Posted: October 27th, 2022

6 Case questions

read the attached case and answer the following questions below with no plagiarism in great detail.

5. * Which are the three most Key Problems, Critical, and Strategic Issues of this Strategic Management Business Case?

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       Please explain why? and analyze, and discuss in great detail …

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6. * Key Problems, Critical, and Strategic Issues Analysis

       Please explain, analyze, and discuss in great detail EACH Key Problems, Critical, and Strategic Issues

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7. * Identification of Alternatives for EACH Key Problem, Critical, and Strategic Issues

       At LEAST 3 Bullet Points Alternatives for EACH Key Problem, Critical, and Strategic Issues

       Please explain, analyze, and discuss in great detail EACH …

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8. * Evaluation of Alternatives for EACH Key Problem, Critical, and Strategic Issues

       Please explain, analyze, and discuss in great detail EACH …
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9. * Recommended Course of Action

       At LEAST 3 Recommended Course of Actions

       At LEAST 3 Bullet Points for EACH Recommended Course of Action

       Please explain, analyze, and discuss in great detail EACH …
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10. * Implementation and Execution Plan for EACH Recommended Course of Action

         At LEAST 3 Bullet Points for EACH Recommended Course of Action

         Please explain, analyze, and discuss in great detail EACH …

CASE 26

PROCTER & GAMBLE
*

On February 14, 2017, The Wall Street Journal reported that Trian Fund Management, one of the biggest activist investors has built up a more than $3 billion stake in Procter & Gamble, a leading global consumer products firm. The move added urgency to P&G’s efforts to turn around its business and boost its stock price. The firm’s closely watched organic sales growth, which excludes acquisitions or divestments as well as currency swings, has been stuck between 1% and 3% in recent years (see

Exhibits 1

and

2

). It has struggled to boost sales growth as it has confronted a sluggish global economy and competition from global competitors and Internet upstarts.

Since its founding 175 years ago, P&G had risen to the status of an American icon with well-known consumer products such as Pampers, Tide, Downy and Crest(see

Exhibit 3

). In fact, the firm has long been admired for its superior products, its marketing brilliance, and the intense loyalty of its employees who have respectfully come to be known as Proctoids. But a downward spiral in the 1990’s led the firm to turn to Alan G. Lafley to try and turn things around. He spent $70 billion over his tenure scooping up brands such as Gillette razors, Clairol cosmetics and Iams pet food. With 25 brands that generated more than $1 billion in sales, P&G became the largest consumer products company in the world.

Under Lafley’s chosen successor, Bob McDonald, however, P&G’s growth stalled as recession-battered consumers abandoned the firm’s premium-priced products for cheaper alternatives. More significantly, the firm’s vaunted innovation machine stalled with no major product success during his tenure. P&G’s decline eroded morale among employees, with many managers taking early retirement or bolting to competitors. Says Ed Artzt, who was CEO from 1990 to 1995: “The most unfortunate aspect of this whole thing is the brain drain. The loss of good people is almost irreparable when you depend on promotion from within to continue building the company.”1

EXHIBIT 1 Income Statement (in millions of $)

Year Ending

June 30, 2017

June 30, 2016

June 30, 2015

Total Revenue

65,058

65,299

70,749

Operating Income

13,955

13,441

11,049

EBIT

13,257

13,369

11,012

Net Income

15,411

10,604

7,144

Source: P&G.

EXHIBIT 2 Balance Sheet (in millions of $)

Year Ending

June 30, 2017

June 30, 2016

June 30, 2015

Current Assets

26,494

33,782

29,646

Total Assets

120,406

127,136

129,495

Current Liabilities

30,210

30,770

29,790

Total Liabilities

64,628

69,153

66,445

Stockholder Equity

55,778

57,983

63,050

EXHIBIT 3 Significant Innovations

·
Tide was the first heavy-duty laundry detergent

· Crest was the first fluoride toothpaste clinically proven to prevent tooth decay

· Downy was the first ultra-concentrated rinse-add fabric softener

· Pert Plus was the first 2-in-1 shampoo and conditioner

· Head & Shoulders was the first pleasant-to-use shampoo effective against dandruff

· Pampers was the first affordable, mass-marketed disposable diaper

· Bounty was the first three-dimensional paper towel

· Always was the first feminine protection pad with an innovative, dry-weave topsheet

· Febreze was the first fabric and air care product that actually remove odors from fabrics and the air

· Crest White Strips was the first patented in-home teeth whitening technology

Source: P&G.

