Strategic Analysis of Coca-Cola Company - Case Study Example

Strategic Management Practice Name: Institutional Affiliation: Table of Contents Abstract 3 Strategic Management Practice 4 Introduction 4 External Business Environment 4 Coca-Cola PEST Analysis 5 Political Analysis 5 Economic Analysis Factors 6 Social Analysis 7 Technological Factors 7 Porters Five Forces Model 8 The threat of the entry of New Competitors 9 Intensity of Competitive Rivalry 11 Internal Environment 12 Strategic Goals 13 Organizational vision 13 Mission 14 Strategy and Recommendations 17 Recommendations for Health and Wellness Trend 17 How to tackle Increased Competition 17 Recommendation on tackling the drop in Sales value 18 Recommendation on Innovation 18 Key Elements of a Performance Management System 19 Conclusion 20 References 22 Abstract This report carries out a strategic analysis of the Coca-Cola Company which is a market leader in the Soft Drinks and Beverage industry. The report looks at the internal and external areas of the organization with an aim to identify the strategic issues that the Coca-Cola Company faces. The report analyzes the goals that the company should set so as to be able to overcome some of the strategic issues it faces and also to enable it propel further in the beverage industry. The report further provides the recommendations that are crucial in ensuring efficiency and greater performance in the organization. Strategic Management Practice Introduction This paper will carry out an in-depth analysis on the Coca-Cola Company so as to determine the following; strategic issues facing the organization, the goals the organizations should set, the actions that should be recommended to the organization and the identify the key elements of the performance management system required to develop the strategy. I have chosen the Coca-Cola Company because it is one of the largest multinational beverage corporation in the world (Senker & Foy, 2012). The company’s headquarters is based in Atlanta Georgia. Being, a Multinational, it serves as the best company to be analyzed. The company provides annual reports on the company’s financial and economic performance. According to (Gallimore, 2014) strategic issues refer to the developments, trends and factors that have significant implications on organization strategy and goals. The implication issues have on organizational goals, are what determine whether the factor can be regarded as a strategic issue or non-strategic issue. External Business Environment The external business environment, can either impact an organization, either positively or negatively. Thus understanding the organization’s external environment, plays a crucial in enabling the organization achieves its strategic goals. The PEST analysis can us understand the external environment of a specific organization. What makes the external environment unique is the fact that the organization has no control over its external environment [Min11]. So as to effectively understand the strategic issue that Coca-Cola faces it is important to carry out a PEST analysis on the company. The PEST analysis refers a simple but crucial and globally used tool to help understand the Political, Economic, Socio-cultural and Technological environment in which a business or organization operates in (Mind Tools Limited, 2011). The PEST analysis is mainly used by most managers to determine the organization’s vision for the future. Coca-Cola PEST Analysis Political Analysis There exist certain political factors that influence the way the Coca-Cola Company operates and hence influencing its goals. The Food and Drug Administration categorizes along with other food-related products [KiT11]. The government, directly regulates the production of these products and that the companies that fail to meet the standards set by the government are subjected to certain amounts of fine. The Coca-Cola Company is also subject to other Acts that vary in various states. Some of the main factors that influence Coca Cola’s operations include; changes in laws and regulations, political conditions especially in international markets in which the company operates in and the changes in the non-alcoholic business [Sen12]. • Changes in Law and regulations- As stated above, the laws in which the company operates are formulated by the Government and thus there are instances where certain legislation are always adjusted so as to serve the interest of the nation, public policy or a certain states [Cam05]. On the other hand, changes in the taxation requirements and the accounting standards such as tax rate changes or entrance of a new tax law in either domestic or foreign countries are likely to impact negatively on the company [Coc13]. • Political conditions- Political conditions such as government changes, civil conflict and restrictions on the ability are all factors that are likely to affect the Coca-Cola Company goals [Coc131]. Instances such as the Arab uprising significantly affected Coca Cola’s market in the Arab countries, in fact, these were activities that were not anticipated in any way. There are also political factors that restrict the movement of capital within the border. For example with the present tensions between Russian and Ukraine is likely to impact on the company’s capital movement between countries [Coc131]. • Ability to penetrate developing and emerging markets- the ability to penetrate the emerging and developing markets, significantly relies on the political and economic conditions such as the governmental changes, civil conflict, the ability of Coca-Cola Company to form a strategic business alliance with the local bottlers of the specific region or nation, enhance their production facilities, sales equipment, distribution networks and technology [Gru98]. • Changes in the non-alcoholic business- This refers to the changes in the competitive product and pricing policy and the ability to maintain or gain a share of the sales in the worldwide market [Hay04]. Economic Analysis Factors During the 2001 recession, the United States’ Government took aggressive steps to revive the economy. During that time, the Coca-Cola Company was able to take advantage of the fact that the loan interest were likely to rise after the economy stabilizes [Pur07]. Thus, the company took full advantage