FC-2022-001

Apr 25, 2022

Procter and Gamble:

Procter and Gamble (P&G) is a global leader in the CPG (Consumer
Packaged Goods) industry with operations in 170 countries and territories and
around USD 76 BN in revenue in 2021 (Statista, 2021). Founded in 1837, the
company became a behemoth until the late nineties when a lack of focus caused
much pressure on profitability and revenue. When A. G. Lafley took over in the
summer of 2000, he had a huge task to restructure and refocus the company.
This case study attempts to strategically analyze the steps taken by Lafley to
steer P&G back into a profitable company.

This case study was authored by Indrajit Sen. The information presented here has been
compiled from published sources and is not intended to serve as endorsements, sources of
primary data, or illustrations of effective or ineffective management.
Procter and Gamble: A Strategic Turnaround by CEO A.G. FC-2022-001
Lafley

Procter and Gamble

Executive Summary

In this case study, our objective is to analyze and research strategic

techniques used by companies to maintain their competitive advantage. Our
candidate company is Procter and Gamble, which is a world leader in consumer
health care products and operates out of more than 170 countries and territories
worldwide. The reason for choosing a large multinational company like P&G is to
delve into the complexity that is associated with its operations and strategy. CxOs
and company executives use time tested methodologies and management
theories to determine the best path for a company, in addition to what they think
best according to their extensive experience. Without a competent leadership
team, it is easy for such a large company to get derailed and defocused as it tries
to expand its footprint and increase both revenue and profits. Unfortunately, P&G
got derailed due to lack of leadership and CEO vision, diversified into too many
products and lost focus from it money-spinning brands. This is the story of how a
new CEO, A.G. Lafley successfully pulled out P&G to being one of the leading
brands in the world again. In this case study, we strategically analyze P&G, both
externally and internally and gain insights into its strengths, weaknesses, threats,
and opportunities. We will also do an external analysis of P&G using Porter's five
forces and see where it stands from a competitive advantage point of view. We
will use this external and internal analysis to check how P&G applies corporate
strategies at various levels - business, functional, corporate, and global. With all
this knowledge as a base, we will recommend the best possible way forward for
P&G to sustain its competitive advantage.

Company information/background

Tide, Pampers, Gillette, and Vicks are household names in America and
worldwide, and they are all owned by the CPG giant Procter and Gamble. It was
started in Cincinnati, Ohio, by founders with like last names, Procter and Gamble.
Procter made candles, and Gamble made soaps when they merged their business
in 1837. Cincinnati was serendipitous because it was the center of animal fat
availability, a key ingredient for both products. P&G launched the first synthetic
laundry detergent in 1946 (Britannica, n.d.). It is interesting to note that the term
'soap-opera' originated from P&G sponsoring quite a few TV series! Gradually
toothpaste, beverages, and health and wellness products were added. Gradually,
the product portfolio increased to around 180 brands with revenues growing to
US$76 billion and operations in 170 countries and territories (MarketLine
Company Profile: The Procter & Gamble Co. (2022). In Procter & Gamble Company
MarketLine Company Profile (pp. 1–93).). When focus was lost, both top and
bottom lines nosedived, so much so that the then CEO Durk Jager is infamous for
being the shortest tenured CEO in P&G's history and his failure to turn around the
company. The nosediving top-line had a flattening effect on the stock price, as
evident from the stock chart in the appendix that show a flat line around the year
2000 mark, just before Jager was fired. When Lafley joined, he took a while to re-
organize the company. The promise of him taking P&G in the right direction can
be seen by an upward-pointing graph around the same time, reflecting the
shareholders’ positive sentiments. Each time the CEO has changed, the stock
chart makes it apparent by a dip and then a surge. Lafley’s CEO tenures from
2000 to 2010 and 2013 to 2015 show steady increases in stock price, reflecting

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positive market sentiments. However, Lafley’s tenure was truly a ‘golden’ one
since it was the only window when the P&G stock price exceeded the Nasdaq
average.

