Business Model Integration and Development: Coca-Cola - Case Study Example

BUSINESS MODEL INTEGRATION AND DEVELOPMENT: COCA-COLA Table of Contents Table of Contents 2 Introduction: 3 Organisational Structure of Coca-Cola 4 5 Influence of organisational strategy on organisational structure of Coca-Cola 6 Appropriateness of organisational structure 7 Product Market and Capital Market Interaction of Coca-Cola 8 Capital market and product market 8 BCG Matrix 10 PLC of Coca-Cola 12 Technological changes and their influence on the business model of Coca-Cola: 14 Merger and Alliances: 15 Financial analysis 15 Leasing 15 Off Balance sheet 17 Equity vs. Debt 17 Interest payout 18 Conclusion 18 Introduction: Established in the year 1886 in Atlanta by pharmacist John Pemberton, Coca-Cola is undoubtedly one of the greatest brands in the world (Coca-Cola, 2014c). Unlike many successful business houses of the present day, the history and heritage of Coca-Cola is not marked with technological and financial milestones. But, the connection between the brand and its consumers is the key aspect of Coca-Cola that has helped the company in developing its giant structure. Coca-Cola is not only a brand for its stakeholders but also have secured their position in the emotional spheres of the society which has also helped the organisation in expanding its market (Coca-Cola, 2014c). The operational style of the company has been developed with the vision of the firm that can be segmented into profit, people, portfolio, partners, planet and productivity. Beginning from Atlanta, Coca-Cola presently occupies almost all the inhabitant continents of the world. They have over 400 brands under their umbrella and on an average serve around 1.9 billion servings per day (Coca-Cola, 2014c). The financial stability of the company can be gathered from its huge market share of 42.2% and in the year 2013 annual retail sales above $500 million (Coca-Cola, 2014c). However, considering the growing competition in the business segment, Coca-Cola is facing competition from other soft drinks manufacturers as well as the beverage industry. In this regard, the operations of Coca-Cola will be analysed in this study, in context of their internal management and market efficiency and the financial position. Organisational Structure of Coca-Cola The organisational structure of Coca-Cola has been developed in a customised manner for including better control over their employees and the work culture of the firm. The organisational structure of the firm reflects a simple hierarchy at the top managerial level while the lower level employees are structured in accordance to the nature of their work. Figure 1: Organisational Structure of Coca-Cola (Source: Created by Author) The above given structure reflects the organisational structure of Coca-Cola. The position of the various departments has a clear specification in regard to their responsibilities. The continuity from the chain of commands can also be gathered from the given structure. The operations of the lower management however differs from this hierarchical approach and often indulges a matrix or flat structure for operations. According to the study of Lehu (2007), Coca-Cola always tries to keep a transparent process which enables their employees to understand and position themselves in their respective operational roles. The operational activities are carried out within team structures to enhance employee participation and integration. Influence of organisational strategy on organisational structure of Coca-Cola The organisational strategy of Coca-Cola when considered from their mission and vision statement directs toward generating financial strength and brand equity in a sustainable manner. From the above given organisational chart, it can be assessed that the managerial decision making process of the company is strictly centralised. However in the tactical level of the structure the objective is segmented into several different factors in accordance with the roles and responsibilities of each department. Chen (2009) mentioned that structure of a firm is developed in order to fulfil the strategies and portray the organisational culture. However, Karniel and Reich (2011) argued that a cyclical flow of operations begins from culture and continues to structure and strategy and a similar trend also is authentic in case of Coca-Cola. Figure 2: Relationship between organisational structure and organisational strategy (Source: Zhang, 2008, p - 433) Appropriateness of organisational structure The organisational structure of Coca-Cola has been developed based on their organisational mission which is to be the leading service provider in category of branded beverages (Lamming, Bessant, and Jones, 2012). The company has successfully established its chain of products and services and also have segmented each product with their individual brand along with the umbrella branding of Coca-Cola. The development of the structure thus has been solely focused on the organisational objectives and thus created a proper growth strategy for the company. It can be observed that the organisational structure of the company has been customised by focusing on the process, product and function. Chen (2009) also mentioned that the business process of Coca-Cola is practical, they have given critical focus on profit earning for business in order to ensure that other functional activities and tasks of the company can be met in an appropriate manner. However, the combination of centralised and decentralised management can initiate some complicacy and confusion in the management process when the internal communication is not up to the mark. This also brings in the aspect of communication for building an aligned structure and strategy for a company. Product Market and Capital Market Interaction of Coca-Cola Capital market and product market The capital market structure of Coca-Cola will be analysed by assessing the trend in their stocks and market response of the shareholders of the company. Figure 3: Stock price comparison of Coca-Cola and PepsiCo for the last five years (Source: Yahoo. 