of the situation and took very low cost loans so as to fund their planned growth scheduled for 2002 [Pur07]. The Coca-Cola Company mainly used the funds in product development and research so as to enable the company grow further The Company also significantly cushioned itself during the 2007-2008 financial crisis where most of the other multinational companies suffered really huge losses [Hay04]. The Coca-Cola Company has managed to cushion itself from numerous economic incidences thus showing that the company has a good team of analysts that have been able to help the company through very serious economic situations [Hna14]. Social Analysis There exist various social factors that affect the operations and sales of the Coca Cola products. Some of the main social analysis factors include; increase interest in the healthy life style, time management and concerns of nutrition. Majority of Individuals in the United States and across the globe are showing significant interest in the health life styles. This has had significant influenced the sales in the non-alcoholic drinks sector. This has seen most consumers shifting to diet colas and bottled colas. Time management has been a crucial factor as that it was identified that 43% of the household are concerned with time and thus household are spending less time on recreation activities that promote the consumption of the beverages. Nutritional factors have significantly the influenced the consumption of the Coca Cola products, especially for individuals that are aged 37 to 55 are very concerned about their nutrition. These groups of people will continue to affect the alcoholic beverage sector by significantly increasing the demand of healthier drinks. Technological Factors Some factors that can significantly influence, a company’s actual results to deviate from the expected result are technological factors. Some of the main technological factors include; Packaging and Design- The design and packaging of the Coca-Cola products has proven to be a significant factor, in determining the volume of sales of the company. This is because the introduction of the plastic bottles and cans significantly increased the sales of the company due the fact that the cans and the plastic bottles were convenient to carry around and to dispose [Sen12]. Efficiency in Advertising, marketing and the promotional Programs- How a company markets its products, has a direct impact on the sales they make. In the present time, the television, social media and the web are constantly evolving thus the ability of a company to promote its sales via this channels will impact the sales directly [Pur07]. New Equipment- Technology constantly advances and new equipment’s are constantly being produced. The new methods and technology of production have enabled the Coca-Cola Company to improve their production by volumes compared to what it used to produce few years ago [Sen12]. New Factories- To continue satisfying its ever-growing number of customer across the globe, the Coca-Cola Company has constantly been establishing new factories in various places of the world. Europe’s largest soft drink company is located in Wakefield, Yorkshire and the factory has the ability to produce Coca Cola cans, at a faster rate than a machine gun fires bullets [ZacND]. This enables one to picture how many cans the factory can be able to produce if left to run for about an hour. Such steps enable the company meets its goals and the customer’s needs. Porters Five Forces Model The porter’s model suggest the five forces that influence and Industry’s profitability. The Porters Model is a framework that is used for industry analysis and the development of an organization’s strategy [NDU14]. Three out of the five forces in Porters model involve the rivalry from the external environment such as the macro and micro environment. On the other hand, the other 2 forces are internal threats. The specific set of forces directly impact on the firm and its competitive responses and competitive actions [Gal14]. However, it should be noted that the weaker the forces, the greater the opportunity for greater performance by the company. We are going to use the Porters Five Forces model so as to effectively identify the strategic factors that affect the Coca-Cola Company. This is very crucial since it is vital for an organization to effectively understand its environment before formulating its strategy policies [Gru98]. An industry is regarded as unattractive in the situation where the mixture of Porters Forces tends to constrain the overall profitability. On the other hand, an extremely unattractive industry is an industry that is moving towards pure competition and the profits for all the companies are heading towards zero [The141]. The threat of the entry of New Competitors • Advertising and Marketing The Soft drinks industry requires a very huge amount of funds to be spent on marketing and advertising. For example in the year 2000, Coke and Pepsi and the bottlers invested to a tune of 2.5 billion in marketing and advertising [Hay04]. Thus, the average expenditure per point of the market share was about 8 million dollars. This amount of investments makes it very hard for a new competitors to make an entry into the beverage market and at the same time expand visibility [Sen12]. • Customer Loyalty or Brand Image The establishment of a brand image and customer loyalty is as a result of the amount funds Coca-Cola and its main competitors have invested in advertisement and marketing ever since their establishment. This has had the effect of Coca-Cola establishing a strong loyal customer base and higher brand equity across the world [The141]. This makes it next to impossible for a new market entrant to counterpart such a level in the soft drink industry. • Fear of Retaliation It is very difficult for a new business to enter a market where the players are well-established organizations such as Pepsi and Coke. The Coca-Cola Company would not let any company join their soft drinks industry with ease [Hna14]. They may counter the new market entrant by strategies such as Price Wars and new product line [Coc131]. Considering most of the newcomers in the industry are unable afford such huge investment or trade at a very low price, they may be forced to bow out of the market. • Retail