Procter & Gamble Resources, Capabilities and Competitive Advantage Essay
Procter & Gamble Resources, Capabilities and Competitive Advantage
P&G – Procter & Gamble is a consumer product company founded and headquartered at Cincinnati, Ohio in 1837 by Mr. William Procter and Mr. James Gamble. It is now led by Mr. Alan.G.Lafley whom rejoins the company in 2010. P&G success was contributed to the heart of its business model – Innovation; and that is not just for newly invented product or service, it was for the goal of recreating needs for the improvement of consumers’ living. And it is a very long culture started where the roots started from the founders; whom are soap and candles makers. The first innovative product – Ivory; started in 1879, by James Norris Gamble who is the son of the founder and a trained chemist. Ivory at then was an inexpensive white soap equal to high-quality, imported Castile soap. It was introduced nationwide through a weekly newspaper. Today, P&G has its presence across 180 countries and a team of 121,000 employees. Its business operations spanned across various segments like Beauty, Grooming, Health Care, Fabric Care & Home Care and Baby Care & Family Care; it is the house to many of the world leading brands like Head & Shoulder, Gillette, Oral B, Fabrics, Pampers and many more. Touching more than 4 billion consumers worldwide every day, the company sales volume as of fiscal year ending June 30, 2013 was more than 80 billion in sales. The Strategy – Unique Value
According to Michael Porter, He argued that organizations that focus solely on operation effectiveness is not enough, they will only be successful if they are able to provide a unique value that is sustainable for a long term. Organizations competing in operation effectiveness will only gauge their performance by benchmarking what others are doing; ultimately providing the same value throughout, which is of no value to the customer. Therefore, for an organization to be able to sustain for long term, an organization would require a competitive strategy by performing a different set of activities to deliver an unique value. According to Jay Barney, he also mentioned that an organization will have a competitive advantage against others if they adopt a value creating strategy not done by others yet. And that value will deem to be able to provide competitive advantage and are sustainable in the long term if they have the four attributes – Valuable, Rare, Non-Imitable and Non Substitutable (V.R.I.N). Valuable would be that the resource would be able to add value to the organization; Rare would be that the resource is not common within competitors; Non-imitable would be that the competitors are not able to copy them easily or able to produce the exact same set of resources; And lastly, non-substitutable would be that resources are not easily substitutable by equivalent resources that are valuable.
Grant, R.M has a very similar theory to Jay Barney’s; he mentioned that for a resource or capability to establish competitive advantage, it must fit into two conditions: Scarcity and Relevance. Scarcity would refer to that it cannot be widely available, while relevance would refer to that it must be relevant to the key success factors in the market, assisting the firm in creating value for its customers or to survive competition. It is also dependant on their durability and whether are they easily imitable. From the above, we get to understand that a firm can only be successful, if they are able to provide a sustainable value that their rivals are not providing. As derived from the V.R.I.N table above, we can see that P&G competitive advantages would be their strong branding, accumulated understanding of consumer’s needs and innovative culture where it is not achievable by their rivals. Driven by an Innovative Culture
In 2011, CEO of P&G – Mr. Robert McDonald mentioned that he is on a mission and that is to make P&G the most technologically enabled business in the world. And he get it all started by digitalizing operations everywhere which has eventually contributed to reduction of cost, time and effort, reaping better product yet higher profitability. Within manufacturing, employees can now use Ipads to download real time data for communication, the goal was to integrate their operational and financial system whereby cost of each product line will be displayed, allowing management to make effective market decision at real time. Within Logistics, there is a “Control Tower” and Distributor Connect” program that were with the intent to monitor all inbound or outbound activities within internal or external resources, it has since been able to effectively reduce deadhead moments. By bringing innovation into their supply chains to deliver better efficiency and lower cost, it is no surprise that P&G was ranked among the Top 5 in the award for Gartner Supply Chain Top 25. With the effective supply chain, it has help to keep hiking costs at bay, where P&G can price their product competitively; which ultimately spells benefit for the consumers.
For retailers, P&G has developed a sophisticated ordering application whereby retailers can now order via wired phone or wirelessly via a mobile app. With that all done digitally, they can now also upload existing shelf photos and receive best practices on product arrangement to maximize sales. In product development, molecules used for research have also been digitalized. When needed, it will be modeled to predict product effectiveness. Back at the roots of their research and development centre, it is inevitable that one would notice the promotion of innovative thinking within their culture. And this strategy is not only for their employees, P&G has also taken the step out to influence their partners. A program called Connect + Develop has been created to embrace open innovation. Not limiting only to their internal resources, P&G no taps onto the vast knowledge that the world can provide.
