P&G Japan: The SKII Globalization Project

GLT – Global Leadership Team

GBU – Global Business Unit

Alan Lafley – head of P&G’s Beauty Care GBU

Paolo de Cesare – President of Max Factor Japan

Lafley’s organisation and budget, which would support the global expansion of SK-II

Need evidence of the transferability potential of a brand

Constraint – bold but disruptive Organization 2005 restructuring program

GBUs took over profit responsibility historically held by P&G’s country-based
organisations

Early expansion
Principle set down by Vice President of overseas operations
Must tailor our products to meet consumer demand in each nation
Must create local country subsidiaries whose structure, policies and practices are as
exact a replica of the US P&G organisation as it is possible to create
Built a portfolio of self-sufficient subsidiaries run by country general managers who grew
their companies by adapting P&G technology and marketing expertise to their
knowledge of local markets

1980s – 2 problems
1. Cost of running all the local product development labs and manufacturing plants was
limiting profits
2. Ferocious autonomy of national subsidiaries was preventing the global rollout of new
products and technology improvements
Resistance due to negative impact on profits, for which the country subsidiaries were
held accountable
Consequence – regional headquarters became more active
i.e. Euro Technical teams were formed to eliminate needless country-by-country product
differences, reduce duplicated development efforts and gain consensus on now-
technology diffusion
Profit responsibility remained with country subsidiaries

Late 80s early 90s

Move to category management structure
1989 first global category executives appointed
International division replaced with four regional entities – North America, Europe, Latin
America and Asia- each assuming responsibility for profitability
Impact – significant boost in P&Gs overseas growth
To many in P&G, the matrix structure seemed an impediment to entrepreneurship and
flexibility
Jager – Japan General Manager – argued that without a major in-country product
development capability, P&G could never respond to the demanding Japanese
consumer and the tough, technology-driven local competitors
Emphasis on expansion through more product introductions
Envisaged a technology centre that would support product development throughout
Asia and even take a worldwide leadership role
Consequence – P&G grew its 60-person R&D team into an organisation that could
compete

1990 – Jager became group VP for Asia

Organisation 2005
1996 – Jager COO - Development of new products as key to future growth
Became the champion of a Leadership Innovation Team to identify and support major
companywide innovations

Superior product technology

If P&Gs growth would now depend on its ability to develop new products and roll them
out rapidly worldwide, Jager believed his new strategic thrust had to be implemented
through a radically different organisation

Culture
Slow, conformist and risk averse – stretch, innovation and speed
Leadership Innovation Team implemented a global rollout of Dryel and Swiffer
Impact – 18 months after entering the first test market they were on sales in US,
Europe, Latin America and Asia

Processes
Performance-based component of compensation increased from traditional range of
20% to 80%.
Extended the reach of stock options to virtually all employees
Integrated business planning process where all budget elements of the operating plan
could be reviewed and approved together

Structure
Primary profit responsibility shifted from P&Gs four regional organisation to seven GBUs
that would now manage product development, manufacturing and marketing of their
respective categories worldwide

Charged with standardising manufacturing processes, simplifying brand portfolios and

coordinating marketing activities

Eliminate bureaucracy and increase accountability

Committee responsibilities were transferred to individuals
Activities such as accounting, human resources, payroll and much of IT were
coordinated through a global business service unit

Progression form Ethnocentric/Polycentric- Regiocentric – Geocentric

SK-II – within P&G this high-end product had little visibility outside Japan

Because Japanese women had by far the highest use of beauty care products in the
world, it was natural that the global beauty care category management started to regard
Max Factor Japan as a potential source of innovation

Working with R&D labs in Cincinatti and the UK, several Japanese technologists
participated on a global team that developed a new product involving a durable color
base and renewable moisturising second coat – Lipfinity

Japanese innovations were than transferred worldwide, as Lipfinity rolled out in Europe
and the US within six months of the Japanese launch

Implementation of O2005 in July 1999 – half the top 30 managers and a third of the top
3000 were new to their jobs – capabilities do not reside in management

Global product development process

Technology team assembled at an R&D facility in Cincinnati, drawing the most qualified
technologists from its P&G labs worldwide

US-based marketing team and Japanese team had the same task – Japanese team
came up with SK-II

In the end, each market ended up with a distinct product built on a common technology
platform. Marketing expertise was also shared, allowing the organisation to exploit local
learning

Decisions
Japanese Opportunity
Tapping into P&Gs extensive technological resources – extend the SK-II line beyond its
traditional product offerings
Although would take a considerable amount of time and effort, it would exploit internal
capabilities and external brand image
Product innovation and superior in-store service – competitive advantage in Japan

China
Operating since 1988 only
Entrepreneurial beauty care manager in China
Some were worried that SK-II would be a distraction to P&Gs strategy of becoming a
mainstream Chinese company and to its competitive goal of entering 600 Chinese cities
ahead of competitors
Targeting an elite consumer group with a niche product was not in keeping with the
objective of reaching the 1.2 billion population with laundry, hair care, oral care, diapers
and other basics

Europe
De Cesare – new the European market well
Without any real brand awareness or heritage, would SK-II’s mystique transfer to a
Western market

Organisational constraint
De Cesare recognised that his decision needed to comply with the organisational reality
in which it would be implemented
Jager – openly questioned how well some of the products in the beauty care business fit
in the P&G portfolio – the fashion-linked and promotion-driven sales models neither
played well to P&G’s “stack it high, sell it cheap” marketing skills nor exploited its
superior technologies

From a local to a global focus

Began to standardise and centralise policies and practices

One result of O2005- country subsidiaries now focused on sales volume, rather than
profits

Case Plan

1. Identify the organisational issues and their impact on international growth and
strategy
a. Prior to Organisation 2005
 b. Organisation 2005
Things to consider
Structure, orientation, strategy, growth, expansion

2. What core capabilities were established/fostered from organisation 2005?

3. What should de Cesare do regarding:

a. expansion in Japan
b. launch SK-II in China
c. launch SK-II in Europe
Given the organisational environment (structure, orientation, objectives, capabilities)

Syndicate 1 Syndicate 6
Hugh Alsop Piper Gill
Sameer Babbar Christopher Key
 Grant Lediott Tomeu Fullana
Yezdi Madon Allen Gerten
Lynne Salmon Eiji Matsumoto
Kai-Chong Tung Michael O'Shaughnessy

Syndicate 2 Syndicate 7
Kristian Aquilina Richard Celm
Tiffany Cowie Christopher Croker
Maria Koutsimpiris Piya Kuang
Aaron Morrison Karthik Venkatasubramanian
Duncan Zimmermann James McGurk
Ricardo del Blanco

Syndicate 3 Syndicate 8
Fiona Dunster James Cattanach
Robert Gannon Carlos Herrera
Sarah George Mercedes Rabini
Brian Lilley Bechara Azar
Stuart Scott Frederick Shuart
Andrew Wollen Reed Singer

Syndicate 4 Syndicate 9
Rebecca Isaachsen Manuela Breschi
Andrew McLoughney Alex Logoveev
Bryce Prosser Adwait Samel
James Redden Shauna Stewart
Michael Rowe James Domingo Duncan
James Stanley Penny Naud

Syndicate 5 Syndicate 10
Eleanor Berry Mindi Frink
Kai-Chun Lee Craig Westcott
Sophie Sandaver Alicia Neo
Josep Canadell Olivian Pitis
Tom Donnelly Jacob Vaidyan
Damien White Jeffrey Wood