also, P&G’s organizational structure consists of seven market development organizations (MDO) located in all regions in which P&G operates. These are responsible for interacting with retailers and consumers in those regions and implementing innovations produced by the global business units into the business plans they developed for each market. Then comes the global business services which consist of experts who are responsible for providing world-class solutions and verifying information and transferring it rapidly across the businesses. Moreover, they are responsible for providing different tools and technologies that will ensure that GBUs and MDOs understand their businesses well to better serve customers. Finally, P&G’s divisional structure comprises corporate functions which are responsible for ensuring functional innovation and continuous improvement in the company’s marketing and product oriented operations in addition to providing corporate accounting, HR, legal and other functional support. Resources and Capabilities: Tangible Resources Intangible resources Capabilities Industry leading financials (market cap, sales) Strong brand name Customer understanding (conduct over 20,000 research studies every year, and invest more than $350 million annually in consumer understanding EOS through diversified and innovative portfolio Culture of diversity, leadership, risk taking and adaptation Ability to adapt to external changes (geographic expansion, environmental concerns) Trademarks and patents Effective supply chain management to ensure high quality products VRIO Framework: (Refer to appendix 7) To take a couple of examples and see how a tangible resource or an intangible resource or a capability may provide the firm with a sustainable competitive advantage, let us start with industry leading financials (tangible resource). P&G has the highest net sales among all competitors in this industry in addition to the highest market capitalization. This is valuable as it contributes to increasing the bottom line of the company and allowing it to satisfy shareholders by higher dividends. Moreover, it is rare as it exceeds all competitors and hard to imitate by new entrants as it needs long time and massive investments. Finally, it is organized to exploit opportunities and mitigate threats which make this resource a source of sustainable competitive advantage. Economies of scale and scope through diversified and innovative portfolio are valuable as they contribute towards cost reduction and allow the firm to invest heavily in R&D. However, they are not rare as competitors such as J&J also enjoy EOS and cost reductions. As for new entrants, it would be very difficult to achieve EOS as they should enter at the minimum efficient scale and have a highly diversified portfolio which is very expensive. Finally, it is well organized to exploit opportunities and reduce threats. Since one condition; rareness, does not apply, this resource is not a source of competitive advantage. One last example is its ability to adapt to external changes such as geographical expansion and environmental concerns. It is valuable because introducing products specific to customer needs such as environmentally friendly products before other competitors do, contributes towards increasing customer loyalty and switching costs. It is rare, because other competitors have considered such sociocultural trends as a threat and are facing difficulties in introducing customized products. It is also hard to imitate as it requires substantial investments in R&D. Finally this resource is well organized making it a source of sustainable competitive advantage. Corporate Value Chain Analysis: While studying both the primary and secondary activities in the value chain of P&G, we have found that the core competencies of P&G by which it achieves a sustainable competitive advantage lie mainly in its downstream activities including outbound logistics and marketing activities. As for the supporting activities, P&G relies heavily on Technological Development. Moreover, P&G’s marketing and R&D is spread over 44 brands that account for 90% of the company’s profits. Other important activities which P&G focuses on include inbound logistics and procurement to ensure low costs through discounts and economies in purchasing in addition to HR. Outbound Logistics: P&G uses logistics specialists and organized systems to support its collection, warehousing, transportation, distribution and picking activities such as its contract with Exel to service distribution centers worldwide. Moreover, P&G optimizes transportation through a comprehensive multi-mode approach, and now goes further by leveraging common “intermodal” containers across different types of transportation. In fact, P&G puts extra effort in its outbound logistics as it depends mainly on few retailers like Wal-Mart. Hence, P&G strives to continuously decrease delivery times to guarantee shelf space which allows it to meet the KSF of availability. Marketing and Sales: P&G interacts with more than 5 million