Business Strategy in Kellogg Company - Term Paper Example

?[BUSINESS STRATEGY; KELLOGG COMPANY] By Insert Presented to Location Due Introduction Firms are currently operating in an ever-evolving and dynamic market, challenging and complex industry, and competitor environments. This has prompted firms to carefully analyse both the external and internal environments for opportunities and threats with a view to developing key business strategies that can enable them remain competitive and expand their market share. The main external environment that necessitates firms to develop strategies include the general environment which entails demographic, economic, political/legal, socio-cultural, technological, global and physical trends, the interplay of the industry environment that often impact on the relationship between its customers and suppliers and competitors environment and analysis (Ireland, Hoskisson, & Hitt, 2008:59). Business strategy is a key plan of action for companies after the assessment of the above market factors and business environment and is often aimed at positioning the company, influencing the market balance and exploiting changes in the industry. This paper examines business strategies that have been employed by Kellogg Company and the reasons why such strategies have proved to be successful to the firm. Kellogg Company Business Strategy Kellogg Company is the leading producer of cereal and convenience foods such as cookies, toaster pastries, cereal bars, fruits snacks, frozen watts, and veggie foods in the world. Kellogg Company manufactures its products in more than seventeen countries and markets them across the world (Kellogg Company, 2012). The core reason for the establishment of Kellogg Company was for the Company to produce high quality, nutritious and great tasting food. The company has made tremendous growth and this can be evidenced by its ever-expanding market share and increased profits. The success can be attributed to the existence of key business strategies that ensures the growth of Kellogg Company amidst increased competition and entry of other players and dynamics of the market. Key Terms Kellogg Vision To be the food company of choice Mission statement To drive sustainable growth through the power of our people and brands by better serving the needs of our consumers, customers and communities. Objectives Encourage and support of among all sectors of the population Use of resources to run and sponsor community programmes for its consumers and public Increase the association between Kellogg and physical activity Use the cereal packs to communicate the ‘balance’ message to consumers Introduce food labeling that would enable consumers to make decisions about the right balance of food Goals Remain consumer centric Product innovation Priority to win Continuous efficiency improvements Core Competence Baking The Vision and Mission Statements Business strategies of firms can be evaluated based on the design and definition of their vision and mission statements. This is because of the crucial role that vision and mission statement play in current business environment as they convey the aspirations of the organizations. Kellogg Company has exploited this concept and has formulated a vision and mission statements that focuses on sustainable growth of the company, social responsibility, its stakeholders (people) and its brands. Whereas the vision statement of Kellogg Company takes cognizant of its stakeholders such as shareowners, employees, customers, consumers and communities, its mission statement signifies and articulates the current state of the company and its future prospects. The vision and mission statements of Kellogg Company are supported and integrated with other focused strategies and operating principles that act as the foundation of company. The Company has also set out values that guide the daily operations, choices, and actions of its employees at all levels of the company. The vision statement of Kellogg Company is “to be the food company of choice” while its mission statement is “to drive sustainable growth through the power of our people and brands by better serving the needs of our consumers, customers and communities.” The above vision and mission statements has set apart Kellogg Company from other cereal food producing companies and goes further to identify the scope of operations in terms of product and market. The clearly set and well-designed vision and mission statements have steered Kellogg Company on sustainability and progression path. Kellogg’s vision and mission statements have proved to be effective and advantageous in relation to sustainability, market growth, and meeting the expectation of stakeholders. The advantages of the above statement to Kellogg Company has been the successful communication of the companies’ direction and purpose, ensuring that the company remain relevant and on the right track, execution of the a wide range-of-day to decisions and inspiration and motivation of employees at the firm (Ireland, Hoskisson, & Hitt, 2008:65). The sense of direction and purpose that has been brought as a result of the above vision and mission statement has enabled Kellogg Company to develop short and long term goals, objectives and plans. This has led to the involvement of employees, investors, shareholders, suppliers and customers, a fact that has