COPPEAD GRADUATE SCHOOL OF BUSINESS THE FEDERAL UNIVERSITY OF RIO DE JANEIRO (UFRJ) THIAGO GUEDES DE MELO HOW GROWTH MAY AFFECT THE SURVIVAL OF LONG-LIVED ORGANIZATIONS: THE COLGATE AND PROCTER & GAMBLE CASES RIO DE JANEIRO 2016 THIAGO GUEDES DE MELO HOW GROWTH MAY AFFECT THE SURVIVAL OF LONG-LIVED ORGANIZATIONS: THE COLGATE AND PROCTER & GAMBLE CASES Thesis submitted to the Instituto COPPEAD de Administração, Universidade Federal do Rio de Janeiro (UFRJ) as a prerequisite for the completion of the Full-time MBA program and the obtention of a M.Sc. title. Supervisor: Professor: Denise Lima Fleck, Ph.D. RIO DE JANEIRO 2016 2 3 THIAGO GUEDES DE MELO HOW GROWTH MAY AFFECT THE SURVIVAL OF LONG-LIVED ORGANIZATIONS: THE COLGATE AND PROCTER & GAMBLE CASES Thesis submitted to the Instituto COPPEAD de Administração, Universidade Federal do Rio de Janeiro (UFRJ) as a prerequisite for the completion of the Full-time MBA program and the obtention of a M.Sc. title. Approved by: ____________________________________________________ Prof. Denise Lima Fleck, Ph.D (COPPEAD, UFRJ) - Supervisor ____________________________________________________ Prof. Paula Chimenti, Ph.D (COPPEAD, UFRJ) ____________________________________________________ Prof. José Vitor Bomtempo Martins, Ph.D (PUC-Rio) RIO DE JANEIRO 2016 4 ACKNOWLEDGEMNTS To my grandparents, Adélia and Fernando Guedes, Denise and Maurilio de Melo, who have set the roots of a united and supportive Family. To my parents, Laurinda and Murilo Melo, who have shown me how to live, love, laugh and learn. To my brother and best friend, Rafael Melo, who has shared with me so many adventures. To my better-half, Natalia Muniz, who has brightened my world. To my entire family, which has guided and supported me towards success before I even understood its meaning in my life. Everything that I am, have accomplished, and have yet to achieve, reflect the firm lessons and principles you have passed on. Thank you for leading by example, constantly demonstrating the importance of personal development, and always acting with kindness and integrity. (Acknowledgements in Portuguese) Aos meus avós, Adélia e Fernando Guedes, Denise e Maurilio de Melo, que estabeleceram as raízes de uma família unida e uma estrutura de suporte. Aos meus pais, Laurinda e Murilo Melo, que me mostraram como viver, amar, sorrir e aprender. Ao meu irmão e melhor amigo, Rafael Melo, que compartilhou comigo inúmeras aventuras. A minha cara-metade, Natália Muniz, que coloriu meu mundo. A toda minha família, que me apoiou e me guiou ao sucesso antes mesmo de minha compreensão sobre seu significado em minha vida. Tudo que sou, já consegui e que ainda vou conquistar é um reflexo dos firmes valores e aprendizado que vocês passaram adiante. Obrigado por liderar por exemplo, constantemente demonstrar a importância de desenvolvimento pessoal e de sempre agir com bondade e integridade. 5 ABSTRACT MELO, Thiago Guedes de. How Growth May Affect the Survival of Long-lived Organizations: the Colgate and Procter & Gamble cases. Master Thesis (Full-Time MBA). Instituto COPPEAD de Administração, Universidade Federal do Rio de Janeiro. Rio de Janeiro, 2015. Too often companies fail because they do not grow or because they grow in an unhealthy and unsustainable manner. Even when companies become successful, they frequently are caught- up in their own success and develop organizational behaviors that result in a tendency for self-destruction. Through the lens of Fleck’s growth challenges, this study seeks to deepen the understanding of how the consistency of certain organizational actions can improve the tendency for self-perpetuation. A longitudinal analysis was conducted to comprehend how growth may affect the survival of long-lived organizations. Colgate and Procter & Gamble have endured throughout the changing times and are part of a select group of only 33 publicly listed companies in the United States that are over 175 years old. Both companies began their business in the soap industry during the early 1800s, and overcame competition to become regional, national, and global leaders. They have consistently ranked in the top half of the Fortune 500, outperformed the Dow Jones average and the S&P 500, and are considered industry references. The growth trajectory of both companies helps understand how Colgate and P&G grew over time and how their expansion moves (or lack thereof) likely contributed to foster or hamper the requirements for their continued existence. Key-Words: Corporate growth; Long-term Success; Self-perpetuation; Colgate; Procter & Gamble 6 RESUMO MELO, Thiago Guedes de. Como o Crescimento Pode Afetar a Sobrevivência de Organizações Longevas: Os casos Colgate e Procter & Gamble. Dissertação de Mestrado (Full-Time MBA). Instituto