Strategic analysis/Findings

As much as it is a strategic management problem finding the right strategy

to steer P&G into comfortable revenue and profit zone, it is a similar OB/personnel
problem getting the right person to do it and time everything right. When P&G got
into a lot of trouble that was primarily due to mismanagement, the new CEO had
to meet every Sunday with his Chief HR Officer (Berner, 2003) to formulate a
strategy on whom to promote and whom to assign different responsibilities and
how to distribute information. That ensured that all levels of the company's
managers were aware of both the end customers as well as the top management.
Having all managers play the same message meant that nothing would be lost in
translation and all CEO strategies would be implemented as they were meant to
be. When it comes to classical strategic analysis, nothing beats the time-tested
Porter's five forces for external analysis. We will use Porter's five forces in this
case study to see where P&G stands (and stood) in terms of sustaining its
competitive advantage. P&G's main competitors vary depending on the product
sold. Generally, Colgate-Palmolive, Unilever, Johnson & Johnson, S.C. Johnson,
Clorox, and Henkel count as competitors on a global scale. Both sell CPG products
and have a global footprint (Investopedia, n.d.). However, P&G does not rank
favorably compared to its competitors (Comparably, 2021), and is not on the
number one slot for any criterion, including the CEO score, where it ranks fifth.
Porter's five forces is a model developed by Harvard professor Michael E. Porter to
analyze the five competitive forces that work on a company and determines its
strengths and weaknesses (Porter, 1979) from an external perspective. These
forces are low or high depending upon their intensity and market conditions.

Diagram: Porter’s five forces on P&G

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The five forces are:

1. Competition in the industry

Competition in the industry is a simple case of supply and demand. The
more there are firms selling the same kind of product, more the supply of it is
there in the market. Consequently, sellers cannot charge higher prices for a
product like that, and profit margins tend to be low. This is the reason monopolies
and oligopolies can charge premium prices.

2. Potential of New Entrants into an Industry

This force is related to the previous one. If more competition enters the
industry, supply will increase, and as a result, the power to charge a premium will
decrease. Whether or not a new competitor can enter the marketplace easily
depends on certain factors like investment required, regulation and intellectual
property rights.

3. Power of suppliers
Since everything cannot be purchased in-house, most companies source
raw materials from various suppliers, some of whom are in a different continent. If
the supplied raw material is a rarity or a novelty, then not many suppliers can be
found, and the earlier discussed principle of less supply (hence, more demand and
power to increase prices) applies. Suppliers then get to dictate terms and
sometimes even have the power to drive a company out of business.

4. Power of customers
Customers are the reason that most companies exist. Granted that one
single customer cannot change the sales path of a large company, but customers
show herd-behavior when buying trivial products based on reviews (Shen, 2016),
and a negative perception can take out an entire brand. Customers therefore
have a high power of control when the product is mass-market and influences all
of them equally.

5. The threat of substitutes

Substitutes are alternate products that offer similar, if not exactly
equivalent functionality. Customers are reluctant to try substitutes for low-value
trivial products like shampoo and soap that work for them. (Panmore, n.d.).

We will look at each of the five forces from the perspective of P&G and in a
global setting:

Force 1: Competition in the industry - High

P&G's main competitors vary depending on the product sold. Generally,
Colgate-Palmolive, Unilever, Johnson & Johnson, S.C. Johnson, Clorox, and Henkel
count as competitors on a global scale. Both sell CPG products and have a global
footprint (Investopedia, n.d.). However, P&G does not rank favorably compared to
its competitors (Comparably, 2021), and is not on the number one slot for any
criterion, including the CEO score, where it ranks fifth. P&G products like Tide are
easily replaceable by competitor Unilever's product Ariel. Similarly, many of P&G's
other mass market products have very little differentiation. Thus, we can deduce
that the first of Porter's five forces has a high impact.

Force 2: Potential of New Entrants into an Industry - Low

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Like Rome, P&G wasn't built in a day. It took more than a century and a
half of careful planning, dedication, and strategy to build up a company like that.
All these years, P&G has worked hard to win the loyalty of not only its customers,
but also its suppliers. The network created is simply impossible for a new entrant
to build up quickly. Not to mention that it costs billions of dollars to sustain and
run an empire like P&G. All these factors make it very difficult for a new entrant to
be noticeably competitive on a global scale.

Force 3. Power of suppliers - Low

With hundreds of suppliers worldwide (P&G, 2022), P&G has one of the
largest supplier bases in the world. Rather than suppliers wielding power, P&G
encourages competition between them to deliver the best quality raw materials at
reasonable prices by awarding top performing business partners (P&G, 2022).
Also, since the raw materials thus supplied are easily manufactured, suppliers
who throw a tantrum can be easily replaced. This has significantly diminished the
bargaining power of suppliers.

Force 4. Power of customers -High

P&G manufactures consumer goods that quickly and periodically fly off
supermarket (and Amazon) shelves. Prices are low, and most products can
reasonably be substituted by a large competitor like Unilever or Colgate. Though
the individual customer does not have a say in influencing the entire brand line,
customer segments as an aggregate have a high bargaining power to convince
P&G to make changes.