ensured sustained growth of Kellogg Company. The set out objectives are realistic and achievable and aimed at meeting the overarching goals of the company. Kellogg Company has largely relied on its mission and mission statements together with its operating principles and objectives in making key decisions by ensuring that it remains on track by preventing the firm from venturing into unrelated businesses and pursuit of unrelated objectives and goals. In addition, the vision and mission statement have not only succeeded in steering of Kellogg Company employees in the right direction but has also led to their motivation and inspiration by giving them the reason and meaning to work in an environment of shared purpose and concerted efforts at the expense of their self-interests. Boston Consulting Group (BCG) growth –Share Matrix This is a model developed by the Boston Consulting Group for portfolio management of different strategic units or major product lines. BCG growth-share matrix adopts a four-cell (2 by 2) matrix that is used to execute and perform portfolio analysis during strategic planning process (Boston Consulting Gruop, 2009:2). BCG matrix places various strategic business units or product lines based on the prevailing market growth rate and market share that is relative to the most important competitor. The importance of BCG matrix method in strategic planning process is the fact that it provides a clear framework that can be used to compare many strategic business units or product lines at a glance while at the same allocating resources between the product lines. Strategic business units or product lines with a relative market share in a high growth marketed are referred as stars. Strategic business units or products with a relative high market share in a low growth market are referred or designated as cash cows while strategic business units or product lines with a relative low market share in a high growth market are referred or designated as question marks. Finally, strategic business units or products lines with a relative low market share in a low growth market are referred or designated as dogs (BPP Learning Media, 2007). Product lines commonly designated as cash cows often have large market shares in slow growing markets and hence require little investment or resource channeling. However, they often generate cash that are used in developing or investing in other product lines, to meet administrative costs of firms, funding research and development, servicing cooperate debt and payment of dividends to shareholders (BPP Learning Media, 2007). Cash cows are always milked through extraction of profits and little investment. Product lines that are designated as stars have a large market share in fast growing market and since such markets are ever-evolving and growing rapidly stars require continued investment so as to maintain their market presence and leadership. Although stars generate large amounts of cash they also consume large amounts of cash and therefore the net input and output of cash in each direction is leveled (Boston Consulting Gruop, 2009). Product lines or strategic business units designated as question marks operate in high growth markets but they are often constrained by low market share. Their strategic investing strategy is either to allocate more resources to expand the market share or withdrawing. Such products lines are referred as question marks since market share investment does not automatically turn them to stars. Question marks have the potential of becoming stars or cash cows by gaining market share in a slow growing market while at the same time run the risk of degenerating into a dog if market share declines. Product lines designated as dogs have low market share in a market that is slow growing and mature. Investments in such product lines have no or little impacts and benefits and hence liquidation and withdrawal often characterize such product lines. Dogs neither consume nor generate large amount of cash but they remain as cash traps because of the money invested or tied in them that has little potential or prospects (BPP Learning Media, 2007). The Launch of Kellogg’s Fruit Winders and BCG Growth-Share matrix The launch of Kellogg’s fruit winders was a deviation from their conventional cereals and cereal bar manufacturing to a new product category of fruit snacks. The primary target market for the fruit snack rolls were children aged 6-12 years. In relation to BCG growth-share matrix analysis, the launch of the Fruit Winders can be categorized under question mark. This is because they operate or seems to exist in a high growth market although the market share is low. Kellogg has invested many resources in order to increase the market share of Fruit winders as a new product line. This is evident in the use of massive resources in the establishment of initial infrastructure for Fruit Winder production and marketing. For instance, the amount of funds used by Kellogg in marketing campaign during the launch of the Fruit Winder snack in both domestic and international markets was massive (Bullivant & Puri, 2003:49). The investment and innovation used Fruit winder campaign was a major factor in the success of the new product in the market. Due to the achieved success, Fruit Winder is capable of becoming a star or cash-cow under Kellogg’s product categories through expansion