Procter & Gamble CSR Strategy: Assessment and Recommendations

About Procter & Gamble

Procter & Gamble (NYSE: PG) reported $83 billion in sales and earned net income of $10.7 billion in their latest full fiscal year, which ended June 30, 2012 (Procter & Gamble). P&G continues to experience profitability declines, and in their most recent financial reporting provided guidance of organic sales growth of between 2% and 4%, while also reporting the successful sale of their Snacks business in May 2012. P&G also announced in February 2012 that the company was initiating an aggressive cost-reduction plan of trimming $10 billion over the next five years, with $8 billion in immediate cost reductions targeting 5,700 non-manufacturing and corporate jobs (Procter & Gamble).

P&G is looking to this significant effort to add 10% greater gross margin company-wide within the next two years. While P&G maintains one of the most extensive global manufacturing and distribution networks in the world, it has seen deterioration in some of its more profitable, long-standing product lines. One of P&G's greatest strengths is its ability to continually create and launch innovative products. As several top-selling brands struggle to retain market share globally, P&G has stated that it is investing heavily in bolstering its innovation processes and centers worldwide (Procter & Gamble). Regionally strong competitors in Brazil, India, and China are also eroding P&G's market share (Procter & Gamble).

P&G competes in several industries that are among the most toxic in terms of waste materials produced within their supply chains and during the production process. Given the highly toxic nature of producing cleaning supplies, detergents, soaps, and other chemically based products, P&G has made company-wide sustainability and corporate social responsibility (CSR) one of its top three priorities in its strategic planning framework (Warner, 71). P&G continues to lead the industry in the definition and use of balanced scorecards and the Triple Bottom Line methodology for evaluating organizational progress toward CSR and sustainability goals (Procter & Gamble).

Recommendation

One of the foundational elements of P&G's CSR initiatives is the designation of a Vice President of Sustainability and a separate Vice President of CSR Programs and Performance (Procter & Gamble). Both positions report to the CEO with a dotted-line reporting relationship to the board of directors. Because P&G has over 75,000 suppliers in its global supply chain and cannot directly monitor compliance with company-wide CSR programs in every case, it has defined a balanced scorecard for each supplier and regularly evaluates their level of CSR compliance (Procter & Gamble). This approach to enforcing a higher level of CSR compliance than any other consumer packaged goods manufacturer gives P&G a competitive advantage globally and further strengthens its corporate reputation worldwide (Riccaboni, Leone, 133–134).

Based on these factors and P&G's innate strengths in managing a diverse, globally based supply chain — many suppliers of which are located in developing nations — P&G needs to demonstrate that its CSR initiatives are delivering measurable improvements in people's lives. P&G should build its CSR branding around success stories from developing nations where the company's projects on water recycling and sustainability are delivering significant results (Procter & Gamble). The company has the breadth and depth of process-based expertise to completely revitalize villages and towns in developing nations while still earning a profit on the products produced there. The "doing well by doing good" mantra of companies excelling at CSR initiatives must also become part of P&G's branding platform and strategy.

P&G's approach to defining a global sustainability strategy began with a focus first on suppliers, then extended to its strategic sourcing and procurement process areas (Procter & Gamble). This parallels the best practices of manufacturing organizations globally, which often begin by managing supply chains toward sustainability before progressing toward integration within strategic sourcing (Cornelius et al., 355–356). P&G has also successfully integrated the foundational elements and methodologies of Triple Bottom Line (3BL) reporting into its sustainability initiatives (Keyes, Sykes, 2009). P&G is the global leader in sustainability among consumer packaged goods manufacturers, as demonstrated in its 2012 Sustainability Overview.

The report highlights the company's aggressive sustainability goals through 2020, the most notable of which is CEO Robert McDonald's ambitious objective of having P&G's sustainability efforts be so effective that they save one life every hour by 2020 (Procter & Gamble). This commitment to sustainability is impressive and sets a pace of innovation that few, if any, other consumer goods manufacturers can match.

