Strategic Analysis of Coca-Cola - Case Study Example

CONTENTS Introduction to Coca-Cola Page Resource Auditing Page 2 Physical Resources Page 2 Financial Resources Page 3 Human Resources Page 4 Intangible Resources Page 4 Value Chain Analysis Page 5 Core Competences Page 7 Conclusion/SWOT Analysis Page 8 Recommendations Page 10 STRATEGIC ANALYSIS INTRODUCTION TO COCA-COLA Coca cola is one of the most popular brands among all the world-class products and industries at large. Its name, brand and logo are thought to be the sign of quality and trust. The company has made so much achievements during nearly quarter past century that it has not dependent of introduction anymore. It serves like a milestone in the history of modern public beverages that are popular among all ages and all classes alike. Coca-cola was introduced in May 1886 in Atlanta, Georgia and the founder Dr. John S. Pemberton had to bear loss in the beginning, as the sale was less than its product. (Quoted in the thecoca-cola company.com). The founder of the industry could not enjoy the fruit and died after two years of its invention. But the company’s journey to success continued and it became very popular in America within a short span of one decade. During its first year, sales of Coca-Cola averaged six drinks a day -- adding up to total sales for that year of $50. Since the years expenses were just over $70, Dr. Pemberton took a loss. With the passage of time, Coca-cola got fame in European countries too. The company got chances of introducing it all over the world during the World War II, and people at every corner of the world got familiar with the beverage. Presently, it is thought to be at the top in respect of sales among the soft drinks of the globe. “The Coca-Cola experience”, Lin observes, “offers a fascinating example of the participation of an international business in local Chinese development. As China rapidly continues its evolution from a command- to a market-oriented economy—the pace accelerated by its preparations for possible accession to the World Trade Organization (WTO)—global business systems like Coca-Cola may help stimulate economic growth, employment, and tax revenue.” (12-23-1999). RESOURCE AUDITING OF COCA-COLA Strategic analyses are inevitable for the smooth running as well as rapid growth of an organization. The strategy of a company lays stress upon the services being offered to clients and customers. In the same way, companies audit their resources pointing out the strengths and flaws of the company. “The multi-dimensions of strategy, Andrews views,—“product, market scope, supply, technology, synergy, major moves, and target results—do not require that a strategy be detailed and comprehensive. Rather, strategy should concentrate on key factors necessary for success.” (1971: 2). Resource audit is one of the essential parts of strategic analysis of a firm. The term specifies the resources available to a company to support its strategies. External as well as internal resources are analysed during auditing of an organization. Some of the resources that an organization possesses are strategic, i.e., contribute to the creation of a competitive advantage and underpin its sustainability, while others are non-strategic. “Strategic resources are organization-specific assets. In order to determine whether resources are strategic in nature it is necessary to explore the extent to which they are valuable, rare and imperfectly imitable.” (Collis& Montgomery, 1995). An organization of international reputation like Coca-cola must audit both the quantity and quality of its resources to co-op with the perfect market situation of the global world. Business environment suggest the commercial activities of the companies. The Coca-Cola Company is aware of the resource planning and deployment as significant ingredients in the successful implementation of strategies. Here is the resource auditing of the company: 2. 1 Physical Resources “An organization’s resources”, Warnerfelt suggests, are not confined to those which it owns. Strategic capability is strongly influenced by resources outside the organization.” (1984: 173). The same is the case with Coca-cola beverage industry. The partners’ unabated faith and pleasant environment everywhere in the world makes the brand a matchless product. Coca-cola has acquired superb estates in USA, Europe, China, India, Australia and other parts of the globe and has allocated its best resources to easily and freely exercise the best of its resources to the entire satisfaction of the clients. World’s biggest companies, hotels, restaurants, fast food chains, departmental stores, sports organizations and many others are its subcontractors and always suggest Coca-cola for functions and ceremonies. Further, latest equipments, machinery, deluxe branded refrigerators, innovative presentation according to the requirements of mega events are also among its strengths. Financial Resources Financial resources of a company determine its capacity regarding commercial activities and engagements. The growing needs of Coca-cola production also seek the expansion in the volume of financial resources. The Coca-cola company focuses on five “Ps”’ as the tower of its strength, which include people, partners, planets, portfolio and profit. In the contemporary times, almost all the companies are normally offering the same product at the same price. It is therefore public relations play an important part along with marketing and advertising campaigns. The Coke is proud of the wide range of its consumers and in recently conducted research by its social research department, it is another feather in its cap by knowing that approximately 94% population of the world recognizes its brand and logo. (Quoted in mullaloosurf.com).