Comments

Bang on Steve! The only thing to be watched is how far away is 'not too distant future'!!!!!

Posted by R.Srinivasan at January 29, 2005 3:21 AM

Well, it's not quite the same thing because I think that when HP purchased Compaq it got a one-trick pony. It was a PC vendor to bolster HP's presence in the personal computer space. Ooops. I guess Fiorina didn't exactly notice that the entire PC industry was busy dropping into what Sam Palmisano at IBM calls "commodity hell."

Will Proctor & Gamble suffer the same fate with Gillette? Well, when I dug through the Gillette annual report yesterday, I was rather surprised to find that their product line wasn't as diversified as I expected. They have five major product lines, yes, but as I pointed out, is each product line worth $10 billion? How many Pampers do you need to sell? More to the point, how strong is BRAND nowadays anyway? Isn't it more and more about PRODUCT rather than BRAND, and aren't all of these products just commodities anyway?

So what, exactly, did P&G buy?

I mean, A.G. Lafley, their CEO, is no fool and he's already gone on record saying that P&G is all about buying innovation, not creating it in-house, and that over 50% of P&G's new products should come from outside the firm. I think that goes a way to explain the what and why, if not the how much. :-)

Btw, I have a bunch of different articles on my site about Fiorina and HP that might be fun adjunct reading: http://www.intuitive.com/blog/

Posted by Dave Taylor at January 29, 2005 4:01 AM

I totally agree about the product/brand thing at this level. To my mind in the commodity business brand is back to the original reason for branding i.e. I expect consistency of product from this brand. Nappies (daipers) are an interesting example. The big names give away samples in maternity wards and like most people we stayed with the brand we first tried UNTIL we had ONE pack which had about 3 failures - then we switched brands very rapidly! Product quality rules at this level

Posted by PaulH at January 29, 2005 5:53 AM

Dave, I just went to your blog, good stuff. What do you mean when you say it is more about the product than the brand? And, do you think it's possible that P&G/Gillette could go emotional marketing and generate enough profits to make the deal pay off? By emotional marketing I mean putting the consumer in the forefront and making the brand a conduit to the consumer's goal, driving the consumer's feelings and not the brand's loyalty. ..my wording may be off, but you get the picture.

Posted by Wendy at January 29, 2005 9:05 AM

HELP!!!

I am really struggling with this consumer's feeling part - I just don't get it.

These guys sell razors and nappies. I just don’t understand the emotional side to this. As a consumer of goods like these I guess my feelings are more around buying a known brand because of perceived quality and reliability so it’s reassuring me during my buying decision – this I understand but I don’t get how it can go any deeper than that?

Wendy you talk about making a “brand a conduit to the consumer's goal” What do you mean by this?

I can understand certain brands taking on more emotion but I suspect that the brand managers are kidding themselves if they think this is down to them. I can understand people getting emotionally attached to a great product they own - I like the car I drive. After a week abroad on business it was the first sense of home I got at the airport - I also have the deepest respect for the manufacturer and some of their better designs. But I don't love the company. I don't care if they do well at Le Mans 24 hours - next time I buy a car this company will be on the shortlist but nothing more than that.

My biggest problem is that I don’t actually want to get emotionally involved in a company/Brand! I love my family and friends but why would I fall in love with a multi $m corporation?? (especially if I felt they were deliberately trying to press my emotional buttons)

Am I missing the point?

Posted by PaulH at January 29, 2005 11:57 AM

IT IS MORE A STORY OF CARLY'S LACK OF INTELLECTUAL CAPITAL - SHE HAS BEEN A MARGINAL PERFORMER FOR HER WHOLE CAREER - AMAZING WHAT BOARD OF DIRECTORS LET their CEO's get away with.

Consumer products are a new and futuristic ballgame - I'm buying the success of this merger.

Posted by John at January 29, 2005 12:48 PM

To sum up: pre merger state-HP shareholders owned 100% of the prodigious printer business. Afterwards- they owned only 63%.

To put it simply, they spent $24B for Compaq and this has left them cash strapped. $9.5B was actuall price movement and $14.5B which was used as 'goodwill' purchasing. The difference between the goodwill , fair value and economic value has now shrunk.

Soon you will find the divesture of their enterprise divsions. YOu heard it here first !!!

Posted by /pd at January 29, 2005 12:58 PM

Well, I'm very cynical about the value of this to customers, suppliers, stockholders and employees.

BUT...
(1)there's some complementarity of marketing and product. Gillette is good at reaping extraordinary margins out of mildly-differentiated commodities they can sell as premium. The satanic-worshipping minions of Cincy , otoh, are effective at decent margins on mid-line products.

