UNIVERSITY OF GHANA BUSINESS SCHOOL
INFORMATION MANAGEMENT
(EMBA 607)
DR. RICHARD BOATENG
MID-SEMESTER QUIZ
PART 1
CASE STUDY
Instructions
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This is part one of the Mid-Semester Quiz.
Read the case study carefully.
Answer Question 1 and any other ONE question
Answer in Four Pages, Single Spacing, Font Size 11
Submission is IN THE NEXT CLASS IN MAY
Part Two of the Quiz is on the DATE FOR THE NEXT CLASS IN MAY
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Can Knowledge Systems Help Procter & Gamble Stay Ahead of the Pack?
Procter & Gamble (P&G), the 166-year-old consumer goods giant, traditionally aimed at
doubling its sales every decade. P&G has four major business units: health and beauty, babies,
snacks and beverages, and fabric and home care. It offers more than 300 products, including
major brands such as Tide, Mr. Clean, Ivory Soap, Crest, Pringles, Pampers, Clairol, and Prell.
According to Advertising Age, P&G spends more on advertising worldwide than any other
corporation.
Currently,
P&G
is
doing
about
$40
billion
in
sales
annually.
For most of its history, P&G was a leader and innovator in marketing and brand
management. But by the late 1990s, its annual growth rate slowed from 5 to 2.6 percent.
Despite repeated decades of rapid growth, P&G came to be seen as unimaginative, even
stodgy. It had a reputation for being closed to outside ideas and it seemed weak on developing
new products and getting them quickly into the marketplace. The only new product that had
been developed during the previous 15 years was the Swiffer dust mop. Traditional
competitors, such as Kimberly Clark and Colgate Palmolive, with comparable branded products
were taking away market share. And makers of generic versions of soap, laundry detergent,
and toilet paper were selling their products for much less than P&G’s Ivory Soap, Tide, or
Charmin. Adding to cost pressures was the purchasing power of Wal-Mart, P&G’s largest
customer, which currently accounts for nearly 20 percent of its sales and could be responsible
for one-third of P&G global sales by 2010. Wal-Mart is legendary for squeezing costs out of its
suppliers and expecting them to coordinate their supply chain processes with its powerful justin-time
continuous
inventory
replenishment
system
(described
in
Chapter
3).
When A. J. Lafley took over as P&G’s CEO in June 2000, he embarked on a plan to
revitalize the company. P&G was to find better ways of doing what it did well—selling its major
brands—but doing so in more flexible, innovative, and costconscious ways. P&G was to
accelerate internal efforts and work with groups outside the company to develop ideas for new
products or extensions of existing product lines, to become more flexible and responsive to
customers, and to find new ways of reducing operating costs. Before Lafley became CEO, P&G
often relied on price increases to meet its quarterly earnings targets. Knowledge management
and knowledge management systems are helping the company achieve these goals.
P&G is now becoming a knowledge-driven company with information systems to support
knowledge management. It is focusing on the use of knowledge in at least four areas:
development, marketing, sales, and customer relations. P&G established an intranet called
InnovationNet, which is used to bring people together who are working on similar problems in
order to generate synergy for new product ideas and product development. The system
connects those working in research and development (R&D), engineering, purchasing,
marketing, legal affairs, and business information systems around the world, including more
than 1,200 Ph.D.-level scientists. The intranet uses a portal to provide browser-based access to
published information, such as documents, reports, charts, videos, and other data from various
sources. In 2001, P&G added qualified experts to the pool of information resources on
InnovationNet using AskMe Enterprise knowledge network software. Based on the amount of
involvement of particular workers in certain subjects, the system creates a directory of subject-
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matter experts who can be called on to give advice or collaborate on problem solving and
product development. After a period of time, experts are highlighted by the system, which
creates an implicit reward system. The software automatically adds expert answers to an
archive of solutions and best practices. This way, experts need not respond to the same
question multiple times. That same year the InnovationNet group created its “connect-anddevelop” program to bring outsiders onto InnovationNet. These outsiders include not only
research scientists but also about 150 entrepreneurs who are searching for new, innovative
products worldwide. The site now has 18,000 users globally and is storing more than 9 million
documents online. Users can search for both documents and individual knowledge experts using
the Google and AskMe search engines.
