Building High-Performance Organization in P&G - Case Study Example

PROCTAR AND GAMBLE (P&G) STUDENT NAME PROFESSOR’S NAME COURSE TITLE DATE TABLE OF CONTENTS PART 1 3 Introduction 3 Innovation and Organizational Sustainability 4 Operations and Internal processes 5 Customer and Marketing 7 Financial Performance 9 Part 2 11 Innovation and Sustainability 12 Marketing and Sales 14 Operational capabilities 16 Financial Capabilities 17 PART 2 B 18 Coulson Harney Plc: Hypothetical Company 18 Conclusion 22 REFERENCES 23 PART 1 Introduction Proctar and Gamble (P&G) is amongst the largest manufactures in consumer products and amongst the 10 biggest companies in relation to its market capitalization. The company founded in 1837 in Cincinnati Ohio by William Procter and James Gamble has operated in the United States for over 150 years. The company known world over for its innovative products and high popularity ratings makes about $83.62 billion in sales and $14.48 billion in profits in the year 2012. They are one of the leading consumer goods company with several international leading brands such as Ariel, Braun, Duracell, Fusion, Gillette, Lenor, Oral-B and Wella among other numerous products. In the year 2007, P&G the company created three Global Business Units: Their business operations beauty and care, household care, health and wellbeing, pet care, baby care and pet care products. Amongst its most successful products include; Pampers, Tide, Bounty, Prignles Charmin, food and beverages and many other products. The P& G manufacturing outfit operates in different countries in the worlds: United States, Canada, Europe, China, Latin America, Africa and Australia. It has also ventured into productions and TV series such as the Catli, Somerset, Texas, For Rich for Poorer among others. The business goals and aims of P & G is ; maintaining of its high popularity ratings in their existing product, development of new related products and innovating and introduction of new products. Innovation and Organizational Sustainability Innovation is an important tool in any organization, since it enables companies to stay ahead of their competitors. In any industry, innovation supersedes the act of using experts, scientists, product developers and researchers to create new products but the concerted effort of the organization to generate processes that enables products reach the market quickly and efficiently. Innovation is as a corporate strategy to improve manufacturing processes, compete in the market, establish reputation, and improve the customer’s perception. P&G interlinks its marketing and product innovation to improve its perception. The adaptability of P&G to changing customer needs and demands linked to their innovative strategies however; in the 1980s, it had almost lost its market dominance. In the 1980s, one of the P& G management had said that the company had failed to have a single breakthrough in innovation since 1985 and their market dominance was questionable. Their strategy ‘play to win innovation strategy helped it gain market leadership (Davila et al) Market acquisition of their main competitors both local and foreign was part of their innovative strategy that sought to diversify its products, and increase the company’s profits significantly. This shows the aggressiveness of P&G by acquiring Folgers Coffee, Norwich Eatobm and many others. According to O’Reilly and Tushman (2002), an innovative strategy needs careful implementation within the organization. The most notable acquisition is that of the 2005 Gillete acquisition for $57 billion making it amongst the biggest in history of P& g, P & G President and Chief Executive, AG Lafley stated that innovation is important to the innovation of the company that is a business needs to attract capital and talent. Future needs P& G requires the embracing of technology to accelerate production, speed up decision making while at the same time setting goals and targets that meet the business needs. P& G goals in relation to innovation require that; individuals are respected and valued and their contributions are important in the firm’s decision-making. Innovation being the cornerstone of its success, it is proactive in leading the field of development. In its innovation, it depends on its employees, the consumers and the management to determine whether the innovative ideas are in line with the market needs. P &G spends a great deal of money on research and development for instance $0.2 billion 2012 and 2011 while $1.9 billion in 2010. P & G for instance has adopted a sustainability strategy that incorporates four elements; sustainable innovations to delight customers, improvement of its environmental profile of its operations, creation of corporate social responsibility and equipping its employees with sustainability within the workplace (Tidd & Bessant, 2013). Operations and Internal processes Operations within P&G refer to the way in which it produces its goods and services. The operations management department at P&G has a duty to manage the resources such as marketing, product or service development and the operations function. The P&G has constantly changed its operations through acquisitions of new products and companies, diversification, expansion to new and emerging markets and the successful management