Procter and Gamble

Analysis of the
company

Nataliya Novoselova
1/13/2013

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Contents
Executive Summary ............................................................................................................................................. 3
Company Introduction ........................................................................................................................................ 3
Methodology ....................................................................................................................................................... 4
Industry analysis .................................................................................................................................................. 4
External environment.......................................................................................................................................... 5
SWOT-analysis ..................................................................................................................................................... 6
Analysis of competitors ....................................................................................................................................... 7
Gap-analysis ........................................................................................................................................................ 8
Conclusion and recommendation ....................................................................................................................... 9
References ........................................................................................................................................................... 9
Appendices ........................................................................................................................................................ 11
Figure 1.Competitor Comparison ...................................................................................................................... 11
Figure 2. Organizational structure 1990 ........................................................................................................... 11
Figure 3. Organizational structure 1999 ........................................................................................................... 12
Figure 4. Net sales 1992-1998 ........................................................................................................................... 12
Figure 5. Net sales 2008-2012 ........................................................................................................................... 13











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Executive Summary

Procter and Gamble (P&G), the largest multinational consumer goods company in the world, that
markets more than 300 brands in over 180 countries, that is located in Cincinnati, Ohio, USA, and
has been in operation for more than 175 years. P&G operates with a slogan: We believe that
innovation can solve the worlds sustainability challenges. To do this P&G invests a lot in their
innovations which the company brings to the market around the world. P&G has set specific
strategies and goals to deliver continuous improvement toward each of their focus areas
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:
- Products: delight the consumer with sustainable innovations that improve the environmental
profile of their products;
- Operations: improve the environmental profile of their own operations;
- Social responsibility: improve childrens lives through their social responsibility programs.
P&G has three main product lines: household and personal care, food consumer, health care
products.
In this report I am going to explain main problem of the company, make some analysis of the
company, industry and net sales to show the whole picture. In the end will be given the conclusion
and recommendation of the P&Gs activity.
Company Introduction

P&G was founded in 1837 by William Procter and James Gamble with making soap and candles.
Business began during nationwide panic and depression. But Cincinnati proved a sound business
base because as a meat packing centre, it offered plenty of fat and oil for soap and candle making. In
1858-1859, sales reached $1 million. By this point, approximately 80 employees worked for Procter
& Gamble. In the 1880s, P&G began to market a new product, an inexpensive soap that floats in
water. The company moved into the countries, both in terms of manufacturing and product sales,
becoming an international corporation with its 1930 acquisition of the Thomas Hedley Co., based in
England. Procter & Gamble maintained a strong a strong link to the North East of England after this
acquisition. Procter & Gamble acquired a number of other companies that diversified its product line

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P&G Sustainability report 2012
wiwww.pg.com/en_US/downloads/sustainability/reports/PG_2012_Sustainability_Report.pdf
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and significantly increased profits
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. The world's largest maker of consumer packaged goods divides
its business into two global units: Beauty and Grooming and Household Care. The company also
makes pet food, water filters, and over-the-counter acid-reflux medication. About two dozen of
P&G's brands are billion-dollar sellers, including Always, Braun, Crest, Fusion, Gillette, Head &
Shoulders, Mach3, Olay, Oral-B, Pantene, and Wella in the beauty and grooming segment, as well
as Bounty, Charmin, Dawn, Downy, Duracell, Gain, Iams, Pampers, and Tide in the household care
segment. P&G's hundreds of brands are available in more than 180 countries.
Methodology

To analyze the industry it is necessary to determine the competitive intensity and therefore
attractiveness, profitability, of a market. Thus, Porters five forces analysis will be used.
To show firms value proposition, infrastructure, customers, competitors, etc. it is convenient to use
Business Model Canvas. It would assist the chosen firm in aligning its activities by illustrating
potential trade-offs. It is sufficient to use this model for analysis because it helps to list the nature
and sources of financing and the anticipated revenue streams of the business, and helps to point out
weaknesses and strengths of the firm.
Moreover, to show the last, it would be suitable to use SWOT-analysis, which at the same time
shows threats and possible opportunities.
Industry analysis

Consumer goods industry is one of the biggest industries in the market. As McKinsey states, in
emerging markets the world over, multinationals struggling to get their products to consumers
confront a bewildering kaleidoscope of strategic and operational challenges. To analyze the
industry it is better to use Porters model.
Threat of new competition

