Coca Cola Companys Strategic Analysis - Case Study Example

Coca Cola Company’s Strategic analysis report Introduction Modern businesses are putting more efforts and investments in understanding factors and elements that influence productivity and performance of the workforces, the management, suppliers, distributors, investors, shareholders and the end users (Finlay, 2000). Therefore, strategic analysis helps these business organizations to identify, analyze and monitor this important information. In so doing, the management is able to strategically develop, implement and monitor plans and ideas that will help promote effective and efficient production, enhance worker’s performance, improve the quality of goods and services produced and ensure on time delivery of the same (Benko & Anderson, 2010). This creates customer satisfaction and their loyalty that translates into increased market share and profitability for the organization (Porter, 1980). This report will candidly highlight the strategic analysis report of Coca Cola Company. The Coca Cola Company The Coca Cola Company is a public company whose stocks are, listed in the New York Stock Exchange. The company is a market leader in selling, producing and marketing non-alcoholic drinks concentrates and syrups (Smith & Mellisa, 2005). The Company reputes itself in owning a diverse assortment of brands ranging from soft drinks, juices, sports beverages, bottled water, teas, light and diet drinks, energy drinks, and coffees among others. The Coca Cola Company was, established in the late 1800’s and its headquarters is in the State of Georgia in the United States (Pendergrast, 2000). In the financial year 2009, Coca Cola Company registered annual revenue of 31 billion US dollars, a 3% decrease compared to the previous year, with an operating income of more than 8 billion US dollars. In the same financial year, the company had a net income of not less than five billion US dollars, which was an 18% increase compared to the previous year, total assets amounting to more than 48 billion US dollars and a sum equity of 25 billion US dollars. The Company has a workforce base with close to a hundred thousand workers. By conducting this strategic analysis report, the company will be able combat problems it is currently facing which stems from rapid market shifts, shifts in regulations, geo-political issues and changes in the socio-economic dynamics. 1. Analysis of the external environment: When dealing with Coca Cola Company’s external environment, it is integral to identify the external factors and forces that directly and indirectly influence the way the soft drink company operates, produces, competes, and make use of modern technological solutions (Benko & Anderson, 2010). Porter’s five forces According to the porter’s five forces developed by Michael Porter, five significant forces influence the amount of competition and the suitability of the market. By using the porter’s five forces in external analysis of Coca Cola Company, one will know the company’s competitiveness and what position it has among its competitors. Thereby, the company can understand its strengths and work on its weaknesses, learn new market trends in its industry, establish the major success features, and analyze the soft drink industry attractiveness (Porter, 1980). a) The supplier force In this force, the Coca Cola Company understands how many suppliers they have, how innovative and distinctive their products and services are, the magnitude and potency of each supplier and how much each costs, and what it would cost the company to switch to alternative suppliers (Porter, 2008). The suppliers to the Coca Cola Company include among others suppliers of raw materials and ingredients of concentrates and syrups, commodities such as coolers and vending machines, suppliers of machineries, services such as banking and insurance and packaging materials. The bottlers to the company’s products are, categorized in this unit, since Coca Cola does not bottle its own products (Pendergrast, 2000). Coca Cola’s suppliers are, mandated to conform to applicable regulations and standards and before they begin contractual agreements, they get into pre-certification practice and are, routinely trained depending on parts they are required to improve on. In addition, Coca Cola suppliers are, expected to conform to SGPs (Supplier Guiding Principles). They ensure suppliers are complying with quality standards, occupational health and safety measures and are environmentally conscious. Moreover, they are, mandated to adhere to Code of Business Conduct for Suppliers, which help sort out conflicting interests, proper management of records and offers information on the terms and conditions as pertains to involvement with corrupt practices. The threat of the supplier force lies with the increasing economic power of certain bottlers such as the Coca Cola Enterprises, which has substantial control in developed economies and therefore, can decide not to bottle new products, which can adversely affect production, distribution, creating low supply of products in the market (Smith & Mellisa, 2005). b) The buyer force This entails focusing on issues influencing the purchasing behavior and patterns of buyers . This includes understanding the consumer base, the value of each purchaser to the company and the cost of a purchaser or a consumer to change suppliers from whom they buy their products (Hitt, et al., 2009). The Coca Cola buyers are, spread all over the globe from Asia, North America Europe, Africa, and Latin America. They