consumers in 180 countries through more than 250 brands. Since the company offers differentiated products, it spends extensively on marketing and advertising to communicate the quality, value and uniqueness of their products to consumers. This has allowed the company to currently possess 50 leadership brands where each one generates more than $1 billion in annual sales. By leadership brands, we mean that P&G has built brand familiarity hence increasing demand on these brands over other competitive brands and increasing customer loyalty. Actually, P&G was awarded the number one best management and consumer marketing strategies in a survey of US retailers. Furthermore, we compared some marketing techniques of P&G to its competitor Kimberly Clark. Both P&G and K.C tend to reach customers in different ways possible such as the use of sampling programs (E.g. coupons for the first purchase), television ads, newspaper ads and online commercials. P&G and K.C spent more than other competitors by almost 500%, and P&G spent 35% more than K.C. Research and Development: P&G invests heavily in R&D to deliver innovative products that will improve the lives of consumers as promised in its mission statement (strategic consonance). The company conducts around 20,000 research studies and allocates more than $350 million annually in consumer understanding. This made it one of the top 20 R&D investors among American based companies. Moreover, P&G’s annual R&D budget is about $2 billion which supports 8,000 engineers and scientists at 25 research centers in 12 countries. This helped P&G develop its innovative customized products and receive awards from the SymphonyIRI. During the past 15 years, 125 products from P&G were from the top 25 on the list. Moreover in 2009, P&G started 5 of the 10 most successful nonfood products. In comparison, Unilever, J&J, Kimberly Clark, Colgate, L’Oreal, and Energizer together had 7 only. P&G’s R&D capabilities have allowed it to secure about 27,000 patents globally. Human Resources Management: P&G’s HR ensures a diverse and experienced workforce that will be able to share ideas that will yield the highest quality and innovative products. Also, in order to encourage employees to utilize their greatest efforts, people who get recruited at P&G enjoy many advantages like strong stock purchase plan, profit sharing plan, intensive training at P&G College, high compensation, relocation assistance program and other advantages. Corporate-level strategy We will be analyzing P&G’s corporate-level strategy in terms of the level of diversification and relatedness. However, a point worth mentioning at start is the type of slack resource that has allowed the company to expand and diversify its portfolio. We believe that the slack resource of P&G that was not being utilized to its fullest capacity is their innovation capabilities. Starting with diversification, companies tend to diversify as a function of risk reduction. Here, P&G achieved diversification horizontally as it expanded its operations into new product lines within the personal and household products industry. Horizontal diversification was also achieved through expanding into new geographic markets such as its new manufacturing facilities in developing countries including India. Moreover, the company mainly focused on acquisitions as a way to grow, marking its largest transaction in 2005 by acquiring Gillette. As for the level of diversification, it is determined based on the sources of the company’s sales revenue. P&G’s dominant business is the laundry category and it represented 17% of the company’s net sales in 2010. Since less than 70% of the company’s revenue come from the dominant business, and since the different businesses in P&G share distribution and marketing linkages, we conclude that P&G is a related constrained diversified company. Such level of diversification leads to the highest performance level and we could clearly see this in P&G. As for the relatedness of diversification, P&G enjoys operational relatedness and not corporate relatedness, as the latter is associated with highly diversified companies (conglomerates). P&G generates economies of scope through operational relatedness by sharing resources and activities across the businesses. To better elaborate on that, the paper towel, napkin and disposable diapers businesses use same raw materials such as paper products. Therefore, P&G can enjoy cost reductions through economies of scope by sharing the inbound logistics and operations activities. Moreover, products produced by these businesses are being sold to the same retail stores, allowing P&G to reduce overall costs by sharing the distribution and sales activities. BCG Matrix: (Refer to appendix 8) Stars: (Gillette, Tide, Bounty, Gain, Crest and Herbal Essences) These brands are included in the list of the 50 leadership brands which are considered billion dollar sellers. They have high market share and high growth rate as demand to these products is rapidly and consistently growing. Hence, these products maintain high