SABMiller in Bases of Competition - Case Study Example

According to Jonson et al (2006), a strategic business unit is a part of an organisation for which there is a distinct external market for goods or services that is different from another strategic business unit. For this case study, the SBUs that can be identified for SABMILLER are the beer, hotel and games units. SABMILLER's strategic position at the time of the case was three dimensional and comprised a base for competition, achieving competitive advantage, and directions & methods of growth. Understanding this position therefore would suffice developing the company's business level strategies since this would vary from one SBU to the other. This development is similar to that proposed by Johnson et al (pp. 240, 2006). Business level strategies . As bases of competition, SABMILLER had a strategy positioning on four fronts. It considered maintaining a price and differentiation strategy, with particular focus on markets in developing economies. In doing so, its combination of price and differentiation strategy justified its hybrid strategy. Here a hybrid strategy refers to the act of simultaneously achieving product differentiation and low pricing than competitors. The success of such a strategy depended on SABMILLER's ability to deliver enhanced benefits to customers together with low prices while achieving sufficient margins for reinvestment to maintain and develop the bases of differentiation. Secondly, to achieve competitive advantage as a strategy positioning SABMILLER opted to sustain operations in the markets it already controlled, while maintaining hypercompetition such that the frequency, boldness and aggressiveness of dynamic moves accelerated to create a condition of constant disequilibrium. At the same time, the company embarked on redefining collaboration which took the dimension of taking over other companies in the same line of business. Apart from this, one of the most vital issues to shape its positioning strategy was its involvement in game theory wherein every competitor contrived to get the best possible strategic solution for themselves given the response from each other. Thirdly, under detailed choices SABMILLER determined its positioning strategy by defining its mode of growth. From information read in the case, the company's decision to be listed on the London Stock Exchange was strategically backed by the motif to raise more capital for expansion. In the light of this, the company made a number of moves to merge or take over other companies. b) The strategic priorities for SABMILLER at the time of the case were basically centred on growth. This growth was to phased and comprised organic growth and physical growth. Organic growth refers to growth that would come as a result of reinvesting its excess profits back in the business to increase production capacity or expand into new markets. Such a move had significant stimulus from the statistics that the world's five major breweries could more or less account for just 30% of global demand. This therefore steered the move to expand production capacity and enter unexploited markets in developing economies. Meanwhile, physical growth refers to growth that ought to come as a result of harnessing more capital to expand. So, moves like listing itself on the London Stock Exchange to raise more capital come to justify the fulfillment of SABMILLER's strategic priorities. This was the only logical step if the decision to expand into foreign markets had to be a realised strategy. 2) The company's core competencies were seen to be the activities and processes through which resources (in/tangible and non/physical assets) are deployed in such a way as to achieve competitive advantage in ways as to achieve competitive advantage much to the illusion of competitors. A summary tool to identify these capabilities and resources is as shown below: Threshold capabilities are those essential for an organisation to be able to compete in a given market (Johnson et al, 2006). The strength of these capabilities is a function of the threshold resources and the threshold competencies. Referring to the case therefore, SABMILLER, in each country, begins by acquiring an initial local stronghold from which it can advance into regions beyond the brewery's original catchment area. It then builds critical mass in the region and progress over time to a national basis. Through its expertise acquired over a hundred years it expands into developing economies guided by the fact that there was low-quality production and fragmentation in the industry. This fragmentation presented the opportunity for SABMILLERMILLER from the mid-1990s to create a profitable and fast-expanding business in emerging markets with huge potential. This was its threshold competence at the disposal of SABMILLER, and its threshold resources were the resources that would come along with the process of acquisition. On the other hand, the company has banked on innovation as its capabilities for competitive advantage. This innovation has come on the heels of its unique resources and core competences of launching new brands in the growing brand market in the international premium beer segment. In this context therefore, it leverages its distribution platform around the world. In like manner, its capabilities for competitive advantage have been shaped by its core competencies of seeking value-adding opportunities to enhance its position as a global brewer. It continues to believe that economic development, converging customer taste and lowering of trade barriers will drive further consolidation of the beer market. Furthermore, the company boasts of the resources to optimise and expand its existing position through acquisitions. It continues to seek opportunities to achieve growth within individual countries or geographic regions, where it can build strong positions, leverage synergies and achieve economies of scale. Such economies of scale would come through upping volume and productivity. In effect, the capabilities are manifested such that the company starts with upgrading quality and consistency to create a beer for which people are prepared to pay more and which can give a healthy profit margin. This is followed by improvements to marketing and distribution, and then by improvements in productivity and capacity. This was already the case following volume growth in their South African beer business, which once again delivered operating margin improvement. In Europe, its business in virtually all of the seven countries in which it operates have grew in volumes by more than the market increase and have achieved year-on-year market share gains. 