Procter & Gamble Europe: Vizir Launch

Procter & Gamble Europe: Vizir Launch November 2002

1 Introduction

This paper addresses the challenges Proctor and Gamble (P&G) faced in the 1970s and 1980s, both to its European organisational structure and to the imminent launch of its new Heavy Duty Liquid (HDL) Vizir.

It will be argued that the company’s European structure will have a direct impact on a possible Vizir launch and on future product launches, using an in-depth analysis of both the current P&G situation at that time and feasible alternative strategies available to the organisation.

Chapter two will give a brief but concise overview of the P&G situation in the 1980s; chapter three will discuss three different approaches available to P&G in organising its European operations, and recommend the most suitable approach; chapter four will then examine the launch options for Vizir and present the most favourable strategy; finally, chapter five will summarise the findings and highlight the recommendations of this report, briefly considering possible implementations and evaluations of the suggested strategies.

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Procter & Gamble Europe: Vizir Launch November 2002

2 Case Overview

During the 1960s and ‘70s, Proctor and Gamble’s organisational structure was based around the brand manager function, promoting internal horizontal competition and vertical cooperation. Management placed an emphasis upon meticulous research and development, but once market testing was completed, they were prepared to offer substantial financial backing to projects. In response to a diverse European market, P&G operated a polycentric organisation structure, where each national subsidiary enjoyed considerable autonomy in product development and marketing.

However in 1975, the new Head of European Operations, Ed Artzt, faced with a stagnating market, raised the concern that ‘overhead expense per unit was almost 50% higher than in the US parent’ (Bartlett and Ghoshal 2000). Consequently, Wahib Zaki, Artzt’s Research and Development (R&D) manager, implemented a successful move towards a more coordinated system in product development. Less successful had been a similar attempt with the marketing campaign for Pampers in 1973, which suffered from a lack of support from subsidiary level managers. The case of then Vizir gives rise to two key issues, which will be the focus of this report:

(I) How should P&G organise its European operations? Should it maintain its traditional multinational structure, reorganise in line with a European model, or move towards a transnational approach?

(II) Should P&G launch Vizir in Germany or as a ‘Eurobrand’? When should the launch take place?

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Procter & Gamble Europe: Vizir Launch November 2002

3 Future European Structure

3.1 A Multinational Approach

When P&G first entered the European market, political, economic, and legal barriers were high, necessitating the implementation of a polycentric, multinational model of organisational structure, founded upon the recognition that substantial national differences exist between countries. Multinational companies (MNCs) emphasise these differences and respond with increased flexibility, modifying and adapting products and even business strategies to meet local preferences (Bartlett and Ghoshal 2000). Subsidiaries in different countries under a MNC approach enjoy considerable autonomy from the company’s headquarters. By utilising this autonomy, they overcome the political, economic, legal, and cultural barriers specific to their country of operation (McDonald and Burton 2002).

P&G uses this approach to organise its European operations. Was the company to continue with this structure, they would be utilising a decentralised federation (Bartlett and Ghoshal 2000) as shown below. One of the main forms of control the headquarters maintains under this approach is the ability to set financial targets and performance measures for each subsidiary.

The approach served P&G well in Europe throughout the 1960s and ‘70s, giving it the competitive advantage of local responsiveness. It has enabled the company to gain an indepth knowledge of the markets it operates in, putting it in close touch with the diverse tastes

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Procter & Gamble Europe: Vizir Launch November 2002

of European consumers, and facilitated the creation of products tailored to local needs (refer to the Key Success Factor Analysis in Appendix I).

The major weakness of this system was the high costs per unit, primarily owing to the duplication of marketing and administrative groups in each subsidiary. Furthermore, lack of coordination in R&D at a local level meant product development was increasingly seen as lacking focus, prioritisation, and strategic direction (refer to Appendix II for a more thorough analysis of P&G’s strength, weaknesses, opportunities and threats).

Recent trends of trade liberalisation and the erosion of international market barriers prompt McDonald and Burton (2002) to claim that cultural differences are the main reason for companies to persist with a MNC strategy. This suggests that, in 1973, P&G should only continue with this approach if they perceive market differences across Europe to still be high.

3.2 A European Approach

The key advantage of a centralised, European approach (commonly referred to as a Global strategy) is the high degree of centralisation it offers, characterised in the model by strong control exerted by a company’s headquarters. The organisation focuses on producing goods

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Procter & Gamble Europe: Vizir Launch November 2002

for the world market, or for distinct regions of the world, for instance Europe. The result of this mentality is an organisation configuration Bartlett and Ghoshal (2000) term the ‘centralised hub’ (see above).

P&G could gain huge cost savings owing to a reduction in process duplication and economies of scale. However, despite evidence of converging trends in European consumer tastes, emerging similarities were not felt to be extensive enough to warrant a complete restructuring towards a centralised European model. Furthermore, a move towards such a model would lead to a high cost of restructuring, loss of local market responsiveness, a loss of autonomy for local subsidiaries, and would encounter heavy opposition from local managers.

3.3 A Transnational Approach

Bartlett and Ghoshal (2000, p512) identify three characteristics of a transnational organisation:

It builds and legitimises multiple diverse internal perspectives able to sense the complex

environmental demands and opportunities; its physical assets are distributed internationally

but are interdependent; and it has developed a robust and flexible internal integrative

process.

The authors argue for an ‘integrated network’ model (as shown below), where ‘national units are no longer viewed only as … implementers of centrally defined strategies but … management should consider each of the worldwide units a source of ideas, skills, capabilities, and knowledge’ (Bartlett and Ghoshal 2000, p514).

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