COPPEAD de Administração, Universidade Federal do Rio de Janeiro. Rio de Janeiro, 2015. É muito comum que o fracasso de companhias aconteça pela falta do crescimento ou por um crescimento não saudável e insustentável. Até mesmo quando companhias se tornam bem sucedidas, elas frequentemente ficam tão absorvidas em seu próprio sucesso que desenvolvem atitudes organizacionais que tendem à autodestruição. Através da lente dos desafios de crescimento de Fleck, esse estudo busca se aprofundar em um melhor entendimento sobre como a consistência de certas ações organizacionais pode aumentar a tendência à autoperpetuação. Um estudo longitudinal foi conduzido para compreender como o crescimento pode afetar a sobrevivência de organizações longevas. Colgate e Procter & Gamble se destacam por suportar mudanças no meio ambiente ao longo do tempo e fazem parte de um grupo seleto de apenas 33 companhias listadas na bolsa de valores nos Estados Unidos com mais de 175 anos de existência. Ambas as companhias começaram na indústria de sabonete no início de 1800s, superaram a competição e se tornaram em líderes regional, nacional e global. Elas consistentemente estão na primeira metade do Fortune 500, superam a média Dow Jones e a S&P500, e são consideradas referências na indústria. Individualmente e de forma comparativa, a trajetória de ambas as companhias permite identificar de que forma as duas empresas cresceram e como seus movimentos expansivos (ou a falta deles) contribuiu para promover ou dificultar a produção das condições necessárias à continuidade de suas existências. Palavras-Chave: Crescimento corporativo; Sucesso longevo; Autoperpetuação; Colgate; Procter & Gamble; 7 LIST OF FIGURES Figure 2.1 Five Growth Challenges. ……………………………………..……………………………………………… 20 Figure 2.2 Model of Requisites for the Development of Organizational Self-Perpetuation Propensity……………………………………..…………………………………………………………………… 21 Figure 3.1 Visual Mapping Sample for Contextual Synthesis……………………………………………….. 38 Figure 3.2 Analysis Process of Research……………………………………………………………………………….. 39 Figure 4.1 Classifications Within Soap, Cleaning Compound, and Toilet Preparations Manufacturing. …………………………………………………………….……………………………………. 50 Figure 4.2 Colgate Family Members who worked at Colgate Company. ……………………………… 60 Figure 4.3 Procter and Gamble Family Members who worked at P&G………………….………....... 83 Figure 4.4 Moon-and-stars Evolution. Source: Dyer et al., 2004, p. 280………………………………. 83 Figure 4.5 U.S. Tide Share…………………………………………..………………………………………………………. 103 Figure 4.6 Technology Evolution………………………………………….…………………………………………….. 107 Figure 4.7 Growth of P&G Hair Care Brands, 1985 – 2004. ………………………………………….…….. 116 Figure 4.8 Components of the Organization 2005……………………………………………..……………….. 119 Figure 4.9 Connect & Develop Connections………………………………………………………………………… 124 Figure 4.10 Strategy Playbook…………………………………………………………..………………………………….. 125 Figure 4.11 Strategic Choice Cascades………………………………………………………………………………….. 126 Figure 4.12 Strategy Logic Flow…………………………………………………………..………………………………… 127 Figure 4.13 Traditional Buy-in and Reverse Engineering Strategic Options……………………………. 127 Figure 4.14 P&G Activity System………………………………………………………….……………………………….. 128 Figure 4.15 Reinforcing Rods………………………………………………………….……………………………………… 129 Figure 4.16 Adapted OGSM………………………………………………………….……………………………………….. 130 Figure 5.1 Boundaries of the States during the Industry Formation Period………….................. 134 Figure 5.2 Net Sales as a % of US GNP…………………………………………………………………………………. 142 Figure 5.3 Net Profits as a % of US GNP……………………………..……………………………………………….. 143 Figure 5.4 Leadership Transition Comparison between Colgate and P&G…………………………….. 183 Figure 5.5 % Turnover of Top Management (Officers & Directors) at Colgate and P&G……….. 184 Figure 5.6 International Presence of Colgate and P&G through Subsidiaries and branches… 185 Figure 5.7 Retained Earnings at End of Year as % of US GNP……………………………….………………. 222 Figure 5.8 Proxy to Personnel Slack…………………………………………………………………………………….. 223 Figure 6.1 Soap & Detergent Industry Breakdown………………………………………….…………………… 247 Figure 6.2 Longitudinal Ranking of P&G and Colgate in the Fortune 500…………………………….. 251 Figure 6.3 Historical Perspective on the Total Number of Employees at P&G and Colgate...... 251 Figure 6.4 Gross Properties, Plants and Equipment as a % of US GNP……………………………..….. 252 8 LIST OF TABLES Table 3.1 Facts and Events Database Sample……………………………………………………………………….. 37 Table 4.1 The Soap Industry in the 19th Century………………………………………………………………….. 44 Table 4.2 Cleaning Product Innovations from 1950s to 2000s……………………………………………… 48 Table 4.3 US Market Share in Soap & Detergent Industry……………………………………….…………… 49 Table 4.4 Perfumery and Cosmetics (1860-1890)……………………………………………..…………………. 51 Table