Pressure from the board forced Lafley to back come out of retirement in May 2013 to make another attempt to pull P&G out of its doldrums. Soon after he took back the helm of the firm, Lafley announced that he would get rid of more than half of its brands. Over the next three years, the firm sold off many of the brands that it had acquired, capped by the $11.6 billion sale of dozens of beauty brands to Coty. He announced that the company would narrow its focus to 65 or 70 of its biggest brands such as Tide, Crest, and Pampers. “Less will be more,” Lafley told analysts. “The objective is growth and much more reliable generation of cash and profit.”2

David S. Taylor, who had spent years managing P&G’s businesses finally took over as chairman and CEO of the firm in November 2015. He has been confident that he can resurrect the firm but has opted against launching new brands or making new acquisitions. “I understand the desire for faster growth and for a single-minded short-term objective, but we’ve seen this movie before” he said at a meeting with analysts last November.3

Fighting off a Decline

For most of its long history, P&G has been one of America’s preeminent companies. The firm has developed several well-known brands such as Tide, one of the pioneers in laundry detergents, which was launched in 1946 and Pampers, the first disposable diaper, which was introduced in 1961. P&G also built its brands through its innovative marketing techniques. Nevertheless, by the 1990s, P&G was in danger of becoming another Eastman Kodak or Xerox, a once-great company that might have lost its way. Sales on most of its eighteen top brands were slowing as it was being outhustled by more focused rivals such as Kimberly-Clark and Colgate-Palmolive.

In 1999, P&G decided to bring in Durk I. Jaeger to try and make the big changes that were obviously needed to get P&G back on track. However, the moves that he made generally misfired, sinking the firm into deeper trouble. He introduced expensive new products that never caught on while letting existing brands drift. He also put in place a company-wide reorganization that left many employees perplexed and preoccupied. During the fiscal year when he was in charge, earnings per share showed an anemic rise of just 3.5%, much lower than in previous years. In addition, during that time, the share price slid 52%, cutting P&G’s total market capitalization by $85 billion.

In 2000, the board of P&G asked Lafley to take charge of the troubled firm. He began his tenure by breaking down the walls between management and the employees. Since the 1950s, all of the senior executives at P&G used to be located on the eleventh floor at the firm’s corporate headquarters. Lafley changed this setup, moving all five division presidents to the same floors as their staff. He replaced more than half of the company’s top 30 managers, more than any P&G boss in memory, and trimmed its work force by as many as 9,600 jobs. Moreover, he moved more women into senior positions. In fact, Lafley skipped over 78 general managers with more seniority to name 42-year-old Deborah A. Henretta to head P&G’s then-troubled North American baby-care division.

In fact, Lafley was simply acknowledging the importance of developing people, particularly those in managerial roles at P&G. For years, the firm has been known to dispatch line managers rather than human resource staffers to do much of its recruiting. For the few that get hired, their work life becomes a career long development process. At every level, P&G has a different ‘college’ to train individuals and every department has its own ‘university.’ The general manager’s college holds a weeklong school term once a year when there are a handful of newly promoted managers.

Under Lafley, P&G also continued with its efforts to maintain a comprehensive database of all of its more than 130,000 employees, each of which is tracked carefully through monthly and annual talent reviews. All managers are reviewed not only by their bosses but also by lateral managers who have worked with them, as well as on their own direct reports. Every February, one entire board meeting is devoted to reviewing the high-level executives, with the goal of coming up with at least three potential candidates for each of the 35 to 40 jobs at the top of the firm.

