Strategic Management and Business Policy Church & Dwight Company - Case Study Example

? Church & Dwight Company Case Analysis College: Presented Table of Contents Table of Contents 2 0 Introduction 3 A. Executive Summary 3 i. Summary of statement of the problem 3 ii. Summary statement of recommended solution 3 B. The Situation 3 II. Analysis 4 i.Management 4 ii.Operations 5 iii.Marketing 6 iv.Finance 7 v.Human Resource 8 vi.SWOT 9 vii.Products and services 10 II. Problem Definition 10 i. Problem Symptoms 10 ii. Accomplishment in addressing the problem 11 iii. Examining the causes of the problems 11 III. Synthesis 12 A. Alternative Solutions 13 i. Innovation 13 ii. Outsourcing 14 iii. Organizational Structure 14 B. Recommendations 15 References 17 Church & Dwight Company 1.0 Introduction A. Executive Summary i. Summary of statement of the problem Church & Dwight firm over the time has its operation costs relating to transportation increasing threatening the profitability of the company. In addition, the company has several similar brands of products acquired from the acquired firms that do not add up to the range of products offered by the company, but end up confusing customers in supermarkets. The company concentrates more on acquisition and does not put much emphasis in developing new customer products, a part form the specialty products. ii. Summary statement of recommended solution Church & Dwight would be required to outsource some of its operations to reduce its operating costs and its employee base, as the company expands. In addition, the company has to incorporate innovation of consumer products to increase the range of its products and come up with more competitive products to compete with other giants such as P &G. expansion of the firm calls for a flatter and up-to date organizational structures, such as cellular structure to empower employees and reduce the burden on management, leading to improved performance. B. The Situation Church & Dwight was the major supply of sodium bicarbonate in the global market. In addition the company had a handful of other consumer goods in the Canadian and U.S markets. However, until one decade ago, Church & Dwight was not known to the consumer though most of them used their products. This was changed in the late 1990s after the company launched a plan to aggressively make an impact in the global market. This led to a reorganization of the company directors and other managers, followed by a series of acquisitions of companies with leading brands in consumer brands. These aggressive acquisitions led the company to other markets across the globe, and ensured the company had major leading brands in consumer brands to take on major consumer goods producers such as Proctor and Gamble among others. These acquisitions increased the company’s turnover from less than a billion dollars, to more than 2.5 billion dollars in a very short time. Church & Dwight strategy in venturing in the competitive market involved acquisitions and cost cutting that led to one of the highest turnover per employee among the major competing companies. Apart from several consumer products, the company had a series of specialty products involving sodium bicarbonate products. These sodium based products ranged from paints, cleaning agents, products to be used in electronic industries, among others. Expansion of both consumer and spatiality products in the international market ensured the company great success in the international market. A huge chunk of the company’s turnover was sourced from the international market. However, the company had to deal with increased transportation costs and increasing size that offered more challenges in managing operations. This led the company to dispose some of its assets in several markets, in addition to consolidation of operations in single factories, an example of the large factory that was constructed in Wyoming, Ohio (Cook, 2010). II. Analysis i. Management Management in Church & Dwight Company portrayed a strong and directional management that had been able to steer the company to greater heights over a short time. One of the major attributes that had ensured the management in the company had a strong grip of the company is the maintaining a majority control of the common stock, and requiring new shareholders to hold their shares over four years period before they can have a voting right to make decisions in the company. This mainly discouraged unwelcome suitors, making the company to have a steadfast direction in terms of management. In most cases, modern management developments consist of management science, contingency theory, and systems theory. These are all meant to ensure people have a joint performance through sharing common values and goals to achieve common objectives (Bowditch & Buono, 1994). As Miles and Snow elaborate, instead of employing corporate level strategy where decisions related to what businesses the firm has to operate, the management have to be more concerned with how organizations have to compete in a given business environment (Wheelen, 2012). This as Miles and Snow elaborate indicates firms have to generally develop stable patterns of strategic behavior to align with perceived environmental conditions. Therefore, Church & Dwight management had to reshape the firm from being defenders; implying an organization with a narrow product