Strategic Analysis : Coca Cola

Contents

1.    Introduction

2.    The soft drink industry

3.    Background of the organization

4.    Strategic analysis of the organization and its environment

5.    Strategic options for the company

6.    Conclusion

 

 

Introduction

Business management is the term used to describe the techniques and expertise of efficient organization, planning, direction, and control of the operations of a business. In the theory of business management, organization has two principal aspects. One relates to the establishment of so-called lines of responsibility, drawn usually in the form of an organization chart that designates the executives of the business, from the president to the foreperson or department head, and specifies the functions for which they are responsible. The other principal aspect relates to the development of a staff of qualified executives ( 2005). Planning in business management has three principal aspects. One is the establishment of broad basic policies with respect to production; sales; the purchase of equipment, materials, and supplies; and accounting. The second aspect relates to the implementation of these policies by departments. The third relates to the establishment of standards of work in all departments.

 

Direction is concerned primarily with supervision and guidance by the executive in authority; in this connection a distinction is generally made between top management, which is essentially administrative in nature, and operative management, which is concerned with the direct execution of policy. Control involves the use of records and reports to compare performance with the established standards for work ( 2005). The term strategic management originates from the Greek language, where the word means the art of a general. The person who makes strategies is the strategist who is the leader of an army (1991). Management of a firm needs strategy, to make sure that everything goes well in the company, through the use of strategic management everything done in the company is well organized and no detail is being left out. The company needs strategic management to make sure that the company is doing well internally. The term strategic management originates from the Greek language, where the word means the art of a general. The person who makes strategies is the strategist who is the leader of an army (1991).

 

Strategic management decisions have multi-functional and multi-business consequences, this kind of decision require broad consideration of the firm's external and internal environments, and it may affect the firm’s chance of prosperity. The strategic management paradigm is built on the notion that strategic decision making results from intentional actions in the name of individual or collective purpose. The paradigm accords central importance to the cognitive elements of understanding and intention as basic drivers of strategic choice. Managerial thought is critical to processes of strategy formulation, for example, which require managers to envision and prioritize future states that are appropriate and proper. Similarly, managerial thought is critical to environmental analysis, which requires managers to forecast and make predictions. These tasks all depend on individual cognitive capabilities and on cognitive processes such as attention, perception, reflection, and understanding ( 1992).

For some, strategic management is just another commercial technique being foisted on an unwilling sector which is losing its soul. For others, however, strategic management has provided a useful set of tools and techniques to draw on and adapt to enable them to be more focused, to create a stronger sense of unity and direction, to understand the external environment better and to manage more effectively the development of the organization (2002). The paper will discuss about the soft drink industry. The paper will discuss about Coca Cola, its background and its goals. The paper will also discuss a strategic analysis of the said company. The strategic analysis will be used to discuss the strategic options available for the company.

 

The Soft drink Industry

Just three decades ago, the competitive environment of the carbonated soft drink (CSD) industry was based on a recognition of and implicit acquiescence to the dominance of The Coca-Cola Company. Beginning in the 1960s, however, Coca-Cola's dominance has been increasingly challenged, particularly by Pepsi-Cola. The new competitive environment is well publicized and intense. The Cola Wars were declared and the battle continues. Pepsi-Cola and Coca-Cola are widely recognized as being two of the premier marketing companies in the world. A great variety of new products and package types have been introduced. Celebrity advertising has been raised to a new level. Coca-Cola even changed the formula for Coke. These and other developments in the CSD industry came about from major changes in strategy by Pepsi-Cola and Coca-Cola. To some extent these strategic changes arose from Pepsi's challenge to Coke's dominance of the industry. In addition, several factors external and internal to the industry have been important catalysts for these changes. Rather than simply reacting to a changing competitive environment, PepsiCo and The Coca-Cola Company have created and implemented strategies that turned the new environment to their advantage (1993).