Gambling on its Brands

Above all, however, Lafley had been intent on shifting the focus of P&G back to its consumers. At every opportunity that he got, he tried to drill his managers and employees not to lose sight of the consumer. He felt that P&G has often let technology dictate its new products rather than consumer needs. He wanted to see the firm work more closely with retailers, the place where consumers first see the product on the shelf. In addition, he placed a lot of emphasis on getting a better sense of the consumer’s experience with P&G products when they actually use them at home.

Over the decade of Lafley’s leadership, P&G managed to update all of its 200 brands by adding innovative new products. It begun to offer devices that build on its core brands, such as Tide StainBrush, a battery-powered brush for removing stains and Mr. Clean AutoDry, a water pressure powered car-cleaning system that dries without streaking. P&G also begun to approach its brands more creatively. Crest, for example, which used to be marketed as a toothpaste brand, was redefined an oral care brand. The firm now sells Crest-branded toothbrushes and tooth whiteners.

In order to ensure that P&G continues to come up with innovative ideas, Lafley had also confronted head-on the stubbornly held notion that everything must be invented within P&G, asserting that half of its new products should come from the outside. Under the new ‘Connect and Develop’ model of innovation, the firm pushed to get almost 50% of its new product ideas from outside the firm. This could be compared to the 10% figure that existed at P&G when Lafley had taken charge.

A key element of P&G’s strategy, however, was to move the firm away from basic consumer products such as laundry detergents, which can be knocked off by private labels, to higher-margin products. Under Lafley, P&G made costly acquisitions of Clairol and Wella to complement its Cover Girl and Oil of Olay brands. The firm had even moved into prestige fragrances through licenses with Hugo Boss, Gucci and Dolce & Gabbana. When he stepped down, beauty products had risen to account for about a quarter of the firm’s total revenues.

But P&G’s riskiest moves had been its expansion into services, starting with car washes and dry cleaning. The car washes build on Mr. Clean, P&G’s popular cleaning product. In expanding the brand to car washes, the firm expected to distinguish its outlets from others by offering additional services such as Febreze odor eliminators, lounges with Wi-Fi and big screen televisions and spray guns that children can aim at cars passing through the wash. Similarly, P&G’s dry cleaning outlets are named after Tide, its bestselling laundry detergent. The stores will include drive-through services, 24-hour pickup and environmentally benign cleaning methods.

Losing the Momentum

On July 1, 2009, Lafley passed the leadership of P&G to McDonald, who had joined the firm in 1980 and worked his way up through posts in Canada, Japan, the Philippines and Belgium to become chief operating officer. McDonald took over after the start of a calamitous recession, and had to deal with various emerging problems. Even as consumers in U.S. and Europe were not willing to pay premium prices, the firm’s push to expand in emerging markets was also yielding few results in the face of stiff competition from Unilever and Colgate-Palmolive, who already had a strong presence. Furthermore, commodity prices were surging, even as P&G’s products were already too expensive for the struggling middle-class that it was targeting everywhere.

In order to deal with all of these challenges, McDonald replaced Lafley’s clear motto of “the consumer is boss” with his own slogan of “purpose-inspired growth.” In his own words, this meant that P&G was “touching and improving more consumers’ lives, in more parts of the world, more completely.” “Purpose” was an undeniably laudable ambition, but many employees simply could not fathom how to translate this rhetoric into action. Dick Antoine, P&G’s head of HR from 1998 to 2008 commented: “‘Purpose-inspired growth’ is a wonderful slogan, but it doesn’t help allocate assets.”4

The new focus seemed to fit well with McDonald, who seemed more comfortable with the details of P&G’s operations. Even when McDonald tried to broaden his scope, McDonald found it difficult to establishing priorities for P&G. Given the wide range of problems that he faced, in terms of pushing for growth across several different businesses across many markets, he made some effort to try and address all of them at the same time. Ali Dibadj, a senior analyst at Sanford Bernstein commented on this multi-pronged effort by P&G: “The strategic problem was that they decided to go after everything. But they ran out of ammo too quickly.”5

