Business Analysis of Cadbury Chocolate Company - Research Paper Example

Business Report: Cadbury Chocolate Company Executive Summary Cadbury has been experiencing some limited success as a manufacturer of chocolate during the last few years. It’s the world’s second largest manufacturer behind Mars though right now its position is threatened by a series of changes taking place so rapidly both globally and in its own competitive environment in the UK. Further its operations within the Oxford Brooks University’s Business School are determined by a number of endogenous and exogenous variables such as the socio-economic factors and competitors’ strategy. Within the Business School environment Cadbury has successfully initiated a strategy of niche marketing and sales targeting against the ever hardening competitive pressures. Its partial success story has been defined and underlined by its desire to capture and retain niche market segments on the strength of product diversification and quality management. This effort is reinforced by its internal strengths such as labor force motivation, sound financial management, supply chain management, internal value chain management and good husbanding of critical success factors outlined above. Cadbury’s strategic production, marketing and quality management initiatives have had a directional thrust in achieving both corporate and strategic functional goals. These positive outcomes have enabled the management of the company to partially or wholly overcome some of the negative external environmental influences arising from the strategic competitive environment. Especially the pricing factor has had a negative impact on its competitive edge due to some rivals’ ability to reduce prices despite rising costs. 1. The competitive environment in which the company operates. Competitive strength of the organization is determined by its corporate strategies including the marketing strategy (Brenner, 2000). For example a chocolate manufacturer would have to initiate its corporate strategy of satisfying the consumer with a range of chocolates so that competitors would be compelled to match its own strength or adopt a different policy approach such as lower prices to attract customers. In fact Cadbury has been competing against rivals at some universities like the Oxford Brooks University by targeting students. Oxford Brooks University has 19,070 students. How best Cadbury would be able to match its competitors in this environment of stiffer competition depends on the inner organizational strengths such as leadership style and motivation of staff. Efficient resource management techniques have to be adopted in order to face off competition in a highly competitive environment. Cadbury has to face more threats on a day-to-day basis from its rivals so that efficient resource utilization and rationalization to enhance capacity would be much more desirable from the viewpoint of strategic competitive strength (Beckett, 1999). Rivals depend on their brand image and promotion strategy to increase sales while much of their competitive edge consists of pricing and quality policies. For instance consumers of eating chocolates in general and Cadbury chocolates in particular are often influenced by exogenous variables like professional writing on current health care trends. In this backdrop Cadbury should be able to manage its resources more on line with a ratio perfect basis such as resources spent per sale. Labour resources matter here to a greater extent. Cadbury business strategy is basically determined by the efficient resource management techniques that have been adopted in order to face off competition in a highly competitive environment (Mitchell, 1993). It has to face more threats on a day-to-day basis from its rivals so that efficient resource utilization and rationalization to enhance capacity would be much more desirable from the viewpoint of strategic competitive strength. Rivals depend on their brand image and promotion strategy to increase sales while much of their competitive edge consists of pricing and quality policies. For instance consumers of eating chocolates, as against gourmet chocolates in general and Cadbury chocolates in particular are often influenced by exogenous variables like professional writing on current health care trends. Strategic capabilities partially or wholly depend on this link with MNCs which manufacture their products. While strategic market orientation is determined by its own internal strengths, strategic product orientation comes from selling branded and patented products. Strategic marketing capabilities coupled with brand loyalty of customers, help chocolate manufacturers to position themselves in the market at an advantageous level vis-à-vis their rivals who might lack such capabilities. Cadbury’s position has been carefully maneuvered so far. This is particularly due to the strategic vision and direction of the management which concentrated on a holistic customer satisfaction paradigm rather than a purely competitive approach. This policy has paid off well in the context of a new strategic orientation in policy. There has been a very critical period of competition in the gourmet chocolate market with the industry going through a health-conscious phase of transition. Particularly within the Business School it has biggest market share. Cadbury management has been under pressure to change its management structure to suit the current trends in competitive environment though an alternative perception of the cost-competition as against brand loyalty exists to support its current policy. Its management style has forced it to abandon some of the more culture-centric management practices that are essentially focused on diversity programs and recruitment