competitive positions in the market in addition to generating high cash flows. Cash Cow: (Oral-B, Pampers, Head & Shoulders, Charmin and Always) The fact that these brands maintain high competitive position in a low growth industry has led them to become industry leaders with high profit margins. The profits generated from these brands are being used in expansions to new product lines in addition to investing in products lying in the question marks category. The reason profits are not being reinvested in these brands is due to lacking differentiation opportunities. Question Marks: (Tide coldwater, Swiffer, Mr. Clean, Febreeze and Era) As mentioned, P&G is using profits generated in the cash cows to improve the competitive position of products in this category by adapting to external trends. For example, P&G is exploiting the opportunity in the sociocultural environment of increasing environmental awareness to move Tide Coldwater from a question mark to a star. And that is by focusing on increasing its marketing activities and promotion on this brand to communicate its environmentally friendly features and hence, increase demand and boost profits. Dogs: Pert Due to the low competitive position of Pert and the lack of any differentiation opportunities, P&G is now planning to liquidate this brand as way to avoid price competition with its major competitors. Business-Level Strategy A company’s business-level strategy deals with the question of “how to compete in a given industry'” For an effective business-level strategy, resources and capabilities should be organized in such a way as to meet and exceed key success factors (which are determined by customer needs and competition) in addition to exploiting opportunities and mitigating threats arising in the external environment. To analyze P&G’s business-level strategy, we will be identifying P&G’s sources of sustainable competitive advantage and breadth of competitive scope to determine how the company competes in the personal & household products industry. Sources of sustainable competitive advantage: Sources of sustainable competitive advantage can be achieved first through offering differentiated products that create a perception of uniqueness among consumers (high quality products), making them willing to pay a premium, and hence achieving a differentiation advantage. It also can be achieved by offering standardized products at lower prices, hence, obtaining a cost advantage.  Attributes that support P&G’s differentiation advantage include: • Wide range of products (250 brands in 6 different product categories) • Corporate Social Responsibility • Environmentally friendly products • Running business in developing markets • Brand name • Customized products base on local needs • Diverse management team and experienced employees • Pioneer in introducing a formalized brand management system (creates loyalty, increases switching costs and customers become less price sensitive) • Packaging Moreover, investing $2 billion in R&D supports P&G’s adoption of a differentiation strategy. Also, when we analyzed the corporate value chain, we saw that one of the primary activities that P&G focuses on is marketing and sales. In addition, the company focuses on Human Resource Management in the supporting activities which all support a firm’s adoption of a differentiation strategy. Also, we identified a threat arising in the external environment of rising input costs. Usually, for a company that pursues a differentiation strategy, increases in the price of inputs are passed on to consumers through higher prices. The reason is that by offering unique products, switching costs will increase as a result of brand loyalty making consumers less price sensitive. In the case of P&G, the company is now increasing prices on certain products such as Pampers diapers, Charmin toilet paper and Bounty paper towel due to increase in oil, pulp and gas prices.  Attributes that support P&G’s cost advantage include: • Economies of Scale (Volume purchasing) • Economies of scope (P&G shares marketing and distribution activities across its different product lines as well as resources/raw materials) Moreover, as mentioned earlier in the value chain analysis, P&G focuses on outbound logistics which also supports its cost leadership advantage. Furthermore, in its inbound logistics, P&G focuses on bulk purchasing which allows it to achieve EOS. In its operations, the company focuses on standardized processes, all of which contribute towards costs reduction. Competitive Scope: Here the question is whether P&G focuses on the broad mass market or targets a particular segment within the market based on demographic, geographic or socioeconomic characteristics.  