By the middle of 2012, it was becoming obvious that P&G was struggling under McDonald’s leadership. Known for its reliable performance, the firm was forced to lower its profit guidelines three times in six months frustrating analysts and investors alike. Even within the firm, many executives realized that McDonald would not be able to take the bold moves that may allow the firm to recover from its slump. Activist investor Bill Ackerman commented: “We’re delighted to see the company’s made some progress. But P&G deserves to be led by one of the best CEO’s in the world.”6

Striving for Agility

Shareholder dissatisfaction with lack of improvement in performance led P&G to push McDonald out and bring back Lafley in May 2013. As soon as he stepped back in, Lafley was under pressure to respond to investor concerns that P&G had become too large and bloated to respond quickly to changing consumer demands. In April 2014, he began the process of streamlining the firm by selling of most of its pet food brands—including Iams and Eukanuba—to Mars for $2.9 billion. A few months later, in August 2014, Lafley took a bolder step. He announced that the firm would unload as many as 100 of its brands in order to better focus on 60 to 70 of its biggest ones—such as Tide detergent and Pampers diapers—that generate about 90% of its $83 billion in annual sales and over 95% of its profit (see

Exhibits 4

and

5

). Lafley did not specify which ones would be sold off or shut down, but the company owns scores of lesser brands such as Cheer laundry detergent and Metamucillaxatives.

Lafley insisted that sales would not be the only criteria for shedding brands. He stated that some large brands would be jettisoned if they didn’t fit with the firm’s core business: “If it’s not a core brand—I don’t care whether it’s a $2 billion brand—it will be divested.”

7

He demonstrated this by the decision to spin off its Duracell into a standalone company. Although batteries have been generating $2.2 billion annually in sales, their sluggish growth did not fit with Lafley’s push for a more focused company.

Although analysts have been receptive to the reduction of brands, they have pointed out that P&G has already sold off more than 30 established brands over the past 15 years which were supposedly hindering growth. Many of these sold off brands have been performing well with other firms. J.M. Smucker, for example, that brought Crisco shortening, Folgers coffee and Jif peanut butter, has had 50 percent sales growth since 2009. Some critics charge that P&G, which was once was most successful in building and managing brands, has lost its touch.

In large part, the focus is on the cumbersome centralized and bureaucratic structure that has developed at P&G. Unlike many of its newer competitors, the firm still tends to rely less on working with outside partners. The ‘Connect and Develop’ program that had been started by Lafley to bring in new ideas from outsiders has led to 50 percent of its new technologies coming from outside, but these are then reworked or modified by P&G’s internal R&D group. This has stifled innovation, with most of the firm’s growth coming from line extensions of existing brands or from costly acquisitions.

On November 1, 2015, Lafley stepped down, passing the reins to David Taylor, who had built his career at P&G. He had most recently been assigned to take over the firm’s struggling beauty unit. Taylor continued with Lafley’s strategy of cutting back on P&G’s brands. The sale of 43 of the firm’s beauty brands to Coty in a $12 billion deal was completed in October 2016. A few months earlier, P&G had completed the transfer of Duracell to Berkshire Hathaway through an exchange of shares.

Fighting for Its Iconic Status

For years, P&G had spent heavily to build on its success with legacy soap and detergent brands to acquire hundreds of additional brands in new businesses that it hoped could also become part of consumers’ daily routines. The latest effort to jettison over half of its brands indicated that the strategy was not working anymore. In particular, P&G has been struggling with its push to place more emphasis on products that carry higher margins in order to move it away from its dependence on household staples.