 

Although Pepsi Cola attacked Coca-Cola's dominance and achieved near parity with Coke in bottled soft drinks, both Coke and Pepsi have benefited from fighting the Cola Wars because the battle between them has stimulated continuing growth in an industry regularly pronounced by the experts for many years to be on the verge of maturity ( 1993). As the industry existed in the early 1970s, the reasons for predictions of impending maturity were not difficult to see. The apparent limits of the human stomach argued strongly against further significant growth of per capita consumption of soft drinks. Certainly, substantial growth in sales of the limited number of products offered by Pepsi and Coke appeared unlikely ( 1993). The competitive advantages of the two industry leaders were built on delivering a few unchanging, high-quality products through a distribution system that, although complicated, was effective. In the face of the predicted maturation of their domestic market, the prudent course appeared to be a holding action in the United States, with attention and resources shifted to offshore markets and diversification a classic cash cow strategy.

New strategies, such as joining the parade of product modifications and introductions of other food manufacturers, and bringing what had long been a very effective independent distribution system in-house, required basic major modifications of the competitive advantages of Pepsi-Cola and Coca-Cola ( 1993).  Such strategies appeared to be bet-the-ranch propositions. Nonetheless, Pepsi-Cola and Coca-Cola took the bets. Each escalated the Cola Wars to new forms of pricing and promotion, and each launched a great number of new products, including new versions of their flagship brands. Finally, each company undertook a fundamental change in its distribution system from networks of independent bottlers to company-owned bottling systems. The result of these and other new strategies has been a continued, rapid expansion of Pepsi's and Coke's domestic sales. The limits of the human stomach have not yet been found, and all other liquids, from coffee to water, face continued competitive pressure from Pepsi and Coke (1993). The soft drink industry is focused on the battle for supremacy of the two companies. The battle of the two companies gives life to the industry.  The two companies have a long history and have been tried and tested. Each company tries to outdo each other and tries to produce the best product.

 

The Coca Cola Company

The coca cola company is a beverage company and the world leader in soft drink sales. Coca-Cola produces and distributes several brands in the United States and internationally. The company also produces and markets many fruit juices and other non-soda beverages. The Coca-Cola Company is based in Atlanta, Georgia. Coca-Cola’s soft drinks include its flagship product Coca-Cola which is popularly known as Coke, Diet Coke, Tab, Sprite, Fanta, Fresca, Mello Yello, and Barq’s root beer. The company’s non-soda beverages include Minute Maid fruit juices, PowerAde sports drinks, and Nestea iced tea drinks (1993).

 

 In 1986 The Coca-Cola Company consolidated all of its non-franchised U.S. bottling operations as Coca-Cola Enterprises, Inc. The new company began acquiring independent bottling companies, a venture that grew into the world’s largest bottler of soft drinks by 1988. While Coca-Cola Enterprises distributes over half of all Coca-Cola products in the United States, small franchise businesses continue to bottle, can, and distribute the company’s drinks worldwide. In 1987 the Coca-Cola Company was listed in the prestigious Dow Jones Industrial Averages index of stock market performance. Its stock is traded on the New York Stock Exchange. Coca-Cola and PepsiCo products occupied nine of the top ten spots in the U.S. soft drink market. Worldwide, Coca-Cola ranked first in soft drink sales, and the company earned almost 80 percent of its profits from international sales (1993). The goal of the company is simple, yet effective. The goal of Coca Cola is to produce growth for the company. It intends to not only reinvigorate the company but inspire the people working for them.

Coca Cola and International business

It is typically true that doing business locally is much simpler than performing international business functions. The local firm only has to worry about its own country's law, economics, labor problems, financial constraints, and so on, while an international firm faces all of these complexities at home and in the host country, and in addition must struggle with complex international problems arising out of the present nationalistic organization of the world. One would expect that, unless compelling pressures arose at home, most firms would choose to remain local in orientation, confining their international business activities to import and export and possibly to the relatively simple patterns such as licensing of patents and processes. One major reason for considering international business activities might be that opportunities at home are getting thin. Profit rates in the sector the firm is in may be declining, even though the firm is still quite profitable. Incremental investments are likely to yield lower returns than the company finds acceptable ( 1966). 