market domain concentrated in the U.S market, to being a prospectors business; implying organizations that have to continually search for new and wide market opportunities, and which have to regularly experiment with new responses to the current emerging market trends (Gimenez, 4) in toothpaste, baking soda and other products. This explains the rapid acquisitions of similar companies by Church & Dwight and expansion to include wider ranges of consumer products away from sodium Bicarbonate in response to stiff competition by Companies such as Johnson and Johnson, FMC and others. ii. Operations Until the early 2000, the company was concentrating on a few products and lacked in vibrancy. In fact, though the company had several products on shelves, few people knew the company well enough. Jan (2002) explains that the corporate strength of any firm results from its competitive advantage, and leads to higher and long term profits. This was the main drive behind the new momentum in all operations of the company since the early 2000s. Miles, Snow, Mathews (1997) suggest an organization that has to remain competitive has to be a living adaptive organization. This requires an organization to act as a single cell, while coordinating with other cells to perform more complex functions (Wheelen, 2012). The shifiting of business from over relying on one product, to launching of more specialized products represented an introduction of cells where each cell had a responsibility to the organization; the organization became fluid to reorganize in meeting its organizational objectives and needs. This led to the rapid expansion of the company through acquisitions to other markets. iii. Marketing Vibrant marketing campaigns in Church & Dwight entered a higher notch after the company expanded its class of merchandise to include more consumer products, to compete with other giants in consumer products, which include Johnson and Johnson among others. Initializing the controversial campaigns of condoms was one of the groundbreaking marketing campaigns as the company consolidated its in house marketing tasks. Though the company faced great challenges in introducing new products similar to larger competitors with its major market share being in Canada and in the U.S, Wal-Mart and other supermarket offered a low cost marketing strategy where most of the products were sold through. However, the massive acquisitions by the company watered down the competition. For example, the purchase f Armkel in 2005 increased marketing efforts behind Trojan, which had a market share of 71% . Importantly, the increasing marketing strength attracted other major partners such as Quidel Cooperation; greatly strengthening and boosting Church & Dwight’s distribution, marketing, and sale of consumer products, driven by the high command of Quidel in developing and manufacturing rapid diagnostic tests. According to the General Electric matrix, the attractiveness of a market depends on how the market growth, the market size, number of competitors, and the profit margin (Wheelen, 2012). Through these acquisitions, Church & Dwight expanded its market size and watered down considerable level of competition from products such as Trojan. In addition as the GE matrix explains, Church & Dwight invested heavily for growth through serious expansion plans outside the U.S and Canadian markets invested selectively by concentrating on consumer goods and building on existing products to claim a large market share and developing its strengths in the market, by competing with consumer product giants like Unilever, Proctor & Gamble, among others, all which contributed immensely in the growth of the company. Through these strategic plans, Church & Dwight ventured into globalization of production, rather than concentrating on several segments of the market (Weiss, 2002). Mainly, the marketing plans behind Church & Dwight into the global market have been driven by convergence of consumer tastes, resulting in global markets for standardized consumer products (Theodore, 2002.). iv. Finance Below are several financial ratios of the financial year 2009, which portray the standing of the company financially at the time. a. Gross profit Margin= sales- cost of goods sold/ net sales 2,520,922- 1,419,932/ 2,520,922 = 43% this indicates that the firm was able to cover other expenses besides cost of goods sold and still yielded a profit b. Return on investments (ROI) = Net Profit after taxes/ total assets = 243,533,000/3,118,446,000 = 7.81%. This indicates the rate of return on the total assets utilized in the company. It is a measure of the efficiency of management as it portrayed the rate of return on all assets regardless of the source of finance in the company (Wheelen, 2012). c. Inventory turnover = net sales / turnover = 2,520,922,000/216,870,000 = 11.6. This portrays the firm had a high number of average turnover of finished goods sold in the year 2009; implying the number of times the business was stocked and restocked (Wheelen, 2012). d. Debt to equity ratio = total debt/ shareholders equity = 1,516,674,000/1,601,772,000 = 94.69%. This indicates that owners provided a large part of funds in the firm compared to firms provided by creditors. v. Human Resource A remarkable strength in the administration of the company was to increase the revenue per employee compared to major