The firm’s aggressive push into beauty, for example, has struggled to show much growth. Lafley had tried to build the firm’s presence in this business for years, regarding it as a high margin, faster growing complement to the firm’s core household products. The firm has struggled to show growth in this business and it has been generating the lowest profit margins. Sales of Olay skin care products and Pantene hair care products have mostly sagged in recent years. Its efforts to build a line of perfumes around licenses with Dolce & Gabbana, Gucci and Hugo Boss were also running into problems.

Having discarded more than half of its brands over the past two years, P&G was optimistic that its turnaround efforts were starting to show results. On January 20, 2017, the firm offered a more upbeat outlook for sales growth in the coming year. “We are essentially on track with where we hoped we would be,” finance chief Jon Moeller said in a call with analysts.

8

Yet a half-dozen analysts have cut their downgraded P&G’s stock over the past month. “Cosmetics, household and personal care stocks are no longer in vogue,” wrote Barclays analyst Lauren Lieberman in a recent report.9

SWOT

Strengths
Proctor and Gamble draws strength from our well established brands that have existed for over 175 years and are found on 5 continents. Consumers tend to be brand loyal to P&G brands such as Tide and Pampers. A lot of this loyalty is irrational and is derived from nostalgia. Why do you use the dish soap that you use? Chances are it’s because it’s the one your mom used when you were growing up. Many of P&G’s products are the first brand consumers think of when they think of a product such as laundry detergent or toothpaste. Brand awareness is extremely valuable and can take a long time to develop. P&G also has a strength in its market share and penetration. Because they control such a deep product offering, consumers can be purchasing from the brand in a number of different categories. A consumer can have a shopping cart full of different items from different brands and it all still be Proctor and Gamble. P&G has a great handle on economies of scales. Due to its large organizational size, they are able to have high process efficiencies that keep production costs down. P&G has manufacturing sites, distribution centers, and service centers around the world. Our brands are found in just about every retailer in operation. We are able to penetrate markets globally and still deliver its well known quality.

Weaknesses
​P&G’s long-term position as a market leader is a double edged sword. While it is a strength that they have held this position for so long, it is also a weakness. P&G is a part of many maturing markets which have a lot of competition and is highly saturated. There is not much room for growth with existing products since most consumers are loyally purchasing from the company. Due to the success of Procter and Gamble’s existing products, our new and revolutionary innovations from have been sparse. P&G also have the weakness that their product offering is almost all able to be imitated and switching costs are low. Even though Procter and Gamble has a diverse product mix, most of comes from the same category of consumer goods. Another weakness is that P&G is dependent on our retail partners to sell our products online since consumers are becoming more into e-commerce. Procter and Gamble’s online presence is not as strong as it could be for such a large company.

Opportunities
​There are many opportunities for P&G such as launching new products. Within the existing market P&G can center new products around consumer driven innovation. In the case there are examples of the Tide Spinbrush, or Crest whitening strips. P&G can expand on that route by including new options into existing brands. Innovations like this will keep our brands interesting and allow consumers to try new products that they already know and trust instead of turning to other brands. Procter and Gamble have the opportunity to continue developing its employees. They have been trying to increase diversity and implement changes to the organizational structure (promoting more women and broadening the experiences of those they wish to move into management through “colleges”) but what are they doing for its employees that don’t want a career in management? How are we developing and challenging their engineers and salespeople? How are we using their human capital to its fullest potential? P&G is also aggressively entering the beauty channel through licensing with larger beauty brands. So far, the beauty department hasn’t gone as well as we wanted it to but it still has great potential. I think finding innovative ventures in this category would benefit us highly.

Threats
​Procter and Gamble can be threatened by strong competitors who try to pull market share away from P&G brands. They produce cheaper generic products to imitate P&G name brand products. Consumers who are price conscious can turn to those alternatives. While P&G has high supplier power due to its brand loyalty across its diverse brands, our bigger retail partners have a lot of power too. Large retailers such as Walmart and Target are constantly trying to negotiate lower prices. This is a very credible threat as P&G depends on these stores to sell their products. This means that they have the power to pressure P&G into lower priced deals.

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