 

The company is continuously reaching places it has not reached before. It is conducting expansions to reach new territories and increase its profitability and clients. The company is trying to bring the so called “coca cola experience” to more people in more countries. The company uses new branches and subsidiaries in different countries to have more territories and reach more people more. These branches have been oriented and trained regarding company policies and procedures.

Strategic Analysis

Strength

Strengths are the strong points of the business. To know the strengths of the things that should be known includes the sources of the company’s revenue, the market share of the company in various product lines, the availability of strong brands of a company, the effectiveness of the advertisement of the brand or product, the availability of pool of skilled workers, the morale of the employees,   the innovativeness of the company and the ability of the company to withstood international competition. Coca-cola’ strength is the international popularity it has. The company is known throughout the world. People from all over the world purchase and drinks the different products the two companies have.

 

Another strength of the company is the strong brand name it has. The strong brand name is what makes the company and its products popular. It brings the company huge amounts of profit and worldwide notoriety. Furthermore a strength of the company is the effective advertising it uses. The company uses a different advertising method. The company uses television and magazine commercials as well as other methods for people to be informed of its product. Lastly a strength of Coca Cola is its website that is easy to use, attractive, and informative. The website is visited by people from different countries and this can help companies promote its products. The website of the company is attractive, informative and easy to use for clients this gives the clients interest in purchasing the company’s products.

 

Weakness

Weaknesses are the current problems of the company. To determine the weakness of the company the things that should be known includes the products that are least profitable, areas of the company that is not able to recover cost, the weak brands, the ability of the company to raise money when it needs to, the ability of the company to stand price pressures against competitors, the ability of the company to create new ideas, the faith of employees in management and the ability to compete with other companies in the technology front. The main weakness of the company is the health issues when their product is partaken. The products they have can cause health problems when taken so many times. The company cannot restrict the consumption of their product at all times, thus they might not be able to stop health problems to be present to clients.

 

 A weakness of the company is its inability to restrict certain age from using their product. Young children who might acquire health problems from taking their products are not restricted. Children who can get their products anywhere might over-consume their products since they are not given proper warning and restriction. Lastly a weakness of the company is it not being able to separate from other beverage companies. When Coca Cola is being talked about Pepsi can also be talked about subsequently. They have a strong brand name but they don’t have one thing that gives them distinction.

 

Opportunities

Opportunities are those events or situations that may arise in the future. To determine the opportunities of the company the things that should be known includes competitive position of the company, new technologies that the company can innovate for low costs, the capacity and opportunity to extend brands, the capacity to implement incentive plans to boost employee effectiveness, the ability of the company to move up the value chain, the ability of employees to be multi-skilled to reduce levels of redundancy, opportunities to cooperate with companies that are not competitors for both companies to be beneficial.

 

Opportunity for the company is to create products that can give not only satisfaction to clients but health benefits as well. The company can create a product that is not harmful to one’s health at the same time it does not taste bad.  An opportunity for the company is to find out more ways to give a distinctive taste to their product. By doing this the company will not be co related with Pepsi and other competitors products. Lastly an opportunity for the company is to reach newer territories where it can offer its products and services.  The company can reach more territories not yet reached by its competitors. By doing so the company can have added profits.

Threats

Threats are problems that may arise and should be avoided. To determine the threats of the company the things that should be known includes the capacity of employees to be adequately trained, the capacity of the company to withstand sudden changes in the environment, the ability of the brands to withstand price competition, the financial being on the verge of liquidity, is the company considered a good employer, and the ability of the company to cope up with technological changes. Coca Cola’s threat includes the laws in the country they are operating in. Laws are a vital part of a country. These laws are the ones that initiate order and discipline in the country. There may be laws that can cause some delay in selling the products. These laws can hamper business transactions to be completed. These laws are enacted to protect the welfare of local sellers in that specific country.  Since there are different laws in different countries it can also cause problems for the company.

