Strategic Direction

P&G part of sustainability solution: Management control systems' strategic role

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, (2010),"P&G part of sustainability solution", Strategic Direction, Vol. 26 Iss 8 pp. 16 - 18
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Angelo Riccaboni, Emilia Luisa Leone, (2010),"Implementing strategies through management control systems: the case of sustainability",
International Journal of Productivity and Performance Management, Vol. 59 Iss 2 pp. 130-144 http://dx.doi.org/10.1108/17410401011014221
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A.G. Lafley, Roger Martin, (2013),"Instituting a company-wide strategic conversation at Procter & Gamble", Strategy & Leadership,
Vol. 41 Iss 4 pp. 4-9 http://dx.doi.org/10.1108/SL-04-2013-0023
Brian Leavy, (2013),"Where to play and how to win – strategy fundamentals the Procter & Gamble way", Strategy & Leadership,
Vol. 41 Iss 5 pp. 7-16 http://dx.doi.org/10.1108/SL-05-2013-0034

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 P&G part of sustainability solution
Management control systems’ strategic role
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MCS’s potential in embracing social, environmental and financial issues

When multi-national giant Procter & Gamble nails its sustainability colors to the mast, it has to
make sure its actions match its messages. Such is the reputation of P&G, and other
globally-known brand leaders, that merely paying lip service to such important issues is not
an option. Not that they would want it to be. Although sustainable development was only set
up in 1999 as one of the company’s strategic objectives, these days the embeddedness of
sustainability strategies and goals in P&G’s business starts at the highest organizational
levels and cascades via the various business units to every employee. In fact each
employee is accountable for specific objectives and is required to contribute clearly to the
achievement of overall goals.
This ‘‘internal’’ emphasis – i.e. having everyone within the organization be aware of the
company’s commitment to sustainability and the processes put in place to facilitate social
responsibility – is important against a background of some organizations having a greater
‘‘external’’ emphasis. In short, increasing sustainability reporting (and not necessarily
accountability) merely as a means of enhancing the corporate image and credibility. Social
reporting is not enough since environmental and social profiles should be incorporated
within planning processes, policy decisions, capital allocation and performance evaluation.
Angelo Riccaboni and Emilia Luisa Leone, who studied the business activities of Procter &
Gamble to explore the role management control systems (MCS) have in implementing
sustainable strategies, concluded that MCS could have great potential in embracing social
and environmental issues, in addition to financial ones. In the case of P&G no ad hoc
systems and practices were needed to successfully implement sustainability strategies,
since they were fully integrated within a traditional framework. It is suggested, therefore, that
organizations should broaden their MCS in order to facilitate the achievement of social and
environmental goals.
At P&G the importance given to sustainability is communicated not only externally through
formal claims, but also to employees through leadership commitment. P&G set up a
centralized organizational structure which they called the Global Sustainability Department,
comprising experts to liaise with business units and advise on sustainability matters.

Objectives, goals, strategies, measures

The company has an ‘‘Objectives, Goals, Strategies, Measures’’ (OGSM) system. The
planning process starts from a clear definition of Objectives, from which corporate goals are
identified. The latter are translated into appropriate strategies, which are converted into
specific measures.The objective overlaps the corporate mission ‘‘to provide branded

PAGE 16 j STRATEGIC DIRECTION j VOL. 26 NO. 8 2010, pp. 16-18, Q Emerald Group Publishing Limited, ISSN 0258-0543 DOI 10.1108/02580541011055670
 products and services of superior quality and value that improve the lives of the world’s
consumers, now and for generations to come’’.
Goals are reviewed annually in the amount they coincide with the goals communicated to
shareholders and are substantially related to:
B the increase in net sales;
B the increase in earning per share; and
B the increase in total shareholder return.
The strategies are reflected in brand and country plans. They are divided into two main
areas, namely ‘‘Where to play’’, with reference to decisions on geographical areas, market
and business, and ‘‘How to win’’, with reference to decisions on ways to create competitive
advantages, to be leaders and more generally to achieve good financial results. For each
strategy specific Measures are defined. These are both quantitative and qualitative, thus not
merely focused on financial performance.
The global OGSM has to be translated into more specific plans and programs, for the
various organizational structures – the three Global Business Units (GBUs) responsible
respectively for Beauty; Health and Wellbeing; and Household care, and the Market
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Development Organizations (MDOs), which are organized in seven geographical regions.