Factors that support a broad mass market include: • Global operations • Wide range of products including necessities • Selling most of their products in retail stores such as Wal-Mart which are affordable by all people  Factors that support a target segment include: • High quality • Environmentally Friendly • Women • Stay-at-home parents (mothers with children) • Homeowners • Middle to upper class consumers • Businesses / B2B (P&G sells cleaning and laundry products, snacks, and coffee and beverages to other businesses) Although factors supporting a niche market are more, we believe that the fact that P&G operates globally and retains 16% of its revenues from the affordable store, Wal-Mart, we believe that P&G’s market scope falls somewhere near the broad end on the competitive scope breadth continuum. Since P&G possesses both differentiation and cost advantages, targets a somewhat broad mass market, we can say the P&G pursues an integrated cost leadership/differentiation strategy. Moreover, since the company operates in a mature industry, pursuing an integrated cost leadership/differentiation strategy allows the firm to sustain a competitive advantage. Cost leadership is important in the maturity stage, however, not sufficient as customers will then choose based on price only. Therefore, P&G differentiates its products to increase switching costs. Measuring strategic effectiveness (Refer to appendix 9) Since customers are the primary stakeholders that P&G strives to satisfy, we will begin by analyzing customer satisfaction. In terms of revenue, P&G has generated the highest revenues of $80.62 billion in 2009 relative to its closest competitors and the industry as a whole. Moreover, in terms of market capitalization, P&G also maintains its position at the top. Hence, we conclude that P&G has been doing better than its competitors in achieving customer satisfaction. As for investors and suppliers of credit, we can measure their value creation by analyzing numbers such as EBITDA, net income and PE ratio. From the table, we can see that J&J has outperformed our company in this area which requires a strategy improvement. Regarding society, as mentioned earlier, P&G has been ranked as one of the most admired companies in the United States as the company has been able to build reputation and goodwill through its innovative and customized products.   TOWS Matrix 1 Internal External Strengths • (S1) Strong brand name. • (S2) Leading market position. • (S3) Diversified and innovative product portfolio. • (S4) Strong focus on research and development. Weaknesses • (W1) Quality control problem. • (W2) Dependent on Wal-Mart for a majority of its revenues. • (W3) Decreasing revenue from Northeast Asia market. Opportunities • (O1) Developing markets. • (O2) Environmental concern. • (O3) Demographic trends in the US. • (O4) Innovation. - (S3O3) The diversified portfolio of P&G can be used and modified to satisfy the different tastes of the new demographic trends in the US. - (S1O1) Utilize their strong brand name to attract consumers developing markets (E.g. India, China) - (S4O2) Use its strength in R&D to develop and introduce environmentally friendly products in the market. - (W2O4) P&G can make use of innovative selling techniques such as E-commerce to decrease its dependence on purchasers like Wal-Mart. - (W1O4) P&G can reduce quality control problems by making use of new intensive testing innovations. Threats • (T1) Global political uncertainly. • (T2) Regulatory changes. • (T3) Economic conditions (Decrease in GDP, disposable income) • (T4) Fluctuations in commodity costs and currency exchange rate. - (S3T3) P&G can adapt its diversification plan; allocating more budget towards necessity product lines with inelastic demand to mitigate the threat of decreasing GDP and disposable income. - (S1T4) P&G’s strong brand name and leading position in the market helps in having more negotiation power to decrease the fluctuating costs effect. - (W3T3) P&G should reduce prices in Northeast Asia to increase demand and overcome the threat of decrease in disposable income Recommendations The large size of the company poses significant challenges to P&G. The company has been focusing on growth and expansion through mergers and acquisitions offering now over 250 brands, while giving less attention to the inside of the company. We recommend that the company should operate more efficiently through a matrix organizational structure which will allow P&G to pool its resources that are connected to both product and geographic category. Also coordination between the different SBUs will allow them to better share consumer knowledge and will help facilitate research and development. In order for this coordination to be achieved, management itself should ensure effective and efficient coordination of its brand portfolio to ensure that the company will maintain a sustainable competitive advantage. Moreover, although the company is engaged in many activities across its value chain such as procurement and distribution, P&G should spend more effort on optimizing its value chain activities by better aligning its resources. This will ensure that the company maintains economies of scope and economies of scale which enables it to pursue an integrated cost leadership differentiation strategy. Appendix: 1) List of P&G’s products: Beauty and Grooming brands Always Anna sui Aussie