 

Laws in Taiwan are different from the laws in Switzerland therefore the laws in one country may cause problems for the company while in another country it may not be a problem.   Another threat to the company is the tariffs and taxes that the company has in different countries, each countries has its own rate of taxes and tariff. Taxes and tariffs are collected by the countries government as additional funds for their projects in that country. The taxes and tariffs collected by a country depend on what the law of the country states. The taxes and tariffs collected by a country is a threat because this causes expenditures to a company.

 

Since its rate varies the company must be wary of the cost of the taxes and tariffs and be able to decide if having a business in that particularly country is reasonable and feasible for the company.   Furthermore a threat to the company is if the country they are operating in has economic, political and other problems. In every country it can’t be denied that there exists problems whether political, economic or other kinds of problems. This becomes a threat when it affects business transaction in that country. This problem also becomes a threat when in the country the company is doing business in; such problem has arisen or may soon be arising. The economic and political problems in a country whether having large or small effect is a threat to the company in the present and the future and every company should be wary if there is indication of such situation. Lastly a threat to the company is complaints to the health problems that their product may cause. Its products may have some effect not liked by people. 

 

Strategic Option

Markets and industries are dynamic and change over time. They have life cycles and attract competitors in different numbers and of different sizes and strengths according to the stage in the life cycle. Returning for a moment to portfolio models, it is argued that the products that businesses have in their portfolios make different contributions to profits and overheads. Moreover, given that an organization also has a long-term survival motivation, there is the impetus to look for ways of ironing out large fluctuations in profitability and ensuring long-term survival. In order to do this the firm has to constantly review its product market posture and look for ways of achieving its survival objectives ( 2000).

 

The company to increase profitability and occupancy must first add new methods to advertise itself to people. The company can make additional use of TV and newspaper advertisements to showcase its products to people as well as to show the effect of the use of their product to people. The company can also use more internet advertisements. They can collaborate with internet companies and post advertisements and reminders on other companies’ site. This may cause the company more finances but it may help the company in increasing its profits. The company should also increase its knowledge of communicating with international clients to increase the company’s camaraderie with them. The company’s relationship with international clients is important because the international clients are the one that can make the international expansion successful or it can make it fail.  Lastly it should make use of special promotional techniques especially during days where they have low turnout of clients. There are certain days wherein the number of clients purchasing their products is low; what the company can do is to lower its rates or have special discounts or promos during these days to increase the number of clients purchasing the products.

Conclusion

The soft drink industry is focused on the battle for supremacy of the two companies. The battle of the two companies gives life to the industry.  The goal of Coca Cola is to produce growth for the company. It intends to not only reinvigorate the company but inspire the people working for them. Coca-cola’ strength is the international popularity it has. Another strength of the company is the strong brand name it has. Furthermore a strength of the company is the effective advertising it uses. Lastly a strength of Coca Cola is its website that is easy to use, attractive, and informative. The main weakness of the company is the health issues when their product is partaken. A weakness of the company is its inability to restrict certain age from using their product. Lastly a weakness of the company is it not being able to separate from other beverage companies.

 

Opportunity for the company is to create products that can give not only satisfaction to clients but health benefits as well. An opportunity for the company is to find out more ways to give a distinctive taste to their product. Lastly an opportunity for the company is to reach newer territories where it can offer its products and services. Coca Cola’s threat includes the laws in the country they are operating in. Another threat to the company is the tariffs and taxes that the company has in different countries, each countries has its own rate of taxes and tariff. Furthermore a threat to the company is if the country they are operating in has economic, political and other problems. Lastly a threat to the company is complaints to the health problems that their product may cause.