The Strategic Development of

Procter and Gamble into a

Global Giant
Posted on April 29, 2012 by Sam Warren

Procter and Gamble (henceforth P & G) is one of the largest manufacturers and
distributors of consumer products in the world with a global reach for it 300+
brands of 180 countries. During the 1990s the company made some significant
alterations to its corporate strategy; it aimed to reduce its cost structure and
develop its differentiated business-level strategy, in an attempt to increase
revenues and profits. The rapid development of international markets and
globalisation demanded a corporate shake up. Moreover, the reduction of
trade barriers and tariffs indicated that to retain a competitive advantage
globally the company had to develop an effective International strategy, whilst
benefitting from economies of scale. Cross-functional integration and speed of
innovation increasingly became imperative to corporate strategy. In this article I
will look at the key development that took place in thus process and turned P&G
into such a powerhouse.
The cohesion between the strategy and the structure of the company is crucial.
The structure will align the company with the strategy it wishes to pursue; and,
along with the companys culture and control systems, will utilise the valuechain competencies and capabilities, and facilitate increased competitiveness,
profitability and superior return on Investment.
Procter and Gamble identified the increasing globalisation of business and
resultantly altered their business strategy and structure in order to maximise
exposure in more countries in order to: remain competitive internationally,
benefit from economies of scale; and to maximise revenues, profits, share price
and return on invested capital. To facilitate the implementation of their global
strategy CEO, Lafley, changed the structure from a Global Product Structure,
which is often associated with a standardisation strategy and implemented a
Transnational global strategy, and implemented a hybrid organisational

structure that considered the geographical dispersion of multiple marketplaces,

respective specialisation for particular brands and specialisations and
economies of scale in particular value creating functions. Ronald Jean Degen has
termed this a Front-Back Hybrid Matrix organisation structure.
This strategy allowed P&G to simultaneously amalgamate cost reductions in the
firm and retain efficient customer responsiveness; adapting to local tastes and
expectations as they vary across nations. The nature of this strategy dictates
that some functions are centralised and some are decentralised. This has been
chosen as it supports the empowerment of the various levels of management in
the companys Global Business Units (GBUs). Lafley has suggested that this
provides the ability to make faster, more locally responsive and efficient
decisions, whilst autonomy was given to key functions that required local
customisation. R&D and innovation were very much the spearhead of P&Gs
corporate strategy, so the R & D function remained centralised, so that control
could be exerted over it.
The global-matrix structure that Lafley adopted to support the transnational
strategy is a complex structure that requires significant cohesion from all
members of the workforce and complex controls. Lafley, realised the
significance of workers morale, contrary to his predecessor, and implemented a
culture that would support the structure. Lafley is noted to have implemented
pay-incentives that tied employees to the performance of the company. Lafleys
strategic leadership ensured that cross-functional co-ordination created a
significant advantage over competitors; as distribution channels, logistics,
supply chain, and manufacturing were all co-ordinated across nations; thus, P&G
was able to lower costs. The complementation of the culture and the globalmatrix structure advanced the changing nature of the corporate strategy and
developed their international competitive advantage. However, crucial to these
elements were sophisticated systems for co-ordination which Lafley recognised
would be essential and championed the use of IT systems, even setting up a
deal with Cisco systems to take full advantage of their complex systems,
systems support; in order to reduce IT costs through economies of scale
spreading their system globally.

Lafley reported significant financial progress in 2000; Weve had three major
acquisitions including Clairol, Wella and Gillette; and, we have tripled the pace of
our business initiatives over this same period. Lafley, therefore, decided to
further restructure the business units to accommodate these strategic
acquisitions and increase competitiveness thusly. The global business units were
reduced from five to three: global beauty care; global health, baby, and family
care; and global household care. This complimented the transnational global
strategy well as providing sharper focus of the respective target consumers;
whilst complimented by a decentralised empowerment of regional, subsidiary
and functional managers, which was supported by the effectiveness of cross
functional co-ordination and interlinking of complex IT systems.
The use of integrating mechanisms in general, and use of knowledge
management in particular, to gain a competitive advantage.
A transnational global strategy requires close co-ordination with key areas of the
business for increased efficiency and competitiveness. Cross functional coordination at P&G allows them to organise and utilise their resources to optimal
effect. The calculation of demand should accurately match supply, and so the
supply chain, logistics and distribution channels can be effectively co-ordinated
to manage increased/decreases in demand; hence, a Just-in-Time inventory
control system can be implemented to reduce costs. Moreover, these integrating
mechanisms support the transnational global strategy employed by the firm as
local managers can quickly relay changes in tastes in their particular regions
and the products can be updated/altered, or inventory levels can be corrected
accordingly, more efficiently and effectively.
Moreover, as Lafley has identified that Research and Development and Product
Innovation is key to pioneering the competitiveness of the corporate strategy;
integration mechanisms allow fast communication between marketing and R&D.
Additionally, inter-business function (marketing, RnD, Logistics, Finance etc)
communication facilitates value creating propensity between manufacturing and
marketing. Furthermore, inter function co-ordination is crucial as line, functional,
business, divisional, and corporate level managers within the same functions
must be able to quickly communicate between one another, in order to mitigate
against information distortion, especially when spread across many nations.

P&G facilitates the effective implementation of integration mechanisms through

direct contact with one another. This is a simple, cost effective way to
communicate problems and ensures that opinions and concerns are voiced.
Moreover, it is essential to have direct contact between different functions,
especially those that must co-operate considerably. Conversing directly between
one another ensures cohesion of the products and the market, with the overall
strategy. This reduces handoff and transfer problems. However, this can
increase bureaucratic costs and it may not always be viable to converse with
different employees face to face all over the globe, although such technological
advances, such as video Tele-conferencing may help.
Liaison roles are a good way of handling handoff and transfer problems when
structures become complex and will help co-ordinate divisions and functions.
Meeting at a regular time intervals ensure regularity. Additionally, liaison roles
ease tensions between functions and can ferry information from one to another.
Teams are used when two/more functions share common problems and these
can help relieve tensions or aid in finding a solution. P&G could use teams
when they have problem co-ordinating particular functions in a large region, for
example Asia. Teams may provide insightful solutions to problems i.e. efficient
logistics. Referenced from MIT Sloan Management Review P&G accredit
considerable success to the cohesion of their function team co-ordination, what
made the teams work was the mutual interdependency that grew. Thus,
demonstrating how integrating mechanism are vital for communication across a
global business in order for P&Gs transnational strategy and FB- global matrix
structure work effectively.
Furthermore, the importance of IT must be accredited to the effectiveness of this
co-ordination; as many of the systems and integrating mechanisms rely heavily
this interwoven web of technology. Lafley was correct to have championed it as
he did.

I am the one from my family who take the initiative to congratulate you on your
birthday

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