2014) The graph reflects the trend in the stock prices of Coca-Cola and their arch competitor PepsiCo. Both these companies together form the largest market share holder in the global beverage market. It can be gathered that although the stock prices of PepsiCo is higher than Coca-Cola, they have consistently failed to capture the growth rate of Coca-Cola. A reverse consideration reflects the ability of Coca-Cola to create a steady growth curve that has grown higher with business expansion. The last executive dividend structure of the company was recorded as paid in November 2014 at .305 which is 8.4% increase from the dividend amount paid in 2013 November (Yahoo. 2014). The market capital of the company also reflects a similar trend of growth in the share capital and the market structure of the company. Figure 4: Market Capital of Coca-Cola (Source: Ycharts, 2014) The market capital of Coca-Cola was last recorded to be $183.92 billion. Coca-Cola has reflected a continuous growth in the market capital in the last five years. The lowest point was during the year 2010-11 and since then there has been a steady rise in the overall market capital of the company. According to Baligh (2007), the business expansion process of Coca-Cola is a key factor in the management of their stock market stability. The product market of Coca-Cola is one of the biggest product bases in the corporate sector operating under a single umbrella company. The product segment of Coca-Cola started with the original product base of the company and since then has regularly included new products for expansion of the customer offerings of the company. The primary markets of Coca-Cola are energy drinks, soft drinks segment, synthesised fruit drinks and mineral water (Brenton and Driskill, 2010). These four segments have been crowded with regular launch of new products that are transformed into individual brands based on their performance in the market. The market share of Coca-Cola however is largely dependent on the original product. Coca-Cola has also extended their product base by focusing on the individual need of the market. For instance, the Asian, East African, and European markets have a product named Maaza (synthesised mango drink) which has not yet been launched in the UK or USA (Chen, 2009). The extended product base of the company also reflects varieties of other product brands which are being operated in their concentrated zones only. Czarniawska-Joerges (2009) mentioned that Coca-Cola has developed their product launch strategy in a risk free manner. They have limited the operations of their products to their respective target consumers and developed new products for expansion of business in other markets (Lamming, Bessant, and Jones, 2012). The product market structure and operations of the company will be better explained in the product life cycle analysis in later part of the report. BCG Matrix BCG matrix analysis of Coca-Cola will help in identifying the productive and non-productive business units of the firm. Figure 5: BCG matrix (Source: Kassimali, 2011, p - 234) Considering the product base of Coca-Cola, the performance of the strategic business units of the firm will be measured in context of their primary markets i.e. the USA, UK and India. The evaluation of the product base of the company will not be focused on the growth of overall brand value but on the individual performances of each brand. The star represents the high performers of the company. In case of Coca-Cola, original coke is the star performer of the company (Germain, Claycomb and Droge, 2008). Coca-Cola original has been the flag bearer for the company when they wanted to enter a new market or launch a new product in the existing market. The question marks highlights the the new launches in the primary markets such as Coke Zero and Sprite Zero that are yet to create a clear picture of profit or loss in the market (Harper and Utley, 2006; Eigenhuis and Dijk, 2009). Apart from them, the new product in the energy segment of the company (Powerade Zero) is also a question mark for Coca-Cola. The potential of growth of these products are high, however, considering the existing competition in the market, the sustainability of the products is not yet confirmed. Cash Cows are the products that generate cash for the company as well as helps in sustaining other lagging units such as dogs and question marks (Hollensen, 2011). The cash cows for Coca-Cola in the concerned markets are Maaza, Limca, Diet Coke and Fanta (Lamming, Bessant and Jones, 2012). These products have performed exceptionally in their particular markets and are amongst the top preferred drinks of the customers. Finally, the dog segment includes the under performers Zico Coconut water and Relentless. These products can be put among the dog segment of the company considering the money invested on the brands and the output received (Lamming, Bessant and Jones, 2012). The new launch Zico Coconut water has not received the expected demand from the market because of the high price and existence of the natural coconut water. PLC of Coca-Cola The product life cycle of Coca-Cola will focus on evaluating the performance of the products in the market. The product life cycle of the company will be conducted by measuring the performance of the products in an accumulated manner in relation to brand sustainability and also on the basis of individual performance of product. The product selected for the individual PLC is Coca-Cola original. Figure 6: Accumulated Product Life Cycle of Coca-Cola (Source: Lamming, Bessant and Jones, 2012, p - 163) The accumulated product life cycle has been developed by concentrating on the primary product line of the company. The major feature of the product life cycle of Coca-Cola is during the growth period (Lamming, Bessant and Jones, 2012). Almost all the products of the company have reflected rapid brand establishment in the market and also a quick entry into