of the market share. Organizational Audit and Environmental Audit (SWOT and PESTLE) Organizational Audit Kellogg Company Strength Strong brand Command of large market share Weaknesses Erosion of United states Market share Follower pricing strategy Slow development of new cereals lines Opportunities International market expansion Diversification Development of new pricing strategy Threats Competition from rival companies Influx of discount imitated cereals/cereal clones Environmental Audit Kellogg Company Political Change in government policies in relation to tax Political instabilities Economically Increased competition from other cereal manufacturing companies. Increased prices of inputs Ongoing economic hardship and crunch Socio-Environmental Rising demand for healthy foods Growth in kid’s market share Increased popularity of private labeled cereals Technological Innovation Continued supply of safe and high quality products Environmental Environmental sustainability Efficient energy and water use Environmental management system Legal Food safety and high-quality standards Merger and outsourcing Strengths The main strength of Kellogg Company is its presence and command of greater share of the global market. Kellogg Company controls more that forty two percent of global market share as the manufacturer and distributer of pre-sweater cereals and convenience foods. The global market share control of Kellogg Company is approximated to be than triple the market share of any other competitors in the cereal and convenience food manufacturing and distribution sector. Apart from the expansive market share that it commands, it is also evident that Kellogg Company has the strongest brand recognition and consumers identify with the brand and the company than other cereal manufacturing companies (Kellog Company, 2009). Weaknesses Despite the progress and successes that have been realized by Kellogg Company have some weaknesses in its business strategy. Compared to other cereal manufacturing companies, Kellogg Company have not aggressively developed and produced many new cereal lines in the past four years. The failure of the company to aggressively produce various new cereals lines in the past duration is hence a weakness on the side of the business strategy of the company. The expansion and venture of Kellogg Company in the global market has contributed to the shrinking of its United States market share in the past few years (Kellog Company, 2009). This has been attributed to the entry of other cereal-manufacturing competitors, a fact that is caused the gradual erosion of their United States market share. Another key weakness of Kellogg Company is the marketing pricing strategy that it adopts. Merger and outsourcing can also create legal implications. The follower pricing strategy that the Company adopts where it optimizes its position behind the price leaders and major competitors in the sector is a weakness. Opportunities Kellogg Company has greater prospects in terms of business opportunities across the globe. The company has the potential of expanding and penetrating in the international market as this is the biggest area for growth. Diversification is also another opportunity for Kellogg in order to increase their profitability. For instance, the Company can continue to intensify its diversity strategies while at the same time remaining in their core business area stipulated in the Company’s vision and mission statement. Greater opportunities are eminent for Kellogg Company if its shifts from its current pricing strategy to a better marketing pricing strategy that can guarantee lower and competitive prices. This can help the company to reduce costs while at the same time ensuring increasing market share. The market share for kid’s cereal has been growing exponentially and it shows no sign of plummeting in the near future. The increased growth in the overall kid’s food market has been attributed to increase in cereals. Threats The major threats facing Kellogg Company is the increased competition from other cereal and convenience food manufacturing companies. Cereal Companies such General Mills, Post and Quaker Oats are engaging and using price competition and product proliferation strategies in order to reduce the market share of Kellogg Company. Another threat to Kellogg Company is the introduction of discount imitation cereals brands that are currently edging out premium cereal brands. The low priced cereal clones pose major threat to Kellogg products has they erode market shares and creates unhealthy competition that eventually results in flat sales (Kellog Company, 2009). Political, Economical, Socio-Environmental, Technological, Environmental and Legal (PESTL) Analysis Kellogg Company is faced with political factors that can aid either in the increase of its market share or reduction of the same. Since Kellogg Company has an ambitious plan of expanding its business across the world, regional, national and international political developments may affects their business. For instance, a change in government policies such as the introduction, increase, or waiver of taxes may affect their global expansion initiatives while political instabilities in various countries may hamper or slow them down from venturing into new markets. Currently, Kellogg operates in a difficult economic environment due to myriad of challenges