processes (Smith, & Child, 1991). That’s where Cadbury has been successful. For instance its recruitment process is centered on fostering a dynamic value enhancing relationship with customers so that new recruits realize the organization’s philosophy of creating brand loyalty at the very beginning. Cadbury’s approach based on result- focused employees has success in inculcating organization’s own values in them. 2. The company’s financial performance by using ratio analysis. According to the financial statements of Cadbury for 2008, Cadbury considered as a world second largest confectionery manufacturer while its profit in the financial year of 2008 amounted to £388 million and its total revenue was £5384 (www.cadbury.com). Multinational chocolate marketers like Master Foods, Callebaut, Nestle, Crafts Food and Ferrero have captured a sizeable market for each while upcoming firms like Cadbury has been dependent on the innovation-related strategic strength. Such strategic initiatives necessarily require a shift in both internal and external operational policies. While many such objectives are not realized in the short run due to a variety of reasons such as inadequate planning and wrong forecasts about cash flow, sales revenue and profits, there can be some recovery in the long term. The Performance Scorecard of the organization shows that in 2008 as against the figures in 2007, the confectionery business related shares grew by 40 bps (basis points). Similarly the Earnings Per Share (EPS) increased by 69% during the same period. This growth trend underlines the fact that the Company has been doing well in its financial scorecard. As for the Balance Scorecard related performance a 6% per cent dividend growth was good enough news for the shareholders. This led to a pay-out ratio of 55%, well above the targeted 40-50% range. Above all the Balance Scorecard performance was helped by the proceeds of the Australia Beverages sale. Such activities were intended to improve the financial situation of the firm during one of the worst economic recessions. The rising cost factor has affected all chocolate manufacturers in the UK. For example chocolates can be subject to stiffer regulatory regimes that demand expensive product monitoring technologies. Such costs are passed onto sellers by manufacturers. The inability to stock such standardized products could mean loss of business for some. Especially when price elasticity of demand for a product is very high the outcome is quite predictable. Cadbury chocolates are highly price elastic in demand because imported chocolates are available at lower prices. While brand dependency is relatively marked in respect of some multinationals’ products, there are numerous substitutes for Cadbury chocolates coming from low-cost firms. 3. The corporate strategy currently being pursued by the company. Cadbury is a UK based confectioner and beverage company that manufactures and sells a wide array of soft drinks, chocolates and other sweet foods. Its corporate strategy encompasses a series of other segmental operations that themselves can be regarded as sub-strategies within the holistic process of overall business strategy. For instance operational or production strategy and marketing strategy are all part of the business strategy of the company. Cadbury has adopted a functionality-based approach to business strategy and decision making in the larger context of corporate expansion, both within the UK market and abroad. Thus its organizational culture and leadership strategies are reflected in its focused business strategic initiatives and policies. However its organizational culture centric problems have been highlighted in order to focus attention on its current level of operations. Corporate strategy is defined as the longer term directional thrust of the organization with specific focus of attention on resource capability enhancement strategies to achieve organizational goals in a competitive environment to satisfy stakeholders’ demands. Cadbury has been in business for a number of decades and now has become the second fastest growing confectionery in the world. Its concentration on Cadbury niche soft drinks market in UK is particularly significant against the backdrop of ever increasing diversity and complexity of the industry. With almost different product portfolio the company has achieved a marvelous feat of targeting every segment of the market. The company’s success is determined by the quality and strange enough the quantity of the product. With popular proprietary recipes of its own, the company has positioned itself in the UK market with unparalleled success. Its use of the best ingredients and chocolates has led to the current wave of demand for its soft drinks, toffees and chocolates among others which include even a range of sugar-free sweets. The company has been marketing a health-centric line of products to the health conscious customer (Mello, 2003). Product dimensions like texture, colour and content give an added value to it in the eyes of the potential customer. Cadbury’s strategic marketing and overall corporate capabilities would be able to enhance those values through better customer relations. The health appeal of the product plays a very significant role here as consumers tend to associate brand with product quality. Brand dependency is probably the most inescapable outcome related to this strategic approach. This brand dependency as against Swiss brands is particularly marked by the company’s ability to renew its marketing strategy now and then. In the first instance when change involves people it is all the more difficult to manage the process of change smoothly because employees depending on their attitude to change would not remain silent. Thus as