Unlike its competitors, who predominantly focus on environmental sustainability strategies that deliver lean supply chain, manufacturing, and reverse logistics business value, P&G includes both social and environmental responsibility within its strategic frameworks for value delivery (Busco et al., 32; Keyes, Sykes). P&G has deliberately chosen a more comprehensive sustainability strategy across both social and environmental responsibility in order to better support the Triple Bottom Line. P&G has implemented the 3BL framework by integrating economic, environmental, and social factors into a unified platform for future growth based on measurable sustainability (Riccaboni, Leone, 132–133). Using the 3BL framework to align its strategic planning for products, operations, employee education, and overarching CSR initiatives has given the company greater visibility and control over sustainable design, brand and reputation management, resource efficiency, and Governance, Risk, and Compliance (GRC).

The P&G Strategic Framework for Value Delivery has been designed with specific attention paid to levers, outcomes, and advantages across the four strategic areas of their business model. One of the major factors in P&G's continued success is the alignment of each specific process area to increased profits, lower costs, competitive advantage, and long-term value creation. This exemplifies the "doing well by doing good" philosophy that is characteristic of the highest-performing enterprises today — those that have found CSR initiatives to be genuinely good business.

Analysis and Summary of the P&G Sustainability Strategy

Figure 1: P&G Strategic Framework for Value Delivery
Based on an analysis of the following sources: P&G Annual Reports and filings with the SEC (2006–2012); Keyes, Sykes et al.; Damian, 54; Cullen, Victor, Stephens, 50; Riccaboni, Leone et al.; and the Gartner Report Achieving Competitive Advantage Through the Pursuit of Sustainable Business (December 2012), Stephen Stokes and Simon Mingay, Stamford, CT.

P&G's strategic framework for value delivery is defined internally with specific focus on the strategic role of products, their supporting supply chain, manufacturing and service processes, performance targets as defined through the 3BL framework, and continual benchmarking against CSR short-term goals and long-term objectives. What is most significant about the P&G strategic framework for value delivery is the continual emphasis on employee ownership and change management initiatives to keep the entire organizational ecosystem functioning correctly (Warner, 71). P&G has so deeply ingrained sustainability into its culture that every employee understands their role in contributing to its attainment, as evidenced by external audits (Procter & Gamble). The results have been significant: the company achieved a 16% reduction in water waste per unit of production and purified approximately 2.9 billion liters of drinking water in 2011, with a goal of 4 billion liters of purified drinking water set for 2020 (Procter & Gamble).

As one of the most innovative and globally recognized consumer products companies in the world, P&G has been able to attain the integration stage of corporate citizenship on the basis of a solid foundation of customer engagement and innovation (Procter & Gamble). These strengths are underscored by how effectively the company manages the diverse processes, systems, and product lines that together comprise its brand and business model. The P&G Strategic Framework for Value Delivery is predicated on consistency and the continual reinforcement of value delivered to customers, suppliers, and stakeholders, while achieving ambitious environmental goals and objectives.

P&G has ascended to the integration stage of corporate citizenship by determining how each of its broader strategic initiatives and goals can be aligned with increasingly ambitious CSR and sustainability objectives. P&G is also notable for being among the first companies to implement a position specifically for managing these initiatives at the corporate level, creating a Vice President of Sustainability role (Procter & Gamble). The Vice President of Sustainability reports directly to the CEO and is also required to present to the board of directors quarterly.

What further makes P&G unique and well-positioned at the integration stage of corporate citizenship is its heavy reliance on 3BL reporting methodologies and corresponding technologies to ensure compliance with its own internal standards and those of the 180 nations in which it operates (Procter & Gamble). P&G also leads the industry in patents specifically designed to increase the biodegradable nature of its products, enable more efficient production processes that generate less waste, and support the continual improvement of sustainable business practice and process analysis (Keyes, Sykes, 43–44).

Using a portfolio-based approach to managing the specific aspects of its sustainability strategies, P&G has created a portfolio modeling framework for evaluating the time to value or competitive advantage of a given initiative by its integrated long-term benefit.

Figure 2: P&G Portfolio-based Sustainable Business Practice Analysis
Based on an analysis of the following sources: P&G Annual Reports and filings with the SEC (2006–2012); Keyes, Sykes et al.; Damian, 54; Cullen, Victor, Stephens, 50; Riccaboni, Leone et al.; and the Gartner Report Achieving Competitive Advantage Through the Pursuit of Sustainable Business (December 2012), Stephen Stokes and Simon Mingay, Stamford, CT.