Coca-Cola Operational Analysis - Report Example

INDIVIDUAL REPORT: CASE OF COCA-COLA Table of Contents Table of Contents 2 Introduction: 3 Organisational Background: 3 Issues Faced by Coca-Cola: 4 Environmental Issues 5 Social Issues 7 Economic Issues 8 Approaches for Resolving Issues Identified 10 Recommendations 11 Conclusion 12 Reference List 13 Introduction: Environmental concerns are one of the biggest challenges for the business houses operating in the contemporary scenario. The increased rate of industrialisation and urbanisation has impacted the natural structure of the world and has raised many concerns from environment friendly authorities. Apart from the environmental issues, the social factors are also increasingly gaining on the operational processes of firms. Horvath (2001) stated that aspects such as globalisation have not enlarged the scope of business expansion but has also increased cultural diversity which can lead to fading of many traditional and cultural values. The increasing focus on the companies on corporate social responsibility and sustainability factors suggests the growing authority of these factors on the daily performances as well as the strategic implications for the companies. Another factor which plays the most crucial role in the business development process is the economic issues. The recent global financial crisis of 2007-08 is one of the major evidences of economical activities on the performance of the business houses. This report focuses on the impact of these three factors on the operational process of American Beverage giant Coca-Cola. Organisational Background: With more than 3500 products being sold under its umbrella brand, Coca-Cola is undoubtedly one of the giants of the soft drinks industry in the international market place (Coca-Cola, 2015). The first coke was produced in a pharmacy as a drink to relieve workers from the heat. The taste quickly spread across in the market place and was first marketed in the year 1886 (Coca-Cola, 2015). Operating in over 200 countries worldwide, the company has focused on establishing a suitable market place for its products (Coca-Cola, 2015). In the words of McCartney (2014), Coca-Cola is just not a product; it has evolved to be a part of the daily lives of people. This statement marks the success of Coca-Cola in the concerned industry. The mission statement of the company reflects the want to refresh the world, create moments of happiness and generate value for their customers which can make a difference (Anders, 2011). The vision statement of Coca-Cola has been designed by considering the factors which are embedded in the core value of the company. These factors are people, portfolio, partners, planet, profit and productivity (Pendergrast, 2013). Although, Coca-Cola represents environmental and social concerns in their organisational introduction, the brand has been under constant scrutiny for the same cause. In context of social establishments, for many years the beverage was banned in several countries mainly because of its American origin (Anders, 2011). According to McCartney (2014), the issues and challenges faced by Coca-Cola is largely related to its vast product portfolio. Managing the product base and its operational requirements are often performed within a chaotic environment hampering decision making process of the firm. On the other hand, the external changes in the business environment such as customer behaviour, changes in regulatory policies or market competition also influences the operational processes of the company. Issues Faced by Coca-Cola: Despite being one of the biggest brands in the global market, Coca-Cola has faced its fair share of problems beginning from decreasing product sales to falling brand equity. Although the company has been able to diversify its product offerings for the customers by introducing regular changes in its core product, the Original Coca-Cola and other brand, product composition of the firm has been under review for multiple times from health authorities. In this section, the issues faced by Coca-Cola in terms of environmental sustainability, social concerns and economic factors will be analysed in order to assess the aspect of sustainability involved in the operational practices of Coca-Cola. Figure 1: The Interactive Sustainability Model (Source: Chang, Hyun and Park, 2008, p.156) Environmental Issues The primary environmental concern of Coca-Cola is related to the consumption of water in their production process. As observed by Karnani (2014), the production of Coca-Cola consumed over 283 billion litres of water in the year 2004. It was also evaluated that for every 1 litre of product, the company uses 2.7 litres of water. According to the reports of McCartney (2014), the company is also responsible for releasing chemical waste in the water bodies which is hampering the environmental balance. Although the profits of Coca-Cola have been in billions over the last decade, the environmental concerns of the company has not been reflected in a satisfactory manner. Apart from this, Centre for Science and Environment (CSE), an Indian based research institution claimed that the products of Coca-Cola and its rival firm PepsiCo have pesticides in them (Karnani, 2014). These changed the outlook of the consumers