3) Stakeholder mapping, according to Johnson et al (2006), helps to identify the stakeholder expectations and power and helps in understanding political priorities in an organisation. This concept underlines the importance of two issues namely; -How interested each stakeholder group is to impress its expectations on the organisation's purposes and choice of specific strategies. -Whether stakeholders have the power to do so. In view of the above, a power/interest matrix would be evoked to describe the political context within which SABMiller's individual strategy would be pursued. This would be done by classifying the stakeholders in relation to the power they hold and the extent to which they are likely to show interest in advocating for or opposing a particular strategy. This mapping would be made following that used in Johnson et al (2006). Stakeholder mapping at SABMiller Level of interest Low High Low Power High 4) The market options matrix to be used here is adapted directly from the notes in the slides. The matrix is as shown below. Following the analysis made in questions 1 (a & b), 2 and 3, two future strategies would be developed for SABMiller with the help of the Market Options Matrix adapted from one of the slides. One of the most important strategies that the company is advised to pursue here is that of diversification. This diversification should take the form of getting into both related and unrelated markets. The related markets should cover the scope of the brewery industry, while the unrelated market should covers markets in an industry not related to the brewery business. Through such diversification, losses in one product brand can be considerably offset by gains from another line of products. In like manner, the diversification of product range allows the company to test other markets in view of discovering new niches. In effect, the strategy of product diversification is a common phenomenon today in most business as we see companies like General Electric, SIEMENS, and SONY getting involved in the production of unrelated products. Such moves are basically to increase shareholder value while at the same time spreading the risk of failure in the core business or a related line of products. A second strategy that can be developed here is that of market development. This strategy is given preference over new product development on grounds of the simple logic that understanding the developing and understanding the market appears to be far is strategic to outperforming a competitor. By developing and segmenting a market, the company would be well placed to develop new products that are tailored to the needs of the consumers. For instance, contrary to facts in the case, the takeover of Miller by SAB should have been followed by development of new products or a continuation of the product line that has been maintained by Miller for the whole period prior to the takeover. Instead, just after the merger (takeover), the company should have studied the market to see what the customers wanted that Miller never met up to. By so the doing, the new company would have segmented the market while uncovering avenues for possible disposal of new products. 5) The first strategy developed can be justified with respect to the capabilities of SABMiller. First of all, the case reports that SABMiller got its entre business sustained for a good while through earnings from unrelated business activities in the gaming and hotel industry. Therefore, the issue of product diversification is not a totally new concept in the company's culture. In the same vein, the company has shown core competences I brewery such that the attention it needs to pay to the brewery activities would not be as rigorous as in the hotel and gaming business where it still has to learn a lot of other operational concepts and strategies. Meanwhile, in most circumstances, product range diversification has always been orientated towards entering overseas markets. At the same time, it is understood that SABMiller over the years have successfully braced the challenges of operating in foreign markets. Therefore in the bid to diversify its production range to include products and services outside the brewery, gaming and hotel industries, the company is seen to have s competitive edge than other brewers. On the other hand, the second strategy developed would have relevant grounds for implementation at SABMiller. So far it was seen in the case that the company at one time was widely known to be eager to enter new markets. And it actually succeeded such that it is operating today in seven European countries, the USA and a host of other African countries. In areas where it succeeded, the company operated such that it met or even exceeded customer expectations to maintain the status quo of their quality and satisfaction.With such global presence and its rich human/financial resources, the company disposes of the research prowess to develop markets and find unexploited channels. For the case of the USA, these unexploited channels can be identified through segmentation and market research aimed at getting the customers' perception of the level of quality and satisfaction they derived when Miller operated as an independent brewer. A similar approach can then be adopted in markets where it entered through mergers/acquisitions. Reference Johnson, G., Scholes, K., and Whittington, R. (2006). Exploring Corporate Strategy. 7th Edition. Prentice Hall. 'Lecture Notes provided to the writer on the slides' Read More