“The Coca-Cola Company, Brush (2006) states, “generates huge amounts of cash flow and has $4.49 billion in cash, or about $1.90 per share. It has net profit margins of 21% and a return on equity of 33%.” Coca-cola Company has established a long range of factories and industrial zone all over the world. Its exceptional bottling, wide range of partnership and joint venture with local and multinational fast food companies and popularity include among its strengths and support in respect of sales promotion and target achievement. Moreover, the bank deposits and assets of its partner organizations are also a reliable source of taking great risks regarding enhancement of their product volume. Human Resources Human resources contain very significant part in the process of growth of a company, and the staff of Coke industry is a thing of pride for it. The Coke industry has hired the services highly educated, well trained and experienced staff at every level for the maintenance of high quality and for the innovative ideas. The industry has appointed the right person at the right place at all departments including finance, management, sales, accounts, human resource, marketing, quality control and others in order to keep its monopoly over the industry as well as to combat its rivals i.e. Pepsi Cola and other brands. Its board of directors consists of high rank personnel that are regarded the tycoons of their respective fields in the international forums. Every department is observed and watched carefully and the targets are set and achieved on regular basis. Intangible Resources The Coca-Cola maintains intellectual property including unique and well-recognized logo, patents, trademark, product colour and taste. Its unique formula, distinguished flavour, attractive bottling, time to time innovative presentation and unchallenging reputation win a peculiarity for the company. The company’s introduced logo is identified at all corners of earth. The company’s good name and fame is also powerful resource that serves as the best of its intangible assets. The Coke has trustworthy clientele company to back it with their finances in the need of the hour. Its latest market strategy that requires significant investment in new products, distribution channels, production capacity and working capital earn enhancement in production and popularity alike. According to the industry, Coca-Cola products are now consumed at the rate of more than 834 million drinks per day, and its utility patents also cause the increase of the sale of hotel and cold corner products, which use the logo under the sponsorship of Coca-Cola. . Value Chain Analysis of Coca-Cola Value chain analysis is highly beneficial and valuable method of interrelating resources with the strategic point for which these resources are to be exercised. It also explains the corporate activities within an organization in order to analyze the whole business scenario. “It is a key to understanding strategic capability”, Johnson & Scholes (1995: 117) argue, “since it requires an analysis which goes beyond the resource audit and looks in detail how resources are being utilized, controlled and linked together.” Identifying the activities of an organization is the primary step while moving from resource audit towards analysing the organization’s strategic capability. Value chain analysis is highly supportive in this regard. Porter (1985) has presented a comprehensive scheme of the value chain analysis, which is as under: Firm infrastructure Human resources management Margin Technology development Procurement Inbound Operations Outbound Marketing Service logistics & sales Margin Primary Activities In the above figure, five areas have been shown as primary activities. Inbound logistics activities concentrate on managing of material, stock, transport and supply control. All this comes under the logistic department. Coca cola industry has systematically managed this section. An independent cell works under the supervision of director, who supervises the whole stock management with the team of professionals and technical staff, in collaboration with the director operations. “Operations” is the second area of primary activities and is responsible for the proper presentation of the finished product. In Coke industry, Operations department regularly examines the quality and quantity before refilling. Also, Coke has introduced proper sterilization system to provide the customers with a healthy product. Further, the manager(s) operations examine the proper working of machinery so that the company can avoid any product shortage or relevant untoward situation. The third activity i.e. Outbound Logistics lays stress on mobilizing the product to customers. Coca cola has provided refrigerators and machines to the customised dealers and franchise agents, and looks always busy in providing them the latest techniques of preserving the high quality product. It has multiplied the sale and trust in the company all over the globe. Marketing and sales are one of the most significant steps for the promotion of a product. Though Coca cola is very popular and has no need of introduction, yet it utilises all possible channels including print and electronic media, journals, newspapers, television, internet, billboards, broachers, and sign boards to highlight the product and incentives as well as prize schemes to attract the customers, especially the children. While discussing the final point, Coca cola is matchless in providing services, marketing, advertising and technical assistance and training to its shareholders, stakeholders, staff and dealers. It has benefited the company a lot. Warehouses, production plants and bottling departments show the expertise of Coca cola. Support activities also play significant role along with the primary activities. Support activities including procurement, technology advancement, human resource management and firm infrastructure. Coca cola has hired the services of highly qualified personnel and technically trained professionals in respect of procurement. Engineers, chemical analysts, business professionals, human resource managers and other staff has very skilfully handled all the responsibilities of the refined beverage i.e. Coca cola. It has enhanced the infrastructure of the industry and its future is quite in the safe hands. Technology development department is the most prominent one in this respect. This department is responsible for adopting the latest methods to be applied and exercised to enhance the commercial activities. The technical experts of Coca cola minutely observe the latest technologies being launched in the world. Tin pack, soccer-type packing, fresh beverage machinery, innovative presentation and hygienic bottling are the example of neat and clean promotion of the world’s most popular product. CORE COMPETENCES Core competencies signify the strengths of a company while estimating its resources including strengths and weakness to make its comparison with the rival companies. It helps the companies in respect of inventing newer things that surely increase the popularity of the company at large. In addition, it is highly beneficial to capitalize on new