Internal and External Influences on Business - Assignment Example

Internal and External Influences on Business Tomorrow never happens by chance. It is planned. Those who plan, succeed the most. And to succeed in a futuristic world, one requires a strategy. Today’s economies are afflicted with surpluses not shortages. There are not only several brands of a product but also various varieties of a brand. For the seller this spells hyper-competition. For the buyer this spells over-choice. Picture this. Even when a company succeeds in distinguishing itself from others, the differences are short lived. Competitors are quicker than ever in copying ideas; therefore companies constantly need to think up new value-adding features and benefits to win the attention and attention of these choice-rich and price-prone consumers. The problem does not finish here. In fact, it emanates from here. There is an array of internal and external influences cast upon any contemporary business organization. Economic conditions fluctuate, systems and processes undergo changes, competitors launch fresh assaults and shareholders pressurize. But the organization explores specific ways to deal with all these crests and troughs. In fact, organizations develop strategic approaches to adapt and flourish with the constantly changing internal and external environment. Chapter 2: Internal and external influences on business There are various external and internal factors that influence the functioning of a business enterprise. Researches and studies have brought forth the following major parameters that affect the business process: Internal factors: Management and corporate culture Cost structure Research &development Finance and accounting functions Purchase and production functions Egos and politics of those involved Company and marketing objectives Resource availability including personnel, skills and expertise, finance etc External factors: Stake holders Customers and markets Suppliers Competitors Government Media Socio-cultural environment Economic fluctuation (inflation) Technology Legal and regulatory factors Global environment These are broad outlines. Different factors interact with one another to give rise to a complicated business management problem. For instance, analysis of contemporary organizational and people management issues in the context of change, innovations and imitations brings forth issues of leadership style, facilitation of creativity and the systemic management of complex change. Similarly, the role of technology has to be analyzed as both a source and enabler of change. All this implies that different factors affect the overall business environment. Therefore, it becomes important to analyze them both from a larger and a specific perspective before adopting a new approach to deal with a situation. The tasks of crafting, implementing and executing company strategies are the heart and soul of a business enterprise. Therefore it is imperative to strategize keeping into consideration the gamut of external and internal factors that affect the business on the whole. Successful companies recognize and respond profitably to all these factors, which actually are a host of unmet needs and trends. These companies realize that the business environment presents a never-ending series of opportunities and threats. Consequently, the management of any organization has to be a trend-tracker and opportunity-seeker. Contemporary businesses operate in a globalized economy. Things move at a nanosecond pace. Markets are characterized by competition. Disruptive technologies are challenging every business. Businesses have to respond to the empowered consumer. All this is alarming. In the words of Jack Welch, former CEO, GE, “Change or die!” Organizations that think fresh and act hard to face and survive all these influences make faster inroads on the success lanes. Chapter 3: Cadbury Ltd UK, Analysis of influencing forces (A concise report on contemporary practices in business and management in Cadbury Ltd., UK) Chapter 3.1: Brief History The Cadbury story is a fascinating study of industrial and social development that spans over a century and a half. It is a perfect example of how a small family business developed into an international company. It was a winning combination of sophisticated technology and high standards of quality, of course laced with innovation. It began as a one-man operation in 1824 in Bull Street Birmingham. Nobody knew at that point in time that John Cadbury was laying the foundation of one of the world's largest chocolate producers. The business had changed from a grocery shop to that of manufacturing of drinking chocolate and cocoa. Cadbury Limited is the confectionery division of Cadbury Schweppes plc, a major force in the confectionery and soft drinks international market. Quality has been the focus of the Cadbury business from the very beginning, as generations have worked to produce chocolate with the taste, smoothness and snap characteristic of Cadbury chocolate. The Cadbury Website (2003) Chapter 3.2: Cadbury Ltd. UK, an overview of primary internal influences 1. Management and corporate culture: Cadbury Ltd. UK, well known for its Quaker traditions (well known for practicing traditional testimonies of pacifism, social equality, integrity and simplicity) invented its corporate culture by attributing significance to the Quaker beliefs of the Cadbury family retrospectively. The Directors are responsible for the system of internal control that covers all aspects of the business. They set policies and seek regular assurance that the system of internal control is operating effectively. Strategic, commercial, operational and financial areas are all within the scope of these activities, which also include management of the related risks. 