Distribution The soft drinks industry is characterized by significant margins to retailers. For example, there are retailers that gain 15% to 20% whereas there are others that enjoy 20% to 30% margins [KiT11]. These margins are high enough for the retailers to entertain the existing players in the market. On the other hand, this makes it very difficult for the new entrant to convince the retailers to retail their new products when they are unable to offer margins as an equal to those Coca Cola offers [Hna14]. • Bottling Network The other factor that may inhibit the new market is the bottling networks established by Coca-Cola [Hay04]. This is because the company has franchise contracts with their bottlers thus having privileges in a specific geographical area in perpetuity. The contracts tend to forbid the bottlers from undertaking business with the new competing brands with similar products [The141]. The other option that the new player has is building a new bottling plant which may be an extra investment cost. Intensity of Competitive Rivalry The soft drinks industry is largely dominated by the Coca-Cola and Pepsi. This type of market is referred to as a duopoly, with coke and Pepsi as the main market players [ZacND]. The both companies have the majority of the market share. Both companies have the majority of the market share whereas the other players have an insignificant market share. What is unique about Coke and Pepsi is the fact that both companies are competing on differentiation and advertising rather than on the pricing of their drinks [Pur07]. This has had the effect of creating huge profits and at the same time disallowed a drop in profits. The pricing war between the companies is mainly experienced in the global expansion strategies [ZacND]. • Composition of the Competitors Apart from Coke and Pepsi companies, the other competitors are of unequal size in the local and international markets. Pepsi and Coke have the majority of the market share and the rest of the market share have a low market share [Coc131].  • Scope of Competition The two main competing companies are present in over 200 countries across the globe [Coc13]. This shows the extent of competition between the companies. This means that if a new market entrant attempts to enter the market, the company should be prepared to pose a competition in most of the countries in which these companies are present in. • Market Growth Over the past few years, this has also seen the bottled water and the smoothie sector register a 1.1% decline in the past year [Coc13]. The other reason is that this can be attributed to the hard economic situations across the globe thus significantly affecting the growth of the company’s market. Internal Environment The internal environment of the organization plays a crucial role in enabling the organization has a significant role in enabling the organization achieves its main goals [Wor06]. We will carry out an internal analysis on the Coca Cola Company so as to formulate effective strategies for the organization. Some of the factors that will be evaluated include; Diversification, Performance in North America, Publicity, its performance in the Soft Drink Industry. Coca Cola Company Resources Being the global leader in the production of soft drinks and beverages the company has numerous resources that play a crucial role in the various production stages so as to ensure high standards in the production and delivery of the products and client service. The company has both the tangible and intangible resources that assist the company in the production process and the delivery of the products to the consumers. Tangible Resources The tangible resources of the company include; human, physical and Financial resources of the company. The Coca Cola Company further contains many physical resources in its management and possession. Some of the physical resources include; equipment’s and buildings. The company has buildings and manufacturing plants in almost every region of the world and thus significantly reducing the production cost. The company has a strong financial position which ensures that has the effect of ensuring that it has stable financial resources to undertake its production activities without any hitch in relations to cash. The positive cash flow further ensures that the company has liquid cash to carry out its daily short term activities. To ensure high performance, the company maintains a highly motivated work force which significantly contribute in driving the company’s product into the shelves and the consumers shopping list. This has been achieved by investment in employee training and development so as to ensure that the workers that are involve in the production department continue to deliver high quality work. Intangible Resources The Coca Cola company’s intangible resources include; technical resources, goodwill and intellectual property rights. The company has enjoyed the technical resources that have significantly helped the company in the production of the products and also fostering the company’s goals. The company manufactured various flavors in which it has sole rights. Strategic Goals One of the best way of coming up with a strategy is linking them up with the goals one has. A goal can be defined as something that an individual, a group of individuals or an institution aims at achieving. The strategy, on the other hand, is the way of achieving the set goals. It can, therefore, be stated the goals play a crucial role in Strategic Management [The141]. The strategic goals of a company are expressed in the company’s vision statement, mission statement and the company’s balance scorecard. Organizational vision The organizational vision is the projection of the future status of the company. However, the vision of an organization should meet certain criteria [NDU14]. This means that they should be realistic and credible. Realistic to imply that it must be based on reality and meaningful to the organization. Credibility refers to the ability of the vision to be relevant. Credibility of a vision directly relates to the employees, so as to enable them be motivated to work so as to ensure that the organization achieves its vision [NDU14]. The vision of the Coca-Cola Company is the framework that guides every aspect of the company. The vision