Riding on this program for the past 10 years, it has brought the value that P&G can offer to the market up by 70%. Recognizing its success, it is now a key strategy that is employed throughout every business units. Some of the well known brands that are generated through this program are Olay Regenerist, Febreze and many more. All these processes are made possible because of the analytical thinking skills found within their employees which plays an important factor since it enabled them to come up with innovative ideas often co-related to analytical data collected. And these processes are not internally focuses; it controlled both the macro and micro environment factors that contribute to their success. With a very strong innovation culture, P&G today are currently at over 55,000 active patent filings globally and, as a subset of the active patent filings, about 41,000 granted patents globally. This makes P&G among the world’s largest holders of U.S. and global patents, putting it on a par with Intel, Lucent and Microsoft.
Understanding and Reaching Out to Consumers like no others
With technology, P&G brings their understanding of consumer’s behavior into the digital age. For the past years, P&G has been able to carry out a successful global rationalization. It is achieved through deep understanding of consumer needs. With digital channels on the rise, consumers are now
bringing their feedback of a product or service to the digital space through blogging, tweeting and posting comments. P&G see this advantage and make the most out of it to understand a consumer’s behavior towards a product. But since the comments are all over the place, P&G developed “Consumer Pulse” which uses Bayesian analysis to scan through the universe of comments and categorizing them into individual product. These real time insights are then sent to respective in charge for real time reaction.
They then carry out appropriate go to market strategy. And since the whole world is watching, it is an excellent opportunity for them to tap on the effect and go for the creation of a positive and strong branding. And with those, P&G are able to marry the best of what they have, which are the combination of customer behavior data and their top notch research development team – connecting “what’s needed” with “what’s possible”. With a establishment of more than 177 years now, P&G has been making a great deal of awareness in the market. Being one of the biggest media buyers, they have constantly been able to come up with message with an impact for their house brands. With all these activities that happen over the years, P&G has become a very strong and reputable branding among consumers which is a very rare intangible resource whereby new entrants or mediocre players in the industry will not be able to be on par within a short period. Surviving Competitions – Conclusion
Although an organization’s competitive advantage is able to sustain the company in the long term, it is not forever. A new set of competitive advantage may be required if there are changes in the industry or within the organization structure. An evaluation tool like Porter’s five forces will help P&G understand the structure of its industry and see if it is strategically at a winning position against its long standing on par competitors like Unilever, Colgate Palmolive. If the forces are intense, the firm will not be able to earn attractive returns on investment. If the forces are benign, then it would be profitable.
In consideration of the threats above, P&G can easily fence off new entrants with the branding that they established over the past 177 years and also its vast array of products by its own R&D. According to Grant R.M., the value of branding is in the confidence that it has instill in the customer, it is an
intangible resources that customers are willing to pay a premium for over an unknown brand and branding is considered a very valuable resources as unlike technology, it is long-lived, unless tarnished. Although retailers can easily switch brands, and the threat is considered high. The retailer’s customers however are brand and product conscious; the retailers buying power are greatly affected by the demand of their customers. Further to this, P&G primed themselves for quality and effective product, this is highly credited to their innovative culture and accumulated understanding of their consumers, therefore although the threat of substitute is considered moderate in this industry, they are able to differentiate themselves with their quality, it is only considering to be a threat for cost conscious shoppers who are not looking at quality – which would be a minority group. Given P&G capacity in production today, suppliers bargaining power is considered a low threat for them.
As the purchase of raw materials would normally be source globally and in bulk for economics of scope and scale, the negotiation power of P&G would be higher than their suppliers. Another theory to support on its success via its competitive advantage was Porter’s theory on generic competitive strategies. It is said that competitive advantages are classified into Low cost or differentiation, which are in relation to the industry structure. It is the ability of how an organization is able to cope with the five forces better than its rival. The two basic types of competitive advantage combined with its activities to achieve them lead to the three generic strategies – cost leadership, differentiation and focus. In this case, P&G are using Porter’s differentiation generic strategy. This strategy calls for the organization to selects the values that consumers perceive as important and position itself strategically to meet those needs. Although the key focus was to seek differentiation, its cost position was not ignored as P&G strive in operation effectiveness by technologically enabling its operation throughout its organization.
P&G is currently in a winning position against its rival. Leveraging on its competitive advantage to provide the unique value to consumers, it has gained market share and the its leader position in sales volume (as supported by above bar chart) among its competitors.
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University/College: University of Arkansas System
Type of paper: Thesis/Dissertation Chapter
Date: 7 April 2016
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