of these portfolios requires good management strategies. The organizational structure of P&G includes the Global Business Units (GBUs); Global Business Services (GBS) and the Corporate Functions (CF). The building blocks in the P&G in its operation include; the facilities such as the equipment, buildings, processes and technology employed in the operation and secondly the people or those who manage operate plan the operations. The performance of a company shows whether their operation strategies are forth coming or not. P & G has a good relationship between their suppliers, the internal management within the company and its customers in relation to the sale, production and supplying of the important commodities to the firm. In the organization, P&G operations through surveillance and controls the volumes and quality of the products to ensure that only the best products get into the marketplace. In its operations, P&G leads in operations in its supply chain, internal and warehouse management. An important aspect of P&G operations is that it creates a hierarchy of positions and operations. At the apex is the President and Chief Executive Officer, Global Human Resources Officers, Senior Vice President & Comptroller, Chief Financial Officer. According to P&G Chief Executive Paul Polman improving efficiency, the supply chain, and manufacturing is to ensure that the right product, at the right place and at the right time. Important to any organization is the supply chain that is how products get from the suppliers, to the company, and transported to different parts of the world. A supply network on the other hand is the operations that provide goods to the end consumers. P&G is a global outfit with operations in over 180 countries, and an efficient supply chain that is responsive to customer demands and needs requires proper internal operations. P&G has set up different warehouses, storage facilities, manufacturing plants in different locations in the world and it ensures that products arrive at the retailers in good time and there is no shortage in the market. A good supply chain ensures that the company gains more profits that is ‘the larger the level of cost of materials as a proportion of costs the greater the profitability of a reduction in material costs’. Customer and Marketing Marketing an internal environment tool of organization performance is a crucial tool in building of brand, brand recognition, awareness and value. In history, P& G is known to be one of the companies that advertises their products nationally and developed the idea of brand management. P & G has marketing teams for different brands competing with each other and they even used soap opera and programs to promote their products and appeal to household women. A marketing strategy is ‘a set of integrated decisions and actions by which a company recognizes and meets the customer’s needs and demands to achieve marketing goals’ (Lenskold, 2007). The company sole purpose in its operations it the provision of p=branded service and products of superior qualities and value to improve the lives of consumers now and in the future. Focusing on the long-run that consumers will reward them with leadership sales, profit, value creation, allowing our people, shareholders and community to prosper. P&G underpins its marketing policies on ethical and moral reasoning that is the company aims at winning consumers by virtue of its products quality and not by creating unfair advantage for its competitors. Advertising by P& G is honest and it is neither deceptive nor misleading in its promotional activities. Earlier on, the target market segment for P& G products was household women, those who need to clean however, and its scope includes women, men, children and even organization. Further, P&G having focused mainly on the wealthiest class of consumers AG Leafy appointment in 2002 saw the adoption of the policy ‘serving the world’ that is creating products that target the less privileged in society. Their production strategy failed to take into consideration the interest of low-income earner as well as targeting developing markets in relation to sale of their products. P&G focuses on branding their products to improve consumer identification and recognition of the brand. A brand refers to ‘a mark, name, logo, or symbol, unique in a product that makes it easily distinguished from other products directly competing with the company’s product’. The P&G marks its product with a logo and a distinct logo to identify its product. The creation of the brand of P&G products goes hand in hand with advertisement that seeks to sell the brand to its target customers and marketing. P&G focuses on marketing and creation of quality brand aligning itself with innovation. For instance, after the acquisition of Gillette in 2005, P&G creates marketing campaign aimed at linking the product with the company and reinventing the product in the market. Further marketing goes beyond televised advertisement, but taking notice of new technology in marketing such as social media marketing, internet and mobile marketing. Other platforms that enable marketing of the products the issuance of brochures, company newsletters, stickers and billboards all aim at edging out competition, market penetration and improve financial performance. In