Essay: External and Internal Environments – Procter & Gamble

Business Administration Capstone
Jan 30, 2017
General Environment
The two segments of the general environment that would rank highest in Procter & Gamble’s influence on the corporation are their six core strengths and their principals. Their six core strengths are consumer understanding, innovation, branding, go-to-market capabilities, scale and productivity. The main segment that’s sticks out to me is Procter & Gamble’s principals.  P&G’s principals are simple but focused, they show respect for all individuals. Their interests of the company and the individual are inseparable, and they are strategically focused in their work.  They value mastery, they seek to be the best, and they are externally focused. Plus, in my opinion the best thing, P&G believes that mutual interdependency is a way of life.
These segments affect the corporation and the industry in which they operate, because they understand the customers.  Working for P&G means pushing the boundaries of market research to better understand the communities and consumers they serve. They conduct thousands of research studies each year to stay ahead of what consumers need today and want tomorrow. The insights P&G gain not only identify new innovations, but also help them better communicate with their consumers.  Procter & Gamble, believe in innovation, so much that today, they are recognized as one of the industry’s most prolific global innovators. But they rarely work alone. More than half of P&G’s product innovations have at least one major component from an external partner. Such contributions have helped them earn consistent recognition from the IRI New Product Pacesetters Report, an annual list of the biggest innovations in our industry.
P&G is a company of leading brands. They are focusing on 10 product categories with about 65 brands. All 65 brands play to P&G’s strengths of consumer understanding, branding, innovation, productivity, go-to-market capability and scale. Across the 10 categories, P&G has 21 brands with annual sales of $1 billion to about $10 billion, and 11 brands with sales of $500 million to $1billion many of those with billion-dollar potential.  P&G is consistently ranked as a preferred supplier by leading retailers throughout the industry. They also are frequently recognized as the industry leader in a wide range of capabilities, including clearest company strategy, brands with purpose, strong business fundamentals and innovative household products and programs.
As one of the world’s largest consumer packaged goods companies, P&G has scale advantages across all of their brands, businesses, operations and people. This allows them to share knowledge, transfer technologies, optimize their spending and flow resources to better serve consumers and continually improve their efficiency and productivity. Its global recognition, strengths strategies and competitiveness allow GE to be in a favorable position as compared to its competitors, in the same sector. They are turning productivity into a core strength at P&G. Also P&G’s making it systemic to improve sales profit and cash performance, and to enable ongoing investment in business growth, new channels and market, and in brand and product innovation.
Competitive analysis
The Procter & Gamble Company, or P&G (PG), is the largest manufacturer and seller of household products in the world. Olay, Pantene, Head & Shoulders, Gillette, and Pampers are some of its major brands. Given that the consumer staples (XLP) sector is highly competitive, P&G faces local as well global competition from various players worldwide. In examining Porter’s five forces of competition that work for P&G, we find that three are horizontal in nature: Competitive intensity among rivals, new entrants to P&G products categories, and ease of product substitution. Also there are two vertical: customer bargaining power, and supplier bargaining power.
Out of the five, I choose to focus on the most important in my opinion, which are the two vertical, customer bargaining power and supplier bargaining power.
Due to the massive scope of P&G’s business, it relies on relationships with third parties to perform certain functions suppliers, distributors, contractors, joint venture partners, or external business partners, among others. Consumers can be price-sensitive, and it’s easy to switch between products, which tends to reduce P&G’s bargaining power. That said, prices are relatively more inelastic for products such as Gillette, Pampers, and Olay, where P&G is the market leader. According to a Reuters report published June 24, Walmart (WMT), P&G’s biggest customer, wants to charge a fee to all vendors for stocking and warehousing, which would put pressure on suppliers. This warehousing fee would help Walmart fund the costs of growing its store footprint and other parts of the supply chain, while keeping product prices low. This is likely to have a significant impact, as lower product prices might affect the profitability of P&G and other suppliers.
Improve its ability to address these forces
The Procter & Gamble Company, or P&G (PG), manufactures and sells consumer-based packaged products. The company has five reportable business segments:  fabric care and home care, baby, feminine and baby care, beauty, grooming, and health care.
