Current Events in Accounting

            A little over a month ago, key player Procter & Gamble announced their new plan to cut costs and reach $10 billion in savings by 2016. The plan calls for a major overhaul and restructuring of many of the company’s various departments. To shave $10 billion off of their bottom line P&G CEO Bob McDonald laid out the multi-faceted plan, affecting many areas of the balance sheet, in late February 2012.

The first order of the plan calls for approximately 5,700 jobs to be cut from its nonmanufacturing work force by June 2013. These cuts will initially lead to savings of $800 million by 2014, rising to savings of $1 billion by 2016. The company plans to make adjustments to their marketing budget to save another $1 billion. To save $6 billion in their expenditures, P&G also plans on using less expensive materials for packaging, developing a more efficient supply chain, and altering products to be more concentrated. To achieve this multistep plan of $10 billion in savings will eventually cost the company close to $3.5 billion in restructuring costs.

In addition to the cuts within more their more stable markets, P&G is setting its sights on expansion in emerging markets in Africa, Asia, and South America. Expansion into these new markets includes opening 20 new manufacturing plants by 2015. Overall, the main goal of expansion is to increase revenues and add to their bottom line, while simultaneous cutting costs to create a larger profit margin.

Investors and analysts welcomed these extensive cuts to P&G’s budget. Many investors had been deterred by P&G’s inability to operate at more efficient costs, especially when sales growth in well-established markets, like the United States and Europe, has not been as strong as it once was. Upon announcement of the plan, stock rose 3%.

P&G’s budget cuts and new market expansion represents the company’s repositioning within the industry’s market, affecting its competitors. As P&G attempts to increase its market share by earning more, it inevitably takes away from fellow companies in the industry. This strategy also demonstrates what’s expected of a company from investors. Investors are looking for efficiency and future expansion. P&G is catering to what investors expect through the implementation of their four-year plan.