P&G JAPAN: THE SK-II GLOBALIZATION PROJECT

P&G Japan: The SK-II Globalization Project

Team 1:
Julia Yoda
Grace Kontur
Fabine Edma
Angela Elder

Liberty University
P&G JAPAN: THE SK-II GLOBALIZATION PROJECT
Table of Contents

Abstract 1

Introduction 2

Does O2005 Support or Impede SK-II Going Global? 2

Expansion Strategy for Rolling SK-II / Country Priority 3

How Well Has P&G Implemented Jager’s Major Strategic Change? 4

Conclusion 5

References 6
P&G JAPAN: THE SK-II GLOBALIZATION PROJECT 1
Abstract

In 1999, P&G launched a new organizational project under Durk Jager called the O2005

Project. It was a project that would change the organizational structure of the company from an

RBU structure to a GBU business structure. This change was made surrounding the production of

a skin care line called SK-II. Our research studies how the implementation of O2005 provided an

open door for the development of SK-II, however, did not equate the cost for marketing the new

product. We also found that the markets ideal for the production of SK-II are in its home market of

Japan, then to globalize it through producing in China and Europe. Our research also shows how

the company responded to Jagers new business model; how the company experienced a decrease in

market capitalization and how many executive employees were dissatisfied.

P&G JAPAN: THE SK-II GLOBALIZATION PROJECT 2
Introduction

Does O2005 Support or Impede SK-II Going Global?

In 1999, Durk Jager launched the O2005. This was a brand new operation that would

require a huge structural change within P&G, primarily by reorganizing from Regional Business

Units to Global Business Units. As most significant shifts involve, P&G experienced an initial job

loss. However, by making this switch, P&G opened the door for opportunity to take its valuable

products and sell them on a global market.

Up till this time, P&G had based their business model on their ability to develop innovative

new products, and then their ability to market those new products. When Jager initiated the

redesign of the company’s organizational structure by expanding from 4 RBU’s to 7 GBU’s, the

motivations behind the change were to enhance efficiency of each unit to produce the best product

at the lowest cost. He “reduced levels between the front line and the chairmen” (Bartlett, 2004)

allowing in the inflow of new ideas, such as SK-II, to be developed and produced more efficiently

and quickly. However, the O2005 also required a budget modification, which would change the

focus of the resources from marketing to production. Though O2005 established the opportunity

for SK-II to be produced and thrive in a specific market, because the company’s budget allowed

less for marketing, it may have made it more difficult to expand SK-II’s customer base on a global

market.

Expansion Strategy for Rolling SK-II / Country Priority

Japan should be the priority in P&G’s expansion strategy. There is a huge market for skin

care products in Japan and P&G has only a small share of it. Adding anti-aging and skin-whitening

products to the SK-II range is one way market share can be increased through technological

resources. Positioning new technology, the innovative beauty imaging system, at SK-II counters

with beauty consultants will increase the accuracy and credibility of skin diagnosis. This will
P&G JAPAN: THE SK-II GLOBALIZATION PROJECT 3
attract the attention of the analytic Japanize consumer. De Cesare felt sales of SK-II had a good

chance of doubling within the next six or seven years.

China should be the next priority. The profit made from expansion in Japan will offset the

temporary losses P&G will incur by expanding to China. After a three-year period of 10% losses in

China the brand is expected to break even. China’s beauty segment is growing 30 to 40% a year

and has potential to become the second largest market in the world. In order for P&G to be a

success in China, P&G will need to explain the need for a four- to six- step regimen to Chinese

consumers. High import duties involved in expanding to China make this market less attractive.

However, the lower cost of beauty consultants in China will offset this extra expense, so SK-II

could still be profitable. The product must be concentrated in the larger cities where the wealthy

live and shop.

The European market is low priority for expansion, but has potential for future expansion.

This market would be difficult to break into because it is already heavily infiltrated by SK-II

competitors such as Chanel and Dior. Another problem with expanding into Europe is the

extremely high cost of advertising. Without television or print ads, creating brand awareness will

be a challenge. It would be costly to start up, with losses of $1 million to $2 million each year over

a period of four years.

How Well Has P&G Implemented Jager’s Major Strategic Change?

When the Chief Operating Officer, Mr. Jager, succeeded Pepper as CEO in January 1999,

he continued his mission on bringing a major strategic change to the company, which will also

cause a loss of thousands jobs. However, these changes will result in $900 million in annual

savings starting from 2004. This implementation will have three dramatic changes in the

company’s history based on culture, processes, and structure.

First, the change in their work culture would create an organization reform. Many

employees were wasting their time on ”non-value-added work.” Jager wanted to built a cultural
P&G JAPAN: THE SK-II GLOBALIZATION PROJECT 4
revolution with risk taking and speed that would decrease the non-value-added work. It works well

for P&G because only 18 months later, they were able to enter other market and sale in the United

States, Europe, Latin America, and Asia.

Then, the changing in process involved a performance based on pay component. This

implementation would extend the reach of the stock option plan. Jager also integrated a process

where all operating plans could be evaluated and authorized together.

Finally, the change in structure included full responsibility of the market’s budget. Many

team responsibilities were shifted to individuals and regional organizations to global business units

(GBU). This change would give each GBU the power to manage product development,

manufacturing, and marketing.

The implementation of Jager’s major strategic change was a failure. The company’s market

capitalization decreased by $40 billion. In such a large company, changes should be made more

gradually and GBU should not have such a large responsibility on the market’s budget. Those

changes were more focused on increasing sales volume than profit, which put the business under

meaningful pressure.

Conclusion

Although Jager’s plan to create GBU’s was what P&G needed to gain an open door in

globalizing their products, the structure he initiated was inadequate to carry the company through

their serious decline in market capitalization. In order to increase the company’s profitability and

income through globalizing SK-II, P&G should continue to develop sales in Japan. Utilizing the

sales from Japan, the company should first sustain a new venture to bring SK-II to the Chinese

market and then to the European market.

P&G JAPAN: THE SK-II GLOBALIZATION PROJECT 5
References

Bartlett, C. (2004). P&g japan: The sk-ii globalization project. Boston, MA: Harvard
Business School Publishing.