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http://www.pg.com/en_US/downloads/media/Fact_Sheets_CompanyHistory.pdf;
http://en.wikipedia.org/wiki/Procter_%26_Gamble
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P&G has heavy impact on industry productivity. The biggest mergers and acquisitions are: Folgers
Coffee, Norwich Eaton Pharmaceuticals, Old Spice, Max Factor, Gillette, etc.
Threat of substitute products or services
P&G has no huge impact on the industry. The only real substitutes are private labels and small label
brands. Competitive products replacement exists.
Bargaining power of customers (buyers)
The largest retailers are Wal-Mart and Kmart. This means that the company has large impact on the
industry.
Bargaining power of suppliers
Raw materials can be obtained anywhere, thus P&G has no threat to the industry.
Intensity of competitive rivalry
Procter & Gambles products compared to the competitors are innovative (main field for investing),
diverse, well-advertised, well-promoted, have good price. P&G provides excellent customer service
and quality. Therefore the firm keeps industry thriving.
To sum up, Procter & Gamble has heavy impact on the industry, although there are some
weaknesses.
External environment

Technological environment
The firm focuses on technological changes which affect the industry. In 2007, P&G set a goal to
develop $50 billion in Sustainable Innovation Products (SIPs), which are products that have a
significantly reduced environmental footprint. By 2012 Procter & Gamble has developed and
marketed over $52 billion in cumulative sales of SIPs. Main focus was on the biggest brands, which
deliver significant environmental improvements due to their size and global reachbrands like
Pampers, Tide, and Ariel. Most importantly, the focus of Sustainable Innovation Products is to
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achieve all this without any trade-offs for the consumer. The products featured are a few of the
Sustainable Innovation Products that P&G has launched over the past five years
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.
Main focus in technological environment is on renewable or recycled materials in all products and
packaging (ex.: plant-based plastic for shampoo bottles), evaluating waste reduction pilot
opportunities in developed and developing regions, designing products that conserve resources
(cold-water washing and using less energy), packaging reduction (moving from plastic thermoform
clamshells to a paperboard carton).
Economical environment
As it was mentioned above, the firm is focusing on reducing costs and wastes, concerning with
nature and direction of economies in which the firm operates.
Social environment
P&G concerns with beliefs, values, opinions and lifestyles of people. Moreover, the firm has social
responsibility program. This program can be found in over 120 countries. The focus of the program
is on:
- Improving babies lives in Africa (Pampers provides assistance to new mothers and babies in
sub-Saharan Africa);
- Reaching a milestone with childrens safe drinking water;
- Supporting the education of Indias children;
- Promoting hand washing in Mexico;
- Donating products;
- Preventing pneumonia in Bangladesh.
SWOT-analysis

The companys leading market position along with its strong brand portfolio provides it with a
significant competitive advantage. However slowdown in global economic condition is making it
increasingly difficult for branded product manufacturers like Procter & Gamble to maintain their
sales volume and revenue growth.

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P&G Sustainability report 2012
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Location of factor Type of factor
Favorable Unfavorable
Internal
Strengths:
-product variety and
diversification;
-supply chain technology;
-strong focus on R&D;
-leading market position;
-strong brand portfolio.
Weaknesses:
-increasing instances of product
recalls;
-dependent on Wal-Mart stores
for the majority of revenue;
-constant innovation which
increases prices for consumers.
External
Opportunities:
-expansion in developing
markets, globalization;
-future growth plans.
Threats:
-private labels;
-regulatory environment;
-global economic conditions;
-counterfeit goods.