2. Cost Structure: The cost structure includes marketing, production and distribution costs, restructuring costs, tax impact as well as investments. All these factors influence decision-making and execution. 3. Research and Development: The R&D team at Cadbury Ltd UK in association with the marketing team investigate new ideas that have a mass appeal and can be subsequently implemented. This calls for resource investment in terms of time and money, which affects the overall business. 4. Finance and accounting: The following financial factors impact the business process: Revenue Sales volumes Underlying Profit from Operations Underlying Operating margins Free Cash Flow Net cash from operating activities (a key component of Free Cash Flow) 5. Purchase and production: The purchase and production pattern is both an internal function and an external influence. It is done keeping in view the global trends (an external factor) and the company’s financial status (internal factor). 6. Ego and politics: Though no company ever publicizes its internal ego clashes and conflicts, yet none is devoid of it. However, Cadbury promotes a policy of combining the ethos of freedom and responsibility to all its employees. They call it a ‘reflection of the entrepreneurial way of working’. ‘Cadbury-Schweppes Annual General Meeting Report, May19, 2005’ Accessed on September 13, 2006 Chapter 5: Cadbury UK, Responses to competitor’s business strategies In most cases, Cadbury’s competitors have a very ‘niche-oriented’ customer targeting. Cadbury, on the other hand, caters to a broader customer base and does not specialize in manufacturing and marketing to an exclusive group. However, it has a well-crafted business strategy that entails a combination brand strategy. The family brand, Cadbury is linked with its famous sub-brands, i.e. Cadbury Crème Egg, Cadbury Roses, and Cadbury Flake, to name a few. The family brand identity is firstly communicated by the packaging with the Cadbury corporate purple colour and the distinctive Cadbury script logo. Its own individual livery then distinguishes the sub brand. Cadbury has made headway into the health-conscious chocolate production and marketing. Customers are cutting down on chocolate (presumably for health reasons). Halo Food Ltd.’s concept of ‘cereal bars’ was tackled well by Cadbury UK Ltd. The following para quotes the Cadbury officials on this perspective: “The issue of the role of food in public health also remained very much in the public spotlight throughout 2004. We have maintained a continual dialogue with Government and other interested parties on this issue and, more importantly, about the role which the food manufacturing sector and Cadbury Schweppes can play in helping to resolve it. Being overweight is a consequence of an imbalance between energy consumed and energy expended. Ultimately this can only be resolved through better understanding of this fact and personal accountability, and in the case of children through adequate parental and teacher guidance. Education is critical to understanding, and our role is to provide information clearly and accurately to help consumers make informed choices about the products they purchase. We are committed to doing this and also to working with Government to both advise and contribute to the process of broadening understanding amongst consumers about the need for a balanced lifestyle. The food industry has for over two hundred years been one of the most powerful forces for economic and social development in the industrialised world. It has immense resources and a demonstrated and transparent sense of care and responsibility for its consumers. The lack of exercise in our more sedentary society has left us at a moment in time when our bodies have not yet adjusted to the need for a correspondingly reduced calorific intake. All of us in the food industry have a responsibility to ensure that consumers have the necessary information to enable them to make sensible decisions about eating and living. We will certainly play our part in that educational process.” The Annual General Meeting of Cadbury Schweppes Public Limited Company at the Queen Elizabeth II Conference Centre, London on, 19 May 2005 http://www.cadburyschweppes.com/NR/rdonlyres> Accessed on September 13,2006 As a competition to major brands of other companies, Cadbury’s Dairy Milk (which has greatest customer loyalty and is in fact a megabrand), is a perfect combative and capturing technique. Megabrand strategy has added visibility to products and also provided greater credibility to consumers for a variety of offers under the brand. In addition, it is easier for consumer to try new offers from their trusted brand. To promote the new Dairy Milk Megabrand, Cadbury implemented a comprehensive "360 degree support" campaign. This involved a highly coordinated set of promotional activities across various communications channels, each activity bearing the same message. This approach is known as 'integrated marketing communications' and ensures that consumers receive a clear and consistent message about a brand. The Cadbury Dairy Milk megabrand re-launch activity in 2003 was instrumental in driving growth of the large block chocolate segment which achieved additional sales of 33.8 million pounds with 20.1 million attributed to Cadbury’s Dairy Milk brand. Number 1 brand in retail sales in excess of 265 million pounds (as per AC Neilsen) and year on growth of +23%. Brand Development - Building the Dairy Milk Megabrand, Accessed on Sep 12, 2006) Cadbury Ltd UK used innovation to