Cadbury Plc Business Strategy - Case Study Example

Business Strategy Introduction ‘Strategy’, is one of the most widely used terms in the context of any organisation. Over the years business organisations have been using several innovative strategies in order to stay ahead of their competitors. The word strategy is derived from the word ‘Strategia’ and the concept of strategy came from the military (Grant, 2002). In the past, strategies were adopted and implemented by the militaries with the purpose of winning the war. Contemporary global business scenario is so competitive that the organizations seem to be at war with each other. They need to adopt different innovative strategies to win this war. In other words it can be said that in the present competitive business scenario success and failure of any organisation largely depends on the strategies that it has adopted. The term, ‘strategy’ is explicitly defined by the famous American personality, Alfred D. Chandler. According to him “strategy is the determination of the basic long term goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.” Proper management of business strategies is often referred by another term named ‘strategic management’. Ansoff and McDonnell have defined strategic management as “a systematic approach for managing strategic change which consists of positioning of the firm through strategy and capability planning and real time strategic response through issue management.” (Cole, 2003). In simple words strategic management deals with the formulation of business strategies along with its proper implementation in order to achieve various strategic objectives. This report attempts to explain the concept and application of business strategy in the context of Cadbury Plc which is one of the most popular chocolate, candy and gum producers in the world. This report provides a detailed overview of the company and its current strategic position. Concepts like strategic choice, strategic capability, strategic networks, value chain analysis and Porter’s five forces model are used in this report to analyze the strategies that the company has adopted over the past few years. Cadbury Cadbury is one of the largest confectionery companies in the world. It started its journey in 1824. It was founded by John Cadbury who initially sold cocoa and tea in UK. Today, the company has an excellent portfolio of chocolate, candy and gum brands. There are three flagship brands under the company. They are Cadbury, Halls and Trident. Cadbury is the largest chocolate brand in the world, whereas Halls is one of the most popular candy brands in the world. Trident is found to be the number one chewing gum brand throughout the world. According to the data provided in the company website, Cadbury has its operations in more than 60 countries. The company employs almost 45,000 people throughout the world (Cadbury, n.d.). Some of the most popular chocolate brands of Cadbury are diary milk, crème egg, green & black and flake. Trident, Hollywood, Bubbaloo and Dentyne are popular brands in gum category. In the category of candy, popular brands include Éclairs, halls and Bassett’s. According to the company’s factsheet total revenue in the third quarter of 2009 is found to be almost 7%. Almost 46% of company’s total revenue comes from the market of North America and United Kingdom. Cadbury’s strategy Cadbury is known for focused business strategy. The company is one of the oldest companies in the world and it has been able to stay ahead of its competitors for a long time. Cadbury’s believes that there exists huge opportunities in the global market that must be immediately capitalized and its strategies are based accordingly. Most of its recent strategies are adopted as per the ‘Vision into Action’ (VIA) plan developed for the period from2008 to11. The company has developed certain strategic objectives that are included in this VIA plan. These objectives are 4-6% organic growth, increase of share in confectionary market, strong dividend growth, and return on invested capital growth. In order to achieve all these objectives the company has adopted several efficiency and growth strategies. It is found that the revenue growth of the company during the period of 2004-07 was almost 6% per year. However, prior to this period the revenue growth was below 3%. The company launched Adams business in 2003. This business was found to be hardly growing prior to the period of 2004-07. This was one of the main reasons behind the overall low growth of the company in that period. However the company was able to unlock the potential of Adams business in 2004 and since then it has experienced excellent revenue growth. Cadbury has increased its investment in marketing, sales and innovation. According to the information published in company website, it seems very likely that Cadbury will achieve the target revenue growth during the period of 2008-11 on the strength of its brands and its strong position in the market. Moreover the company is focusing more on faster growing categories like ‘gum’ and emerging markets like India and Brazil (Cadbury, n.d.). Cadbury has identified few countries and few brands on which they need to keep more focus. There are twelve such markets which include Brazil, China, India, Japan, South Africa, Mexico, USA, UK and Russia. Brands that need to be given special attention are Cadbury, Halls, Green and Black’s, Trident, Hollywood, Bubbaloo, Flake and Clorets (Cadbury, n.d.). Cadbury is found to be reducing its cost of operation and improving its overall efficiency. In order to achieve these objectives the company has decided to manage all its big brands and all its categories (chocolate, gum and candy) on a global basis instead of concentrating on a particular market or region or individual choice. Furthermore the company has also decided to merge the regional head offices and local market. The team consisting of Cadbury’s central head office and the management team of BIMA (Britain, Ireland, Middle East and Africa) will be co-located in UK. According to the company several markets will be united to form a single market where operating costs will be lower and the scale of operation will be larger. In order to achieve its strategic objectives Cadbury has started to outsource some of its processes regarding finance, accounting, human resources and IT. Reconfiguration of manufacturing network is an important part of Cadbury’s overall strategy. This reconfiguration is mainly aimed to reduce the cost of production. In this process production process would be carried