Overall Corporate Strategy - Essay Example

Case study: Sara lee Question Sara Lee has been changing its overall corporate strategy over time. Initially when the company was formed, it acquired different companies to grow and improve its market share. The corporation first acquired different business categories to expand and enter global markets. The corporation laid its foundations by working as a wholesale distributor of products such as tea, coffee, and sugar. This business venture proved to be successful and, as a result, the company planned to further diversify its products by investing in different business categories; for instance, acquisition of food processing and packaging. This created separate corporate goals for the company but retail food business became the focus. Moreover, success in different markets led the company to further acquire businesses somewhat related and unrelated to its main portfolio. Hence, further diversifying in terms of products and geographical expansion of the company resulted in problems for managers, as they were unable to cope up with this rapid diversification. As a result, a retrenchment strategy was put into practice by the company to ensure that every business division is profitable. If not, then those failing businesses would be closed. This transforming strategy has given focus to front line businesses, as these businesses have been the most profitable. Moreover, the food, beverages, and household businesses have good potential in terms of growth. Furthermore, the company is keen on making cost savings. To implement this, the company has introduced Project Accelerate, which includes cost savings techniques. Management believes that focusing on these promising businesses will save them loads of money, as these businesses are already well-positioned in the market and can increase the overall return on investment. Question #2 Regarding the long-term attractiveness of industries in Sara Lee’s business portfolio, my analysis is that the retail industry and the food service industry have huge potential. Since Sara Lee has an established presence in the retail industry, it will definitely be able to increase its market share. The company is successful in supplying meat (retail) not only to consumers but also to food service customers. As a result, sales of meats have increased considerably. Moreover, the company is using its competitive advantage by using focusing on grocery items, which resulted in $100 million revenue to company in 2008. Moreover, 10 out of 12 core products have recorded an increase in market share in 2010. However, between 2008 and 2010, the divisional sales of Sara Lee have grown faster than any other food processed company, as the market share of the company increased from 9.2% in 2009 to 12.3% in 2010. Similarly, further attractiveness can be seen in terms of the Senseo single serving coffee, which was also the number one brand of North America in 2008 with a market share of 55%. Therefore, one can see that these products are likely to remain competitive, as the industry is still offering growth. Because of its retrenchment strategy, Sara Lee is now more focused on these business units and is ready to increase its market share. Moreover, the current standing of the company is also a plus point in this regard, as it can try to provide innovation to the market structure. Question #3 Sara Lee has adapted a retrenchment strategy to increase its competitive strength in the market. After enacting a retrenchment strategy, the company will be able to focus more on the business units that are not as profitable. Therefore, the company would be able to meet the needs of the industry and come up with more competitive products. As the company will be focusing only on these poorly performing business units, it would be using all of its resources to make sure that these business units flourish. Moreover, focus on the food industry has given Sara Lee opportunities to match up in the form of production technology, customers, and shipping and logistics. One way or another, this would enable the company to take advantage of transferring of skills, cost sharing, and brand sharing. Sara Lee would be able to reduce its costs by aligning and using similar resources for different departments and divisions. The company can use the same retail outlets to offer the bakery products and other food items along with beverages. This would allow the company to take advantage of cost sharing, transfer of skills, and even brand sharing. The same employees and resources would be used in this way to offer all these products; thus, the company would be able to save costs and increase profitability. Question #4 A 9-cell matrix is used to reflect the position of the company within the industry. The higher the growth of the industry, the higher the company is placed on the y-axis. On the x-axis, the performance and the strength of the company is analyzed; if the company is strong and has sufficient potential, then it will be placed on the right side of the x-axis. Through analyzing the performance of the industry, it can be said that the industry is growing but at a slow pace. Therefore, it can be placed in between high industry growth and moderate industry growth. After analyzing the company performance, it can also be seen that the company was able to increase its profit margin to 8.5%; however, it expected to increase this ratio to around 12%. Therefore, the performance of Sara Lee has not been a success, but the news is not all bad because it has been able to increase its operating profit. Sara Lee’s position in the 9-cell matrix is shown in the figure below: Question #5 Sara Lee’s portfolio does exhibit good strategic fit for many reasons. The first and foremost reason is its product line. As almost all the products are related in some way, this can provide added benefits to the company. For instance, bakery items, beverages, and meat items can be sold under one roof. As the product types are similar and all are food-related products, the company can save costs and increase profits. Furthermore, since the company is involved in both retail and wholesale, this gives the company an extra advantage. Moreover, the product category in this business line also enhances the company’s chances of saving costs in terms of skilled laborers or skills transfers. For example, a person working in the bakery can easily work in beverages sector and vice versa; the same goes for the meat industry. On a broader spectrum, this can easily create huge savings for the company, as branding of the different products can be single handedly done through various techniques. Furthermore, products can be housed in one store, which would decrease warehouse storage costs and help in promotion and revenue generation as well. Since the company is supplying and distributing all its products, further savings can be made. Question #6 The management of Sara Lee took a brave step after adapting a retrenchment strategy and closing down business units; this was not an easy decision for the organization. However, the company expected to increase its operating profit margins by 12% after the retrenchment strategy, but it could reach this target. From 2008 to 2010, management began a program, Project Accelerate, in order to save costs. This program was forecasted to save costs of around $350 million to $400 million by 2012. Question #7 Sara Lee’s retrenchment policy has not made any huge impact in terms of generating additional revenues. Furthermore, this gamble has not paid off as per the expectations of managers of Sara Lee’s company. By looking at their financial statements, the company has shown growth in some parts or sectors not because of its retrenchment policy but because of the potential in that particular sector. Furthermore, if somehow they have attained growth, the amount is not enough to be considered significant growth. Similarly, the company’s executives believed that by following a retrenchment plan, the company would grow in terms of revenue generation and would be able to improve its return on investment. Management believed that its retrenchment policy would lead the company towards an increase in revenue to $14 billion US dollars by 2010, and also the company’s operating profit margin in 2010 would increase at least 12% compared to the operating profit margin of 2004. On the other hand, in 2010 the company could not achieve its forecasted revenue and profit margin. The company managed to improve its operating profit margin to only 8.5 percent, where $10.8 billion of revenue was generated in the year 2010. This shows that Sara Lee’s stakeholders did not benefit from the company’s retrenchment strategy. However, if the retrenchment plan was considered to be the final plan, then the company should have revised down its expectations. Question #8 After doing an analysis of the company, it is clear that its retrenchment plan has not given the company a great boost in terms of growth in major sectors. However, this policy has also restricted revenue generation sources as well. As the company is only left to work with the food, beverages, and household product markets, proper management is necessary and other industries should be pursued in order to diversify. Although these industries show potential, there is a strong likelihood of severe competition in the future, as many industries around the world are making shifts because of the global recession. Furthermore, Sara Lee should endorse its current products in new markets. For instance, Sara Lee could enter the Asian markets to further increase its revenues and profitability. Moreover, all three products lines of Sara Lee are related to each other. If one industry or product type shows a decline, then it may affect the others as well. Therefore, new product lines should be developed and considered. Also, Project Accelerate should continue to work in order to save money and increase profits. Read More