P&G’s Position - MORGAN L MCGRATH



PACIFIC LUTHERAN UNIVERSITY SCHOOL OF BUSINESSP&G’s Strategic Position WeakensBMBA-523 February 7th, 2016Morgan McGrathTable of Contents TOC \o "1-5" 2.0 Diagnose the Problem PAGEREF _Toc445023766 \h 42.1 Analysis PAGEREF _Toc445023767 \h 43.0 Case Questions PAGEREF _Toc445023768 \h 64.0 Recommendations PAGEREF _Toc445023769 \h 85.0 Managerial Implications/Lessons Learned PAGEREF _Toc445023770 \h 8References PAGEREF _Toc445023772 \h 102.0 Diagnose the ProblemProctor and Gamble (P&G) was a leader in consumer goods. Since Robert McDonald was appointed CEO in 2009, the company’s strategic position has weakened, which has caused profit to decline (Rothaermel, 2015). This shift in the company’s position is due to the shift in the company’s focus, or lack there-of. P&G focused on the US market and incrementally added more features to existing brands. This has caused them to miss out on booming years with other emerging economies, as well as a shift in consumer preferences. Consumers have moved away from high priced brands to lower cost brands. P&G now is attempting to solve the problem through two strategic initiatives: 1) Refocus its portfolio on the company’s top 40 most lucrative products. 2) Implementing strict cost cutting measures through eliminating all spending not directly related to selling. The end goal of these initiatives was to improve its differentiated appeal to command premium prices, while lowering its cost structure (Rothaermel, 2015, p.163). The problem with P&G is that it seems they are trying to please everyone. The company wants the best of both worlds, to lower its cost structure while trying to uphold the greater perceived value of the company. P&G needs to pick a simple route and get all team members on-board before they get “stuck in the middle” (Rothaermel, 2015, p.164). 2.1 AnalysisAlthough it may seem appealing to P&G in a theoretical sense to attempt to combine differentiation and cost-leadership activities, it is a difficult task to execute. An integration strategy is difficult to implement because it requires the reconciliation of fundamentally different strategic positions- differentiation and low cost- which in turn require distinct internal value chain activities. The problem with this strategy is that many firms end up being stick in the middle. They don’t fully commit to one strategy, so they don’t succeed at any strategy. It makes the most sense to pick to be either a differentiator or a cost leader. P&G’s strategy seems to be attempting to be an integrator, so it would make the most sense for the company to dive into the benefits and risks of each strategy as well as if the company’s management is set up and ready for the strategy. Business-level strategy outlines the goal-directed actions managers take in their quest for competitive advantage when competing in a single market product (Rothaermel, 2015, p.165). It seeks to answer the five “w’s”-who, what, where, why, how. P&G needs to seek to understand where the company’s performance lies and how to achieve competitive advantage. The best way to seek some of these answers is through Porter’s Five Forces model.Porter’s Five Forces model aids managers to understanding the potential profit of different industries and how they can position their respective firms to gain and sustain competitive advantage (Rothaermel, 2015, p.65). The five key forces managers need to consider are: 1. Threat of entry, 2. Power of suppliers, 3. Power of buyers, 4. Threat of substitutes, 5. Rivalry among existing competitors. The threat of entry is high when customer switching costs are low. Here this is very likely when consumers are likely to make their choices based off of their economic preferences. Consumers in this case also do not appear to have any brand loyalty, which makes the threat of entry even higher. The power of buyers in this case is pretty high; buyers do not face any switching costs, therefore will just buy whatever they feel is the best deal. The power of suppliers in this case is extremely low. Suppliers do heavily depend on the industry for their revenues, and there are many other similar products or substitutes that are less in price. Rivalry among existing competitors is also high in the case of P&G. There are many competitors in the industry, and there are direct substitutes. It is important for managers to understand the profit potential of an industry and to obtain clues on how to carve out a strategic position. To do so, it is necessary to: 1. Define the relevant industry, 2. Identify the key players and group them into different categories, 3. Identify the underlying drivers of each force, 4. Assess the overall industry structure. After considering these issues, P&G needs to assess how to stop the threat of entry, increase the power of suppliers, and decrease the power of the buyers. P&G should consider the other key companies and group them into different categories. Similar to the case of Nordstrom, Target and Walmart, where Target was able to find a middle ground and being integrated, P&G needs to assess where they are in the market. From there it will be easy to see that P&G needs to decide if they want to be differentiated, cost-leadership or integrated strategic company. Because