The three Global Business Units operate, as the name implies, at a global level, dealing with
business strategies, innovation, brand design, and new business development. Those
responsible for each GBU are mainly accountable for profit. The Market Development
Organizations, on the contrary, are local structures which have to liaise with local markets:
people, retailers, supply chains and local governments, thus dealing with regional
marketing, sales and external relations.
Starting from the overall corporate OGSM, the cascade mechanism involves all the
organizational levels. The global OGSM is translated into a specific OGSM for each GBU,
who can achieve the planned goals only if MDOs’ activity is aligned with these goals. As a
consequence, action plans for regional and local market (i.e. for the seven geographic
regions and for each MDO) have to be drawn.
In order to coordinate GBUs’ and MDOs’ behavior, there is a complex two-way
communication process. It is designed to solve potential tensions and trade-offs between
MDOs and GBUs and it starts with a preliminary phase where both the MDOs and the GBUs
try to define how to implement the strategies. Then, several steps are foreseen in order to
translate the global OGSM in more specific documents and plans. The overall process is
characterized by a continuous dialogue between MDOs and GBUs. They have to agree on
plans and programs to carry on and their actions should be aligned, as well as consistent
with the overall OGSM.

Qualitative analysis of everyone’s main strengths and weaknesses

Once agreement is obtained and action plans for each MDO are defined, it is necessary to
spread their contents within organizations. Thus, action plans for each Market Operation
Team and Customer Business Development Team are defined. Some specific objectives are
assigned to each team, identifying programs, measures and goals consistent with the plans
of the related MDO and GBU, and the overall OGSM system.

‘‘ Each employee is accountable for specific objectives and is

required to contribute clearly to the achievement of overall
goals. ’’

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VOL. 26 NO. 8 2010 STRATEGIC DIRECTION PAGE 17
 ‘‘ The importance given to sustainability is communicated not
only externally through formal claims, but also to employees
through leadership commitment. ’’

Once the plan for the multifunctional team is set, each employee has to plan its activities and
identify its goals, drawing up two main documents, namely the Work Development Plan
(WDP) and the Action Plan. The former contains a qualitative analysis of the main strengths
and weaknesses of each human resource. The latter is a planning tool where specific,
measurable, achievable and consistent goals are pointed out. The comparison between the
actual and the target allows everyone to assess and evaluate its activity.

A formal performance evaluation is made quarterly by each employee’s supervisor. A

comprehensive assessment on progress in the achievement of the overall corporate goals is
made quarterly and is summarized in a formal document in which the chief executive officer
communicates the progress made to employees and investors.
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The authors say that, even though P&G relies on centralization (especially with reference to
the unique, sustainability plans and performance measurement system), the integration in the
OGSM and its cascade mechanism allow the management of the trade-offs between
instances of coordination and control (pushing centralization) and instances of autonomy
and adaption to local realities (pushing decentralization).

Comment
Keywords:
Control systems, This review is based on ‘‘Implementing strategies through management control systems: the
Design and development, case of sustainability’’ by Angelo Riccaboni and Emilia Luisa Leone, who studied
Social accounting, multi-national company Procter & Gamble to explore if and how management control
Strategic change systems have a role in implementing sustainable strategies.

Reference
Riccaboni, A. and Leone, E.L. (2010), ‘‘Implementing strategies through management control systems:
the case of sustainability’’, International Journal of Productivity and Performance Management, Vol. 59
No. 2, pp. 130-44, ISSN 1741-0401.

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