(2) Both are skilled at managing shelf-space and greasing all the palms you need to to get good placement and forcing out small competitors.

(3) If retail continues to concentrate and become less competitive, the added bulk will yield some small rewards in having to deal with bigger (more powerful negotiation behemoth) buyers, & their larger cash flows will make them a bigger force w/which to deal.

Those might be some "positives" that offset some of the many "negatives".

Posted by jeff angus at January 29, 2005 2:21 PM

Tom, I track events in the telecom sector. The notion of SBC acquiring AT&T has me just as dumbfounded. Ed Whitaker (CEO of SBC) is clearly unable to think beyond his legacy comfort-zone. As for the leadership of AT&T, I'll let my prior AlwaysOn column tell the sad story -- AT&T Leadership Crisis ver3.5 -- http://snipurl.com/ce12

David H. Deans

Posted by David H. Deans at January 29, 2005 4:44 PM

Dave, I find it tragic that Mr Lafley says he can't innovate organically/internally. I support buying innovation as part of one's strategy, but to throw in the towel on one's own skils is sad. Succeed ot not, Jeff Immelt is trying to crank up the Big Innovation machine at GE--for example a $100M recent investment (I believe) in Schnectedy area labs. Tonight I'm in Houston talking to one of the fastest gowing, coolest divisions of Johnson & Johnson, DePuySpine. They've bought some innovation, but have also jacked up R&D by 50% in the last couple of years and report 70% of sales from products introduced in the last 3 years. J&J has stuck surprisingly close to their traditional, energetic decentralized model, while Ms Fiorina has centralized the heck out of HP and Lafley simply admits defeat (on organic innovation).

Posted by tom peters at January 29, 2005 5:22 PM

It's tempting to say that P&G/Gillete is different ... but that's exactly what they said about AOL/Time Warner!

Posted by Steve Yastrow at January 29, 2005 6:55 PM

Tom, I'm of two minds about your comment. On the one hand, I am constantly fighting the "not invented here" syndrome that I picked up at HP R&D Labs where we'd reinvent the paperclip if it didn't have an HP patent on the side (when I first met David Packard (the son) he was busy writing a new operating system and programming language because he "really couldn't get behind this ugly Unix thing", as he put it)

On the other hand, isn't it the height of corporate arrogance to think that your own R&D lab is better than anyone else in the world and that all really good innovations are going to be grown organically and internally?

I don't think that Lafley is saying "we can no longer innovate" at all. I think he's saying "we have a lot of brilliant, innovative people here at P&G, but I think that if we're paying attention, we'll find lots of great innovations and inventions outside of our own firm too. We just need to be nimble enough and humble enough to recognize their worth even though someone else got there first."

After all, I see this as the Microsoft story. Microsoft rarely takes a chance with a completely new, untried technology (other than Bob snicker), they just take what's already starting to gain traction in the marketplace and make it better, bigger, faster, flashier or more integrated into their existing technology platform. For years I used to despise Microsoft for this, but I really have come around 180-degrees in the last six months and now think that they absolutely GET IT while it's the other companies like Sun Microsystems trying to reinvent open source Unix that don't get the true nature of the marketplace.

Immelt is doing a splendid job at GE, no question, but while he's busy cranking up the innovation machine (as you put it), he's also savvy enough to be componentizing his business to make it more nimble, agile and able to exploit changes and innovations in the marketplace. No supply chain impediments for GE!

You're also spot on regarding Fiorina. HP CEO Carly Fiorina started out on a good foot reducing the 57-odd autonomous divisions of Hewlett-Packard, but it's now TOO centralized and is running in place, watching the lead slowly slip past them even in their key market segments like printers.

Posted by Dave Taylor at January 30, 2005 2:03 PM

Mergers of dinosaurs--let's take it to the max--P&G and G and HP--add AT&T--oops already taken. So P&G&G&HP it will be. It reminds me of a "CarTalk" joke--what do you get when you mate two piers (as in wharf, not equal)? A paradox. P&G&G&HP--a reinvention that migh work!

Posted by Pam Brill at January 30, 2005 11:06 PM

I guess innovation in products is not the only thing possible...

sometimes insight matters more than patents...

One can have scores and scores of R&D labs with a carte blanche to innovate but somewhere those patents have to tie in with a company's core purpose...

I really don't know much about P&G and Gillette's R&D spend and return on that investment, but have heard amazing things about the culture at Gillette...sad to see that go...like the erstwhile Digital and the 'old' HP :-)

Posted by Gautam at January 31, 2005 7:33 AM