P&G already has a history of increased perceived value within the company, they should hold true to that value. By choosing to maintain their already somewhat defined greater prices with greater value, P&G should choose a differentiated strategy for the future.3.0 Case QuestionsThe ChapterCase states that P&G is pursuing a differentiation strategy. Looking at the value and cost drivers discussed in this chapter and the table entitled, “Competitive Positioning and the Five Forces: Benefits and Risks of Cost-Leadership and Differentiation Business Strategies” in exhibit 6.7, identify the factors causing P&G’s business strategy to lose its luster. Why is P&G’s differentiation strategy no longer as potent as it once was?P&G’s differentiation strategy is no longer as potent as it once was for multiple reasons. P&G’s strategy consists of refocusing the portfolio on the most lucrative products as well as implementing strict cost cutting measures. It seems as if they are trying to accomplish a differentiation strategy as well as a cost leadership strategy. Both strategies have the risk of erosion of margins. This risk of erosion of margins may get larger if the company is not setting forth a clear strategy. It is not differentiating its products against threat of entry and is giving buyers high power. Given the discussion in the ChapterCase about P&G slashing its R&D spending and cutting costs and jobs more generally, does the firm risk being “stuck in the middle”? Why or why not? If yes, would being “stuck in the middle” be a bad strategic position?It appears that P&G is risking being “stuck in the middle.” It seems as if theywant to continue with their higher perceived value idea, but also cut costs and produce potentially a lesser quality product. A successful integration strategy requires that trade-offs between differentiation and low-cost be reconciled. Although, this is extremely difficult because these two distinct strategic positions require internal value chain activities that are fundamentally different from one anther. “Stuck in the middle” would be a bad position for P&G to continue to put themselves in. Your task is to help Mr. Lafley sharpen P&G’s strategic position. Which strategic position along the productivity frontier should P&G stake out? Which value and/or cost drivers would you focus on to improve P&G’s strategic profile? How would you go about it? What results would you expect?The productivity frontier is the value cost relationship that captures the results of performing best practices at any given time. In 2009 before P&G switched CEO’s, I would have placed P&G near the differentiation side of the frontier (top left). But now since they have moved towards the middle of the frontier, in the integration, I think they need to shift back towards the differentiation side again. To do so, I would recommend a focus on brand quality and perceived value, and re-start the R&D department again. P&G needs to be able to command a premium price for their products and potentially looking into specific product placement to see what socio-economic places would be interested and could afford buying such products. I would expect P&G would be able to capitalize on higher margins from further development in premium priced products.4.0 RecommendationsAfter careful examination, P&G needs to establish a guiding policy for what direction to take the company. The best choice for P&G to ensure success is to reframe the differentiation strategy as a guiding policy. P&G needs to re-frame the differentiation strategy to seek to gain competitive advantage again. In order to do this P&G needs to set forth a clear strategic profile and managers must define the scope of competition- narrow v. broad section of the market (Rothaermel, 2015, p.167). P&G should refocus their marketing efforts towards a narrow section of the market. They should focus on a small market segment with affluent consumers who want to present a certain imagine or must have a specific quality standard. They must produce products that competitors cannot match. The products must have unique features, or focus on marketing and promotion rather than price. The idea of a greater perceived value must be instilled back into the company and the products they produce. 5.0 Managerial implications/Lessons LearnedEvery managerial move made presents new lessons learned. In this case, it is simple to see that presenting a clear strategy is vital to any company or corporation. If you fail to take a stand or a side, you will never be able to make it. It is also important for companies to look around to what the markets are doing and see if this will change the market for their product. P&G should have thought about how the economy was going to affect the consumer’s desire choosing their brand over prices as well as other potential missing markets. The company needs to adhere to a simple and straight forward policy that everyone can understand. Any mixed signals in a company change make the transition periods challenging to overcome.ReferencesRothaermel, F. T. (2015). Strategic Management (2nd ed.). New York, NY: McGraw-Hill Irwin. ?Coolage, A. (2016, Febuary 27 ) How will innovation save P&G? Retrieved from. ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download