the recent past, P&G has exploited marketing strategy such as promotion of its products, reward system for its loyal customers, issuing discounts. This Marketing strategy improves the profitability of the company and creates a competitive advantage over its competitors. P&G also stocks retail outlets such as Wallmart that help in marketing and sales of the products. Financial Performance The net earnings of P& G in the 2012 financial year amounted to $ 10.8 billion a decrease of $1.0billion or 9% in the 2011 financial year. The decrease in the earnings of the company was because of restructuring charges in the company, gross margin contraction, offsets and the gain on the sale of their Kelloeg Snack business. Further, their decline in gross margin by a 160-basis point resulted from high commodity costs and negative mix through offset by price increase and manufacturing costs. The company thus incurred losses due to high production cost caused by commodity prices. The ability to satisfy the shareholders indicates the profitability of a company. For years shareholders dividends has increased annually at the rate of 9.5%. Further, the shareholder returns in on investment has been at an all-time high, with most investors preferring to reinvest in the company. In 2010, P& G reported a net income of $ 13.4 billion on revenue of $79 with $79 billion in sales across the world, 24 brands with $1 billion sales each. The company’s profitability margin was at 14.5% indicating a strong performance in the company’s strategic plans. The company sales performance according to their 2012 financial report was that in 2012 it had approximately $29.5 billion of total net sales while the international net sales was at $54.2 billion . There was however, a 3%increase in the $83.7billion in 2012 despite difficult economic conditions especially in developed markets in Europe and America. Compared to 2011 financial year the company the net sales was at $81.1 billion on a 6% increase However, P&G performance in new and emerging markets has greatly improved with sales going up. The steady growth of the company’s portfolio, product brands has correspondingly improved its financial performance. The operating cash flows in the company has improved in the recent past creating an impression on investors that there are available source of funds to finance the operating costs and needs of the company and capital expenditure. The ability of P&G to withstand financial recession, depression, wars and other disasters, shows that it is a financially resilient company. For instance, the operating cash flow was $13.3 billion in 2011 and free cash flow being at $9.3 billion in 2012. The free cash flow in and company measures the amount of dividends payable and discretionary investment a company can undertake to improve its financial standing. The company’s liquidity as of 2012 exceeded its liabilities and current borrowings attributed to the company’s strategy depending on short-term borrowing. The company’s financial reporting depends on the current financial reporting standards, and that company depends on disclosing financial information to improve shareholders confidence and potential investment in the company. The company uses its earnings to boost their CSR portfolio, for instance in financing its innovative products in PUR to improve the society’s financial and reputation performance. P&G just like any other assets depends on goodwill, market acquisition of other competitive companies and intangible assets. Part 2 Organizational performance refers to evaluating the actual output and results against the companies intended goals, objectives and outcomes. For instance, P&G measures its performance by evaluating its growth, operational management, customer experience and the financial performance of the organization. High performance organization (HPO) implies that the organization depends on its goals and priorities, experience, culture, innovation, marketing tools and branding, leadership skills to become more efficient and profitable. Increasing competition and growing international marketing segments and sectors, companies like P&G need to take advantage of technology, creating a strong capital structure, increase product quality, lower costs of production, and invest in innovation Model 1: Kaplan and Norton (1996) Innovation and Sustainability The first aspect in creating an innovative business is finding ways to re-invent the company through introducing new ideas. Innovation refers to the ability of a company to exploit and employ new ideas to change the way things work in the production of a new product, service and concept having the characteristics of novelty, change and value (Baregheh et al 2009). Innovation goes hand in hand with the organization vision and strategy. P & G highlights innovation as a key strategy in its business; however, it needs to view innovation in its business on two aspects; as an outcome and as a process. Innovation as an outcome according to Daman Pour (1996) is introducing or defining new products, technology, organization structure, plans or administrative systems. Innovation that focuses on the outcome of P& G since it focuses on how to better their products to gain a competitive advantage over its competitors. For instance since P & G acquired