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    8 views14 pages

    Procter and Gamble

    Uploaded by

    drdavidrinaldi
    p&g

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    © All Rights Reserved
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    of 14
    CHAPTER NINE Procter & Gamble ‘The fourth case study is Procter & Gamble (P&G), a company widely known as one of the nation’s premier consumer marketing organiza- tions. The company is more than 150 years old, and many of its products have long been household words. Well-known products such as Ivory Soap, Tide, and Crisco have been market leaders for decades. The com- pany has the incredible growth record of doubling its sales volume each decade of its existence, and is the first career choice for hundreds of highly talented graduates of top American universities each year. ‘The survey data portray P&G as a high-involvement company with financial performance slightly below average for the industry. The sur- vey data, as noted in Chapter 5, were gathered in 1966 and compared to performance data that came from 1966 through 1971. It is important to remember, however, that performance in these analyses was equated with return on investment and return on sales, and not with growth over time. Clearly, if the criterion for performance was long-term growth, P&G would be an outstanding performer. The corporate culture of P&G is intriguing. Its legendary emphasis on thoroughness, market testing, and ethical behavior is transmitted to new employees through unique recruitment and socialization practices that combine internal competition and internal promotion. Only the “victors” in this “tournament” eventually assume leadership roles at P&G, These practices have led to a strong and distinctive culture that past and present members of the organization perceive to be closely linked to P&G's effectiveness. ‘his Matera i only tobe used in conjunction with MEA tne Lectures 7 148 PROCTER & GAMBLE History and Background P&G was founded in Cincinnati in 1837 by William Procter, a candle- maker, and his brother-in-law, James Gamble, a soapmaker. During the week, Procter managed sales and finance and Gamble ran production, and they met regularly on Saturday night to discuss the business. The founders’ basic values and beliefs established principles that strongly influence the corporation to this day. Their mission was to produce rela- tively inexpensive household products, technically superior to the competition, that were quickly consumed and were an integral part of their customers’ life-style. By serving their customers’ everyday needs through quality products, they sought to “foster growth in an orderly manner, to reflect the standards set by the founders, and to plan and prepare for the future” (Schisgall 1981). Building on its early success, the company grew rapidly during the Civil War, when it supplied the Union Army with soap and candles, its two main products. The emptied packing crates, with P&G’s famous “moon and stars’ trademark, served as furniture in Union tents and as reminders ‘of the company’s products. The company’s early innovations came both in the product arena and, pethaps more important, in marketing and advertising. In 1887, when a New York chemical analyst discovered that P&G's new bar soap had only 0.0056 impurity, young Harley Procter wrote the ad copy clas- sic, “Ivory Soap is ninety-nine and forty-four one-hundredths percent pure.” This campaign has been used to sell Ivory ever since, and helped begin a long tradition of excellence in advertising and marketing. Other soap products were soon added to the P&G line, and were followed by food products such as Crisco, beginning in 1912. Sales of all these prod- ‘ucts benefited from an increasingly well-tuned marketing system. The company has always relied heavily on research and has valued objectivity. The reliance on research led it in two complementary direc- tions: the development of “technically superior products” and the de- velopment of innovative ways to advertise and market. Producing a “technically superior product” meant beginning with an objective cus- tomer need and then developing a product noticeably better at meeting that need than any existing product. Until it had produced such a prod- uct, P&G typically would not enter a market, even though it might have been profitable to do so. To gain more objective information about the marketplace, P&G formed an economic research unit in 1923 to ask customers what they thought of the company’s products. As the research became more sys- tematic, this unit became the forerunner of the market research function HISTORY AND BACKGROUND 149 in major corporations, which in turn prompted the P&G penchant for research to extend to understanding the marketplace, as well as devel- oping new products. To bring its message to the public through “wholesome family enter- tainment’” (a medium in keeping with the corporate values), P&G in- vented a new form of entertainment, the “soap opera.” The company served as sole sponsor of these radio programs in the twenties through the forties, and then on television in the 1950s, Classics such as “Search for Tomorrow,” ““As the World Turns,’” and ‘Edge of Night” were de- veloped and sponsored exclusively by P&G, and the firm has tradition- ally maintained television’s largest advertising budget. Several organizational innovations, developed during the 1920s, en- dure as a mark of the P&G style. The first of these was direct retail sales. Once it discovered that selling directly to retailers would work in the New York area, P&G moved to eliminate brokers altogether and to sell directly to retailers across the entire country. This allowed them to re- spond to a stable demand for its products, rather than the volatile de- mands of wholesale brokers. Although P&G eventually retrenched somewhat and relied on brokers