that have emerged. The challenges that have impacted negatively on Kellogg’s business environment include increased competition from other cereal manufacturing companies e.g. General Mills, Kraft, Post and Quaker Oats, that are penetrating the market and in turn reducing its market share. Increased prices of inputs for its cereal and snack foods such as corn and wheat and the rising cost of energy prices that further increases the price of inputs and transportation, distribution and delivery of Kellogg’s products. Additionally, the ongoing economic hardship and crunch in United States and United Kingdom has slowdown consumer spending hence affecting sale of products (Kellog Company, 2009). Technology remains the vital component for the progression of global firms. Technology and innovation ensures that companies are on the competitive edge over their rival companies and competitors. For continued supply of safe and high quality products and to meet the needs of the expanding population, Kellogg must invest in innovative technologies. The socio-environmental aspects show greater future for Kellogg Company due to higher demand for health food markets and products. Due to increased focus on obesity and overall health and wellness of individuals, healthy food markets, and products is growing. Kellogg can capitalize on the rising demand for healthy foods that lower blood pressure and cholesterol, aid in food digestion, help in weight reduction and weight maintenance. Kellogg’s products are one of the fastest growing major brands due to their role in the promotion of healthier life. The kid’s market share is poised to grow at a rate more than fifteen percent and the trend can add more profits to Kellogg as it will increase its sales. On the contrary, the increased popularity of private labeled cereals due to high cost of branded products might reduce and eventually erode Kellogg’s market share. Environmental sustainability currently forms an integral part of firms business and management strategy. Environmental sustainability agitates for efficient energy use, reduction of greenhouse gases, reduction in water wastage and wastes. Environmental policies that seek to set caps on greenhouse gas emissions and water use might affect Kellogg Company in terms of compliance. However, Kellogg has already incorporated environmental sustainability practices in almost all locations that it carries its operations. The environmental management system that has been developed by Kellogg has the potential of ensuring that the company benefits from tax cuts and other incentives as result of efficiency in its energy use and greenhouse. Consumers are also weary of companies that affect negatively on the natural environment and since Kellogg has robust system to ensure for ensuring environmental sustainability, it can gain from consumer preference on their products (BPP Learning Media, 2007). The prevailing legal system can also affect the business strategy of Kellogg. Since Kellogg company operations involves in the manufacture of foods that contribute to health and nutrition needs of consumers it should uphold safe and high-quality standards. Any mishap in manufacturing process that might produce unsafe products can have serious legal ramifications on the company. PESTLE is a more comprehensive analysis tool than SWOT because it takes into consideration various parameters that affect businesses. Conclusion Strategic planning is important for firms in the globally competitive market that is dominated by various opportunities and threats to progression of firms. Firms have relied on strategic business strategies that enable them to cut their niche on the market and this is evident from the case study of Kellogg Company. Kellogg Company adopts various strategies that enable it to manufacture and deliver its products to consumers while at the same competing effectively with other rival companies in the sector. BCG matrix method is an important tool in the analysis of product lines and there contribution to the profitability of a company. Finally organizations can asses or audit their operations by using either SWOT or PESTLE analysis techniques. The major strengths and opportunities for Kellogg Company is the increasing demand for healthy and nutritious food across the globe, expanding market for kids food and stronger brands while the threats its faces are increasing competition from rival companies and rising cost of inputs. References Boston Consulting Gruop 2009, BCGGrowth-Share Matrix. Viewed April 14, 2012 http://www.business-tools.templates.com/U_GuidesPDF/Boston%20Consulting%20Group%20%28BCG%29%20Growth-Share%20Matrix%20User%20Guide.pdf BPP Learning Media. 2007, BPP LEARNING MEDIA BUSINESS ESSENTIALS . London: BPP Learning Media. Bullivant, J., & Puri, G. 2003, Kellogg’s Real Fruit Winders: unwinding the effects of an integrated campaign. Young Consumers: Insight and Ideas for Responsible Marketers , 4 (3), 49-63. Ireland, RD, Hoskisson, RE, & Hitt, MA 2008, Understanding Business Strategy:Concepts and Cases. Frankfort: Cengage Learning. Kellogg Company. 2012, Company Overview. viewed April 15, 2012 http://investor.kelloggs.com/overview.cfm Kellog Company. 2009, Corporate Responsibility Report. viewed April 14, 2012 http://www.kelloggcompany.com/uploadedFiles/KelloggCompany/Corporate_Responsiblity/Kelloggs_CSR_12-19-08.pdf Read More