on in a small number of plants that are large in size and production capacity. According to the company this will ease the process of reducing costs. Moreover such reconfiguration process is likely to enable the company to increase the investment in creating new state of the art production facilities that will support company’s growth agenda (Cadbury, n.d.). Current Situation Over the past few years Cadbury has seen several changes in its structure and inter-organisational relations. In 1969 the company merged with Schweppes. However in 2005 it almost decided to break this more than 30 years old relation (Nisse, 2005). Although, the de-merging did not take place in that year, in 2006 Cadbury-Schweppes withdrew millions of chocolate bars from the retail stores throughout UK. The main reason behind such massive pull out was the salmonella scare associated with their products. The company lost almost 20 million Euros due to such huge retrieval of chocolate bars (Solar Navigator, n.d). Finally in 2007 the board of Cadbury Schweppes decided to de-merge. In September, 2009 Kraft Foods Inc., the US based food giant offered 16.7 billion dollars to Cadbury to merge the two companies. However the Cadbury board rejected the offer stating that the company wants to stay with its standalone strategy. On the other hand Kraft said that the combination of Cadbury and Kraft will result in an association which would earn revenue of almost 50 billion dollars. It also said that the union of the two companies will dominate the market of confectionary, snacks and quick meals throughout the world (CNN, 2009). In November, 2009 Kraft Foods Inc. took its proposal back as Cadbury said that Kraft needs to offer a bid of at least 8 euro per Cadbury share (Werdigier, & Merced, 2009) Finally in January, 2010 Cadbury accepted a higher takeover proposal of almost 19 billion dollars from Kraft Foods Inc. According to Jon Cox, a beverage and food analyst of Kepler Capital Management, Cadbury will be benefited from the strong supply chain network of Kraft Foods which is much bigger in size as compared to Cadbury (Merced, & Nicholson, 2010) After the merger between Cadbury and Kraft, the combined company holds the number one position in global biscuits as well as global confectionary market (Kraft Foods Inc. n.d.). Strategic Capability Strategic capability is referred to the competencies, skills and knowledge that can be applied by the organisation in order to achieve its strategic objectives. As far as Cadbury is concerned its area of core competency are chocolate, candy and gum. It’s been more than a century that the company is into the business of chocolate, gum and candy. After the merger with Schweppes the company also started to deal with beverages, but in 2007 it decided to separate the businesses of confectionary and beverages. Then after the de-merger with Schweppes, Cadbury decided to focus only on confectionary business which includes business of chocolate, gum and candy. In other words after the de-merger Cadbury decided to emphasize on its core competencies. Today the company’s vision is to become the best and biggest confectionary company in the world. Cadbury knows the confectionary market especially the chocolate market much better than any other local or global player. It has vast knowledge regarding the consumer’s tastes and choices and this has enabled it to sustain in the market for such a long time. It has strong distribution network in almost all the major markets. The company has introduced several programs to reconfigure its supply chain network. Currently most of the manufacturing process of Cadbury is done in small number of large factories rather than on large number of small factories. One of the main reasons behind the success of Cadbury’s worldwide success is its skilled employees. It has a strong sales and marketing team that takes care of large distribution network of the company. Strategic Choices Strategic choices are choices that should be considered by the company in the process of attaining its strategic objectives. It is very important to identify all the possible strategic choices first, then analyze each and every one of them and finally select the one that will be most effective for the company to accomplish its both mission and vision. If the present situation of Cadbury is taken into account it can be said that the company has made perhaps the biggest strategic decision in its history; it has accepted a mighty proposal of 19 billion dollars from Kraft Foods Inc. Cadbury had the option of rejecting the proposal like it did in case of first proposal of Kraft. The company rejected the first offer of Kraft because it found that the offer was not big enough to acquire one of the biggest and most popular confectionary companies in the world. However it kept all the doors open for discussion regarding this issue. Meanwhile the company was evaluating on another option of merging up with another US food company, Hershey. It is found that Hershey was also thinking to launch a bid of 17 billion dollars to acquire the British confectionary giant. Cadbury was evaluating each and every choice that it had at that moment. Its chairman Roger Carr said that "Clearly, whilst some potential offerors are more aligned with our business model than others, it is the value of the offer rather than the source of the offer that is our priority." (Reuters, 2009). In early 2010 Kraft offered a bid of almost 19 billion dollars which was much higher than the previous one that it offered. After analyzing all the strategic choices, Cadbury finally decided to select the last offer of Kraft Foods Inc. Value Chain Analysis The value chain model was first introduced by Michael Porter. Value chain model includes all those activities that are involved in creating and delivering value to the customers. In the value chain model activities are divided into two categories – primary and support. Primary activities include inbound logistics, operations, outbound logistics, marketing & sales and service. Support activities are procurement, management of human resources, technology development and development of infrastructure. In case of inbound logistics raw materials come from the chosen suppliers. These materials are used to produce the final products in the operation process. Final products get distributed to retailers and from retailers they are purchased by the consumers. Activities regarding marketing and sales take place in this phase. Providing after sales services is also a part of primary activities. All these activities are