much as the active management of the change and development process involves attitudinal changes, there are predefined objectives that would require far reaching changes at each level before a final change is brought aboutAlbert Breton (Author) › Visit Amazons Albert Breton Page Find all the books, read about the author, and more. See search results for this author Are you an author? Learn about Author Central . Organizational development also requires a far greater commitment on the part of management to initiate staff development practices (Porter, 1980). However once it is initiated the degree of participation by other employees alone would determine the success or the failure of the development program. Thus organizational change and development theories have evolved overtime with particular emphasis on the change and development process of employees in general. However international management practices that are associated with culturally diverse staff have been fully implemented at Cadbury. Internationally accepted business practices require a change at the institutional level. Organizations need to adopt some such practices as Training & Development, skills reorientation, job enrichment and acculturation (or cultural assimilation) to retain the staff. Finally Cadbury has failed somewhat badly in its efforts to identify and address leadership related programs of reducing redundancies and absenteeism. While the company has made considerable profits some redundancies and absenteeism have been noticed. There is considerable absenteeism due to a lack of performance related pay. Employees regard that existing performance reacted pay schemes don’t adequately compensate workers’ efforts to the total output. Organizational culture is basically the very nature or the character of the organization. In other words organizational culture refers to a system of values, beliefs, assumptions, norms and even the way in which the organization’s members conduct. Irrespective of its size every organization seeks to achieve some goals. It’s these goals that define the very culture of Cadbury. In this respect business practices adopted by the company have been accepted by the employees with greater degree of cooperation (Schein, 1993). Though organizational goals are nearly identical or homogeneous there can be some very pronounced differences between the ways of two organizations seeking to achieve the same goals. In fact the company has initiated some cultural diversity programs for the staff recently in its efforts to create an environment of inclusion and diversity for the employees of the company. But it’s faced with a series of constraints/problems as well. It’s necessary at the outset to focus attention on the impact of structural constraints on management styles at the Cadbury due to the fact that management structures are primarily determined by the nature and the size of the business organization (Smith, 1991). Cadbury is a top confectioner and its management structure is much more complex and thus requires a more detailed analysis in order to understand the implications of managing a huge staff. In the process business practices have played a big role in determining the organizational outcomes. Management style is equally important when it comes to employee motivation. Human Resource Management (HRM) practices adopted at Cadbury is in conformance with the organization’s requirements. This is in fact the case with big organizations like Cadbury because it needs to have a well motivated staff to perform on the lines of international norms in creating brand related values to the customer (Armstrong, 2006). The customer’s positive perception of brand equity is perhaps the best barometer of organizational success in a highly competitive confectionary industry in the world. Better positive employee motivation can also be attributed to good pay. Monetary and non-monetary benefits both lead to better performance and especially performance related pay as adopted at Cadbury would have a good impact on employee motivation. This type of strategy in managing labor relations cannot be ignored and it’s perhaps one of the most desirable policies to achieve organizational goals in the long run. In the first place higher labor turnover figures at Cadbury could be attributed to poorly managed labor relations and poor motivation policies. Strategic long term goals such as market share, profitability, an increase in the share price, quality improvements, customer satisfaction and brand loyalty have to be achieved by adopting such strategies as good internal and external communication practices, employee relations, good motivation strategies and HRM practices, sound financial management including positive cash flows and better overall performance metrics (Kozami, 2005). Cadbury has had a checkered history of operations in intra-continental and inter-continental markets in the world. Now they are faced with an intensely competitive environment both strategically and operationally. This environment has been evolving through a number of other variables – the ever increasing density of the confectionary industry in the world, pressures of global regulatory regimes, rising costs, choosy customers, falling demand and above all, a global recession as of late. During the past two decades organizational change and development has become a very important aspect in the modern day management practice. Change is more appropriate when everything else has failed to ensure the continuous survival of the business (Drucker, 1999). However change and development in itself might not be desirable when the degree of resistance to change becomes stronger because when resistance gathers momentum that in itself is an indicator of the existence of other