Analysis of an Organization
Abstract
Procter and Gamble is a manufacturing company that produces consumer’s goods that are widely classified. Procter and gamble is a multinational company. William Procter founded the company with the help of James gamble who was a soap maker. The company purchased British soap manufacturers in 1930; by 1935 the company established a factory in Philippines.
The company focuses on making the world better by manufacturing everyday products that people use on daily basis. The market capitalization of Procter and Gamble exceeds the gross domestic product of various countries. The company has its products in over one hundred and eighty countries. The company’s purpose is to provide products that are well branded with value and quality and improve the consumer’s lives. In return the consumers reward the company by continuously buying their products and making them lead in profits, sales and creation of value and hence allowing the communities and shareholders to prosper (Farasyn et al., 2011). Procter and Gambles products serve about five billion consumers in the world.
Introduction
Procter and gamble has over 300 brands leading in the consumer goods industry. The products include, pampers, Pringles, tide, downy, Pantene, Ariel, cover girl, Olay, head and shoulders, Duracell, crest. Folgers, secret, oral B, Hugo boss, zest, Clairol, old spice, Mr. clean and many more. These products get marketed through drug stores, grocery stores, high frequency stores, and membership club stores, ecommerce, pharmacies, salons and departmental stores. It operates about 115 plants in over 80 countries. The company’s headquarters are in Cincinnati, Ohio and it has employed over 98000 employees across the world. The company also has produced shows such as down to earth, Shirley Jones, Dawson’s creek (Annual Report, 2012). The global business units are divided into five categories the first is fabric and home care and it is the biggest division, followed by beauty care, then snacks and beverages, baby and family care, healthcare. Fabric and homecare is Procter and gambles most profitable category with a total of over $3 billion (Monk, 2012). Procter and gamble improves the quality of life of the society through social responsibility programs which have taken initiatives such as providing safe water for drinking for children as well as pampers.
The above score card shows Procter and gambles perspective on what they truly value. The customer’s perspective is very important and is placed at the top of the scorecard. Customer satisfaction, service innovation and quality are greatly emphasized. There is a very strong theme in the entire scorecard of innovation and introduction of new products. Procter and gamble has continuously succeeded through differentiation of products on quality as shown by the score card.
Some of the leading measures in a balanced score card have a cause and effect relationship with various measures in the same score card. Balanced score card helps to track progress towards the achievement of the company’s strategic goals.
Significant costs
Environmental costs
The large production output in the company has damaging effects to the environment. The raw materials that get used for the products tend to emit environmental emissions that can lead to pollution (Mockler, 2007). The company has invested a lot in making efforts to push for low and green emissions. They have succeed in manufacturing of washing products that do not conation phosphorous that had previously got added to washing products (Schuiling, n.d.). The company also applies smart eco design in manufacturing processes and design that get sustainable to reduce waste when transporting products. The company spends a lot of money in the process of making their products stand out. The company is obligated to produce quality products such costs are prevention costs.
External costs
Competitive rivalry makes the company incur external costs. Procter and gamble operates in a highly competitive industry and it has emerged to become a leader. Consolidation in the industry force companies to react due to change by one company. The demand for beauty products has continued to grow due to growth of economies in developing countries. The standards of living have improved in these countries as well as demand for products manufactured with natural raw materials. Potential growth and demand has stabilized the company in the industry.
Threats to new entrants make the company spend huge costs to maintain the leading position. The market share has been captured by major competitors in the industry through economies of scale. The wide of quality products by major competitors make it very difficult for new companies to enter the industry. Potential entrants would require large amounts of capital. A barrier therefore exists and new companies find it had to penetrate the market.
Bargaining power of buyers is enabled by the company spending hugely to provide affordable products. Buyers determine the longevity of business in this industry. Major buyers in this industry are distributors such as Wal-Mart. The distributors purchase products in large quantities that increase their buying power by allowing them to have low costs for the products. Over exposing sales to a single buyer poses a serious threat to the industry if competitors do not form their own distribution network. Bargaining power of suppliers ensures heavy costs for Procter and gamble. Substitutes for raw material are few in this industry and hence create a great concern. The supplier enjoys a great bargaining power and hence the industry must try to scale it back so that competitors do not take advantage.
Internal costs
Procter and gambles financial position enables it to acquire other companies through high costs. Procter and gamble acquired Gillette and its market is growing giving the company a competitive advantage. Procter and gamble invests a lot on innovation and targets new markets that could emerge with potential growth, such costs for innovative purpose are appraisal costs.
Investing in innovation improves brands quality and promotes loyalty to a brand. Also, the company has been able to launch and manage new brands successfully. Marketing costs are also very high and the company has greatly invested in them.
Strategy map for Procter and gamble
The strategy map gives further insight to show the financial goals of Procter and gamble which include growth in revenue, reduction of costs and increased investment returns. The goals are well linked to show the relationship between customer satisfaction and growth in revenue (Surfactant, n.d). The strategy map is a key tool for Procter and Gamble to understand the company’s journey to success. The ultimate goal for Procter and gamble is in the financial performance in form of shareholder value. The strategy map is set up well due to the balanced score card that analyses the company’s theme. For majority of firms learning and growth provides the base for the success of the company. Learning and growth leads to great employees and great products to drive performance from the customer’s perspective.