opportunities. Companies can utilise their best capabilities if they make their core competency analysis. Looking into the matter, we come to know that Pepsi Cola is the most dominant rival of Coca Cola. The concept core competency includes appropriability, durability, transferability and replicability. “Appropriability”, Berkeley education website states, “identifies the extent to which something can be imitated.” (Quoted in http://www2.sims.berkeley.edu/courses/is213/s99/Projects/P9/web_site/glossary.htm). A product can be declared as containing strong appropriability provided it is quite knotty to recreate and reproduce by some other company or industry. Coca Cola maintains a unique formula that distinguishes it from the Pepsi Cola products. Nevertheless, having close proximity, both are considered as the substitute for each other. The Coca Cola should lay stress on its distinct flavour and packing, so that a clear difference can be enjoyed by the consumers. Also, it should raise some slogan that can clarify the difference between the two rivals. The amount of appropriability is essential to enhance the sales in future days. Durability is also important while making analysis between the competitor industries. The term signifies duration of technology and life cycle. The Coca Cola sustains latest equipments and high quality machinery that helps it preserving and generating the product longer than rivals. The changing technology is a disadvantage to great industries, as the small and rival companies can easily imitate the product during the changing scenario. It is therefore, Coca Cola must prove itself as the pioneer while taking steps in respect of introducing and adopting latest technological change. In the same way, transferability is also an important thing to discuss. Some of the qualities of a product are very hard or impossible to imitate e.g. name, similar trademark and brand logo; no rival can easily adopt such things. On the other hand, packing, presentation and new production such as Diet pack, mini pack, litre pack and special occasion pack etc can be easily adopted by rival companies. Replicability denotes to the similar resource bases. It supports a company in adopting a rapid and more efficient operational activity to combat the imitation naissance. CONCLUSION SWOT Analysis of Coca-Cola SWOT analysis concentrates on both the internal as well as external factors that influence the business strategy of an organization. The business strategy is developed while conducting a comprehensive comparison of an organization’s success factors on the one hand, and competitive resource requirements and the firms internal capabilities and resources on the other. Like PESTLE analysis, SWOT analysis is also one of the most appreciated methods applied for analyzing a company. SWOT (i.e. strengths, weaknesses, threats and opportunities) reveal all the advantages and disadvantages regarding market position of an organization. Strengths: Making the analysis of the Coca-cola, it comes to know that its committed team, experienced staff, innovative ideas, penetration in international markets, committed customers, reliable partners and joint venture with multinational products and companies, tangible and intangible assets and intellectual property are among the strengths of the industry. Its fast growing products, wide range of consumers, long list of retailers, shareholders, management, policy formulation, inventory, innovation and unique formula are among its plus points that keep the industry at a higher rank in production and popularity. Weaknesses: Estimating the weakness the industry faces include concerns of public regarding health and fitness. Cola drinks create troubles for stomach, liver and kidneys and toxic as an essential ingredient of the formulae disturbs body functions in man. Whereas rival beverages including Pepsi Cola and RC Cola as well as local beverage brands of Asian and European countries raise challenge before it. Besides, its formulae are thought to be dangerous for health, and it creates different types of diseases in human body. Growing awareness about cola drinks among masses is a sure threat for its sale for the future days to come. In the same way, Indian population has arranged demonstrations against its bottling plants because its filling and refilling, according to them, is polluting drinking water. Opportunities: Coca Cola should make agreements with international sports companies so that in every mega event, they take it as the official drink. Coke’s ideal presentation on special world events, sterilized bottling, tin packs, soccer shaped packing, ownership of Fanta and Sprite beverages, collaboration with sports management and teams, and agreement with states as official drink, vast range of land ownership all over the world, many thousands employees in different departments including sales, management, quality control and public relations. Threats: The trend of fresh juices as well as use of company juices is increasing in hotels and gatherings. Therefore, Coke should also take necessary measures in this regard. The management can overcome this threat by introducing juice flavours along with cola drinks in future. RECCOMENDATIONS One has to pay a ransom price to remain at the top. The same is the case with Coca cola Industry. It will surely have to work very hard to meet the new challenges in the market. The Coca cola must alter its presentation time to time like it did during the FIFA World Cup 2006. It should also present the bottles that resemble bat, ball or hockey. Also, as it is the age of perfect competition, the Coke should enter into contract with food companies that have chain all over the world. Further, the industry should devise such methods that could mitigate the cola affects on health. It will help the company removing the perils of public regarding bad affects of cola on liver and kidneys. Applying radical management theories and building a team to combat these threats may be effective in this regard. “People trust those”, Culbert, & McDonough (1985:171) argue, “who put them in the proper context and distrust those who resist the images they seek to establish.” The trust of the people is first and the foremost thing for the great companies like Coca Cola. REFERENCES Andrews, K. R. The Concept of Corporate Strategy. Homewood: Dow Jones: Irwin, Inc. USA. 1971, Chapter 1 p.2 Brush, Michael. Coca-Cola shares ready to pop. 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