Strategic Management of Pepsi and Coca Cola - Case Study Example

Strategic Management Table of Contents Introduction ……………………………………………………………….. 2 Strategy …………………………………………………………………….. 3 Coca Cola and Pepsico …………………………………………………….. 7 Heritage …………………………………………………………………….. 7 Mission ……………………………………………………………………… 9 PEST analysis ……………………………………………………………… 10 Porter’s Five forces ……………………………………………………….... 12 Ansoff’s Matrix ……………………………………………………………… 14 Strategic Group Mapping …………………………………………………… 15 Current Strategies …………………………………………………………… 16 In the wake of recession ……………………………………………………… 16 Conclusion …………………………………………………………………… 17 Bibliography …………………………………………………………………. 19 Strategic Management Introduction The development of business organizations depends to a large extent on the formulation of the strategies by the management. The strategy helps the business to formulate the operations. Thus in a large way, the performance of the organization depends on the success of the strategies. The strategies consist of everything that the company expects to fulfill in the future. The aims of the company are to be supported by the different types of operations and functions of the company. All these come under the purview of the strategy. The strategy has different components ranging from the operational level to the business level. Every component of the strategy works together for the development of the organization. In the business scenario, the management formulates the overall strategy, which is to be followed by the smaller units like the different departments of the organization. Evaluating the market and the aspects of the company arrives at the choice of the strategy. There are different tools in assessing the market conditions and the features of the company like the SWOT analysis, PEST analysis, Five Forces, STP etc. These evaluation techniques give a detailed picture of the market conditions and the features of the company. This helps in the formation of the strategy by the management. The main aim of the company is to increase the sales of the company and the strategies underline this notion. After the evaluation of the features of the market and the company, the management selects a strategy that will pertain to the development of the company. (Strategy, n.d.; What is strategy, n.d.; Applied Strategic Technologies, n.d.; Jenkins, Ambrosini and Collier: 2-4) In this paper, two companies have been taken through which a detailed analysis will be undertaken in the case of the strategic management. The companies in question will be Pepsi and Coca Cola. Pepsi and Coca Cola share a traditional rivalry in the soft drinks market and are the two biggest players in the market. The development of the companies has been possible because of the visions of the management in setting up of the strategies of the companies. Strategy Strategy is perhaps the most important functions of the management. The performance of the companies depends on the strategies undertaken by the management to a major extent. As the importance of strategy has been underlined so far, a question rises – What is strategy? Strategy can be comprehensively defined as follows: "Strategy is the direction and scope of an organisation over the long-term: which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations". (Johnson, Scholes & Whittington, 2008: 2) Thus, the strategy consists of: The direction of the growth of the company in the long term. The scope of the markets to be taken care of by the company. The advantages of the company and the ability of the company to struck off the competition. The resources needed by the company to start operations. The external environment of the business which in most of the cases influence the performance of the company. The expectations of the stakeholders of the company. (Johnson, Scholes & Whittington, 2007: 3-4) Thus, the strategic management consists of the key activities that influence the performance of the company. The formation of the strategy is the development of the entrepreneurial function and the functions of the business organizations depend on the visions of the management. Various works in the case of the strategy have been published which can be grouped under the various heads. The different schools are as follows: The Design School The Positioning school The Planning School The Entrepreneurial School The Cognitive School The Learning School The Power School The Cultural School The Environmental School The Configuration School The different schools of thought in the case of the strategic management describe the different aspects of the strategy formation. The first three schools are prescriptive- they tell the ways in which the strategies are to be made. The next six schools describe the functions and the ways of the strategies. These are descriptive in nature. In the modern days the strategy formation has been synonymous with the entrepreneurial development of an individual and thus the cognitive school has gained importance. The last school is the combination of all the above aspects and is the configuration school. The ten schools form the essence of the strategic development in the modern context. It consists of the ways of strategy formation, the implementation and the selection. (Mintzberg, Ahlstrand & Lampel, 1998: 4-6) The strategy formation has become important in the context of the modern world. The whole process of strategy can be described with the help of the diagram as follows: Source: tutor2u, n.d. There has been a change in the mindset of the management all over the world in the case of the strategic management. In the early case, the companies all over the world were dedicated in the efficiency of the operations. However, in the present case scenario there has been more emphasis on the strategy of the companies. The companies are to be flexible enough to adjust to the changes in the environment. Today, the companies must have the capability to succeed in all the departments to attract the customers. The competition has also increased in the modern world with the growth of various companies in the same industry. Therefore, it has become imperative that the companies are able to attract the customers. This can be done only when the companies provide something different. According to Michael Porter, “A company can outperform