Braun Clairol Cover girl Crest DDF D&G Fusion Gillette Head & Shoulder Herbal essences Ivory Olay Old spice Oral-B Pantene Pert Puma Rejoice Safeguard Secret Venus Wella Tampax MACH3 Dunhill fragrance Naomi Campbell Natural Instincts Lacoste Fragrances Sebastian Professional Escada Fragrance Gucci Fragrances Nioxin Nice ‘n Easy Household care Ace Ariel Bold Bounce Bounty Cascade Charmin Cheer Dawn Downy Dreft Laundry Duracell Era Eukanuba Febreze Gain Iams Luvs Mr. Clean Pampers Prilosec OTC Pringles Puffs Swiffer Tide Vicks Beauty and Grooming brands Mexx Infasil Zest Rochas Max Factor Ellen Betrix Londa Professional Bruno Banani Fragrances Household Care Alomatik Bonux Daz Dodot Dreft Dish Fab Fairy Gala Salvo Tempo Vizir Viakal Lenor Rindex Myth Laundry Mr. Proper 2) Illustration of sales distribution: 3) Members of board of directors: Angela F. Braly Chair of the Board - Member of the Audit and Governance & Public Responsibility Committees Angela F. Braly has served on the board since December 8, 2009 (Age 49). She also serves as the President and Chief Executive Officer of WellPoint, Inc. (a healthcare insurance company). She has served as Chair of the Board since March 2010 and President and Chief Executive Officer since 2007. She previously served as President and Chief Executive Officer of Blue Cross Blue Shield of Missouri from 2003 to 2005. Ms. Braly has considerable leadership, consumer industry and marketing experience. In addition, she brings significant amount of government experience, given her prior role as general counsel and chief public affairs officer for WellPoint. Kenneth I. Chenault Independent Non-Executive Director - Member of the Audit and Compensation & Leadership Development Committees Mr. Chenault has served as a director on the board since 2008 (Age 59). He is also the Chairman and Chief Executive Officer of the American Express Company (a global services, payments and travel company) since 2001. Moreover, he has been a Director of International Business Machines Corporation since 1998. As a result of his 30 years experience in delivering products and services to consumers worldwide, Mr. Chenault is able to bring leadership, consumer understanding, financial and marketing expertise and a global perspective to the Board. Rajat K. Gupta Independent Non-Executive Director - Member of the Audit and Innovation & Technology Committees Rajat Gupta has served as a director on the board since 2007 (Age 61). He also serves as a Senior Partner Emeritus at McKinsey & Company (an international consulting firm) since 2007. Before that he held positions of Senior Partner Worldwide from 2003 to 2007 and Worldwide Managing Director from 1994 to 2003. He is also a Director of AMR Corporation since 2008, Genpact, Ltd. since 2007, and Harman International Industries, Inc. since 2009. In addition, Mr. Gupta was a Director of Goldman Sachs Group, Inc. from 2006 to 2010 and Sberbank from 2009 to 2010. Mr. Gupta has been able to bring leadership, international, marketing and technology experience in addition to financial experience. Robert A. McDonald Chairman of the Board, President and Chief Executive Officer Mr. McDonald has served as a director on the board since 2009 (Age 57). He held various positions including Chief Operating Officer from 2007 to 2009 and Vice Chair, Global Operations from 2004 to 2007. He has also been a Director of Xerox Corporation since 2005. Due to his long journey with the company, Mr. McDonald has an extensive, in-depth knowledge of the Company’s business which provided him with significant leadership, consumer industry, marketing and international experience. W. James McNerney, Jr. Chairman of the Board - Presiding Director, Chair of the Compensation & Leadership Development Committee and member of the Governance & Public Responsibility Committee Mr. McNerney has served on the board since 2003 (Age 61). He is also the President and Chief Executive Officer of The Boeing Company (aerospace, commercial jetliners and military defense systems company) since 2005. Previously, Mr. McNerney was CEO of 3M Company, a global technology company. He has been a Director of International Business Machines Corporation since 2009. Mr. McNerney has the best ability to advise the board regarding strategic matters due to his extensive experience in managing large, global manufacturing companies, as well as his insight into government affairs. Johnathan A. Rodgers Independent Non-Executive Director - Member of the Innovation & Technology Committee Mr. Rodgers has served on the board since 2001 (Age 64). Also, Mr. Rodgers serves as a President and Chief Executive Officer of TV One, LLC (a media and communications company), since 2003. Previously, Mr. Rodgers was President of Discovery Networks for six years and worked for CBS, Inc. for twenty years, where he held a variety of executive positions. Furthermore, Mr. Rodgers has been a Director of Nike, Inc. since 2006. The experience that he gained in the multiple positions he has held has enabled him to gain leadership, consumer