Company Strategic Analysis: General Mills - Research Paper Example

?Introduction This report analyses the internal, external capabilities of one of the important firms in United s, General Mills. Different toolslike SWOT analysis, Porter’s five forces model and VRIO model have been used to analyze the company and its performance. The report also analyzes the performance of the company its mission, strategies adapted by the company, and also analyzes the resources of the firm whether they are rare and whether they are imitable or not. SWOT Analysis: Strengths: General Mills has a strong capital base to support its operations. The company has strong brand equity in the market place. The company’s financial position is strengthening even at the time of recession. The company has a diversified product portfolio. The company’s brands have strong brand identity. The company’s internal processes for acquiring raw materials for its products are very strong. Weaknesses: The scale of companies operations are hiding inefficiencies in its operations. General Mills is not taking enough measures to raise its productivity. Opportunities: Recent social trends have created a market for convenience food items. General Mills can export its product to the Asian Markets. Threats: The environment of recession is creating unprecedented operating challenges for the company. Kraft and Kellogg are formidable competitors of the company, having strong brands of their own. Suppressed consumer demand is threatening company’s revenues. Porter’s Five Forces Analysis: Threat of Substitutes: This dimension falls on the higher end of the spectrum because consumers have the option to buy convenience food items from food stalls and cheap hotels. Moreover, consumers can even decide to cook themselves fresh meals. So it can be concluded that there are alternatives available to consumers. Rivalry amongst competitors: This dimension is also ending up on the higher end of the spectrum because as mentioned earlier Kraft Food and Kellogg, both are formidable competitors having strong management and brand portfolio. In addition to this these companies also have strong capital base to support their operations. Suppliers Bargaining Power: This dimension also falls on the higher end of the spectrum because there are few quality suppliers of raw material in the marketplace. Companies who want to gain quality raw materials have to adhere to suppliers’ terms and conditions. Moreover, the price of the raw material is also very elastic, which leads companies to the future markets; in order to protect themselves from price risk and inflationary pressure. Customers Bargaining Power: This dimension again lies on the higher end of the spectrum because recessionary pressure has made consumers to curtail their expenditure. Consumers are demanding higher value at lower price from companies, in order to draw them to spend. Companies therefore have to adhere to the demands of consumers in order to utilize their huge asset base. Threat of New Entrant: This dimension falls on the lower end of the spectrum because the market conditions are not that encouraging for any new entrant to enter this market. Since the industry is engulfed by recession and has strong competitors in it, therefore no new entrant will be able to operate effectively in this marketplace. Firm’s overall Performance: Even at the time of recession the company has managed to perform exceptionally well. Almost all of its financial indicators are on the positive side of the spectrum, reflecting the fact that the company has been successful in implementing its year start strategy. The company’s 2010 sales figure is up by 1 percent as compared to its 2009 sales figure (General Mills e, 2011). Operating profits have increased substantially, that is by 8 percent. Net income of the come has also increased drastically (17 percent) (General Mills e, 2011). The company’s asset utilization has also increased as reflected by the head of “Return on Average Total Capital”. This figure is up by 150 basis points, which is very encouraging. For the share holders, dividend per share figure has increased up by 12 percent. This is a very good indication that the company’s shares are resilient to economic conditions (General Mills e, 2011). Firm’s Mission: General Mills aims at making the lives of its consumers healthier, easier and richer. It does this by coming up with food products which deliver important nutrients to its consumers. Consumers can maintain a healthy diet by consuming the food products of the company. Moreover, the company aims at offering convenience food items to its valued customers; so that they can fulfill their daily meal requirements in a hassle free way. The company also aims at introducing food brands which add flavor into the lives of the company’s customers (General Mills a). Firm’s Strategy: The company is sensitive to the developments in its operating environment. In order to cope up with the pressure of economic recession and decline consumer demand, the company has decided to focus on growth strategies by improving organizational effectiveness via productivity and cost saving plans (General Mills b). Moreover, the company has also taken initiatives to strengthen the alignment between its various business units and it has been improving it (General Mills c). This action is augmented by measures aimed at raising administrative efficiency across the company. The company aims to implement this strategy by means of undertaking restructuring efforts. In this effort the company shall eliminate unneeded jobs and sale assets which are not needed in the current operations of the company (General Mills d). By taking these measures the company aims to increase its earnings per share. Obviously these initiatives will lead to the company generating higher operating profits and net income. Resources of General Mills: The most important resource that the company needs to run its operations is the