towards the products and the sales of Coca-Cola in India were down by 11% in the year 2003 (Pendergrast, 2013). Global regulatory authorities such as the European Union also confirmed that Coca-Cola products have 30 times the amount of pesticides in the products (Pendergrast, 2013). It can be clearly gathered from the above information that the environmental concerns of Coca-Cola had also impacted their financial performances. For Coca-Cola products, India is one of the major markets. The company has successfully launched over 15 brands in the Indian market and thus the drop in sales was also highlighted in the global operations of the company (McCartney, 2014). Focussing back on the issue of water consumption, Indian market was again the key target for criticism of the company’s production process. Indian state of Kerala had closed down bottling plant of Coca-Cola stating that the plant was consuming too much water and also degrading the quality of water for the local people. The water consumption has always been a major factor in context of the environmental concerns of Coca-Cola. Horvath (2001) stated that the brand value of Coca-Cola is increasing in terms of their global sales and this is also creating a subsequent increase in the demand of their products in the market. Despite the fact that most of the operational processes of Coca-Cola are performed with high-tech automated systems, the consumption of water is yet to be brought within the perimeters granted by environmental authorities. The influence of these events has not only hampered the brand equity of the company but has also caused downfall in their market performances. As highlighted above, the conditions in the Indian market regarding the criticisms of its product has lead to serious implications on the market performance of the brands. Anders (2011) mentioned that the operational processes of companies such as Coca-Cola are designed to fulfil the requirements of their global customer base. Factors such as environmental issues are often kept as a formality in order to save the brand from the regulatory authorities. However, Karnani (2014) argued that multinational firms often find it difficult to align their operational policies in various markets situated at different geographical locations. This also brings in complications for managing their resources and wastages which can be destructive for the organisational rapport in the long-term. Social Issues The social issues faced by firms in the contemporary scenario are mostly generated from the widespread operations across various cultural and ethnic boundaries (Chang, Hyun and Park, 2008). According to Horvath (2001), every business is responsible towards the society in terms of the business and social welfare. The implications of the corporate actions of the business on their customer base and the overall society portray the contribution of the business towards mutual growth and development. An interesting factor in this regard is that, while some scholars believe that business houses should always focus on the needs of the firm, others have maintained that fulfilling the responsibilities towards the natural environment, society and nation ensures long-term growth for the company in a competitive market place. In context of Coca-Cola, the business house has faced some critical social issues over the years of their development. The social issues faced by Coca-Cola can be segregated into two parts by considering the problems with their internal stakeholders and their external stakeholders. The first concern words the social issues of Coca-Cola is related to the health aspects of their products on the consumers. As reflected in the environmental analysis, the products of Coca-Cola have been alleged to include pesticides above the permitted amount, the consumption of the product fell. This shows that the consumers despite considering Coca-Cola as one of the biggest brands in the industry measure its performance in terms of social concerns. Karnani (2014) suggested that business organisations have often tried to reflect themselves as a social partner only to increase their profit earning capabilities. A major controversy with Coca-Cola surfaced in 1993 when the company prevented the producers based in Catalonia to print the name of the brand in Catalonian language. The issue was taken to the legal departments of the nations which resulted in endless cases filed by both the parties. However, till this date, the label of Coca-Cola has not been printed in Catalonian language. McCartney (2014) mentioned this event as one of the true colours of the corporate world. Coca-Cola was an international brand and in order to maintain their position and identity could not allow the Catalan authorities to change their brand logo. This was justified in terms of business action; however, the social responsibility towards the Catalan consumer base was not fulfilled. Another major social controversy of Coca-Cola was related to the apartheid regime in South Africa. Entering the market in the 1950s, Coca-Cola experienced a rapid growth in their performance and market share. Coca-Cola followed the racial discrimination and also implemented the same in their work place by providing different benefits for the black workers in comparison to that of the