Force 5. The threat of substitutes -High

The threat of substitutes for mass market CPG goods is indeed high. This is
because most of these products are not protected by patents, and no one stops a
competitor from manufacturing a similar product that serves the same purpose.
An example is soap and body wash. Both serve nearly the same purpose, neither
are protected by patents and consumers do not mind switching. However,
research has shown that customers are reluctant to try substitutes for shampoo
and soap products that work for them. (Panmore, n.d.). Hence, the threat of
substitutes is considered as low.
From the five forces discussed thus far, the most potent force that could
disrupt P&G's business is force 1, which is the threat from competition in the
industry. Competition like Unilever and Colgate Palmolive thus have the potential
to completely disrupt multiple brand lines and is the biggest threat.
We will next proceed with internal analysis. Internal analysis is also
referred to as 'SWOT' analysis (Pickton, 1998). SWOT stands for Strengths,
Weaknesses, Opportunities, and Threats. Most of the factors in internal analysis
can be controlled from within the company. It is up to the acumen of the CEO and
the leadership team to determine the best course of action from the outcome of a
SWOT analysis.

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Diagram: Internal strategic analysis for P&G

Strengths:
P&G is a legacy organization, an American icon, and a household name
worldwide. All that means only one thing - P&G has a very strong brand that
resonates with quality and dependability, and most importantly, trust. This is
P&G's greatest inherent strength that is well known by the P&G C-suite. Another
aspect of strength is P&G's size that can be described by only one word -
behemoth. Due to its size, it can wield influence with suppliers and other
stakeholders. If the competitor is not a large one, there is a little chance that its
sales or reputation can be affected. Innovation is a big word when it comes to
what is expected from companies like P&G. These innovations help introduce
disruptive products into the market that helps in sustaining the company's
business for a long time to come. Also, due to its size and money power, P&G can
continually invest money on R&D and thus come up with innovative products –
that give it a differentiator’s competitive advantage. The stock time-series in the
appendix shows that a great CEO has always bolstered the company’s stock
performance and shareholders’ confidence, and hiring great talent is a particular
forte of P&G due to its varied opportunities to learn and grow according to their
own website.

Weaknesses:
Due to the very nature of P&G's business, the products it manufactures are
easily imitable. On a local scale, that is a big problem because most often large
companies do not have the visibility of local competition at their corporate
headquarters. Most countries have weak intellectual property laws that do not
prohibit small vendors from selling cheap rip-offs. For a legacy company like P&G,
staying updated with technology is a big requirement. Unfortunately, P&G was
late to jump into the e-commerce bandwagon, especially the D2C (direct selling to
consumer online) space. As competitors are increasingly getting into that space,
unless P&G catches up, it would lose out the race.

Opportunities:
Opportunities come from both strengths and weaknesses. The D2C market
(described above) is a game changer (Inside India’s D2C Rush: A $100 Bn+
Market Opportunity By 2025, 2021) for retail and CPG giants. It is a yet
unexplored opportunity for P&G that not only its international competition, but
also local competition (like ITC in India) has embraced. Project D2C e-commerce
sales in the US are projected to touch USD 175 B in 2023 (Statista, 2022)

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Threats:
Competitors like to exploit even a giant's weaknesses. When a
multinational like P&G operates in many countries, there is a propensity for local
start-ups to try and copy a cheap rip-off that seriously hurts the large company's
reputation and top line, both. Threats like these can be minimized by due
diligence at every level of management, keeping corporate eyes wide open to IP
infringement and engaging local law enforcement at the right time.

Strategies at various levels

Once we have analyzed P&G both internally and externally, we can look at
strategies employed or planned to be employed by it at various other levels that
can be classified into business, functional, corporate, and global. P&G's integrated
strategy, as given on its US website, is

"Our integrated strategy is the foundation for strong, balanced

growth and value creation for the near and long term - to focus and
strengthen our portfolio in daily use categories where performance
drives brand choice; to establish and extend the superiority of our
brands across product, packaging, communication, retail execution, and
value; to make productivity as integral to our culture as innovation; to
lead constructive disruption across the value chain; and to improve
organization focus, agility, and accountability."

Sometimes, it is best to look at a company's strategy by seeing all its four

classifications holistically because academic distinctions cannot be always made
in the real world. This is apparent from P&G's strategy statement that talks about
strategy.

Image: Some of P&G’s bestselling brands world-wide

Identifying key customers is a vital part of the business level strategy. In

P&G's case, Lafley is famously known to have identified women as a majority
segment of customers wherever he went (WSJ, 2005). P&G's products are
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customized around end-user usability. Although P&G tries to keep the retail prices
of their products moderate by using economies of scale, it is not as aggressive as,
say, Unilever in selling micro quantities in developing markets. When A.G. Lafley
joined, he ensured that the following four points are adequately covered (Berner,
2003).

Outsourcing: A.G. Lafley wanted to focus on the company's core products

and decided to outsource everything else that was of lesser value. Outsourcing
did not necessarily mean out of the country but meant outside of P&G. Along with
outsourcing manufacturing, he believed that not all inventions or patents need to
be acquired in-house.

