P&G Case Analysis
The key performance gaps P&G faced back in 2000 included: clearly defined ownership of business units resulted in a sluggish annual sales growth and shrinking market share; massive investment on innovation and R&D did not generate competitive advantage in launching new products in global markets; and overhauled HR and incentive system did not increase corporate earnings. SG&A was a big factor in causing earnings drops in Organization 2005. Three major factors contributed to the increased SG&A and decreased earning: One was the decentralized R&D centers within GBU, which not only consequently diminished synergy effects among the GBUs but delayed time to market; secondly, the lack of reporting structure, KPI integration and direct communication channel between MDOs and GBUs slowed sales growth and profitability; third, employee’s compensation was not linked appropriately with corporate earnings. To achieve the best SG&A optimization, we recommend that the new CEO (Lafley) centralize R&D centers; include MDO presidents in the strategic decision making progress for key decisions and link KPI metrics between MDOs and GBUs; and link employees’ performance to corporate earnings proportionally. Case Analysis and Recommendations
The biggest increase in the financial statement was that the total SG&A in 2000 went up by 12%. The annual R&D Expenses increased in 2000 by 10%, which was more than twice the growth rate of Net Sales (4.8%) during the same period. Similarly, between 1998 and 1999, the R&D expenses increased by 12% while Net Sales grew by only 3%. Clearly, this over-proportional increase in R&D expenses compared to Net Sales showed that P&G sales did not grow by increasing investments in R&D. Having decentralized R&D unit and setting a R&D center for each GBU consequently diminished synergy effects among the GBUs, increased administrative costs, and delayed...
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