white workers of South Africa (McCartney, 2014). This shows the discrimination in the employee policy of the organisation which was strictly criticised by global authorities such as UNICEF and UNO (Anders, 2011). The local authorities demanded divestiture of Coca-Cola from their land and rejected the offer of Coca-Cola for selling majority of their business holdings to one of the domestic firms. In response to these criticisms, the company made a donation of $10 million towards the educational and housing process for black South Africans (Anders, 2011). Nevertheless, the company operated in the country with a reduced brand image and during the later part of the 20th century was able to regenerate their dominance in the South African market with 95% of market share (Pendergrast, 2013). Economic Issues The economic implications for Coca-Cola can be associated with the above mentioned environmental and social concerns of the business. The events reflected in the environmental and social analysis had resulted in huge financial transactions taking place between the company and the claimants. The water consumption case in Kerala, India resulted in shutdown of a bottling plant worth $6 million (McCartney, 2014). The South African condition regarding discrimination between the workforces almost resulted in closure of the operations in the South African market. Although, the business managed to continue in the South African market, the expenditure incurred for working out the issues amounted to around $240 million (Pendergrast, 2013). Thus, it can be noted that the environmental and social issues faced by the company had its economic impact on their organisational position and performance. Relating to the condition of the global market place, competition is one of the most critical factors in context of business performance. PepsiCo is the biggest rival of Coca-Cola and both these company jointly hold around 93% of the global soft drinks industry (Anders, 2011). In the year 2000, PepsiCo blamed Coca-Cola for stifling the market competition by creating exclusive rights with retailers for selling their products only. This allegation was proved true after an investigation performed by the EU over the business practices of Coca-Cola. An overall fine of $68 million dollars was imposed on the distributors of the company for engaging in an unethical business practices (Chang, Hyun and Park, 2008). Another incident which reflects immoral operations on the part of Coca-Cola was the channel stuffing incident where the company had allegedly increased the purchase of their products with the help of their bottlers and distributors in order to inflate the sales figure. This was aimed at managing the stock prices of the company and gaining shareholder confidence, however, Carpenters Heath & Wealth Fund of Philadelphia & Vicinity filed a law suit in the court of Georgia which resulted in a settlement of $137.5 million (Anders, 2011). Apart from this, economic issues of the concerned business house also confirms to the external factors which have continuously dominated the strategic decisions and actions of the firm. The global financial crisis of 2007-08, saw the US economy come tumbling down and as a result, the sales of Coca-Cola and other major brands suffered in their domestic markets (Anders, 2011). The financial crisis also hampered the international operations of the company as the exchange rates of the nations fluctuated creating a flux in the financial management process of the firm (Aravindan, Devadasan and Selladurai, 2008). On the other hand, as customers started withdrawing money from the market, the operational expenses began to weigh on the manufacturers and job cuts were almost an evident choice for most of the firms. The situation was critical as big manufacturers had to select between the quality of their products and the survival of the business in the market place. Approaches for Resolving Issues Identified Considering the analysis of Coca-Cola in their business development processes, it was noted that the firm had trouble aligning its business objectives with its sustainable responsibilities. One of the major factors associated with the business process of the firm was to enhance the mutual growth of the society, environment and the company. In case of Coca-Cola, their problems were not only related to their operational practices but also includes their strategic planning and decision making processes where the company was not able to accomplish their duties towards the society and environment and resulted in economic losses. As per the observations of Horvath (2001), corporate social responsibility and sustainability issues of a firm are developed in relation to the core values of a company. Each firm should be able to understand their duties towards the stakeholders and engage them within the business processes. The concept of triple bottom line is almost similar to that of the interactive sustainability model. Germain, Claycomb and Droge (2008) defined the concept of triple bottom line as a system for earning profits in context of organisational as well as social and environmental concerns of the firm. The triple bottom line technique helps in connecting the variables of sustainability with the organisational objectives. People, planet and profit