competitors. This could have been through reduction in operating costs, in reducing the number of employees through automation resulting to higher production. Allred, Snow, & Miles (1996) explain cellular organizations largely depend on collaborative abilities. Mainly, the ability of an individual to quickly integrate into a team or environment is essential in ensuring success of such a team. Boston Consulting Group Growth Share Matrix insists on the ability of an organization to employ strategic methods that would ensure all question marks and stars claim their position in a competitive market. In line with this, the HR in Church & Dwight attracted highly competent and skilled experts from its main competitors such as FMC, Spalding Sports Worldwide, and Carter Wallace among others. This was later followed by strategic management changes, including reorganization of the board to make it in line with objectives of the company to capture a considerable share of consumer goods and spatiality goods. vi. SWOT Wheelen (2012) explains TOWS matrix is aimed at marching the environmental threats and opportunities to strengths and weaknesses of a company. a. Strengths However, the company enjoys major strengths having acquired several major competing companies with powerful brands in the market. The company had a large advantage of having major subsidiary across the globe, which improved its strength; from a small localized company, to a global company reaching customers across many markets, similar to its competitors. b. Weaknesses All the same, the company had weaknesses in relying heavily on a few brands of consumer products. Some of the products overlapped, confusing customers. For example, several brands of toothpastes in the market with a good market command under the same company restricted the company to a few products compared to its competitors such as Cussons, Unilever and others, with a wised range of products well distributed across consumer goods. In addition, the company has great opportunity for winning over customer’s loyalty through societal environment as required under strategic audit that explain the internal and external environment in which the form operates. c. Opportunities The acquisition by Church & Dwight offered the company a great opportunity to diversify and innovate new products, increasing its range of consumer products, and venturing into new markets globally through the acquired companies. d. Threats From the case study, Church & Dwight faced major threats from a highly competitive market with major giants such as Unilever, Cussons, and others who had a commendable market command and a wide range of merchandise in consumer products. In addition, the company risked increased operating costs as a resulting of transportation in its international markets, particularly related to bicarbonate products, which could eat to the profitability of the company vii. Products and services According to the Boston Consulting Group Growth Share Matrix, most products in Church & Dwight fell between cash cows and question marks. For example, the case study portrays sodium bicarbonate and its products as a cash cow to the company. This was because; having a monopoly in supplying sodium bicarbonate within and outside the U.S, the firm required little investments on sodium bicarbonate, which would result in high returns to be invested in other strategic business units and product lines. On the other hand, the several types of toothpaste manufactured by the company were stars in that; they had a large market share after acquisition of several competing firms in a fast growing market. However, these required constant investments to maintain their market share threatened by competitors such as Unilever and Cussons. The firm had a range of other consumer goods in high growth markets, which suffered from low market share. These required heavy investments and advertising to ensure they claim their position in the market. These products would be grouped into the question marks group of products according to Boston Consulting Group Growth Share Matrix. II. Problem Definition i. Problem Symptoms -Lack of innovations in bringing about different products making its competitors to have a higher hand mainly in consumer goods and specialty products. - Increasing operation costs in transportation and production, which ate a huge chunk of the firm’s profitability. - Traditional approach in organizational structure giving competitors a higher hand in the market, due to reduced efficiency ii. Accomplishment in addressing the problem 1. Addressing lack of innovations would be expected to bring into the market new, more improved, and superior products that would be able to compete effectively in the market, ensuring the firm has a higher market command. 2. Reducing operational costs in transportation and in production is expected to reduce the working capital in the company, and reduce the magnitude of the firm the management has to manage in a global market that is more complex and demanding. This would be expected to increase profitability and reduce the complexity presented in managing global multinationals. 