Innocent Drinks - Organizational Structure, Ownership, and Growth - Case Study Example

Student’s Name: Instructor’s Name: Course Code & Name: Date of Submission: TABLE OF CONTENTS THE ORGANIZATIONAL STRUCTURE, OWNERSHIP AND GROWTH OF INNOCENT DRINKS 3 INNOCENT ORGANIZATIONAL STRUCTURE 3 INNOCENT OWNERSHIP 4 INNOCENT DRINKS GROWTH 5 REASONS FOR THE GROWTH OF INNOCENT DRINKS UP TO 2005 6 BUSINESS STRATEGY OF INNOCENT DRINKS FROM 2006 TO THE PRESENT 7 STRATEGIC REASON FOR FULL CONTROL AND KEY INFLUENCE IN DECISION MAKING BY COCA COLA COMPANY 9 CONCLUSION 12 REFERENCE 12 APPENDICES 13 APPENDIX 1: BUSINESS CYCLE 13 Appendix 2: Porters five forces model 14 INNOCENT DRINKS CASE STUDY THE ORGANIZATIONAL STRUCTURE, OWNERSHIP AND GROWTH OF INNOCENT DRINKS INNOCENT ORGANIZATIONAL STRUCTURE Innocent drinks from its inception to April 2010 had line organizational structure since there was a direct relationship between different levels in the company. For example the initiators of the company were in control of everything that happens in the company since they are involved in recipe writing and market research without involving any other department within the company i.e. market department to do market research. This type of organizational structure has its merits which includes increased flexibility in decision making in the company unlike other organizational structures. But it stands out to be inefficient despite its increased flexibility since decision making is centralized and other do not have any power to adopt their own approach to company operation without being authorized by the three owners of the company (Pugh and Hickson, 1976). The organizational structure changes after innocent Drinks being fully acquired by Coca Cola Company on 1st March 2013 from line organizational structure to divisional organizational structure. Divisional organizational structure is one which is one which products are produced within divisions which are self-contained or having its own resources such as finances and labor. According to the case study, we are able to justify change in organizational structure due to the fact that they agree to maintain innocent drink has separate business unit and same company but fully controlled by Coca Cola Company. This structure is coupled with numerous merits one being increased efficiency since control is decentralized and each division can account on its use of resources and sustain its operations thus eliminating loss making divisions (Pugh and Hickson, 1976). INNOCENT OWNERSHIP The company was solely owned by innocent drinks to April 2010, Coca Cola having its investment from April 2009 of 18% but having no significant control over innocent drink since it has less than 20% threshold required for a company to exercise significant control on another company in which they hold shares. After April 2010, innocent drink sold 58% of its equity to Coca Cola making it a subsidiary since Coca Cola holds more than 51% threshold provided by international financial standards. The equity of Coca Cola on February 2013 reached 91% thus having almost full control over innocent drinks operation, leaving the three founders of innocent drink only minority shareholders with only vote of 9% according to their shareholding. Coca Cola Company on 1st March 2013 takes full control on Innocent drinks after purchasing the remaining 9% of innocent company ruling out the three shareholders and founders of innocent drink (Thomas, 2007). INNOCENT DRINKS GROWTH Growth of any organization or company is essential and need to be given enough attention in order to monitor its progress and adjust its strategic and operational plans for the growth to suit its desired organizational goal. These goals include increase in shareholder wealth, cost minimization and profit maximization. Might undergo four growth stages that is introduction, growth, maturity and decline stage. According to Innocent Drinks, the four growth stages are evident. In 1999, the company entered its introduction stage where the three founders were engaged in recipe writing and market research. At this stage, innocent Drinks spend a lot in getting company to the market with no returns. Company is required to devise proper strategies in order to enter into the next stage which is growth stages and according to Innocent Drinks, they decided to tailor their drinks in order to meet the niche of natural fruit ingredients and flavored water which was not being provided by any drinks company at the moment (Filatotchev, n.d.). Niche identification by Innocent Drinks enabled the company to enter growth stage. This is evident by its regular appearance on Sunday Times “track 100” for a period of five years as fastest growing company. Its growth is further echoed by BBC News report that they were controlling 69% of the drinks market share by the year 2010. Innocent drinks entered its maturity stage after the five year growth due to entrance of other drinks company thus saturating the market or reaching their maximum market and inability to expand to other market due to financial constrain inhabiting it to venture into international markets like Coca Cola Company. The company in 2010 recorded a decline in market share by 29% since it dropped from 59% in 2006 to 30% in 2010. This