are the three primary variables of the triple bottom line technique (Aravindan, Devadasan and Selladurai, 2008). All these variables of the concept are designed to include the social, environmental and economic factors faced by a business organisation. This aspect can be related to the case of Coca-Cola. For instance, the event of Catalan language in social issues showed that the organisation was not ready to part with its profit making aspects for the emotional aspects of their customers. Another model which can be utilised by Coca-Cola in order to boost their sustainability activities is the stakeholder engagement model. Anders (2011) stated that it is essential for a business form to ensure that the activities of the company are directed towards the benefits of its stakeholders. The stakeholder engagement model focuses on ethics and morality of a company in creating a transparent business atmosphere and developing opportunities for the stakeholders to add towards the progress of the business (Sharma, 2013). Apart from this, the stakeholder engagement process has been termed by Germain, Claycomb and Droge (2008) as the system of communicating with the customers and the employees and developing a structured plan for growth of the company. This accomplishes the requirements of trust, loyalty, engagement and commitment of the business from its stakeholders and enhances the scope of mutual performance in the market place. Recommendations The above analysis will be considered for framing the recommendations for Coca-Cola. The first recommendation will be to manage and rearrange the production process of the business. Consumers in the contemporary scenario are health conscious and the composition of the coke products should be designed in a manner which considers the safety of the consumers. In order to further promote this sustainability measure, Coca-Cola can reflect the reports generated by global and local authorities against the safety consumption of their product base. This will help the company in managing their organisational roles and responsibilities towards their customer base and contribute towards building a healthier society. Another recommendation will be to indulge in employee safety factors. The work place of Coca-Cola is highly automated and has high-end equipments. These equipments need regular maintenance which can put the employees in harm’s way. Also, the production process of Coca-Cola includes handling of chemicals which can also be harmful for the employees. The concern of the company for their worker base will help them gaining loyalty and commitment and further enhance the sustainability of their operational process. Conclusion The aspect of corporate social responsibility or sustainability of the operations of business firms in the contemporary scenario is quite controversial. It was noted that some scholars believe that in accordance to the increasing competition in the market place, firms need to focus on the business profit. Meanwhile, others considered that mutual development of company and its stakeholders is the best process for survival in the industry. In respect to the analysis of Coca-Cola, it was found that the business firm has faced numerous criticisms in respect of sustainability of their business. It was noted that the social and environmental activities had caused the brand huge amount of financial losses. Also, the fact that sustainability imposes a direct influence on the brand image of the company has made it difficult for Coca-Cola to manage all the issues being faced. The recommendations for the company have been suggested on the basis of their operational efficacy and will help the firm in improving their performance in a sustainable manner. Reference List Anders, J., 2011. Coca-Cola’s Marketing Strategy: An Analysis of Price, Product and Communication, pp – 116-134 Aravindan, P., Devadasan, S.R. and Selladurai, V., 2008. A focused system model for strategic quality management. International Journal of Quality & Reliability Management, 13(8), pp. 79-96. Chang, S.J., Hyun, P.Y. and Park, E.H., 2008. Quality costs in multi-stage manufacturing systems, Computers & Industrial Engineering, 31, p.115 Coca-Cola, 2015. Our Company. [Online]. Available at: < http://www.coca-colacompany.com/our-company/ > [Accessed 5th May 2015]. Germain, R., Claycomb, C. and Droge, C., 2008. Supply chain variability, organizational structure and performance: the moderating effect of demand unpredictability. Journal of operations management, 26, pp. 557-570. Horvath, L., 2001. Collaboration: the key to value creation in supply chain management. Supply chain management: an international journal, 6(5), pp. 205-207. Karnani, A., 2014. Corporate Social Responsibility Does Not Avert the Tragedy of the Commons. Case Study: Coca-Cola India. Economics, Management, and Financial Markets, (3), pp. 11-23. McCartney, M. 2014. Is Coca-Cola’s antiobesity scheme the real thing?. BMJ,349, p. 4340. Pendergrast, M., 2013. For God, country, and Coca-Cola: The definitive history of the great American soft drink and the company that makes it. New Jersey: Basic Books. Sharma, A. K., 2013. Competitive advantage-A way to kill your competitors. ZENITH International Journal of Business Economics & Management Research, 3(1), pp. 44-48. Read More