the maturity stage. However, Coca-Cola has effectively succeeded in the market as they have gained balance by reducing the supply in the market. This strategy has also prohibited the products from inflowing the decline stage. Another explanation was provided by Biggadike (2010) who mentioned that in order to increase the market longevity of the products, Coca-Cola changes the market place of the products which helps them to extend the brand equity of the products. Figure 7: Product Life Cycle of Original Coca-Cola (Source: Lamming, Bessant and Jones, 2012, p - 165) The product life cycle of original Coca-Cola has a distinctive feature that has been marked with the upward extension of the life curve. Similar to other products of Coca-Cola, the original Coca-Cola also experienced a steady and accelerated growth stage. However, when the brand entered the maturity stage, the company enhanced the life cycle curve by providing external support in the form of brand expansion. The product was launched in new markets for better sustainability and the existing markets of the product were supported by launching modified version of the product such as Diet Coke and Coke Zero (Lamming, Bessant and Jones, 2012). Technological changes and their influence on the business model of Coca-Cola: The technological influence on the organisational model of Coca-Cola was mainly related to the branding and promotional aspects of the firm. The development of information technology helped the firm to expand their branding process through online means such as social media interfaces (Hall, 2011). Apart from this, online customer communication tools were used in order to strengthen the stakeholder relationship of the firm. Focusing on the influence on departmental functions of the firm, the overall marketing and research and development process of the business had to be changed considering the increasing acceptance of technical interfaces by the customer group. Another functional change was noticed in the development of the database and knowledge management system with the introduction of cloud computing system. Merger and Alliances: The expansion strategy of Coca-Cola took a new turn when the company acquired Green Mountain Coffee Roasters Inc in the year 2013 (Coca-Cola, 2014). This also marked the entry of Coca-Cola in the coffee industry. Apart from this, the company also acquired Keurig Green Mountain Inc which was another growing firm operating in the food and beverage segment (Coca-Cola, 2014). One of the acquisitions which are yet to reveal any profits for Coca-Cola was the acquisition of Zico. Previously, Zico Coconut Drink was ranked in the dog category in BCG analysis based on the low output of the business. Financial analysis The financial analysis of Coca-Cola will mainly focus on their leasing, off balance sheet records, equity vs. debt and interest payout. Leasing Figure 8: Leasing Obligations Coca-Cola (Source: Coca-Cola, 2014a) The lease obligations have been developed by Coca-Cola by calculating the estimated obligations of the business in the next five years. As observed from the above given screen shot of Coca-Cola balance sheet, the total lease obligations of the company are $1258 million (Coca-Cola, 2014a). Off Balance sheet The off balance sheet of Coca-Cola has been developed by considering the SEC rules. The annual report 2013 of the company reflected that the company owes around $662 million towards guarantees of indebtedness for third parties of which $288 million was related to VIEs (Coca-Cola, 2014a). However, as per the calculations of 2013 December, the company did not owe any liability towards unconsolidated entities (Coca-Cola, 2014a). Equity vs. Debt Figure 9: Debt to Equity Coca-Cola (Source: Coca-Cola, 2014) From the above given screenshot it can be gathered that the total equity of the company is $33440 million and the total long term debt is $19154 million (Coca-Cola, 2014a). This reflects that the company has a conservative financial approach and does not engage in aggressive or risk taking behaviour. However, the capital strength of the company is also another reason which reduces the debts of the firm. Interest payout Figure 9: Annual Interest Payout Coca-Cola (Source: Coca-Cola, 2014b) The interest payout of the Coca-Cola as observed in the above screenshot has steadily increased in the last 5 years along with the increase in debt obligations of the business. The change in the interest payout is highest during the year 2013 and 2014 (Coca-Cola, 2014b). Conclusion Coca-Cola is one of the biggest brands in the corporate sector and has a large range of product base to operate in their widespread market. The organisational structure of the company has been developed in accordance with the strategic planning process and the organisational objective which has created a strong relationship between the operational and decision making process. The product management of Coca-Cola is based on individual brand performance of the products and the extension of the product life cycle curve. The financial performance of the company has reflected a secure expansion and managerial strategy as suggested from the debt to equity ratio analysis. Meanwhile, the leasing obligations and the off-balance sheet debts are also low in comparison to the capital reserves of the company. Reference List Baligh, H. H., 2007. Organization Structures: Theory and Design, Analysis and Prescription. 5th ed. Heidelberg, New York: Springer Verlag. Biggadike, E. R., 2010. The contributions of marketing to strategic management. Academy of Management Review, 6, pp. 621-632 Brenton, A. L. and Driskill, G. W., 2010. Organizational Culture in Action: A Cultural Analysis Workbook, 4th ed. London: McGraw-Hill Higher Education Chen, A. C., 2009. Using free association to examine the relationship between the characteristics of brand associations and brand equity. Journal of product and brand management, 10(7), pp. 439-451 Coca-Cola 2014a. Annual Report 2013. 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