rivals only if it can establish a difference that it can preserve.” This is the competitive advantage of the company. That is why more and more companies of the world are referring to unique set of activities. “The essence of strategies is choosing to perform activities differently than rivals do.” Thus it has been essential for the companies to implement strategic management to foster growth. The strategies are implemented by the management to fulfill these objectives. (Porter, November, 1996; Mintzberg, Quinn, Lampel, and Ghoshal, 2002: 4-10) In the case of the implementation of the strategies, the analysis of the environment and that of the company are important. There are different tools in the case of the strategic analysis like the Porter’s Five Forces, SWOT, PEST etc that look to evaluate the external and the internal factors of the company. After the analysis of the position of the company and the conditions of the external environment, the management formulates a plan for the company. Coca Cola and Pepsi Co Coca Cola and Pepsi Co are the biggest names in the global soft drinks industry. Both the companies have presence all over the world and they both have been piling on huge turnovers of the years. The paper will look into the strategic management of the companies and the effects of it on their performance. Heritage Coca Cola came up in the latter half of the 19th century in Georgia in the USA. The formula of the drink was prepared by Dr. John Stith Pemberton, a pharmacist. He was the inventor of the drink which is cherished now in the major portions of the world. However, he was not aware of the potential of the product and the development of Coca Cola as a brand took place in the hands of A. Candler. It was during his tenure that the Coca Cola as a brand published itself. The use of merchandise in the different products helped in the development of the brand. The bottling of the drink also took place during his tenure and the brand developed well as one of the cherished drinks in the country. In the 1920s the company came into the hands of Woodruffs. They changed the image of the company placing special significance on the quality of the product. The brand crossed the boundaries of the country for the first time and was available in Canada. The sponsorship of events like the Olympics also enhanced the reputation and the image of the company. It has since then moved from strength to strength. With the help of innovative packaging and marketing, the company has become the leading company in the soft drinks industry. It has placed importance on the advertising of the products. Different brands have been added to its repertoire. The company has existence in the bulk of the countries worldwide. (Birth of a refreshing idea, n.d.; The Candler era, n.d.; A man named Woodruff, n.d.; Moving with the times, n.d.) The birth of PepsiCo had much to do with the success of Coca Cola. Caleb Bradham derived the concept of Pepsi in 1898. He was aware of the potential of the drink and buoyed on by the success of Coca Cola set up a company. The growth of Pepsi was tremendous before the advent of the 1st World War. Bradham was successful as a businessman. However, the world war resulted in a lot of problems for the company. The war had an effect on the priced of the materials. The sales of the company decreased and Caleb was bankrupt. The situation developed with the arrival of Charles Guth who had business with Coca Cola. He headed the new company and resurrected its fortunes. He was responsible in the taking the company outside the country. It opened up in Argentina, Soviet Union and then went on to capture the world. The use of the advertising and marketing was prevalent in the case of the company. It has been a direct competitor of the Coke from the days of its inception. Pepsi has been successful in creating a distinctive brand value. It has been able to add products to its repertoire which are cherished all over the world. (A brief Pepsi History, n.d.). Mission The mission of Coca Cola can be pointed out as follows: To be able to cater to the whole world. To associate with the happy moments of life. Value creation. (Mission, vision and values, n.d.) In the case of Pepsi, the mission statement can be stated as follows: To be the topmost company in the beverages industry. To offer the investors good value. To do business fairly and judiciously. (Our mission and vision, n.d.) The missions of both the companies are to be the topmost organizations in the industry. The missions of Pepsi are more involved in the financial aspects while that of Coke is more quality concerned. PEST analysis Political: The political environment of the business organizations of the world is important for the evaluation of the performance of the company. In the case of the biggest soft drink companies of the world, the political environment plays a key role. The companies are present in the majority of the countries of the world. The political conditions of all the countries are different. Some are stable like the USA. However, some countries may have unstable environment like that in the Middle East. Therefore, the companies have to take care of all the political situations of the countries. The political conditions of the countries also determine the tax rates and the subsidies of the companies. The companies have to be well versed in the case of the tax structure to be able to assess the financial condition. (PEST analysis, n.d.) Environmental: In the modern world, the environmental concerns have become very important. In the wake of the growth of the population all over the world it has become important to protect the environment. Coca Cola has been devoted towards protecting the environment. It has been the working to protect the land, water, and soil resources of the world. The company has been engaged in the farming activities, which support the lives of millions of people all around the world. The company has been protecting the water resources of the world with the help of the watersheds. In the case of PepsiCo, too, the management has been dedicated in the protection of the environment. The company has also been working towards the protection of the environment with the protection of the land, water, climate and packaging. (Environmental sustainability, n.d.; Sustainable