3. Changing the organizational structure of the firm would be expected to bring the firm in line with the current and more efficient organizational structures that ensure effective communication and reliable operations in modern multinationals. This would also ensure that firms incorporated through acquisition adopt the culture of the firm, make it much easier to manage such firms, and harmonize operations across the different markets that Church & Dwight operates. iii. Examining the causes of the problems Mainly, Church & Dwight much relied on acquisition to venture new markets and expand its range of merchandise. This strategy was good enough as it was able to compete effectively with other competitors in the field in a shorter time compared to internal growth, which could not have been achieved through internal growth. However, acquisitions limit a firm to the range of products manufactured by the acquired companies and their market share; this implies acquisition may not be the only way to counteract a highly competitive market with other multinationals still operating in the same market (Penrose, 1995). For example, after several acquisitions, the company had several brands of toothpaste on supermarkets, which confused customers, beating the logic of increasing market penetration. Much emphasis on acquisition therefore blinded the company to the benefits it could have achieved through innovation of more competitive products in the market. The increasing operation and production costs in the firm could have been due to the efforts by the company to embrace and strategize to cover wide range of production activities indifferent markets. For example, subsidiaries in the European and Asian market relied on some raw materials shipped by the company to their premises, and these costs were absorbed by the firm. Vasile (2010) elaborates one way that a company could reduce operational costs, salaries, and reduce employment is through outsourcing. Church & Dwight lacked outsourcing strategies in production of some of the consumer goods. Allfred, Snow, & Miles (1996) explain that one form of modern organizational structure involves grouping organizations in teams to guide the work of a long-term or a short-term project, with cross functional or functional membership. The teams become more self-managed with time, become more responsible for scheduling and planning their work, and setting their own goals and rewards. Such a flattened structure results to a more flattened organization with teams taking management functions. This makes large organizations to be managed much easily, unlike in the case of Church & Dwight, which had a more traditional approach to management. III. Synthesis A. Alternative Solutions i. Innovation Fischer (2011) Explains innovation is the answer in the current competitive business environment, but not relying on corporate culture. Church & Dwight had the right strategy in rapid acquisition plans, as the best and easiest way to get to new markets (Faccio & Masulis, 2005). Existing companies with strong brands in the market offered the company the required strength to compete with its major competitors, mainly in consumer products. In addition, acquisitions reduced the risk of investing for the growing company as the acquired companies were well established and operational (Faccio & Masulis, 2005). However, acquisition could not be the only answer, but the company required to further these acquisitions through extended innovations to come up with different products to compete in different markets. In fact, Dickerson et al (2003) in a research comparing the relationship between internal growth and the likelihood of engaging in mergers and acquisitions found the relation to be negative. The advantage of innovation maybe observed by the crowding different brands of toothpaste in the market derived from the acquired firms. Through innovation the company could have enhanced internal growth and come up with alternative products that could have increased the range of consumer products in its distribution. The company could have balanced between the number of firms acquired and products derived through innovations to meet specific needs, according to the needs and objectives of the company. All the same, innovations require huge capital outlays in research and development, require extensive skills and expertise, and takes time to realize their benefits in enhancing internal growth compared to acquisitions (Fischer, 2011). ii. Outsourcing Mora (2005) argues that in the current competitive market, there is international empirical evidence, which indicates new and complex production organization strategies are being developed by leading organizations. This is fragmentation of production, which favors splitting up production processes into specialized and discernible parts, to obtain most efficient producer and location for each product or component. This would enable a company to take advantage of specialization and economies of scale in production of components by external suppliers. In addition, Vasile (2010) explains that outsourcing enables a company to cut costs and employee base by large magnitude, which is a necessity in being competitive in the global market. Church & Dwight could have eliminated the rising transportation costs incurred in transporting raw materials in other markets, reduce the employee base, and increase efficiency and quality, as some components of consumer products could have been produced by outsourced companies, and then shipped to the company for subsequent finishes and distribution. However, this