Gillette in 2005, it would be prudent to change the product to improve its sales and customer value. A process outcome innovation if adopted by P & G would include creating a chain of actions within the manufacturing process to improve the product value. According to Bessant et al., (2005) a processes innovation involves renewing the process, changing what P & G offers to its customers enabled through a sophisticated management. A good innovation strategy is a sustainable strategy whereby there is a low-level strategy and market change impact. In adopting a sustainable innovation strategy, it improves the current technological strategies and concepts leading to the evolution of the products. This also ensures that the company’s market is stable, to generate more profits and improve stability. Since P& G faces strong competition from Unilever and Nestle, a new market strategy would be appropriate. Innovations works well in teams or groups that is ‘sharing of new ideas through questions, problems and obstacles, and greatly indebted to troubles which cannot be solved by a simple snap of a finger. Innovation also requires a system, leadership, collaboration of experts, the passion for finding something unique and different The main factor in creating a HPO is by openly support technology and innovation. Technology exploited by knowledge influences the performance of an organization since it eases the process of production. Marketing and Sales Creating market dominance and monopoly that is an uncontested marketplace rather than competing within the current marketplace. Making competition irrelevant rather than outsmarting the competitors, while capturing market demands as opposed to focusing on existing customers and aligning the organization activities. P & G can create product extension through innovation for instance closely functioning products all aiming at getting the ultimate market share. For instance, Pampers is a baby product but why not create Pampers baby wipes to be used for babies after changing. It can also increase the variety of their offering like coming up with different kinds of products to be bought and used in the same way. In creating an HPO, it requires companies such as P&G need to understand their competitors customers to understand their tastes. Creating a top quality management system requires understanding customer satisfaction that is customers internal to the organization need to be satisfied in order to penetrate those outside the organization (Scully, 1995). Customer feedback on the organizations product is an important factor to innovation, product quality improvement and understanding customer needs hence P&G needs to do research on what their customers need from their products. Matching demand and supply is an important tool in making P&G brand successful in an increasingly competitive environment. Marketing performance goes a long way to marketing performance that improves profitability, stability, cash flow and non-financial aspect to increase customer performance, loyalty and brand equity, A sustainable strategy in any organization, is its ability to enable the organization to perform better socially and environmentally friendly while being economically viable. A company such as P&G needs to resist to shock, adapt to changing circumstances and transform its organizations and operations. Organization needs to have resilience and according to Bell (2002), this includes elements such as; leadership, culture, people, system and the setting in which the organization operates. The organizational management team needs to give leadership through allocation of resources, setting goals and priorities, control and clear decision-making. The culture of the organization needs to be built by creating trust, accountability, and purposed. Any management system needs to have a degree of redundancy to create room for innovation, and development to occur and without redundancy then the organization will remain static and fixed (Morgan, 2006). Customers are external factors that affect the performance of an organization and an HPO needs to strive continuously to enhance customer vale. This is through learning the consumers need, building excellent relationship, direct contact and responsive to consumer needs. This means taking actions such as the building of P& G brands and marketing strategies focusing on consumers. Focusing on the factors that enhance customer satisfaction, creating a culture of customer focus, collaborating with clients, make customers realize the value of the product, and create a good image relative to the price performance of the commodities. Maintenance of good relationship between the company and stakeholders, suppliers and partnership also enhances the performance of the company. Operational capabilities The operations management in any company refers to its organization in relation to how they produce goods and services. Operational capabilities goes beyond use of equipment and technology, but also includes the recruitment and hiring of the best talent through ‘generating a pool of qualified applicants for organizational jobs’ (Mathias& Jackson, 2006 p. 65). Focusing on talent helps save time, limits training and since they understand the company’s policies, procedures and training time (Lin and Kleiner, 