industry, marketing and technology experience. Mary Agnes Wilderotter Non-Executive Director - Member of the Compensation & Leadership Development and Governance & Public Responsibility Committees Mrs. Wilderotter has served as a director on the board since 2009 (Age 55). She is also the Chairman, President and Chief Executive Officer of Frontier Communications Corporation (Communications Company specializing in providing services to rural areas and small and medium-sized towns and cities). Mrs. Wilderotter previously held positions as Senior Vice President of Worldwide Public Sector at Microsoft, President and Chief Executive Officer of Wink Communications, Inc. and Executive Vice President of National Operations for AT&T’s Wireless Service, Inc. Moreover, she has been a Director of Xerox Corporation since 2006. Mrs. Wilderotter a Director of Yahoo! Inc. from 2007 to 2009. Mrs. Wilderotter’s considerable experience has enabled her to gain a vast amount of consumer industry, marketing and technology experience Patricia A. Woertz Independent Non-Executive Director - Chair of the Audit Committee and member of the Governance & Public Responsibility Committee Mrs. Woertz has served on the board since 2008 (Age 57). She is also the Chairman, Chief Executive Officer and President of Archer Daniels Midland Company (agricultural processors of oilseeds, corn, wheat and cocoa, etc.). Ms. Woertz began her career as a certified public accountant with Ernst & Ernst. Ms. Woertz also brings a significant amount of international, marketing, finance and technology experience in addition to leadership skills. Ernesto Zedillo Independent Non-Executive Director - Chair of the Governance & Public Responsibility Committee and member of the Innovation & Technology Committee Mr. Zedillo has been a director on the board since 2001 (Age 58). Dr. Zedillo served as President of Mexico from 1994 to 2000 and currently serves as Director of the Center for the Study of Globalization and Professor in the field of International Economics and Politics at Yale University. He has been a Director of Alcoa Inc. since 2002 and Citigroup, Inc. since 2010. Dr. Zedillo was also a Director of Union Pacific Corporation from 2001 to 2006. Dr. Zedillo’s has significant Government, leadership, international and financial experience. Scott D. Cook Independent Non-Executive Director - Chair of the Innovation & Technology Committee and member of the Compensation & Leadership Development Committee Mr. Cook has served on as a director on the board since 2000 (Age 58). Moreover, he is Chairman of the Executive Committee of the Board of Intuit Inc. (a software and web services company). He also served as President and Chief Executive Officer of Intuit from 1983 to 1994 and as Chairman of the Board of Intuit from 1993 through 1998. He has been a Director of eBay Inc. since 1998. Mr. Cook has a wealth of leadership, technology, consumer industry and marketing experience that he brings to the Board. 4) Industry strategic group map: 5) Market share distribution: 6) P&G organizational structure: 7) P&G VRIO Framework: Resources/Capabilities Value Rare Imitable Org Source of Sustainable advantage' Tangible Resources (Has) Strategic Resources (Y/N) (FI) Ind. Leading financials (market cap, sales) X X X X Y (FI) Economies of scale and scope through diversified and Innovative portfolio X X X N Intangible Resources (Has) Strategic Resources (Y/N) (Mktg) Strong Brand Name X X X X Y (FI) Leadership Development X X X X Y (Mktg) Variety of products X X X N (HR) Diversity of workforce X X N Capabilities (Does) Core Competency (Y/N) Ability to adapt to external changes (geographic expansion, environmental concerns) X X X X Y (Mktg) Customer understanding (conduct over 20,000 research studies every year, and invest more than $350 million annually in consumer understanding) X X N (R&D) Innovation/speed (in 2009, P&G started 5 of the 10 most successful nonfood products) X X X X Y (Ops) All aspects of supply chain coordinated to ensure high quality products. X X N 8) BCG Matrix: PG JNJ KMB Unilever Industry Market Cap 184.78B 183.03B 26.58B N/A 1.08B Employees 127,000 114,000 57,000 163,0001 1.76K Qtrly Rev Growth 5.50% 3.50% 4.00% N/A 9.40% Revenue 80.62B 62.13B 19.94B 57.07B1 807.70M Gross Margin 50.96% 69.35% 32.34% N/A 48.28% EBITDA 18.37B 19.32B 3.56B N/A 67.50M Operating Margin 19.20% 26.33% 13.55% N/A 11.52% Net Income 11.24B 12.28B 1.81B 5.30B1 N/A EPS 3.80 4.41 4.40 N/A 1.59 P/E 17.44 15.14 15.39 N/A 21.53 PEG (5 yr expected) 1.88 2.04 2.12 N/A 1.57 P/S 2.29 2.89 1.33 N/A 1.48 9) Financial Analysis as of 2009 (Yahoo Finance): References: Cisco. (2002). Procter & gamble. Retrieved from http://www.cisco.com/warp/public/779/ibs/solutions/supply/pgcasestudy1.pdf Corporatewatch. (2011). Procter & gamble. Retrieved from http://www.corporatewatch.org/'lid=247 Dealbook. (2007). Should procter & gamble clean house. Retrieved from http://dealbook.nytimes.com/2007/07/24/should-procter-gamble-clean-house/ Elkin, B. (2009). 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