add premium products to the Cadbury brand, through products such as Cadbury Delight, a premium Easter Egg; Snaps, the wafer chocolate sharing product (to compete with Nestle Kit Kat) and luxury versions of Roses and Flake (also manufactured by Audrey Chocolates Ltd and John Millar and Sons Ltd.). It also bought the majority share in Green & Black's, which performed strongly with sales up by nearly 50% year-on-year. Cadbury Schweppes, annual reports Accessed on Sep 14, 2006 A representation of GLOBAL CONFECTIONARY MARKET SHARES: Table 5 (a)   Excluding Adams (2003) Including Adams (2003) 2004 Cadbury Schweppes 6.6% 9.6% 10.0% Mars 9.6% 9.6% 9.2% Nestle 7.7% 7.7% 7.8% Hershey 6.1% 6.1% 5.8% Wrigley 4.6% 4.6% 4.9% Kraft 4.8% 4.8% 4.9% (Source: Euromonitor, 2004) Table 5(a) The Global Confectionary Market Chapter 5.1: Analytical Review of Cadbury’s competitive strategies This analysis brings forth the following strategies that Cadbury UK Ltd crafted and implemented to respond to its customers: Health lessons from other markets Global functional products Social responsibility Repositioning brands The skill to manage phases of stability and decline Chapter 5.2: Suggestive strategies for Cadbury to handle the competitive environment An analytical review of the Cadbury Ltd. UK case study draws the following questions: How well is the company’s present strategy working? What are the company’s resource strengths and weaknesses and its external opportunities and threats? Are the company’s prices and costs competitive? How strong is the company’s competitive position relative to its rivals? What strategic issues does the company face? To explore answers to the aforementioned questions, we come across analytical techniques like SWOT analysis, strategic cost analysis and competitive strength assessment. Insightful company situation analysis is a precondition for identifying the strategic issues that management needs to address and for tailoring strategy to company resources and competitive capabilities as well as to industry and competitive conditions. Suggestive Strategies In the Case of Cadbury Ltd. UK certain other suggestive strategies to handle competition could include: Ability to take advantage of economies of scale and/or learning and experiencing curve effects. Superior intellectual capital relative to key rivals. Superior use of e-commerce technologies. Superior skills in supply chain management. Better product quality relative to rivals. Identifying obsolete facilities and lots of under-utilized resources. Making use of falling trade barriers in attractive foreign markets. Alliances or joint ventures that expand the company’s market coverage and boost competitive capability. Back-up strategy in case of slowdown in market growth rate. Back-up strategy in case of a shift in buyer needs and tastes. Chapter 6: Conclusion In fact, when a company realizes and can implements approaches that are hard or expensive for rivals to duplicate, it hit the bull’s eye! Winning business strategies are grounded in sustainable competitive advantage. A company has competitive advantage when it has edge over rivals in attracting customers and defending against competitive forces. There are many routes to competitive advantage, but the best is to provide buyers with superior value and – a good product with a low price, a superior product that is worth paying more for, or a best-value offering that represents an attractive combination of price, features, quality, service and other attributes that buyers find attractive. Delivering superior value- whatever form it takes –nearly always requires performing value chain activities differently than competitors and building competencies and resource capabilities that are not readily matched. Timing strategic moves offers further competitive advantage. A research analysis of the working of Cadbury UK also brings forth the company’s well-crafted marketing strategy to deal with all its competitors. In dealing with its rivals, it has used the following parameters: What are the chocolate companies seeking in the market? What drives each competitor’s behaviour? What are the competitor’s objectives? The re-launch of the Dairy Milk brand is a perfect case to prove the company’s effective marketing strategy to deal with rival brands. However, the company could have also monitored the rivals’ expansion plans and strategise before another competitive force strikes again. The company’s goal could be divided into two categories: short-term goals and long-term goals. This would foster better compartmentalization and execution. Since Cadbury is a major chocolate company, it also controls the behaviour of the competitors, who generally try to imitate it. Though the company has to guard against this ‘copy-cat’ culture, yet this in some way puts it at a dominant position. Consequently, it has a wide array of strategic options to choose from. A company’s success depends on five major factors: 1. Customer awareness 2. Product Quality 3. Product Availability 4. Technical assistance 5. Selling staff Therefore the perfect competitive strategy would be an amalgamation of high production quality, better technology and effective marketing and advertising techniques. It is important to have a competitive orientation in today’s market, but no company should overdo the emphasis on competitors. There should be a good balance consumer and competitor monitoring. In the words of Wayne Clloway, Former CEO, PepsiCo… ‘Nothing focuses the mind better than the constant sight of a competitor who wants to wipe you off the map!” References The Cadbury Website (2003) ‘Cadbury-Schweppes Annual General Meeting Report, May19, 2005’ Read More