supported by excellent infrastructure, technology etc. In case of Cadbury there is wide range of suppliers who supply broad range of raw materials. Standards and quality of all the materials are thoroughly checked by the company. Once all the materials are obtained they are processed in the manufacturing facilities of the company. Cadbury has its manufacturing facilities in different parts of the world so that final products can be distributed with ease all around the world. Final products are distributed through a strong supply chain network of the company. All the Cadbury products are available at large number of retail outlets in all the major markets of the world. There are almost 14,00,000 outlets in India only (Cadbury India, n.d.). Strong sales and marketing team of Cadbury ensure that all the products of the company reach the final customers. Care is taken to ensure all the promotional activities of various Cadbury brands. Sales and marketing is also responsible for providing all the after sales services. However some problems exist regarding this aspect as consumers are sometimes found to complain against the after sales services of Cadbury. As far as support functions are concerned, Cadbury has advanced infrastructure especially in its manufacturing plants. Advanced technologies are also used to ease all the primary activities. In 2009 the company chose O4 Corporation which is renowned for providing solutions for sales force automation. O4 solution has enabled the territory managers of Cadbury in Australia to manage sales with more effectiveness and to take orders with more efficiently. It has also helped the managers to increase their productivity. Such a solution has enabled the company to closely monitor the performance of retail partners and field sales forces. Recognizing the need of advanced technology Eddie Anastasi, the national sales manager of Cadbury in Australia said that “We recognised that the need for state-of-the-art software was the number one priority to reignite our field sales team.” (Retail Biz, 2009). O4 solution has enabled Cadbury to become more sensitive and responsive to market fluctuations. Porter’s Five Forces Analysis According to Michael Porter there are five forces that shape the structure of an industry. These are bargaining power of buyers, bargaining power of suppliers, intense competition among rivals, threat of new entrants and threat of substitutes. Cadbury belongs to the ‘Fast Moving Consumer Goods’ industry where buyers have strong bargaining power. Today buyers have several choices as there exist large number of brands offered by large number of companies. Product or brand that is available at a lower price with a better quality is likely to be chosen by the consumers. As a result companies always have to make the products with best possible quality and at a lowest possible cost. Cadbury, being an experienced and popular player is expected to deal with the bargaining power of buyers with more effectiveness as compared to any other company. As far as suppliers are concerned they too have strong bargaining power as they provide the raw materials. Like any other confectionary company Cadbury is also influenced by the power of its suppliers. The company has to carefully negotiate various issues regarding price and quality of its suppliers. Confectionary market is highly competitive as there are several big players. Cadbury competes with Nestle, Wrigley, Hershey and Mars. Threat of new entrants is not a matter of serious concern for Cadbury and it is also true for other players operating in the same industry. This is mainly because to establish a large scale company like Cadbury huge amount of capital and man power is required. Substitutes also pose e a threat for many products and companies. In case of Cadbury this threat ranges from low to medium. It is very unlikely that chocolate or gum will be replaced by any other products in the near future. Strategic Plan There are five questions that need to be answered while formulating a strategic plan for protecting Cadbury from a hostile take-over bid. These questions are – 1. Where are we at present? 2. Where do we wish to be? 3. How can we reach there? 4. Which way should be chosen to reach there? 5. How can we make sure of our arrival? These questions are needed to be analyzed in the context of Cadbury in order to make a strategic plan. Prior to the period of merger with Kraft, Cadbury was having an average of 6-7% revenue growth. However the company was facing some difficulties to maintain its number one position in the confectionary market. In later half of 2009 the company got the proposal of merger from Kraft that offered 16.7 billion dollars. In order to remain safe Cadbury could have simply rejected the offer by saying that the value is too low to acquire a company like Cadbury. Since the main vision of Cadbury is to become the best and biggest confectionary company in the world, it must increase its operation and make its presence palpable throughout the world. However the company is presently operating in only 60 countries. As a result the company is likely to face obstacles in the way of achieving its vision. If Cadbury wants to accomplish its vision without being acquired by any other company like Kraft, it has to take over another company that has a strong presence in the markets where Cadbury does not have. Furthermore this company must be from the same industry. The strategy of taking over another confectionary company can be considered as a counter strategy of Kraft’s take-over proposal. Another option that can be used to protect from the take-over proposal from Kraft is offering a counter bid to take over Kraft. This will certainly help the company to achieve its vision. Cadbury can declare a statement that it would diversify and get into another business which is entirely different from its present business. It can announce that it is trying to formulate a new business model. This can reduce the interest of bidders like Kraft on Cadbury. Conclusion Developing and implementing proper strategy are crucial for any company to maintain its position in the competitive business scenario. Cadbury, over the years, has made several strategic decisions to remain profitable. Recently the company was taken over by another giant food company Kraft. Kraft offered 19 billion dollars to merge the two companies. However Cadbury could have saved itself from this hostile takeover if it would have offered a counter bid to acquire Kraft. References Cole, G. 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