Each segment has its own set of global business units, or GBUs. GBUs are major product categories within the segments. For example, the Beauty segment’s GBUs are beauty care, hair care and color, prestige, and salon professional, corporate culture.  GE’s past missteps in employee relations and its ongoing lobbying efforts overshadowed current efforts to bolster its workforce and communities while addressing environmental concerns. P&G’s top brands are, fabric care, home care and personal care include brands such as Ariel, Tide, Dawn, and Downy.
The Procter & Gamble Company, or P&G (PG), is a multibillion dollar FMCG (fast-moving consumer goods) entity. Its highest-grossing Fabric Care and Home Care segment includes fabric enhancers, laundry detergents, air care, dish care, professional products, and surface care.  The segment’s annual revenue was reported to be $26.1 billion in fiscal 2014. It contributed 31.7% of the company’s total net sales. P&G’s brands in this segment usually command first or second position in the markets they compete in. The company’s international market share in Fabric Care is over 25%. Billion dollar brands, P&G’s Ariel, Dawn, Downy, Gain, and Tide brands compete with Unilever’s (UL) laundry detergent ALL and other local fabric care brands, depending on the market. In the US, P&G’s Tide laundry brand has 40% of the market share. P&G laundry products overall have a 60% market share in the US.
Compared with fiscal 2013, the segment’s net sales increased by 1% to $26.1 billion. Net income came in at $3 billion. The segment’s contribution toward net income decreased to 25.9% in fiscal 2014, from 26.8% the previous year. Organic sales as well as volume increased slightly in both developed and developing regions. P&G plans to use innovation to strengthen products like Tide, Gain, and Ariel. For example, the Tide PODS and Gain Flings variants of Tide and Gain have more than 10% of the US laundry segment value share and over 80% of the unit dose market.
External Threats Affecting
Procter & Gamble might look to be stable, but there are several “black swans” that could cause problems, writes Grant McCracken. Consumers might definitively shift their loyalty from big brands to smaller, nimbler rivals; family and home structures might evolve, creating consumers with new priorities; and concepts of beauty might change, leaving P&G’s products essentially redundant. Some of P&G’s threats are currency volatility, manufacturing prices increase and lower cost products just to name a few.
As the US dollar changes in value, this creates uncertainty in contract negotiations. If the dollar were to change after a contract was signed, then one party to the contract would lose out on gains and the other party would win. As a currency falls, exporters gain benefits, because domestic products look cheaper to foreigners, the opposite is true when a currency increases in value.  When a currency increases in value when compared to other currencies, then the domestic currency can buy cheaper inputs from other countries. If a steel plant news minerals from around the world, they can get cheaper minerals if the domestic currency increases in value relative to the place that sells the minerals. “Currency Volatility” has a significant impact, so an analyst should put more weight into it. “Currency Volatility” is an easy qualitative factor to overcome, so the investment will not have to spend much time trying to overcome this issue.  If price of commodities increased this would increase cost for the company to manufacture goods. When cost rises this would lower profits for the company. The company has to deal with other competitors charging a much lower price for products. This will cause Gillette to lose market share and this could lower profits.
Greatest Strengths and Most Significant Weaknesses
In my opinion P&G’s greatest strengths are that they are a geographically diverse business, they are a global market leader, they have an innovative culture and they also have strong management. Geographically diverse business and revenue should help shield the business from shocks in any one part of their business. Different countries or locations around the world have different characteristics. Those characteristics do not always match, therefore, a company can lower their risk by investing in part of the world with low correlations. This lowers risk and increases the value of the business over the long-term. This statement will lead to an increase in profits for this entity. The company has a team of experts who have been designing to ways to improve products over the years. The innovation allows for them to test out new products to customers and gains market share.  “Innovative Technology” has a significant impact, so an analyst should put more weight into it.