Acquisitions: are a great way to get talent from places that can never be
done by simple hiring. Lafley also realized that to make P&G strong and echo the
C-suite in its actions, middle managers must be made accountable. He used to sit
with his Chief HR officer every Sunday night and comb through his rank and file to
check who was ready for what.

Expansion: Lafley also wanted to expand P&G's existing brand line so that
when the brand sells, the new products can also enjoy the ride. Prior to Lafley
taking over, P&G had a slew of premium priced products. However, volumes were
low, and these did not sell in emerging markets. That was a problem, because
Unilever and Colgate had a strategy to sell micro-sized products of the same
brand (thus, much lower priced) in developing markets. So, Lafley started selling
lower priced products for P&G in emerging markets.

Finally, when we speak about globalization, P&G's strategy is to have the

same global brand names everywhere. That was a game changer because
consumers in emerging markets got the confidence that brand P&G cared for
them as much. In a globalized word today, consumers are aware of what sells in
developed markets primarily via television and movies.

Problems identified and future challenges

Luckily for most of us, CEO Lafley has already taken care of most of the
company’s problems by following his four-point strategy as described in the
previous section. Unfortunately, in Lafley’ s time the Internet was not as
pervasive, and people preferred going to a brick-and-mortar supermarket for their
weekly needs. So, while the current CEO, Jon Moeller may do well by keeping up
Lafley’ s principles, he may also have to keep up with the changing times.

Jon Moeller is a long time P&G executive and has served as COO, CFO and
Vice Chairman of the Board (LinkedIn, 2022). However, he is a ‘finance guy’ who
has never spent time in sales and marketing. In fact, he is the first P&G CEO with
lesser than desired experience in marketing. He succeeded David Taylor,
marketing guru and CEO for six years, and someone who had directly inherited
the throne from Lafley (The Drum, 2021). Even though Taylor had stabilized the
company well and the share price wasn’t doing too bad, he was removed by the
board two years go (of this writing).

So, while there may be many operational, marketing, and intellectual

property problems with CPG giants, in the case of P&G, an additional problem
seems to be the board of directors who are trigger-happy in replacing CEOs. A
good indication can be found by looking at the P&G stock price over the last

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twenty-five years (which has been on the uptick) and compare it with the Nasdaq
composite where it is listed (Yahoo Finance, 2022). Performance vis-à-vis the
NASDAQ hasn’t exactly been what the board would like to see. Please refer to the
twenty-five-year stock price and the NASDAQ comparison in the appendix.

With CEOs occupying such an influential position in P&G, it is vitally

important that they be the best person for the job. From the topics that we
discussed in this paper regarding external and internal analysis, strategy at
various levels and competition, we can clearly deduce that the right captain (CEO)
could steer the P&G ship to port!

Recommendations and implementation:

P&G is a world leader, and the scale of its operations is truly enviable. Most
companies would seek to operate globally; many will not even get to 10% of
P&G's footprint. However, there are P&G's competitors that have more aggressive
plans. Unilever, for example, grows by investing in emerging markets (HBR, 2013)
to defray competition. Thus, from our preceding external and internal analysis,
and by examining P&G's overall strategy, we can recommend the following
actions to P&G's board and CEO:

1) Grow in emerging markets

This recommendation perfectly aligns with Laffey’s view (he is no longer
the CEO as of this writing). With new non-premium lower priced and travel-sized
products, P&G can easily take on the likes of Unilever and Colgate.

2) Take business online

As of this writing P&G does not yet have a D2C website in most markets.
Post-pandemic many companies see an upsurge in D2C sales (Deloitte, 2021).
That strategy is vital to P&G beating locals like ITC in India (which is a big name
and has a D2C website and app). Unless P&G follows a path of D2C, sales won't
sparkle. The problem is exacerbated by P&G not directly selling even on third
party marketplaces like Amazon.

3) Continue focusing on high-revenue brands

Once bitten, twice shy- in this context, there is a reason to be shy forever-
because time has shown that when P&G lost focus in core brands like Tide and
Pampers, its middle management was confused, and overall revenue nose-dived.

4) Have a CEO who can drive well

This should really be recommendation #1, because in the case of P&G, the
CEO appears to be driving a very significant part of the company. Perhaps, it is a
legacy of Lafley who used to keep a note of even how his middle management
was performing. It is this, imperative that subsequent CEO choices are made very
judiciously.

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Note
Company and individual names may have been changed to protect identity. No
confidential information is included in this case study even in an anonymized
manner.

Appendix

Performance vis-à-vis the NASDAQ over the last 25 years. The upper line is
the NASDAQ line, the lower one is the P&G stock price line.
Represented as time-series.

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