include discount stores, restaurants, supermarkets and grocers. These buyers buy from the company in bulk and relatively cheaply. The bargaining powers of buyers have been low over the years as the soft drinks dominated the market. However, with the recent increased shift to eat and drink, healthy alternative beverages, such as low calorie drinks, bottled water and packed fresh juices have made buyers such as restaurants and supermarkets who buy in medium quantities to have more bargaining power (Pendergrast, 2000). For the company to retain the bargaining power, it needs to invest in making, marketing and selling low-calorie drinks or alternative beverages that are, aligned to the new customer trends and buying behavior. Moreover, the company should invest in innovation, strengthening its brand image and enhancing its international presence by increasing its supply chains (Porter, 2008). c) threat of substitution The attractiveness of the soft drink industry under which the Coca Cola Company is, is, influenced by availability of substitute products. This is because ease in accessing substitute products initiates the probability of consumers switching to them due to pricing factors (Hitt, et al., 2009). Substitute products for Coca Cola products are energy, sports drinks, caffeinated beverages and bottled water (Pendergrast, 2000). Sports drinks and bottled waters are more competitive and threat to the company, with the craze for being healthy; where nutritionists caution against soft drinks and advice on drinking lots of water daily. The minimal cost of switching between substitutes poses the greatest threat (Smith & Mellisa, 2005). Therefore, the Company should ensure producing quality and new products that satisfy the present and future needs of the global consumer. d) threat of new entry With a lucrative market, it is liable to lure new entrants, who more often than not cuts off a company’s market share hence profit decline (Hitt, et al., 2009). To block new entrants a company needs to establish stable and sustainable barriers to entry such as patents, high capital requirements, brand loyalty, trade regulations, and high switching costs. For Coca Cola Company, the risk of new entrants is small since the industry is, saturated with major brands such as Pepsi, Schweppes and Coca Cola. The substantial capital required for establishing storehouses, supply chains, managing workforces are among the barriers to entry established within the industry. e) competitive rivalry According to Porter, the presence of strong and effective competitors in the market creates a threat to an organization since they make the market unattractive for investors and the buyer gets a high bargaining power (Hitt, et al., 2009). With increased competition, the prices go down, the market share is greatly, reduced and a company registers reduced profits. The main competitors for Coca Cola Company’s products are Schweppes and Pepsi (Pendergrast, 2000). Pepsi has an extensive home base sales compared to Coca Cola, in 2006, Pepsi diet drink was 18th and Coke Diet drink was 47th in the customer loyalty leaders Survey (Ries & Trout, 2005). Through the porter’s five-force analysis, it is clear the major threat is competition rivalry, bargaining power of buyers and threat of substitute products (Porter, 1980). The more Coca Cola Company is able to weaken the five forces, the more it will be able to register increased productivity, performance, service delivery, market share and profitability. PEST ANALYSIS PEST analysis assesses the political, economical, social and technological external factors influencing an organization’s operations (Benko & Anderson, 2010). Political factors Coca Cola Company faces political factors such as tough government regulations. The company has to meet different regulations and measures set within different government across the globe where it has franchised its products. Increased environmental and tax regulations have added to the cost of production of Coca Cola products. Economical factors Coca Cola Company’s financial performance is dependent on customer’s disposable income, since soft drinks especially in developing countries are a luxury. With strong state of economy, individuals are able to spare a coin to buy a soft drink while in weaker state of economy; one may decide not to buy a soft drink and prefer to save up their budget. Fluctuating global interest rates and exchange rates are, cited to have contributed to the decrease in 2009’s annual income. Social Factors Drinks are part of social lives of many people globally. Coca Cola drinks are the preferred drinks in events, luncheons, and dinner among others. The increased adoption and usage of Coca Cola products across all ages has helped boosts its profits. However, the current social concern on health issues where soft drinks are, substituted with water and fresh juices, have adversely affected the company’s financial performance (Smith & Mellisa, 2005). Technological Factors Through technology, Coca Cola Company has been able to solidify its barriers to entry, allow ease in accessibility of its products through use of vendor machines and coolers 2. Analysis of the internal environment: Analysis of Coca Cola Company’s internal environment entails analyzing its strengths and weakness and assessing factors that offer it particular benefits and disadvantages (Finlay, 2000). a) Strengths Coca Cola Company to begin with has an added competitive edge for not only, being in the soft drink industry for more than a century, but also it has accrued global