Weakness, P&G has one weaknesses that could cause problems down the road.  After the product reaches the end of its life cycle it is disposed of. A waste of material into our environment is always harmful to us and the environment in which we live. Environmental Issues, Gillette will have a long-term negative impact on this entity, which subtracts from the entity’s value. Environmental Issues, Gillette is an easy qualitative factor to overcome, so the investment will not have to spend much time trying to overcome this issue. Batteries carry dangerous chemicals within them and can be very harmful to humans, animals, and even plant life. Batteries are an environmental issue and could lead to serious problems down the road if not handled properly. Duracell could suffer from this internal weakness and lose profits.
P&G’S Strategy or Tactic for Environmental Issue
Water is crucial for the production and use of their products. This makes it essential for them to find every opportunity to conserve. As part of our ongoing commitment to Water Stewardship, they are focusing their efforts on three key areas where they believe P&G can have the most immediate impact:  Reducing water used in P&G manufacturing facilities, helping consumers reduce in-home water use and providing clean water to those who need it most.  At P&G we set goals and work tirelessly to achieve them. For each focus area we’ve created a goal to help drive us towards meaningful impact.  P&G first goal is to reduce water used in P&G manufacturing facilities by 20% per unit of production by 2020, with a specific focus on conservation efforts at facilities located in water-stressed regions.
For over ten years, P&G’s global facilities have focused on the conservation of water. They achieved their 2020 goal last year, but we will not stop there.  P&G, will continue work to reduce our water usage across the globe, with a specific focus on the 40 facilities they have identified as being located in high water risk areas of the world. These sites will move into Tier 2 of P&G’s assessment process. Each site will complete a detailed questionnaire to identify what is already being done to mitigate risk and what opportunities exist for additional risk reduction at each site. P&G has already started this process and plan to complete all 40 Tier 2 site-specific water assessments by the end of 2017.
Many of the 40 sites have already been working to reduce their water usage on site. At P&G’s site in Jeddah, Saudi Arabia condensate water from the HVAC systems is collected and reused for irrigation and to top off fire water tanks, allowing a savings of 25% per year (3600m3). In California, their Oxnard facility has been implementing aggressive water conservation measures over many years, but in 2015 they stepped up their efforts even more to reduce absolute water use by 12.6% through innovated reuse techniques. In China their Taicang plant drastically reduced its water footprint by optimizing and reducing the amount of water used for cleaning and sanitization. P&G’s site in Pakistan reduced its water footprint by 50% in just one year thanks to many projects allowing the reuse of the same water multiple times.
P&G’s long-term vision is to one day report they have no manufacturing waste going to landfill. They have come a long way in a short time and are innovating to find new ways to turn waste into worth.  In 2017, P&G announced that by 2020 all of their manufacturing sites would send zero production waste to landfill. Since P&G began qualifying sites as zero manufacturing waste to landfill, 56% of its global production sites have achieved this milestone. Plans are now in place to complete the remaining facilities over the next four years. This means eliminating or beneficially re-using about 650,000 metric tons of waste, equivalent to the weight of nearly 350,000 mid-sized cars that would typically go to landfills.
P&G believes in the responsible pursuit and usage of renewable energy. That means finding new efficiencies, partnering with experts, and operating today with the future in mind.  P&G aim is to improve lives for generations to come. That means operating with a long-term mindset that includes responsibly maximizing their use of renewable resources. They emphasize doing this responsibly because P&G understands that what is “renewable” today, may not be tomorrow if our collective actions are not focused on preservation. Every P&G facility, plant and office building stands for sustainable innovation.
P&G’s facilities are more than just a place to work. They’re where our employees spend a good part of their lives. They also are part of the community local and global. With that in mind, they make every facility a safe and comfortable place to be, with a positive impact on the surrounding area. That includes having LEED® certification for all new manufacturing plants, distribution centers, and office buildings. LEED (Leadership in Energy and Environmental Design) is an internationally recognized green building certification system. It provides building owners and operators with a framework for identifying and implementing practical and measurable green building design, construction, operations, and maintenance solutions. As the industry standard for sustainable design, LEED evaluates a facility’s potential impact in several areas, including CO2 emissions, energy, waste, water, and environmental quality.