solutions. If organizational change and development were focused on improving critical success factors related to financial management, Human Resource Management (HRM), employee relations, supply chain management, quality management, marketing and corporate social responsibility (CSR), then the organization would have to face considerable resistance. Cadbury is just faced with these developments. The management practices and initiatives at Cadbury essentially support the horizontal organizational structure thus facilitating the freedom of communication feedback from the employees of the lower layers of the hierarchy to the top management (Lawrence, 2009). There has been some motivation of the lower level staff that there is very big impact on management decisions by way of better communication between the top management and the employees. This is true to a certain extent though there is still a sound system of internal communication with quality circles being formed and well informed about decisions in advance. There is a faster growth at Cadbury associated naturally with sustainability. Resource use involves some environmental concerns among interest groups that have demanded a degree of transparency in its mission and vision and a commitment to protecting resources. Organizational culture demands a degree of corporate responsibility towards meeting demands of the community (Dawes, 2008). While the company buys its raw materials such as cocoa and sugar in the competitive open markets, there are some resource constraints in times of seasonal pressures on supply chains. It’s in respect of this particular outcome that sustainability problem has been raised by many interest groups. In other words organizational culture or and behavior is connected with the company’s competition policy of paying higher prices to sustain its supply lines disregarding the consequences of supplier behavior. At the Oxford Brooks University’s Business School, Cadbury’s strategy has to be based on lower prices and more brand value management. Cadbury has been steadily successful in its operations with a sizeable market share in the UK and other markets. Its success story has been defined and underlined by its desire to capture and retain mass and niche market segments on the strength of product diversification and quality management (Ogunwolu, 2006). This effort is reinforced by its internal strengths such as labor force motivation, sound financial management, supply chain management, internal value chain management and good husbanding of critical success factors outlined above. Recommendations The top management at Cadbury has to be more responsive to conflict resolution mechanisms as suggested by the labor force. Currently what’s available as dispute settlement mechanisms are not adequate to meet the demands of employees. Corporate Social Responsibility (CSR) initiatives and policies of Cadbury have to help the organization to implement some of its far reaching change management policies without much opposition from the staff. Structural changes to its existing operational framework including those related to divesting uneconomical units would be more desirable. Cadbury has to target selected segments for its public relations programs and independent marketing programs with good community outreach. Next international management practices at Cadbury should have a benchmark and it must be noted that Cadbury has to focus on HRM practices of a very culturally diverse nature. Cultural diversity in workforce is near universal spreading into many relatively modern sectors including ICT. Finally its organizational culture should be customer-centric and employee motivating but nevertheless quality targets should be achieved with a greater focus on the long term organizational goals. For instance many employees involved in quality improvement programs at the company are less enthusiastic about its strategic vision in achieving the standards set out by the quality improvement programs. REFERENCES 1. Armstrong, M 2006, A Handbook of Human Resource Management Practice, 10th edn, Kogan Page, London. 2. Beckett, ST 1999, Industrial Chocolate Manufacture and Use, 3rd edn, Wiley-Blackwell, Oxford. 3. Brenner, JL 2000, The Emperors of Chocolate: Inside the Secret World of Hershey and Mars, Broadway, New York. 4. Cadbury Online Annual Report & Accounts 2008, Retrieved from, www.cadburyar2008.production.investis.com 5. Dawes, H 2008, Surviving a Global Economic Crisis, Xulon Press, Florida. 6. Drucker, PF 1999, Management Challenges for the 21st Century, Harper Paperbacks, New York. 7. Kozami, A 2005, Business Policy and strategic Management, Tata McGraw-Hill, New Delhi. 8. Lawrence, LA 2009, Chocolate Fortunes: The Battle for the Hearts, Minds, and Wallets of Chinas Consumers, Amacom, New York. 9. Mello, S 2003, Customer-centric Product Definition: The Key to Great Product Development, PDC Professional Publishing, Massachusetts. 10. Mitchell, JA 1993, ‘Poisoned Chocolate? Corporate Governance and the Cadbury Report’, Journal of the Managerial Auditing, vol.8, no 3. 11. Porter, ME 1980, Competitive Strategy: Techniques for Analyzing Industries and Competitors, The Free Press, New York. 12. Smith, C & Child, J 1991, Reshaping Work: The Cadbury Experience (Cambridge Studies in Management), Cambridge University Press, New York. 13. Schein, E 1993, Organizational Culture and Leadership in Classics of Organization Theory, Harcourt College Publishers, Fort Worth. 14. Smith, C 1991, Reshaping Work: The Cadbury Experience (Cambridge Studies in Management), Cambridge University Press, Cambridge. 15. Ogunwolu, SO 2006, ‘Development of non-conventional thermo-resistant chocolate for the tropics’, British Food Journal, vol.108, no.6, pp.451-455. Read More