of the company is presented in six P’s. These include; People, portfolio, partners, planet, profit and productivity [The10]. • People- It aims at being a place where people would love to work and inspired to be the best they can. • Portfolio- This vision aims at bringing to the world a portfolio of beverage brands that is of good quality and one that anticipates and satisfies the people’s desire and needs • Partners- this involves nurturing a winning network of suppliers, Customers and other stakeholders so as to be able to create an enduring and mutual value. • Planet- the companies aims at being a responsible citizen in that it makes a difference by facilitating in building and supporting sustainable communities. • Profit- This involves maximizing the long-term returns to the shareholders whereas at the same time being mindful of the company’s responsibilities. • Productivity- This involves being effective and a fast moving organization. Mission An organizational mission is the organization’s is the organization’s reason for existence thus reflects on the values and beliefs it is built on [The10]. The Coca Cola’s mission declares the main purpose as a company and mainly serves as a standard against decisions and actions [Coc131]. Their main mission include; • To refresh the World • To inspire moments of happiness and optimism • To be able to create value also make a difference The company should employ all the relevant resources to ensure that the mission and visions of the company are achieved. In order for a company to achieve the set goals, it has to invest a significant amount of funds and resources so as to ensure that the goals are achieved. This can be through, employment of more staffs, investment on advertising and market expense among other bureaucratic costs. However before implementation of any goals, a company should devise the strategy which it plans to use so as to be able to achieve its set goals this is mainly because each firm has a unique strategy that works best for it and the same cannot effectively work for another company. We were able to come up with the goals stated below after analysis of both the external and internal environment of the organization. • Goal 1 The first goal of the company should improve the amount of revenue and increase the profit margins. This is in line with the company’s first vision which is making profit. The company aims at achieving this goal through; Taking advantage of its expertise and size so as to create economies of scale Reducing the cost of production and logistics and at the same time the company’s quality standards Improve system investments in sales and the market execution. • Goal 2 Provide a conducive working environment. This is in line with the company’s second vision which is “People”. Under this goal, the company aims at engaging and retaining the best talent. This will be achieved through inspiring the staff to be passionate about what they do, recruit and develop women hence achieving the diversity in the workplace. • Goal 3 The third goal of the company is to achieve diversification. The company should aim at diversifying its products so as to have a wide range of revenue source. This is very important considering that we had highlighted the level of consumption of soft drinks across the globe is declining. Diversification will be mainly achieved through investment in market research thus ensuring that the company understands what the consumers require. • Goal 4 The fourth goal of the company to be the most trusted and Preferred beverage partner. One of the keys to success in the industry is establishing customer loyalty. This will go a long way in ensuring that the company retains the present customer and also gains new customers. • Goal 5 Ensure effective management of people, time and money. Strategy and Recommendations After an in-depth analysis on the external and internal factors that may affect the Coca-Cola company, we were able to come up with the appropriate and effective Recommendations that would ensure that the Coca-Cola achieves all the set goals and also tackle all of the internal and external factors that affect the Coca-Cola Company. The main purpose of the recommendations is to convert the challenges into opportunities [Sen12]. If the strategic issues are not effectively evaluated, then this is may impact the Coca-Cola company negatively. Recommendations for Health and Wellness Trend The Coca-Cola Company should provide the industry leadership in the health and wellness initiative. The company should, therefore, aim at producing various types of products that are meant for the different segment in the company. The company can achieve this by segmenting its market. For example, the company can organize its market into 3 main segments, these can be the baby boomer segment, youths and the elder population. In the baby boomers segment, the Coca-Cola Company should mainly focus on the marketing of water and tea beverage which has less sodium and sugar hence cannot affect this specific group. The younger population segment can be mainly dealt with by providing sport drink and the energy drinks among other organic beverages, However for the elderly population, the company hand target them by offering the sugar free drinks which would reduce their chance of having lifestyle diseases such as Diabetes. How to tackle Increased Competition One of the main ways to succeed in business is by tackling the competition that one faces. This can be easily be achieved by the Coca-Cola Company. In the present day, the Coca-Cola Company faces fierce competition from its main competitor Pepsi. This is very dangerous for business considering the fact that, if Coke slips a little bit, Pepsi can easily come up and take up the Coca Cola‘s market. This is a very serious issue considering the fact that Pepsi dominance is growing bit by bit. The company should, therefore, be sensitive on the new trends that come up the market so that I can have a competitive edge over its competitors. The Coca-Cola Company should also focus on the beverage business and the related businesses such as recycling business and other food related businesses. Recommendation on tackling the drop in Sales value If the Coca-Cola concentrates on the production of a single carbonated drink sector, it is likely