is usually caused by inability of the company to cope up with the competition either through product improvement and market research. At this point management is advised to employ strategies like divesting, change product design or sale the company. Innocent strategy at decline stage is noticed in April 2010 where they sold 58% of its equity to Coca Cola Company and in return its rival was bought out by Pepsi Company which is in the same line of product of soft drinks with Coca Cola (Filatotchev, n.d.). Innocent Drinks finally makes final sale of 100% of its equity to Coca Cola Company enabling the three founders to exit the company and avoid any further loss due to loss of its market share. Innocent Drinks business cycle is illustrated below (appendix 1) REASONS FOR THE GROWTH OF INNOCENT DRINKS UP TO 2005 Innocent drink experienced more than five year constant growth due to its business entry strategy of identification of niche in drinks market. They specialized in natural fruit ingredients drinks and flavored water which was not provided by the giant companies like Coca Cola which dominated drinks market. They were able to take control of the market up to 2005 due to few or not competitors in the market at this period and growing market due to healthy diet concerns and value of innocent drinks in terms of taste and quality. The company had minimal threats such as new entrance and substitute drinks to what they were offering in them market. They also had high supplier and buyer bargaining power thus enabling them to consistently grow their market share (Kotler, 2000). BUSINESS STRATEGY OF INNOCENT DRINKS FROM 2006 TO THE PRESENT The company experienced drop in its market share from 2006 despite increase in market share since there was a number of competitors who entered the market thus reducing market share. In four different ways this includes new entrance to the market, availability of substitute, bargaining power to suppliers and buyers. The new entrance includes Tropicana, Ribena, schloer Robinsons and Britvic Soft Drinks. Major rivals being Tropicana and Robinsons in which it produced drinks close to innocent line of product. The management was reluctant to devise ways or strategies to counter their competitors with the assumption that they had influence in the United Kingdom market due to its reputation and their drinks being 100% fruit ingredients. These lead to decrease in the market share due to availability of better substitute to their current and potential customers. Consequently, they lost large proportion in terms of buyer bargaining power and supplier bargaining power due to good deals provided by other competitors. The major reason for the reduction of market share is due to Innocent Drinks prices being relatively high than its substitutes due to high cost of production compared to its rival companies since they do not produce 100% fruit ingredients drinks. This pushes demand and profitability of rivals drinks up. High profitability therefore increased its rivals bargaining power in getting supplies at a higher price and prompt payment (Kotler, 2000). These forces affecting innocent Drinks are illustrate appendix 2 This affected innocent drinks company negatively forcing it to sell part of its equity to Coca Cola Company in order to get support due Coca Cola dominance in the drinks market. The situation didn’t improve and they were forced to sell it fully to Coca Cola Company since they have enough resources to maneuver the growing competition in Innocent drinks line of products. For example use of existing line of distribution in order to introduce the drinks to new markets. Coca Cola Company also enjoys economies of scale thus enables innocent drinks to increase supplier bargaining power by buying their supplies at what its competitors are offering or even giving them a relatively higher price. Economies of scale will further reduce the selling price of innocent drinks thus enabling it to regain its market share. The founders further suggest that Coca Cola should maintain innocent drinks as a separate business unit and company. This strategy will enable the Innocent Drinks to maintain current market reputation at the same time enjoy large economies of scale and resources from Coca Cola company thus increasing its current market share by winning customers from its competitors and venturing into new markets using existing Coca Cola chain of distribution (Kotler, 2000). STRATEGIC REASON FOR FULL CONTROL AND KEY INFLUENCE IN DECISION MAKING BY COCA COLA COMPANY The acquisition decision is vital for any company since they are a number of risks that might accrue to the company and result to huge loses. Therefore, it is important for any company to undertake PESTEL analysis in order to determine strengths, weakness, opportunities and threats available to the acquiring company. According to Coca Cola strategic plans to acquire innocent drinks, we realize that they considered several factors before making its final decision. These factors included political, economic, social and technological factors connected to innocent drinks acquisition. The Political factors considers in before acquisitions includes Innocent Drink effects on Coca Cola tax incentives that accrue due to the fact that increase in