Analysis of competitors

Consumer goods industry manufactures and markets everything from food and beverages to
toiletries and small appliances. But as we talk about Procter & Gamble, we should take into account
that this firm has the biggest stake in the industry in toiletries, cosmetics and cleaning products
sector. This sector is a solid category in the industry for foreseeable future. The competitors of
Procter & Gamble in this sector are Clorox, Colgate-Palmolive, Revlon, Kimberley-Clark, Unilever
and S.C. Johnson.
P&Gs competitive advantages arise from several key factors, one of which is innovation. Spending
$2B annually on R&D and deploying approximately 7,500 researchers in technical centers around
the world, P&G is a leader in innovation. Key to their success is knowledge sharing and cross-
borders replication of innovations, reducing costs and quickly expanding the company knowledge
and line offerings. Another factor contributing to their competitive advantage is their large scale
operations and go-to-market capabilities that provide first mover advantage and limit the ability of
competitors to copy ideas and replicate them. Additionally, economies of scale and scope in
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purchasing, distribution, business services and merchandising provide financial and trade
advantages. Lastly, P&G is well known for its brand management and brand leadership capabilities,
which are significant advantages for customer loyalty and market penetration. Supplementing their
innovations, facilitating their rapid go-to-market capabilities, as well as their customer and partner
management is P&G's significant use of IT and tracking systems, including CRM, EDI, and RFID,
that improve R&D speed and capabilities, communications, information tracking and sharing, and
inventory management. In order to sustain their competitive advantage, P&G must continue to
utilize their acknowledged strengths, as well as continue to exploit international growth, especially
in emerging markets, as P&G is currently overexposed in the US and Western Europe.
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Detailed comparison of the biggest competitors can be found in Appendices, Figure 1.
Gap-analysis

During the first half of 2000 Procter & Gamble faced a slumping stock price and a crisis of
leadership. Since the company was organized, the basic principle created by the first vice-president
of overseas operations Walter Lingle was: We must tailor our products to meet consumer demands
in each nation. But we must create local country subsidiaries whose structures, policies and practices
that are as exact a replica of the U.S. Procter & Gamble organization as it is possible to create.
During the 1960s and 1970s, P&Gs geographical scope and international sales expanded rapidly.
This created the question of management and organization structure. In the 1990s the organizational
structure was divided among the groups of countries the company operated in. The structure was
geographically organized which caused the overload of the heads. The structure was not productive.
(See Figure 2) The new structure applied since 1994 strengthened P&Gs functional organization.
Manufacturing, purchasing, engineering and distribution now were integrated into a single supply
function headed by a senior vice-president. This function was intended to facilitate the end-to-end
integration of the companys global product supply. (See Figure 3) The new structure resulted in
some improvements in global coordination and allowed cross-border coordination of some activities
and facilities. However, these improvements did little to stimulate growth. Thus, the gap of P&G
was low growth of sales, and management needed to be restructured. In 2005 organization was

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Procter & Gamble annual report 2012
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focused on new processes to boost innovation, plant closures, extensive job losses, and changes in
incentives and cultural norms.
Conclusion and recommendation

Since 1990 Procter & Gamble had to go through several changes in organization which did not show
the stability of the company. Additionally, the company was not satisfied with the sales growth. In
2005 the firm had full reorientation of organizational structure. Primary profit responsibility shifted
from P&Gs four regional organizations to seven global business units (GBUs). The GBUs were
given worldwide responsibility for product development, manufacturing and marketing of the
products within their categories. Moreover, the focus of the organization was on innovations.
Currently, after analysis of the companys structure in 2012, we can see that P&Gs main focus is
still on innovations. And comparing net sales, we can see the growth with decline in 2009 in the
case of the world financial crisis. (See Figure 4 and 5) To have further growth, I would advise the
company to continue investing in R&D sector, mainly in innovations.
References

Hoovers, The Procter & Gamble Company Information, http://www.hoovers.com/company-
information/cs/company-profile.The_Procter__Gamble_Company.89fae93ad9ab54d7.html
McKinsey Deal Book, http://dealbook.nytimes.com/category/main-topics/mergers-acquisitions/
Yahoo Finance, Procter & Gamble Competitors Information,
http://finance.yahoo.com/q/co?s=PG+Competitors
Procter & Gamble Sustainability Report 2012,
http://www.pg.com/en_US/sustainability/reports.shtml
Procter & Gamble Annual Report 2012, Financial Highlights
http://annualreport.pg.com/annualreport2012/files/PG_2012_AnnualReport_financial_highlights.pdf
Robert M. Grant, The Case 8, Procter & Gambles Organization 2005 Project
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Procter & Gamble History,
http://www.pg.com/en_US/downloads/media/Fact_Sheets_CompanyHistory.pdf















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Appendices

Figure 1.Competitor Comparison
Figure 2. Organizational structure 1990

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Figure 3. Organizational structure 1999



Figure 4. Net sales 1992-1998

0
5000
10000
15000
20000
25000
30000
35000
40000
45000
1992 1993 1994 1995 1996 1997 1998 1999
Net sales
Net sales
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Figure 5. Net sales 2008-2012

70000
72000
74000
76000
78000
80000
82000
84000
86000
2008 2009 2010 2011 2012
Net sales
Net sales