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CASE STUDY 1: WHERE SHOULD DECISIONS BE

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1.0 INTRODUCTION
Todays world is competitive. Never before has the world of work been so
challenging. Never before has it been so imperative to our career that we have
learned the skills of management. Never before have people had so many vast
opportunities with so many potential rewards we have to compete with other
people for jobs, resources and promotions. Our organization will have to compete
with other firms for contracts, clients and customers.
To survive the competition and to thrive, we must perform in ways that give us an
edge over our competitors that make the other party want to hire us, want buy from
us, and do a repeat business with us. Thus, to survive and thrive, todays
managers have to think and act strategically.
Todays customers are well educated, aware of their options and demanding of
excellence. For this reason, manager today must think constantly about how to
build a capable workforce and manage in a way that delivers the goods and
services that provide the best possible value to the customers. Effective managers
will find ways to make their organizations successful through building competitive
advantage in the forms of cost competitiveness, quality, speed and innovation.
Multinational and global firms have been part of the world economic landscape for
some years. They have been increasingly in numbers, in diversity of industry and
in countries of origin. As we move into the twenty-first century, management is at
one of its most significant stages in history. Global competition has become a way
of life. Changes in technology, international affairs, business practices, and
organizational social responsibilities, as well as place increased emphasis on
innovation.

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STRATEGIC MANAGEMENT
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CASE STUDY 1: WHERE SHOULD DECISIONS BE

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RSHIP IN ORGANIZATION
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For the discussion of the above points, let we have a look at the management of
consumer giant Procter & Gamble (P&G) with regard to their company
background, the products and services they offer, the strategies adopted and etc.
2.0 BACKGROUND OF THE COMPANY
Procter & Gamble Co., also known as P&G, is an American multinational consumer
goods company headquarter in downtown Cincinnati, Ohio, United States. Its
founded by William Procter and James Gamble, both from United Kingdom. P&G
nowadays is the leading maker of household products in the United States and has
operations in nearly 80 countries around the world and the markets its nearly 300
brands in more than 160 countries where more than half of the companys
revenues a derived overseas. Its products include pet foods, cleaning agents and
personal care products
William Procter, a candle maker and James Gamble a soapmaker, from United
Kingdom and Ireland, emigrated from their country home and settled in Cincinnati
initially and met when they married sisters, Olivia and Elizabeth Norris. Alexander
Norris, their father in law asked his son in law to become business partners which
created Procter & Gamble on October 3, 1837.
Other than consumer products, Procter & Gamble also produced and sponsored a
soap opera, TV series and movies. They also supports many Spanish Language
novellas through advertising on networks
In Malaysia, Procter & Gamble Malaysia Sdn. Bhd. was established with the global
acquisition of the Richardson Vicks company in 1987. Since then, the company
has grown from strength to strength and is now selling a superior portfolio of
products like Pantene, Head & Shoulders, Clairol Herbal Essences, Rejoice, SK-II,
Olay, Gillette, Oral-B, Dynamo, Fab, Downy, Febreze, Ambi-Pur, Joy, Duracell,

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Pampers, Whisper and Vicks. Most of these Brands are in number 1 or 2 position
in their categories in Malaysia.
P&G Malaysia currently employs about 100 employees with its headquarters at
Surian Tower, Mutiara Damansara, Petaling Jaya.

3.0 CASE ANALYSIS

Procter & Gamble is a well-known consumer products company operated globally
since 1930. Currently P & Gs divide global operations into four main areas, North
America, Europe, the Middle East and Africa, and Asia. The company offers four
business product units which can be categorized as baby, feminine and family care
(e.g. Pampers, Tampax, Whisper, Bounty paper towel), fabric and home care (e.g.
Febreze, Fab, Joy, Duracell, Mr Clean), health and grooming, and beauty, hair and
personal care.
In 2014, P&G recorded $83.1 billion in sales. On August 1, 2014, P&G announced
it was streamlining the company, dropping around 100 brands and concentrating
on the remaining 80 brands, which produced 95 percent of the company's
profits. A.G. Lafley, the company's chairman, president and CEO, said the future
P&G would be "a much simpler, much less complex company of leading brands
that's easier to manage and operate"
P & G is recognized as excellence in brand management and managerial training.
As with all successful firms, P&G is challenge to continuously reinvest itself while
striving to outperform its competitors. Before 1995, manager in each of P&G
divisions, in each country in the world in which it operated, were more or less free
to make their own decisions, and decision making was decentralized.

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P&G also restructured its operations in 1999. Framed around the objective of
having an organizational structure that would allow the firm to think globally and
act locally, P&G formed a unique version of the cooperative multidivisional
structure to support use of its related constrained diversification strategy. This
structure believed to be a source of competitive advantage for the firms in pursuing
their global strategies. Using the four global product units to create strong brand
equities through ongoing innovation is how P&Gs think globally; interfacing with
customers to ensure that the division's marketing plans fully capitalized on local
opportunities is how P&G acts locally. Information is shared between the productoriented and the marketing-oriented efforts to enhance the corporations
performance.
In summary, P&G cooperative structure uses Global Business Units (GBUs), to
define a brand equity, market development organization to adapt to local
preferences, the Global Business Services (GBSs) to support operation through
infrastructure services such as accounting and employee benefits, payroll and
corporate functions to assure that the latest and most effective methodologies are
being used to conduct the firms product and marketing oriented operations.
Lastly, P&Gs top management team pioneered a new kind of organization
structure, where in each area (North America, Europe, the Middle East and Africa
and Asia) they created the new role of global executive Vice President, responsible
for overseeing the operation of all the different kinds of division inside that world
region and reported directly to the President of P&G.
The divisions inside each area cooperate and share information and knowledge so
that authority is centralized at the world area level. The new balance between
centralized and decentralized authority in P&G enable top management making
much better use of organization resources to meet customers needs.