to be weakened in the next few years. Coca-Cola which is the market leader in the reproduction of the Soft Drinks should focus noncarbonated drinks, water and energy drinks so as to pose a competition to the other market players such as Pepsi. The energy drinks can be a big investment for the company considering the fact the energy drinks market has constantly been increasing. In the year 2010, the energy drinks industry experienced a 10 percent growth in consumption and the analyst project the figure are likely to increase even as most consumers continue to be health sensitive. Recommendation on Innovation Increased competition from the other key players in the market and better consumer sensitive population shows the constantly changing market condition in the beverage industry. The organization should, therefore, devise strategies that would ensure that it effectively diversifies its production so as to ensure that the company remains viable over a long period of time. The company will have to emulate some of the strategies that have been employed by its competitor and ensure they do effectively and appropriately. Recommendation on Food Safety and the Statutory Regulation It is important to recognize the fact that the Coca-Cola reputation as a responsible citizen and one that serves the people has faced its fair share of controversy across the globe. The company has in the past suffered huge dents on its reputation especially in countries such as France and Belgium. To effectively tackle this, the Coca-Cola should implement a quality system that would ensure that all the products that the company produces are of the best quality suitable for the market. Addressing the food safety and regulatory issue would have the long run effect improving the brand of Coca Cola. Key Elements of a Performance Management System Under this section, we are going to discuss the 10 main steps in developing and ensuring an effective performance management system Strategy [Cia08]. Define the driving force for the need of a performance management solution- Stating the need for a performance management solution, is key in ensuring that everyone understands the goal of the program [Cia08]. This can be a wide variety of factors, may be improving performance, increasing the sales, reducing wastage, among other factors. Determining the Strategy for Moving Forward- After the identification of the need of the performance management solution, it is important to come up with the path of attaining the performance management solution [Cia08]. This involves the steps that one should undertake so as to be able to achieve the set goals Aligning the business units with the Strategy- if the company has several units and some of them include the newly acquired entities, the alignment becomes a very crucial step in ensuring that the management solution is achieved [Cia08]. Determine the kind of staff present in the company and the type of staff the company requires- this is acritical step. As much as it is always very hard act in some other ways, it is a fact that there exist employees that are more productive than other sets of employees [Cia08]. Evaluate the employees on a consistent criteria- if the rule that an organization uses to measure success changes, then the company will never be able to determine the progress effectively. It is, therefore, crucial that the method used in evaluating the success be as consistent as possible so as to ensure that all the employees are fairly evaluated [Cia08]. Providing the workers with a sense of how they fit the Company’s strategy – this involves briefing the employees on the progress of the performance management framework that has been established by the company. It is important that the staff understands how their individual contribution impacts on the goal [Cia08]. Give Employees a career growth opportunity – Upon crafting the strategy and aligning the company and communicating goals to the employees, it is important to reflect on the opportunities the strategy creates. It is, therefore, important at this stage to build the developmental opportunities and confidence [Cia08]. Link the Workers to the job role- It is important to not only look at the level of skills the employees and managers possess but also the type of skill the individuals have. For example having an accountant that is also skilled in fine writing [Cia08]. Encouraging individuals to behave in a way that propels the goals of a company- It is important to understand that training will only teach people certain skills but will not change their behaviors [Cia08]. Identify the gaps and monitor the gaps over time- It is important to identify the ways to coach and mentor so as to create a sense of accountability across the employees. Conclusion The report has effectively analyzed the Coca-Cola Company, both the internal and the external environment of the company, strategy issues, goals and the recommendations that would assist the organization improves on its weaknesses. The paper has effectively tackled areas such as the PEST analysis, internal analysis and the Company’s external environment. All these areas are very crucial in strategic and management. The analysis enables the management of the Coca cola Company to be able to make effective management decision and policies that will facilitate the achievement of the company’s goals. The analysis above is also crucial to the employees since they can be able to identify their weaknesses and also identify the areas in which they can improve. From an analyst point of view, the Coca cola Company is in a good managerial and financial position and thus has a lot of potential for further growth. One of the major threat that faces the company is its main competitor, Pepsi and the fact that the general population is shifting to healthier food options. The company should effectively such issues since they are a threat to the present good performance of the company. This can be tackled through significant investment in market research so as to determine what the population would want them to change. This can also be an effective tool for the proper implementation of the strategies stated in this report, the company will be able to attain higher level performance and efficiency. 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