1999). The operations of accompany can affect a company’s profitability that is ‘make or break a business’. In creating a HPO a company such as P&G needs to structure its management operations by reducing the cost of production, increasing the revenue of the company, through achieving customer satisfaction, quality goods and services. Further, an HPo can reduce the costs of amount of investment by increasing its effective capacity in the operation through innovating on how to utilize its rosaries. The performance of the operations=ns segment of any company needs to incorporate innovation so as to enhance the operational skills, knowledge and knowledge within the business environment. Focusing on costs, speed, dependability, quality and flexibility on the company operations will improve customer satisfaction while enhancing competitiveness. Corporate Social Responsibility (CSR) of any business affects and gives perspectives of the company’s profitability ratio. CSR initiatives by any business shows how they account its economic, environmental impacts in its operations and also maximizing its benefits’ This means the ability of a company to legally undertake its competitive interest and those of the society. In any given organization, there are various competing interests that is those having direct or indirect interest in the company’s operations. For instance, a shareholder wants to get returns on their investment, stability in their earnings, liquidity of their investment, while the company’s operations require its investment capital and commitment to the company. The operations of the company need to meet the needs of the company’s performance objectives. Financial Capabilities The financial performance of any company refers to the factors of sale value, growth, gross profit, or the profitability of the company (Li L, 2000). The market performance of P& G affects positively on the financial performance of the company. According to Vorhies and Harker (2005) the firm’s sales directly affected by product innovation that is the ability of a company to innovate and create competitive products within a competitive environment. In any company, the growth in sales in the company financial statement affects the financial performance of the company musts. A HPO needs to continually avail financial reports not only to its shareholders but also to potential investors and those outside the daily undertakings of the company activates. Financial reporting is a way of communicating with people in order for them to draw logical conclusion and determine the performance of the company. In creating a financially stable HPO, one can adopt one of four strategies proposed by West (2003). This is; uniform cost cuts, selective cost reductions, increased operational efficiencies and cost avoidance through shifting responsibilities to external parties. PART 2 B Coulson Harney Plc: Hypothetical Company Couslon Harney is a leading supplier and producer if fast-moving consumer goods directly competing with P &G. the company also aims at giving consumer goods world over. Renowned for its quality products, efficient and broad customer base and efficient customer base, Coulson Harney might just be amongst the leading companies in the world in terms of income, profitability, market performance and shares. The company operates in different continents: America, Western Europe, Asia and Africa. In its 2009 financial performance it £39.8 billion with a broad sales growth of 3.5% thus indicating that it is a successful brand in the new and emerging markets. The company business units include savory, dressings and bread, personal care products, ice cream and beverages, home care and other products. It has over 400 brands on sale worldwide The company also invests about £891 million invested in research and development in 2009 with patent applications in more than 20,000 portfolios. The company is a merger operating as a single business with two separate legal companies. Financial Statement for Coulson Harney Consolidated Income Statement for the Year ended 31 December Performance Indicators 2010 2009 2008 Underlying sales growth (%) 4.1 3.5 7.4 Underlying volume growth (%) 5.8 2.3 0.1 Underlying operating margin (%) 15.0 14.8 14.6 Free cash flow ($ billions) 3,365 4,072 2,390 $Billion 2010 2009 Increase/Decrease Turnover 44, 262 39, 823 11% Operating Profit 6, 344 5,020 26% Profit before Taxation 6,132 4,916 25% Net Profit 4,598 3,659 26% Diluted earnings per share 1.46 1.17 25% Consolidated Balance Sheet for Year ended 31 December $Billion 2010 2009 Non-current assets 28,683 26,205 Current Assets 12,484 10,811 Current Liabilities (13,606) (11,599) Total assets less current liabilities 27, 516 25,417 Non-current liabilities 12,483 12,881 Shareholders’ equity 14,485 12,056 Non-controlling interests 593 471 Total Capital employed 27,561 25,417 Consolidated Cash Flow Statement for the Year ended 31 December $Billion 2010 2009 Net Cash flow from operating activities 5,490 5,774 Net Cash flow from (used in) investing activities (1,164) (1,263) Net Cash flow from (used in) financing activities (4,609) (4,301) Net increase/ (decrease) in cash and cash equivalents (283) 210 Cash and cash equivalents at 1 January 2,397 2,360 Effect of foreign exchange rate changes (148) (173) Cash and cash equivalents