to sell to very small outlets, the com- pany succeeded in drastically changing its pattern of consumer market- ing and reducing the turbulence associated with selling through whole- sale brokers. In addition, the persistent image of the P&G sales representative carefully examining the shelf space allocated to P&G products provided the company with a new way to ensure that its prod- ucts captured the consumers’ attention. ‘A second organizational innovation, which took place in the 1920s and 1930s, was the evolution of the brand management system for which P&G is so well known. The system developed, in part, in re- sponse to Camay, the company’s new soap product and a potential competitor for Ivory. Without separate marketing and advertising, ar- gued Neil McElroy (who was later to become CEO and chairman of the board), how could a new brand be expected to compete freely with an established brand? The brand management system created a separate organization for each brand and ensured that the development of new brands would not be hindered by the attention paid to older, more es- tablished products. This form of internal competition ensured that brands would vie for resources and that no brand would be forced to subsidize a less profitable product. ‘The company has had a long history of influential leaders, all of whom have made their own contribution to the organization’s culture. ‘The early leaders came primarily from the Procter family, most notably Harley T. Procter and William Cooper Procter. Harley Procter was the 150 PROCTER & GAMBLE first to convince the P&G board that making consumers aware of the company’s products was a worthy investment. The first advertising budget of $11,000 allowed Harley to develop the ads for Ivory Soap, a name he had devised. The genius of P&G advertising and the constantly increasing advertising budget can be traced to Harley's innovations. With a long history of being a progressive employer, P&G manage- ment has continually searched for ways to merge the interests of the ‘company with those of the employee. Cooper Procter was largely re- sponsible for these traditions within the company. Practices such as profit sharing for employees, employee conference committees, in which employees had the opportunity to question the top leadership on 1a regular basis, the shortened workweek, and the assurance that each regular employee would be guaranteed 48 weeks of steady employment uring each calendar year were all in place by 1923. Profit sharing, one of Cooper's earlier innovations, began in 1887! Because he was person- ally responsible for many of these innovations, employees raised funds, when he died, to build a monument in recognition of Cooper Procter’s contributions to their well-being. ‘The first company president from outside the founders’ families was Richard Deupree, who rose from the very bottom of the company to become one of its most distinguished chief executives. Deupree’s contri- butions were many, but his implementation of direct retail sales, brand ‘management, and P&G-sponsored soap operas on the radio certainly number among his major contributions. More recent leaders of the corporation have also made their unique mark on the company and its culture. Soon after his graduation from Harvard, Neil McElroy established his reputation at P&G by proposing and implementing the brand management system. He also continued a tradition of involvement in national politics, begun by Cooper Procter, by serving as secretary of defense under Eisenhower. McElroy was fol- lowed in the company presidency by Howard Morgens, who presided during a period of explosive growth and directed the introduction of many diversified products. During this time, Morgens also attained an unprecedented level of stable and predictable performance. John Smale, the most recent chairman, reemphasized the importance of scientific ob- jectivity to the corporation’s marketing strategy through his dogged pursuit of the American Dental Association’s endorsement of Crest as “an effective decay-preventive dentifrice. . . ” This was the first time the ADA had endorsed such a product. John Pepper, Smale’s successor as chairman, faces the challenge of leading P&G into a future where it ‘must rediscover the company’s historical strengths and expand in new areas such as food products and specialty markets to continue the com- pany’s remarkable growth record. ‘THE PROCTER & GAMBLE CULTURE 151 The Procter & Gamble Culture Procter & Gamble is an excellent example of a strong culture. The sys- tem is based on a simple set of values, well understood throughout the organization, and a socialization process designed to pass those values ‘on to successive generations of managers. The result of this system is that individual identity is always minimized and sometimes lost. There are few individual accomplishments; most are team accomplishments A new recruit soon learns to say “we” instead of 1." Several personal statements help underscore the importance of the whole and the unimportance of individual identity. As one manager put it, “Everyone at P&G is like a hand in a bucket of water—when the hand is removed, the water closes in and there is no trace” (Pascale and Kai- ble 1982). Several managers noted that this deemphasis of individualism was made particularly clear when someone left the company. When an individual left P&G (usually Friday afternoon), his office would be totally gone Monday morning. There would be a wall where the door was, since (both walls and doors] were movable panels. It was as though they attempted to totally erase the memory of the departed manager. Another manager also commented on what happened when someone left the company: When people leave the company abruptly, everything that they had worked ‘on could be reconstructed from the files in a matter of hours. The system just picked up where they had left off. ‘To work successfully, this system requires tremendous confor “Conform and you succeed; question and you are gone’’ was the way one manager described it. Many talented managers learn the P&G sys- tem, but leave because of the emphasis on doing everything “‘the right way.”’ Suggestions about finding a better way are often met with a blank stare or a quick lecture on why it is unnecessary. Being procedurally correct is often more important than being right. ‘One advantage of this conformity is a thorough and methodical ap- proach to doing business. To quote past Chairman Richard Deupree, “Even though our greatest asset is our people, it is the consistency of Principles and policy that gives us direction, thoroughness, and self- discipline.” The result is a carefully engineered and highly redundant system of making decisions. No single link can cause a failure. ‘An integral part of this thoroughness is the strong emphasis on re- search. The expressed intent of P&G research is to “remove personal 152 PROCTER & GAMBLE judgment from the equation” by “testing, retesting, and testing again.” ‘The P&G approach has been to create a product, based on research, that is technically superior to the competition and will win consistently in a blind test. Presumably, this allows the product to eventually dominate the market. Stories about the importance of research and testing within the com- pany abound. A classic is about the systematic testing performed when P&G was trying to make a choice about replacing the carpeting in its elevators. Before making a choice, P&G did an extensive “market test” on a sample of elevators. This story underscores the importance given to research data, and the importance of the market research logic to the decision-making process. Misrepresentation of data is one of the great- est “sins” in P&G, and it seems that almost no issue is too insignificant to escape scientific investigation. Another example of P&G's extreme thoroughness is in the use of ‘memos. The P&G culture emphasizes written rather than oral communi- cation in order to communicate facts and remove individual judgment. All significant events and decisions are preserved in writing, and the record can be recreated at any point. Managers are often required to “polit down’ to fit a one-page format. Specific protocols for each type of memo are designed for efficient communication. Thoughtfully de- signed forms and protocols are everywhere. This system is used to con- vey facts and recommendations upwards in the organization so that de- cisions can be made. The individual who initiates an action usually become anonymous because ownership of the substance often moves up the hierarchy with the memo, New P&G recruits tell horror stories about their first memos being ripped to shreds by the boss. After 8 to 10 rewrites, most eventually boil it down to a one-page memo to suit the high standards of written communication and the established format for conveying such informa- tion. The classic story describes an endless series of revisions culminat- ing in the final memo, forwarded to the boss, with an attached hand- written note, by the brand assistant. The memo came back with a note from the boss: “Congratulations! Your memo looks fine. Now, about your handwritten note. . . .” The “‘niggling’” (the process of repeated ‘Suggestions, comments, and revision to a P&G memo) never ends. ‘Thoroughness has created a system that is, in many ways, foolproof. Checks, counterchecks, and an emphasis on the product characteristics and customer preferences ensure that rational decisions can be made and are a central part of the P&G system. As one manager put it, “P&G hhas created a system where it is possible that a good idea is lost, but a bad one seldom survives.” ‘THE PROCTER & GAMBLE CULTURE 153, This system is kept in place by an extensive socialization process that begins with the first job interview and seems to continue as long as an employee remains with the company. The system is designed to pre- serve the P&G way and to develop a highly motivated and talented set of new recruits into a new cohort of P&G managers. All new employees in the marketing organization enter as a part of a class or cohort against which their progress will be measured, About one-third of these new recruits are “peeled off” each year (the language of one P&G veteran), and only about one in four or five eventually reaches the level of brand ‘manager. There is a rigid time line for promotions and it is made clear when someone is falling behind his or her cohort. Despite this competition, the bond among the members of a cohort is very strong and often continues for the rest of their career. New em- ployees are friends and coworkers and ‘go to strange towns, work to- gether all day, and see the same people on weekends.” It is not unusual to find members of a P&G cohort who are still in close contact, even though they may have left the company 10 years ago. The cohort, to a large degree, socializes itself, with its members competing with each other to perform well and adapt to the company culture. Careful socialization to the do's and don'ts of P&G culture also takes its toll. Because of the company’s emphasis on conformity, many highly talented managers leave and pursue successful careers in the consumer products industry, often using the methods and systems learned at P&G. Many managers also pointed out that once you learned the rules, “you can absolutely bank on them’ because you know for certain that others will behave in the same predictable way. It may be difficult to innovate, but you are guaranteed due 5 A final element of the P&G culture is a high level of secrecy. This, posture also has a long history within the company. For example, in 1895, several years after becoming a public corporation, the company stopped giving detailed financial reports to its shareholders because it felt that shareholders might misuse the information. The New York ‘Stock Exchange protested and refused to trade P&G stock until this pol- icy was rescinded. Consequently, the stock was not traded on the New York exchange again until 1929. More recent accounts of the corpora- tion’s disclosure practices (e.g., Solomon 1987) confirm that financial information is still very closely held and that the company maintains a mistrust of outsiders who are overly curious about P&G. New employ- ces are instructed not to talk about the company to outsiders, and those who leave are counseled not to give out proprietary information. When this factor is combined with the internal promotion system, the result is an organization that has very distinct and impermeable boundaries. 