acceptance by establishing its global presence in new locations. The Company has been able to offer an assortment of products like bottled waters, diet drinks, teas and coffees, which provides the customer with a variety of choice in more than 200 countries (Pendergrast, 2000). This diversification and differentiation of products has enabled the company establish a wide market base, hence increased profitability. Its products namely Sprite, Coca Cola, Fanta and Coke Diet are market leaders in the soft drinks industry (Pendergrast, 2000). With profits from sale of its products, the company has been able to invest in massive brand campaign and advertising, making it a brand that is easily recognized, recalled which helps in sustaining current markets and entering new markets internationally. The company has an increased net income that allows it to invest in market research, and customer analysis and development and implementation of strategic plans that would help it register increased capacity of producing quality products and high performance (Benko & Anderson, 2010). Moreover, it controls and manages more than 30 beverage-producing plants, which translates into development of its sustainable infrastructures in work performance, processes and operations. b) Weaknesses Though the company is the market leader in its industry, it has major weaknesses, which if they remain unchecked, will result in the company being, overtaken by its rivals/ competitors. The company has been associated with lawsuits and harsh criticism regarding the quality of its products. The doubts arose in India’s products having pesticide deposits that are harmful to the consumer (Pendergrast, 2000). Such allegations influences negatively on the environmental, safety, quality and health standards of the company and therefore, can limit its growth and trade across international borders. The company has been weary and slow to adapt to new product innovation. This has cost it greatly since its competitors have taken risks and benefited in offering products that meets changing customer tastes, preferences and modern needs (Smith & Mellisa, 2005). Furthermore, reduction in finances from operations minimizes accessibility for financial resources for Coca Cola to invest and fund important ventures such as research and development. This leads to Coca Cola being, exposed to financial risks such as debts and varying global interests and exchange rates. c) Opportunities There are opportunities in the market that Coca Cola Company can take advantage. This includes investing in alternative healthy drinks and bottled waters. Since Dasani waters have indicated the capability for the company to excel in bottled water sector, the company can take the opportunity. This comes with the rapid change by consumers to be more health conscious (Pendergrast, 2000). Moreover, there is opportunity for the company to excel internationally more than it already has by investing in acquisitions, which are bound to toughen the Company’s global operations and offer it a chance to develop by producing innovative products and enter new global markets. This allows Coca Cola room to expand its revenue flow. Among previous acquisitions in the company, include Odwalla, Fuze Bevarage, Minute Maid, Thumbs Up and Barq’s among others (Ries & Trout, 2005). d) threats The main threats to Coca Cola are growth of effective and stable competitors both local and international. Stiff competition causes price cuts and reduced market shares for the company (Ries & Trout, 2005). Moreover, the over reliance on bottling partners in which they do not have ownership interest means decisions and actions taken by bottling partners may not necessarily favor the company. Inconsistency, low performance and poor bottling standards by any of its major bottling partners may mean an international recall of its products or decrease in the public’s confidence about the quality of the brand. The increase notion and perception that soft drinks contribute to ill health and contain high levels of carbonated acids, sugars and chemicals will cripple a company in soft drink industry such as Coca Cola. This has seen many people reaching for bottled waters or other perceived healthy drinks. e) labor force Any company worth its salt invests in its labor force (Benko & Anderson, 2010). Coca Cola Company has a diverse workforce of almost 100,000 employees. The company has established standards and guidelines protecting the rights of workers, appreciating good performance and offering appropriate remunerations and benefits (Pendergrast, 2000). The management within the company and across its bottling companies is, advised to adhere to applicable labor regulation in matters relating to environmental standards, occupational health and safety standards, conducive working conditions, safeguarding against forced and child labor and allowing standard working hours with paid overtimes (Hill & Jones, 2009). Empowered employees facilitate high performance, utilization of their skills, knowledge, and enhancing creativity that is core to product innovation (Boone & Kurtz, 2010). The issues of sustainability of the company’s competitiveness lies on the company’s willingness and flexibility to accommodate product innovation , aligning its operations and production with current and future needs, tastes, and preferences of global consumer, and utilizing modern technological frameworks. Moreover, investing in non-carbonated beverages and making plans to either establish fully owned bottling plant or have the majority share interests in the existing ones (Smith & Mellisa, 2005). Product testing is fundamental for Coca Cola in selling quality. 