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Question 1:
Why did Procter & Gamble move to centralize control?
According to K.M Bartol and D.C.Martin in the book Management 1998,
centralization can be defined as the extent to which power and authority are
retained at the top organizational levels while decentralization is defined as the
extent to which power and authority are delegated to lower levels.
Based on the discussion and explanation of P&G case study the company decide
to move to centralized control due to several factors and reasons that will be
explained below:

P&G is a giant consumer goods company that is operated worldwide.

Since the company is dealing with highly standardized products the top
management team realized that moving toward centralize control could
make much better use of organizational resources.

On the other hand decentralize control that had been practiced all this
while, where the division in each country in the world in which it operated,
were more or less free to make their own decisions. As a result the
company loss of possible gains to be obtained from cooperation both
among managers of the same kind of division in the different countries
(e.g. soap and detergent divisions throughout Europe) and among
managers in the different kinds of divisions operating in the same country
or world regions.

Centralization of authority at the world area level encourages and

promotes sharing information and knowledge for the benefits of the
company as a whole.

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Decentralization of authority on the other hand, though lead to faster

decision but may lead to different and non-standardization of activities,
and to some extent may incur additional costs.

Question 2:
When might managers realize that they have gone too far and centralized
control too much?
Centralization and decentralization of control both has advantages and
disadvantages. As in the case of P&G, the company realize and notices that it has
gone too far and too much of centralization when it cannot response immediately
to the customers problems as quickly as the competitors, since the top
management are very busy to make the decision. They could also realize if the
following situation is happen in the company:
1. There is difficulty in communicate managerial decisions to different operating
levels in the management hierarchy. Top level managers cannot effectively
supervise and control all the activities of the organization. Low morale
motivation at the middle and lower level managers where they feel
uncomfortable while performing the assigned task. They do not have the
required authority to deal with problems effectively. They do not get any
opportunity to show and develop their personality. The lack of motivation tends
to affect the morale of subordinates.
2. Top managers are overburdened with authority and responsibility while
managing each and every activity of the organization. Managers are not able to
devote sufficient time in other major issues. It tends to decrease working
efficiency of the organization. Decentralization promotes flexibility and
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STRATEGIC MANAGEMENT
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CASE STUDY 1: WHERE SHOULD DECISIONS BE

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responsiveness by allowing lower-level managers to make on-the-spot

decisions. Managers can demonstrate their personal skills and will be more
motivated.
3. There is lack of environmental adaptation since business environment is
dynamic and therefore, it changes according to time. In business, it is essential
to take quick decisions to resolve problems of concerned departments or
branches. Centralization is impractical in large business organization having
various branches in different locations and not applicable in dynamic
environment as flexibility will not come promptly from the top level.
Furthermore, different locations will have different problems and issues. In
order to make decisions that could be standardized to all locations, there will be
time consuming and also the decision could not be applied to all locations.

This problem can be solved easily if the company practicing decentralize decision
making. Decentralization of control and authority provide several advantages such
as:

Encouraging decision making at the lower levels then to ease the heavy
workloads of executive leaving them more time to focus on major issues.

Decentralization also enriches the jobs of lower level employees by

offering workers challenges associated with making significant decisions
that affect their work.

Faster decision making at the lower levels because most decision do not
have to be referred up to the top management.

Individual at lower levels may be closer to the problem and therefore in a

better position to make good decisions.
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STRATEGIC MANAGEMENT
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RSHIP IN ORGANIZATION
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Lead to the development of relatively independent units, such as divisions,

whose output is easier to measure than that of units in a functional design.

It is important to note that the management should balance the authority that need
to be hold at the higher level by taking the advantages of centralization of authority
and at the same time to leave certain decision making at the lower level for faster
decision and to monopolize the advantages of decentralization.

4.0 CONCLUSION
Procter & Gamble has built an organisation with an innovative culture. Everybody
can contribute to new product development either through research and
development or through their focus, energy and commitment to their role.

It is known that decentralized planning results in loss of efficiency with respect to

centralized planning. Procter & Gamble has taken this challenge in order to make
their company to be competitive in the market.

Through balancing the centralization and decentralization, P&G enable top

management to make better use of organization resources to meet customers
needs.

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STRATEGIC MANAGEMENT
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REFERENCES
Hitt,M.A.,

Ireland,

R.D.,

&

Hoskinsson,

R.E.

(2005)

Strategic

Management;

Competitiveness and Globalization: Concept (6 th Edition), South-Western, Thomson

Corporation.
Heidi Vernon-Wortzel & Lawrence H. Wortzel,(1997) Strategic Management in a Global
Economy (3rd Edition), John Wiley & Sons, Inc.
Kathryn M. Bartol & David C. Martin, (1991) Management (3rd Edition); McGraw Hill,
International Edition.
http://www.pg.com/en_US/index.shtml
http://en.wikipedia.org/wiki/Procter_%26_Gamble
http://www.pg.com/translations/history_pdf/english_history.pdf

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APPENDICES
P & G Brands

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