154 PROCTER & GAMBLE Management Practices The P&G culture is supported by and expressed through a set of con- crete management practices. Nearly all the managers interviewed saw a very close link between these practices and the actual culture and value system. This section outlines several of the distinctive approaches to management taken at P&G, and often expands on a general theme in- troduced earlier in this case. Possibly the most distinctive management practice within P&G is its policy of only promoting from within. The company aggressively re- cruits top M.B.A. and B.A. graduates of major universities and places them in a highly competitive situation. Those who cannot learn the sys- tem and begin performing immediately are weeded out and encouraged to seek employment elsewhere. Young managers compete on relatively objective grounds, and are subject to regular reviews by their bosses. Developing and mentoring younger managers is a highly valued man- agement skill, ‘Because of this system, no one can reach the middle ranks, much less the upper levels of P&G, without 5 to 10 years of very close scrutiny and training. This creates a homogeneous leadership group with an enormous amount of common experience and a strong set of shared assumptions. As one manager described it, the internal promotion sys- tem also makes the slightly risky assumption that the “solution to to- morrow’s problems lies with the current ‘corporate gene pool’.”” Some of the effects of inbreeding and conformity are addressed further in the section on effectiveness. A second distinctive aspect of the P&G management system is the delegation of tremendous responsibility to those at the lower levels of the organization. New recruits may assume major responsibility for a project almost immediately and typically are given as much responsibil- ity as they can handle. Responsibility is also given a very personal touch ‘at P&G. For example, rather than speaking of typos on a P&G memo, they are often called “‘thinkos.”” New employees alternate between challenging project assignments and extensive periods of formal training. The company makes a large investment in each employee through training, mentorship and supervi- sion, and extensive contact between new and seasoned managers. It expects that young managers will return this to the company in terms of motivation, dedication, and long hours spent working on challenging projects. The company invests a lot in a new employee and expects a lot back in return Despite the high levels of responsibility given new employees and employees at all levels, many jobs carry very little individual authority. MANAGEMENT PRACTICES 155 ‘The authority to make real decisions is usually held far up the hierarchy, and decisions are usually made by hierarchical groups. Nearly every- thing must be approved through the memo process by several layers of management. ‘To illustrate that there is little authority at the lower level of the orga- nization, there are many stories about relatively trivial decisions going, all the way to the top of the company. Supposedly, the decision regard- ing the color of the lid on Folger’s coffee was made by the CEO, and market testing to decide the shape of the Folger’ jar continued for four years. Another story illustrating the tendency of decisions to float to the top describes a group of vice-presidents making changes in the recipes ‘on Duncan Hines cake mix boxes. Truth value aside, these stories help illustrate the perceived lack of authority at lower levels in the organiza- tion. A third classic P&G management innovation is the brand manage- ‘ment system. In many ways, this system has become the archetype for running a consumer marketing business. Brands compete for internal resources, do their own advertising and marketing, and are indepen- dent cost centers. Brands have a clear pecking order within the com- any, and assignment to an obscure brand is the P&G version of Siberia, Application of this concept at P&G preceded the idea of the strategic business unit in other organizations by decades. The brand management system creates a separate organizational structure for each brand. The brand manager is in charge and directs a staff of several assistant brand managers and a number of brand assist- ants, Career advancement usually means taking a better assignment at a different brand, and moving up the ladder to brand manager. Respon- sibility is highly decentralized in the brand management system, but authority is very centralized. Each brand maintains a separate marketing and advertising budget and separate product identity in the market- place. The innovative approach to management also extends to the man- uufacturing side of the organization. It was among the earliest American corporations to adopt new ideas about plant design that emerged in western Europe and the United States in the 1960s and 1970s (Walton 1972). In an attempt to move beyond the traditional assembly line men- tality, plants were designed or redesigned to create a system of responsi- ble, autonomous workers, decentralized decision making, broad job

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