agriculture, n.d.) Social: The performance of the company depends on the social conditions. The demography, the choices, and the preference of the customers influence the performance of the company. In the case of the modern business environment, the mentality of the customers has changed. With the ease of the flow of the information, the customers demand best from the company. Therefore, the essence is now on the quality of the products. There has been the rise of the variety of the customers in the modern world and the companies have to satisfy the needs of the increased variety of the customers. (Bose,2010 : 7-8; Lambin, 2008: 17) Technological: Perhaps the most drastic change in the modern business environment has been the development of the technology. The level of technology has assured the ease of communication between the different units of the economy. In the case of the customers, they have the information of the companies. In the industry, the competitors have the information of the moves made by the other companies. Therefore, the industry has become more open and the strategies of the company depend on this. (CFTRI, n.d.) The Porter’s Five Forces will help us to discuss the strategic implication in more details: Source: Quick MBA, n.d. Supplier Power: In the case of the soft drinks industry, the firm processes the raw materials. The bottling plants are either franchised or are owned by the firm. They can be termed as the suppliers in the industry and in some case they have good bargaining power. The companies depend on the bottling plants for the delivery of the products. Buyer Power: The buyers of the industry have relatively less power in the determination of the price. Threat of substitutes: The soft drinks have no substitutes as such. There may be different variants of the product like juices, energy drink etc. Barriers to entry: The barriers to entry are the initial outlay of the firm which is huge. In addition to this, the industry also has excellent use of the technology that can be a hindrance for the new entrants in the market. Rivalry: The rivalry is intense in the market. In addition to the global players, there are local players in the individual countries. The companies in question have based their strategies on the evaluation of the market. The companies have developed a wide range of products for the needs of the customers. The companies have deployed an aggressive marketing policy for the development of the brand in the various countries. The use of the celebrities like Michael Jackson in the case of Pepsi has been helpful in the building of the brand. The bottling plants are increasingly being owned or franchised by the companies. The tastes of the products have been made to suit the needs of the different people all over the world. Ansoff’s Matrix Source: Bachmeier, 2009: 3 In the case of the Ansoff’s Matrix, the two companies have different propositions in hand in the various parts of the world. There are newer as well as the older markets in the world and the companies have to formulate all kinds of strategies for them. In some case, there will be market development while in other cases it may demand diversification. Strategic Group Mapping Source: Forgang, 2001: 64 The strategic group mapping shows that Coke is better placed with higher product differentiation and higher customer reach. Current Strategies In the case of the Coca Cola, the company has been growing in the last century. The introduction of the large number of products and access to newer markets has augured well for the company. The strategies of the company have been to drive the growth in the carbonated drinks segment. The company will continue to increase new products in the market. There has been a special emphasis on the cost effectiveness of the company. In the case of Pepsi also, the company has been striving for growth in the market. The strategy of the company has been to increase the sales of the company with the introduction of newer products and access to newer markets. The strategies of both the companies are feasible given the stature of the companies in the global scene. The strategies of the company can be implemented by the various promotional measures of the companies. The advertisements and the sales promotion tools of the companies will be helpful in this case. (Khan, n.d.) In the wake of recession The recession affected most of the business organizations of the world. However, in the case of the soft drink giants the effect was minimal. This was because of the strategies of the companies in the wake of the recession. In the case of the Coca Cola, the company went out to enter different markets of the world. The spread of the company in the different markets have allowed it to sustain the pressure of the recession. In the case of the Indian market, the sales of the company grew by 31% and that of Turkey increased by 15%. The sales in 2009 increased by 3% which was a good performance given the condition of the market then. (Malhotra, 30th April, 2009; US: Coca-Cola Co to gain from recession, 10th March, 2009) In contrast, the shares of PepsiCo were down by 1%, which underlines the performance of the company. It was not that bad in the wake of the recession. The sales of the company grew in some of the markets. The problem for the company was the increase of the costs. (How Coke and Pepsi plan to grow in the recession, 5th May, 2009) Conclusions The strategic management has grown to be the most important functions of the management in the modern world. It has become imperative for the companies over the world to formulate strategies for the development of the operations. In the case of the Coca Cola and PepsiCo, the development of the firms has been possible because of the strategic management of the firm. The companies have grown overseas and introduced newer products and this has been integral part of the development process. However, after the analysis of the companies it has been found that Coca Cola has been performing a little better than its rival. This is because of the essence of the company on the quality of the products. The taste of the drink is distinctive that has made it a preferred drink all over the world. Both the companies have been involved in aggressive marketing policies. 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