operation increases the tax collected by government thus enabling it to enjoy tax incentives such as exemptions, offsets from allowable expenses and offsets against Innocent Drink loses. The political stability within the countries in which Coca Cola Company operates makes it a prudent decision to incorporate innocent drinks in their channel of distribution since it will increase its profitability base from its existing position. Secondly, Coca Cola Company considered economic factors considered to its acquisition since they will less cost to attract huge returns due to its economies of scale and use of existing channels of distribution and marketing to popularize the innocent drinks in order to counter the existing competition. Its international figure laid more promising grounds to introduce innocent drinks to new markets thus shifting it from saturated domestic market (Quester, 2001). The other economic benefit that was considered is regarding interest rate by which banks and other financial institutions advances loan to Coca Cola to build on innocent Drinks since they can borrow from countries in which the interest rates are lower than in United Kingdom financial market. This also increases loan base of Coca Cola Company due to increase in its capital base and diversity in line of production. The acquisition of Innocent Drink rival by Pepsi Company is another economic threat they were trying to counter since they are in the same industry with Coca Cola Company. Thirdly, social factor is another reason considered in making acquisition decision. This is due to change in consumer needs, taste and preference since we are able to note that people are becoming concerned to healthy diet thus preference is shifting to natural fruit ingredients drinks and moving away from what Coca Cola was currently offering. The shift in consumer taste and preference might have resulted to reduction of Coca Cola market share thus full acquisition of Innocent Drinks by diversifying its line of product (Quester, 2001). Lastly, technological factors are crucial in making any acquisition since it is expensive and dynamic. For example, Coca Cola Company setting up natural fruit ingredients and flavored water. Therefore, it was easy to acquire Innocent Drinks which had fully equipped with required technology at a favorable price since they sold it due to the rising threat of competition. Every technology requires trained personnel; training is a very expensive exercise thus making it more favorable for Coca Cola to take full control of innocent Drinks due to the fact that they already have trained staff to run the existing technological platform on 100% fruit ingredient drinks and flavored water. The acquisition of innocent drinks therefore gave Coca Cola Company ability to acquire Innocent Drinks strengths which includes its reputation and 100% fruit ingredient drinks as compared to its rivals. They are required to absorb its weakness that include high cost of production, high product price and expand the drinks o new market. The opportunity that accrues this acquisition decision by Coca Cola Company includes the fact that they will be able to tap more profits due to the shift in consumer consumption preference (Hoyer, Pieters and MacInnis, 2013). Also, acquisition will increase Coca Cola due to introduction of the drink to the new markets thus moving from saturated United Kingdom market. The move was also influenced by the reason that Pepsi Company had acquired Innocent Drink rival thus making it a threat to Coca Cola market dominance. CONCLUSION In conclusion, we are able to note the importance of monitoring company strategic plans and business growth in order to avoid collapse or reduction of company’s market share. It is evident also that one need to employ different analytical methods in determining product position in the market before making any acquisition decision. Coca Cola Company acquisition and Innocent management decision to sell its company is warranted due to the prevailing factors and market situation. REFERENCE Assessing the industry using Porter's five forces. (2014). Veterinary Record, 174(Suppl_1), pp.3-3. Berkowitz, E. and Berkowitz, E. (1992). Marketing. Homewood, IL: Irwin. Composites industry gets SWOT analysis. (2001). Materials Today, 4(3), p.21. Cook, S., Macaulay, S. and Coldicott, H. (2004). Change management excellence. London: Kogan Page. Filatotchev, I. (n.d.). Corporate Governance and the Business Life Cycle. Hoyer, W., Pieters, R. and MacInnis, D. (2013). Consumer behavior. Mason, OH: South-Western Cengage Learning. Kotler, P. (2000). Marketing management. Upper Saddle River, N.J.: Prentice Hall. Pugh, D. and Hickson, D. (1976). Organizational structure in its context. Farnborough, Hants: Saxon. Quester, P. (2001). Basic marketing. Roseville, N.S.W.: McGraw-Hill. Saavedra-Rivano, N. (1979). A critical analysis of the Mesarovic-Pestel world model. Applied Mathematical Modelling, 3(5), pp.384-390. Thomas, M. (2007). A study of strategies for successful enterprise resource planning implementation in a merger and acqusition environment. APPENDICES APPENDIX 1: BUSINESS CYCLE KEY 1- Star-up/introduction stage 2- Growth stage 3- Maturity stage 4- Decline stage Appendix 2: Porters five forces model Read More