at 31 December 1,966 2,397 The market performance of the company was attributed to great market condition with a slowdown in markets like as interest rates increased to contain inflation. The company emerged from a period of recession in Europe and United states with high competitive intensity due to price increase in emerging markets. The profitability performance of Coulson Harney; dealing in fast-moving-consumer goods affected by risks of their products. For instance, a product with a short shelf life requires purchase within a short period, and if this fails to occur, the company incurs financial losses. In the Income statement of Coulson Harney, the profitability of the company increased by 25%. For instance, the annual turnover was up by 11% up from $39, 823 in 2009 to $44, 262 in 2010. The profitability increase in the company shows that the company changed its financial and marketing portfolio while introducing new products into the market. This means that the company experienced high income. Despite the economic downturn in the years 2008-2009 globally, it meant that the company was able to avert the risks that come with economic recession that slowed down the economy. The liquidity performance of any business measures and shows its ability to meet financial obligations in relation to payment to creditors, loans and any other liabilities. For instance the cash and cash equivalents as of January 2009 was (283) compared to 210 in the year 2009. This means that the cash available within the company is limited however; this improves at the end of the year in 2009 to 1,966. The Income Statement of any business shows the efficiency and the profitability the company The higher the turnover of the total asset, then the more efficient the company is using its total assets. This means that Coulson Harney is squeezing more sales out of a constant asset base and to improve and increase sales it needs to make additional investment on its fixed assets. The profitability ration measures the ability of the management to make efficient use of the firm’s assets to generate sales and manage the company operations. The financial performance of Coulson Harney boosted by it efficient, effective and responsive supply chain that targets its consumer base and customers. Production through innovation has improved the quality of the products while target marketing through use of technology tools, internet, social media marketing and mobile marketing has led to improvement of their financial standing. The net profit for Coulson Harney in the year 2010 was at $4,598billon while in 2009 it stood at 3,659 recording a 26% increase. This is the remnant of the percentage of sales after deduction of the company’s expenses such as taxes. In this case, Coulson Harney performed better in the 2010 financial year since there higher the profit margin the better the performance of the company. Conclusion In creating a high performance organization, there are four main concepts that are important; innovation and sustainability, marketing, financial performance and the operations of a company. In essence, when these essential elements are integrated a company such as P&G can improve their standings and market share. Further, the elements improve the profitability of the company, performance of the brand and improve customer satisfaction and loyalty. REFERENCES Baregheh, A, Rowley, J, & Sambrook, S 2009, ‘Towards a multidisciplinary definition of innovation’, Management Decision, vol.47, pp.1323-1339 Bell, M A (2002) The Five Principles of Organizational Resilience. A Bessant, J, Lamming, R , Noke, H, & Phillips, W 2005, ‘Managing Innovation Beyond the steady State’, TEchnovation, vol.25, pp. 1376-1376 Damanpour, F 1996, ‘Organizational Complexity and Innovation: Developing and Testing Multiple Contingency Models’, Management Science, vol.42, pp.693-716 Kaplan, R, & Norton, D, 1996, The Balanced scorecard: transalating strategy into action, Harvard Business School Press Boston Mass Lenskold, J 2007, ‘Align Marketing with Finacial Performance. American Marketing Association, vol, 16, no.3 , pp.26-30 Li, L 2000, ‘An analysis of sources of competitiveness and performance of Chinese Manufacturers’, International Journal of Operations & Production Management, 299-315 Lin, Y, & Kleiner, B 1999, ‘How to hire employees effectively’, Management Research News, vol. 22, pp. 18-25 Mathias, R, & Jackson, J 2005, Human Resource management: Essential Perspectives, 3rd edn, Canada, Southe Western Australia Morgan, G 2006 Images of Organization Thousand Oaks, Sage Publications O’ Rieilly, C, & Tushman, L 2007, ‘Ambidexterity as a dynamic a capability: Resolving the innovator’s dilemma’, Research in Organization Behaviour, vol.28, pp.185 Procter & Gamble Co, 2012, Annual Report and Transition Report For the Year Ended June 2012, United States Securities and Exchange Commission, Washington DC. Tidd, J, & Bessant, J 2013, Managing Innovation integrating technological, market and organizational change, Chister, Wiley. Vorhies, D, & Harker, M 2000, The Capabilities and Performance advantages and market-driven firms: an empirical investigation. Australian Journal of Management, vol.25, no.2, pp. 145-71 West, D 1999, Three Financial Strategies. Journal of Health Care Finance, vol.22, pp.10-22 Read More