3. The corporate and business strategies of the Coca Cola Company The corporate and business strategies at Coca Cola is aligned to managing and countering risks prevalent in domestic and international market platforms. This includes addressing the issue of shortage of adequate quality water in its franchised regions. Water is the major constituent of Coca Cola products and finding quality of it is proving difficult since majority of global economies have inadequate water supply owing to poor storage, insufficient rainfall, pollution and poor supervision. Therefore, among strategic plan is to establish sustainable supply of water in order prevent increased costs of producing (Pendergrast, 2000). Moreover, making business plans to implement healthy-conscious products to suit changing consumer behavior, taste, lifestyle and dietary considerations and taking into consideration the experiences of the work force. This is in line with international standards on ISO 9000, ISO 14000 and ISO 18001 among other ISO standards. Averting competition from competitors such as Pepsi, Schweppes, and Kraft Foods among others, enhancing its own competitive edge and stabilizing its relationships with bottling partners are in the forefront of Coca Cola’s corporate and business strategies (Ries & Trout, 2005). 4. Assessing the performances of the strategies and identify the factors that contributes to their success or failure So far, the corporate and business strategies have partially succeeded as the company and the brand remains strong and stable in the market. Production of Dasani the second best selling bottled water shows the willingness of the company to diversify its products and keeping note of changing consumer trends, tastes and preference (Pendergrast, 2000). Investment in product testing and fair treatment of workforces has ensured production of quality products that meets international standards. However, the rate of growth between Coca Cola and competitors is almost at per, as the company has not fully implemented non-carbonated product innovation. Moreover, it has not been able to make use of its international customer base to establish its global presence and create its own bottling plant, which would reduce costs. 5. Ethical analysis of company strategies Although the company has been, accused of violating international quality standards by exceeding the amounts of sugars and chemicals in soft drinks, the company has disputed the criticisms. Moreover, the company’s strategies and practices have had to be, changed to counter allegations of monopolization and discrimination in its work operations. However, current strategies are, geared towards offering healthy, safe, quality, effective and efficient products that satisfy the needs of the customer, while meeting the goals of the company, internal and external stakeholders. Extensive campaigns by sponsoring events and using recyclable and safely disposing wastes is ethical in adhering to environmental regulations. 6. Recommendations for the organization’s future strategic development Among key recommendations are; - To invest in product differentiation to cater for the health conscious customer i.e. compete in producing and selling bottled water, teas, coffees, energy and sports drinks - To encourage product innovation considerate of promoting good health and offering nutritional values - To make use of modern technological solutions to enhance its competitive advantage - promote effective and functional relationships with its bottling partners Conclusion Strategic analysis report for Coca Cola Company has highlighted its strengths, which includes in-depth international market penetration and building a strong brand name and recognition. Its weaknesses include reliance on bottling partners and being inflexible to changing social nutritional needs and producing non-carbonated drinks. The main threat to the company is stiff competition from its competitors such as Pepsi Co and Schweppes. Investment in bottled waters, product innovation, product differentiation and favorable working relationships with bottling partners are bound to sustain the company as a market leader. The company needs to analyze current changes in the environment, learn from them and make necessarily changes. References Benko, C., & Anderson, M. 2010. The Corporate Lattice: Achieving High Performance in the Changing World of Work. Harvard: Harvard Business Press. Boone, L.E. & Kurtz, D.L 2010. Contemporary Business. London: John Wiley and Sons. Finlay, P.N. 2000. Strategic management: an introduction to business and corporate strategy. Frankfurt: Pearson Education. Hill, C., & Jones, G. 2009. Strategic Management Theory: An Integrated Approach. San Francisco: Cengage Learning. Hitt, M.A., Ireland, R.D., & Hockisson, R.E. 2009. Strategic Management: Competitiveness And Globalization: Concepts & Cases. Sidney: Cengage Learning. Pendergrast, M. 2000. For God, country and Coca-Cola: the definitive history of the great American soft drink and the company that makes it. Basic Books. Porter, M.E. 1980. Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York City: Free Press. Porter, M.E. 2008. The Five Competitive Forces That Shape Strategy. Harvard: Harvard business Review. Ries, A., & Trout, J. 2005. Title marketing warfare. New York City: McGraw-Hill Professional. Smith & Mellisa, D. 2005. The Hard Truth About Soft Drinks. Natural Foods Merchandiser; Vol 26, Iss 3, p 76-78 Read More