Virtual Learning @ Procter & Gamble is a very small information technology group that
uses high-end graphics technology similar to that used in the movie Toy Story to develop the
concepts, designs, packaging, and marketing for potential new products. The group also works
with a marketing company called Cre8 in Europe to put together virtual presentations that
demonstrate new concepts, to rapidly prototype new features for current products, and even to
test how consumers react to alternative shelf-space designs.
P&G has been aggressively using product lifecycle management (PLM) software since
2000 for new product development. The company uses MatrixOne software for mechanizing and
automating the knowledge components, and the flow components, within the bringing-aproduct-tomarket phases. Before MatrixOne, P&G used 8 IT systems and 29 work processes.
Now, it has only one database to store and manage its product specifications. This database
includes information about work processes vital for creating, reviewing, approving, and
distributing products. It holds specifications for everything from raw materials to test methods
to packaging and even to clearances from the countries where a product will be sold. About
8,000 employees from many business units are now using the database, and Steve David, the
CIO at P&G, is very pleased at how well his company is doing with the software. It enabled P&G
to lower its costs on items such as pigments, chemicals, and packaging materials used across
multiple products and divisions. The company has even been able to reduce development time
by reusing specifications that the Food and Drug Administration (FDA) has already approved.
Marketing involves innovation and creativity and in the past was ignored as an area that
could benefit from using information technology because it was considered too complex and
personalized. However, according to The Gartner Group, the Connecticut-based information
system consulting firm, companies spend between 15 and 35 percent of their revenue on
marketing. One issue has been the fact that P&G’s various brands, product lines, customers,
and even different marketing groups each use their own independent software for some
functions, including direct mail, e-mail, and marketing campaign management.
Lafley’s revitalization strategy also called for using Internet technology as much as
possible for product development, marketing, sales, and any other activities where it could
strengthen P&G’s share of the market. P&G has set up a series of Web sites that help it promote
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existing brands and that are used for testing and marketing new products. P&G now conducts
much of its market research and surveying online, using MarketTools Inc.’s zTelligence. As a
result, online marketing research has mostly eliminated focus groups that were previously used
for its early-stage analysis of new products. CIO Steve David said, “We do almost 100 percent
of our concept testing online now.” The company used to spend about $150 million every year
to conduct 6,000 surveys. Conducting its surveys on the Net is not only less expensive but it is
also 75 percent faster. As Barb Lindsey, the director for consumer research services, explains,
“People spend their whole lives developing products and concepts; they want to learn as fast as
they can.”
However, the company experienced some difficulty using the Internet to share marketing
ideas. For example, if a marketing unit in Australia develops an effective way to launch a new
product, such as Febreze fabric spray, it is difficult to share its idea with similar groups in other
countries. According to Jim Stengel, P&G’s global marketing officer, “We have very bright
marketing people who have success stories developing throughout the world, but we lack a
systematic way of sharing and reapplying their thinking quickly.” Another problem was the lack
of adequate information for a marketing campaign. Stengel explained, “Ironically, despite all
the data we generate as a company or within a specific global brand, we find ourselves
sometimes making decisions based on incomplete data because the data isn’t where we need it,
when we need it.” A third issue, according to Stengel, is “Our [failure] to use many of the same
marketing principles and tools [we use on consumers] on ourselves, to change our work habits
and practices, as we roll out the [marketing software] platform on a brand-by-brand basis.”
The solution was a single software system that covers all of P&G’s marketing. It would
support all activities, from strategic planning to research, advertising, direct mail, and events. It
could collect all relevant data (from the front and back offices within the company and also
relevant information from outside the company); store, distribute, and monitor that
information; and track marketing projects, analyzing them and assessing their impact on the
business. This would also operate as P&G’s marketing memory. P&G joined with two other
companies— Worldwide Magnifi of Cupertino, California, and San Francisco’s BrandCities—to
establish Emmperative, a company developing marketing resource management software. It is
one of only two vendors producing comprehensive software for marketing. By using this
software, Stengel expects the day-to-day work of the marketers to be more satisfying because
they will be able to “focus on creative results-oriented marketing rather than time-consuming
administrative tasks.” This, in turn, should result in stronger, more creative, and more
successful marketing plans.