raw material. Amongst these raw materials wheat, gram, maze, pulses, staple food items. Since the prices of these items keep fluctuating in the international market therefore in order to protect itself from price fluctuation and the effect of inflation on raw material prices, the company make use of the futures market. In this market the company enters into future contracts with the suppliers of these items. Other than these resources, which make an integral part of the company’s value chain, the company has its conversion processes that enable the company to convert these raw materials into value added food products. Last but not the least the brand names to which these finish products belong to are the most valuable resource of the company’s value chain. The firm’s resources are not at all exclusive, except for its brands and product offerings in the convince food segment. The strategy of hedging against price risk and inflationary risk via future contract market is also employed by Kraft and Kellogg. However, the company is able to differentiate itself from its competitors by means of its brands and top management. And also the company has a long history of working in the food industry as compared to its competitors. A detailed description of resources is presented in appendix A. From the table presented in appendix B, it is clear that the company’s most valuable resource is its brand portfolio in the convenience food segment. This is followed by the company’s financial management division that has placed the company perfectly to face the tide of recession. However, the vast size of the company is acting as a source of disadvantage, but the recent initiatives taken by the company are aimed at rectifying this deficiency of the company. Analyzing the resources of General Mills From the table presented in appendix C, it is clear that the resource that is leading to a sustained competitive advantage for the company is that company’s product offerings in the convenience food segments. Since this is the segment that has emerged after the recent changes in the social trends, therefore it is important to have exclusive product offerings for this segment. The company’s superior performance in this segment is evident from its market leadership position in the categories of “Fruit Snack”, Grain Snack”, and “Ready to eat cereal”. The statistics related to this fact are present in the company’s annual statement of 2010. Whether General Mills is organized sufficiently to exploit its resources Recent efforts of the company have been directed towards raising the bar of productivity. By doing this the company aims at propelling its growth. Amongst the actions taken by the company to raise productivity includes downsizing unnecessary job posts and writing off unproductive assets from its balance sheet. These austerity measures have come out of the realization that the company was not utilizing its resource efficiently and this in turn was hampering its profit generating ability. References General Mills a. Mission, Retrieved June 15, 2012 from http://www.generalmills.com/en/Company/Mission.aspx General Mills b. Businesses, Retrieved June 15, 2012 from http://www.generalmills.com/en/Company/Businesses.aspx General Mills c. History, Retrieved June 15, 2012 from http://www.generalmills.com/en/Company/History.aspx General Mills d. Innovation, Retrieved June 15, 2012 from http://www.generalmills.com/en/Company/Innovation.aspx General Mills e. (2011). Annual Report, Retrieved June 13, 2012 from http://generalmills.com/~/media/Files/2011_annual_report Appendix A Tangible Resources Financial The Company’s net income is increasing along with its operating profits and earnings per share. Physical The company has globally located factories, which plays a major rule in reducing the distribution cost. Technological The company has highly sophisticated raw material refinement and conversion machines. The company has an organization wide ERP system. Organizational The company has strong capital base to support its operations. Other than this the company has a strong and favorable history of serving its customers. This factor plays a major role in creating its strong brand equity and brand name in the marketplace. Intangible Resources Human The company has a strong management team governing its operations. Moreover, it has a strong human capital to augment the experience of its top management. Innovation and Creativity The company’s inclination towards innovation is reflected in its product offerings and the many brands that it offers in the marketplace. Reputation The company has a strong reputation in the marketplace. The strength of this reputation can be gauged from the wide consumer acceptance of any new brand which the company brings to the marketplace. Organizational Capabilities The company has a strong financial management department that engages in profitable future market contracts. Moreover, this department is leading the way in the company’s new strategy of restructuring. Appendix B Applying the VRIO Framework—the value and rarity of a firm’s resources If a firm’s resources are: The firm can expect: Not valuable: the company is extremely huge in size. Competitive Disadvantage: this makes it difficult to trace inefficiency back to the source causing it. Valuable, but not rare: the company’s financial management division. Competitive parity (equality): this department plays a vital role in producing strong returns on company’s investments; however, the performance of this department of General Mills can be replicated by the finance division of Kraft or any other division. Valuable and rare: The brands in the convenience food segment Competitive advantage (At least temporarily): since this is the segment that is generating the most interest amongst companies of this industry. Therefore the brands, having backed by the corporate name of General Mills, are leading the rival brands of this segment. Appendix C Read More