is a complex exercise that takes time; in most cases outsourced companies may not perform to the same quality required by the company with reliability (Vasile, 2010). iii. Organizational Structure Organizational structure is an important component in ensuring the success a firm. For example: in 2009, Church & Dwight consolidated into a single factory activities previously handled in five different factories or locations, and even disposed some of its assets. This presented the management with a daunting task of ensuring the large factory was well managed and operated according to the objectives of the firm. In the competitive market, the traditional structure marked by numerous hierarchies could not operate in such a case. The answer to the problem would be to embrace a flatter structure that empowered employees to assume managerial activities, rather than making them recipients of commands from the senior managers. This would involve formation of teams with functional or cross functional membership working on the same tasks. Enhancing flatter levels of management with fewer levels to coordinate operations of the company in all its subsidiaries would derogate the work of managers to employees. Empowering employees in the current global market is one of the best competitive advantages that companies use to improve their functionality in production (Harrison, 7). This would be in accordance with cellular organizations that are currently taking root in the market today. B. Recommendations Bauer, Albert & Vetschera (2003) explain though firms should not follow a pure diversification or core competence strategy, there should be an optimum balance between reducing competitions through differentiating and maintaining legitimacy by similarity to other competing firms. This implies that firms have to strike a balance between having a wide range of products and other activities that make the firm outstanding in the market. In addition, Miles, Snow, Meyer, & Coleman (1978) argue that prospector strategy has to have a strong focus on diversification and innovation. These companies are marked by high rates of innovation and introduce high diversified products in the market. Through acquisition, Church & Dwight has been able to acquire leading brands of consumer products in the market; an advantage that has made the company to curb stiff competition from larger multinationals in consumer goods. The company to be more competitive and claim larger market share should diversify more into other models of consumer goods, to widen the range of products available in the market. This would reduce the incidence where products such as toothpastes are of several brands from the same company, which presents unhealthy competition among the company brands of toothpaste. The company has to reduce operating costs as its penetration to global markets intensifies. One way reduce costs would be through outsourcing of services and products to other companies in areas with lower operating costs. In addition, outsourcing ensures the company has a reduced employee base, which increases the turnover per employee in the company. Outsourcing would ensure that some components of consumer goods or other products are manufactured by other firms in foreign markets and then transported to the company for further distribution or as ingredients to make other products. For example, as the leading exporter of sodium bicarbonate, the firm may outsource manufacturing of ingredients to smaller firms in local markets, particularly outside the U.S and Canada market. This would make the company to concentrate on consumer products imparting quality and variety to these products. This would increase the competitive nature of the firm in consumer products market. Church & Dwight management should embrace a flatter structure that removes hierarchies in the organization by empowering employees to make decisions. As the company expands to new markets, managing such a global entity becomes more and more complex, with the management having a daunting task. To reduce the impact of growth and expansion in the global market, the management should derogate more decision making through empowering teams to perform specific tasks. Such collaborative performance through empowering teams would ensure employees perform to their best abilities, to the benefit of the company. The company should therefore adopt the cellular structure in the organization to improve performance. For example, in production of consumer products, different brands may be derogated to different teams to ensure quality of products. The company has to rely more on research and development in coming up with better products in respect to market demands. Companies such as Procter & Gamble have elaborate research and development strategies that have been able to inject new competitive products in the market (Annon, 2005). Innovation is the heart in P&G operations; implying Church & Dwight can perform at the same level, with increased research and development strategies. References Allred R.R, Snow C. C., and Miles R. E. (1996), Characteristics of Managerial Careers in the 21st Century. Academy of Management Executive, 10(4), pp. 18 -21. Annon, 2005. Procter Gamble’s Innovation Success—New Research, New Products, New Markets. Strategic Direction,.21(7), 13. 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