For a number of years P&G has focused on ways to improve supply chain efficiency and
costs; it now has a powerful industrial network linking it electronically to major suppliers and
customers (see Chapter 2). It had been using SAP supply chain management software but
turned to BiosGroup Inc. of Santa Fe, New Mexico, when efforts to reduce inventory levels only
produced marginal improvements. BiosGroup helped P&G use agent-based modeling to make its
supply chain even more flexible, adaptive, and lean. The concept is that many supply chain
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systems are extremely complex. However, many of the complexities are actually composed of
semiautonomous “agents,” each operating from a few simple rules. To make the most of the
system, one can first model the behavior of the individual agents and then change them,
enabling a person to understand and then make more effective the whole system.
P&G created computer simulations in which the software agents represent individual
supply chain components, such as trucks, drivers, or stores. The behavior of each agent is
programmed to follow rules that mimic actual behavior, such as “dispatch a truck when it is
full.” The simulations enable the company to perform “what-if” analyses on inventory levels, instore stockouts, and transportation costs. The models examine alternate rules to the existing
ones on the specific issue being analyzed, such as ordering and shipping frequencies or product
allocation in distribution centers. Using intelligent agent models, P&G discovered that trucks
should often be dispatched before being fully loaded. Although transportation costs would be
higher using partially loaded trucks because of both driver time and fuel to deliver fewer goods,
the simulation showed that retail store stockouts would occur less often, thus reducing the
amount of lost sales, which would more than make up for the higher distribution costs.
According to David Kellam, P&G’s director of supply network innovation, “Agent-based modeling
convinced us of some changes we fundamentally had to make if we were to be flexible and
adaptable.” As a result, P&G has eased some of its rigid rules, even though this initially seemed
counterintuitive. Modifying the P&G culture was essential to enforce such changes. Agent-based
modeling also resulted in more flexibility in manufacturing. Rather than relying on long
production runs of single products, the company now has shorter production runs so it can
produce some of every product every day when necessary. Agents showed the company that it
needed to be more flexible in its distribution, even restocking many retailers every 24 hours
rather than the more traditional 48 to 72 hours.
Agent-based modeling has saved P&G $300 million annually on an investment less than
1 percent of that amount. The company believes it has fundamentally transformed its supply
chain into a flexible and adaptive network. In fact, the company no longer uses the term supply
chain. As Larry Kellam, P&G’s director of supply network innovations, explains, “Chain connotes
something that is sequential, that requires handing off information in sequence.” But, he says,
“We believe it has to operate like a network, like an Internet, so everybody has visibility to the
information.” P&G is planning to expand its use of agents from modeling to actually running
important aspects of its operations so that by 2008, the end-to-end replenishment cycle for a
box of Tide could be shortened from four months to one day.
Sources: Stephanie Stahl and John Soat, “Feeding the Pipeline,” InformationWeek, February 24, 2003, “P&G: New
and Improved,” Business Week, July 7, 2003; Gary H. Anthes, “Agents of Change,” Computerworld, January 27,
2003; Sarah Ellison, “In Lean Times, Big Companies Make a Grab for Market Share,” The Wall Street Journal,
September 5, 2003; Jack McCarthy, “Starting a Supply-Chain Revolution,” Infoworld, November 1, 2002; Marc L.
Songini, “Procter & Gamble Turns to SAP’s APO for Supply Chain Boost,” Computerworld, September 19, 2002; Sari
Kalin, “Adding Method to the Madness,” Darwin Magazine, March 2002; Jim Ericon, “Managing E-Procurement,”
www.line56. com, January 24, 2002; Christopher T. Heun, “Procter & Gamble Readies Online Market-Research Push,”
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www.informationweek.com,
October
15,
2001;
“Procter
&
Gamble
Takes
on
the
Supply
Chain,”
www.intelligententerprise.com, July 2001; Christopher T. Heun, “P&G, Microsoft Tackling the Supply Chain,”
www.informationweek.com,
June
27,
2001;
and
Kayte
VanScoy,
“Can
the
Internet
Hot-Wire
P&G?”
www.smartbusinessmag.com, January 2001.
Case Study Questions
1. Analyze P&G’s business strategy using the value chain and competitive forces models.
2. What business and technology conditions caused P&G to change its business strategy?
What management, organization, and technology problems did P&G face?
3. What is the role of knowledge management in supporting P&G’s business strategy?
Explain how knowledge management systems help P&G execute its business strategy.
4. How successful has P&G been in pursuing its business strategy and using knowledge
management? How successful do you think that strategy will be in the future? Explain
your answer.
To answer your question, you can read more at P&G website.
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