Sustainability
Climate change, high prices of commodities environmental responsibility and corporate social responsibility has led to expectation by organizations to sustain the environment. The concern of sustainability can get looked at from many perspectives and organizations are under pressure to implement practices that lead to sustainability. Environmental performance indicators are categorized into three (American Productivity & Quality Center 2006). Operational indicators measure stresses to the environment such as pollutants non toxic waste and fuel use. Management indicators measures efforts to decrease effects of the environment such as time spent during environmental training. Environmental conditions indicators that measure quality of environment for example, air pollution concentrations.
Procter and gamble introduced environmental sustainability scorecard to its supplier that would rate and measure the process of improving the environmental performance by it suppliers. The score card will ensure that that there is measured use of energy use of water, disposal of waste and emissions of gas. The new scorecard introduction is a step to show that Procter and gamble is committed to sustaining the environment and reflects the company in a holistic manner. Procter and gamble has worked with supply chain experts to encourage supplier to get enabled to measure environmental standards. Social performance indicators are divided into three categories. Working conditions indicators measure safety of workers and opportunity for example, number of injuries and hours of training. Community involvement indicators measure outreach of the company to broader and local community for example volunteering by employees and participation in humanity for habitat philanthropy indicators measure contribution of a company directly and its employees to organizations that are charitable.
Cost volume profit analysis of Procter and Gamble
Data from 2012 financial statement; figures in millions of dollars
Contribution Margin (CM) = (Sales Revenue – Total Variable Costs)
For example
Sales revenue =27.76086
Total variable cost =16.2376
Contribution margin=11.52302
=27.76086-16.2376
The degree of operating leverage measures the risk of operating the business. The risk arises from a firm investment into an activity that is speculated to get profitable. The determinants of degree of operating leverage are contribution margin in sales in form of dollars fixed operating costs in a given period and sales in dollars in a given period.
% Change in operating income=5.6343
% Change in sales revenue=14.1870
DOL=2.052
Cost Volume Profit analysis helps a company in decision making about a company’s future spending. The management is able to know the breakeven point and can increase efforts to produce a product to make more profits. Cost volume profit analysis briefly describes the company’s business activity in a snapshot. Managers get enabled to plug in variable cost that is subject to change in future.
Cost Volume Profit analysis gets based on specific data and requires attention to detail and hence it best provides answers to questions and not exact mostly. It helps to answer questions that are hypothetical than it does when providing answers that are actual to solve problems. The manager needs to take extreme caution in decision making and about changes in finance and business operations. It helps to determine price of commodities. The company can reduce fixed costs as well as variable costs. The business can establish price sensitivity to sales volumes in the market. Cost benefit analysis assists in budget preparation to determine sales levels to achieve targeted profits. Flexible budgets get prepared to show expected cost and revenues during various production stages and avoid unnecessary losses.
Conclusion
Strength and weaknesses
Procter and gamble has five core strengths. The first is consumer understanding. The company has invested a lot in market research and has company interacted with millions of customers annually. Thousands of studies on research get done with investment of millions to understand consumer’s needs. The insights that the company gains help in identification of innovative opportunities to help communicate and serve consumers better. The second core strength is innovation (American Productivity & Quality Center, 2005). Procter and gamble leads in innovation among its competitors and it collaborates with research partners and most the commands products are as a result from external partners. Brand building is the third core strength. Procter and gamble has leading brands in the industry. Many of these products are worth billions of dollars the products leads in the market and have growth significant to creation of value potentially (Datamonitor, 2008). The fourth core strength is market capabilities. Procter and gamble is preferred as suppliers by many leading retailers and survey conducted have proved. The company also gets ranked top for clear company strategy and having brands that retailers consider to be important. Also they have marketing programs that get innovative and strong fundamentals of conducting business. The fifth and last core strength is scale. Procter and gamble is among top companies to have largest consumer goods that are packaged. The company has advantages due to scale on conduct of business, branding and people. Knowledge is hence easily shared as well as transfer technologies that ensure spending gets optimized. The resources also flow better to improve productivity and efficiency and serve customers better (Datamonitor, 2007).
Weakness
Despite the company’s strengths the company has weakness, Procter and gamble has the weakness in implementation of new strategies. The implementation involves significant and substantial costs. The additional cost for Procter and gamble would allow the company to allocate larger sums of money that contribute to additional problems for the company. Significant allocation needs to get budgeted and allocated so that adjustment can get done to create coping strategies of dealing with these additional costs. The other weakness that Procter and gamble is experiencing is the retrenchment process that is getting done and it has greatly affected the motivation of employees. Retrenchment of employees comes about due to the needs to cut costs. The company also fires or relocates its employees with the need to cope with sudden changes of the company. Such action tends to threaten employees in terms of their performance and in individual abilities and skills. The provision of fear and anxiety to the employees make retrench and job reduction to get treated as a weakness to the company. Procter and gambles ability to lower realization is another weakness. Lower realization refers to the company’s inability to think about different solution that can get implemented. The company has passive approach to its challenges and problems.
The management and leadership skills of Jager are another significant weakness that puts lots of pressure to managers in charge of marketing the products of Procter and gamble. The management and leadership style of Procter and gamble past the chief executive officer does not correlate to the corporate culture. Good leadership ensures effective management in an organization. Jager had not had good leadership skills and hence the weakness to Procter and gamble. Jagers strategic decisions were usually out timed and his decision to transfer and relocate employees resulted to behavioral problems. Further the discussed weakness affect sales and profits and low recognition in the market especially in the four years period from 1995.
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