Management, Strategy & Organisations - British Foods - Case Study Example

Management, Strategy and Organisations Management, Strategy and Organisations Introduction Diversification in businessmanagement is one of the contributing factors to success of any organisation. Associated British Foods is a differentiated global food, ingredients and wholesale group with annual sales of over £13.3bn and a work force of over 113,000 individuals spread in 47 countries across Europe, Africa, America, Asia and Australia (Campbell & Faulkner, 2006). According to its financial reports, results for 2012/13 period exceeded expectation (Hoffman, 2013). Generally, operating in a harsh business setting, proceeds improved by 9 % whereas attuned working profits went up by 10% and the attuned incomes per share increased by 13% in the preceding year (Wetherly & Otter, 2013). When inflation rates of the sterling and the euro is compared, the sterling pound weakened considerably within the stated period. However, it strengthened as compared to other major currencies within the last quarter of the year (Hoffman, 2013). This means that had the currency remained in its initial state, the group’s revenue would have risen above 1% (Wetherly & Otter, 2013).. It is important to note that the financial position of the ABF improved significantly as compared to the previous years. For instance, the operating cash flow went up contributed by a superior working capital inflow at Primark as compared to previous years outflow (Hoffman, 2013). Over the last three years, ABF’s share price has outperformed the FTSE 100 share index and other listed food producers. Diversification of Associated British Foods Being a multinational corporation, ABFs is a leader producer operating in five key areas: Sugar, Agriculture, Retail, Grocery and Ingredients (Associated British Foods Plc., 2000). In Europe, it has Azucarera as its largest producer making it the only British sugar processor of sugar beet crop in Europe with the company being a supplier of half of the UK’s sugar requirement (Hobson, 2010). In Africa, the company has Ilovo as the largest sugar processor while in China; it blends the production of both cane sugar and beet sugar with the former taking precedence in the South and the latter in the North East (Campbell & Faulkner, 2006). The overall annual production of the company is approximated to be 5 million tonnes of sugar and 600 million litres of ethanol. ABF implements product-market strategy of diversification. With respect to company’s agricultural business, it has established major force in UK agriculture and is currently operating on a global scale. It supplies mainly technology-based goods, foodstuffs and food products to agriculturalists with facilities all over the United Kingdom and China. Since ABF’s business activities fall within diverse geographical locations and deals with a mix of industries, the firm’s corporate diversification strategy is related on unrelated corporate diversification. As earlier mentioned, the ABF’s engagement in business has saw it deal with multiple products and geographical markets moving away from a single or dominant enterprise firm adopting greater levels of diversification. The company’s retail business is mainly Primark which offers employment to more than 48,000 people across the United Kingdom, Republic of Ireland, Spain, Portugal, Germany, Netherlands, Belgium and Austria. It offers customers quality fashion at affordable prices in 257 stores and more than 9 million square feet of retail selling space. In regards to the grocery business, the company is the largest producer of both branded and privately labelled grains in the continent. Among the company’s renowned brands are the Twinings, Oval tine, Ryvita, Kingsmill, Silver Spoon, Tip Top, Mazola and Spice Islands. On the other hand, company’s ingredients business will consist of AB Mauri and ABF Ingredients. AB Mauri gets market mainly in America, Europe and Asia and is used to make baker’s yeast. It is relied on by 52 bakery ingredients plants in 26 countries (Millard, 2010). ABF Ingredients markets enzymes, lipids, yeast extracts and cereal specialties globally. It has its manufacturing facilities in Europe and the US (Millard, 2010). The operational structure at ABF is such that a vast number of inputs, production modes, distribution channels and customers are shared. Logic of the Portfolio It has been widely known that a firm which expands faster is up to no good not in the essence that it faces null competitiveness but also that it enhances no worth to itself. However, there is a myriad of factors that influence companies, like Associated British Foods, to diversify. The first logic is the management theory which holds that different businesses require similar managerial skills. It was Robert Katz who noted that managers who were conversant with those proficient directors were becoming the prototypes of our contemporary management world. These men shift with great ease and no apparent loss in effectiveness, from one industry to another. “Their human and theoretical skills appear to make up for their exoticism with the fresh jobs procedural aspects" (Campbell &Faulkner, 2006). In the case of ABFs, managers could flexibly shift from one business unit to another thus the need to diversify the production. There are no new skills that a manager need to employ in the running of one business unit, say ingredients company, different from the skills he had employed in the running of, say, retail business. The second logic behind ABFs diversification portfolio is the presence of conglomerates. The five sectors that ABFs specializes in are completely different from each other. This is advantageous because the professional managers would be able to acquire skills that will then enable them to manage greater complexities and diversities in business. Andrews argues that diversification is successful because “it always means successful surmounting of formidable administrative problems develops know-how which with further diversification will capitalize and extend" (Goold & Luchs, 1993). Thirdly, it is also believed that diversification succeed because it adds ‘business judgment’. Royal little, who masterminded Textrons broad diversification, explained that the company succeeded because, "we are adding that intangible called business judgment" (Kenny, 2009). This is especially possible where there is in rise a system of unrelated businesses across different industries. The effect of these diverse businesses is that it provides the managers a forum to apply their skills and competences to different businesses. It is further argued that successful diversification is a result of surmounting administrative problems and development of know-how. In the case of Associated British Foods, the presence of five diversified business units enables the management team to exercise their managerial skills in judging between which particular unit requires what amount of resource input to enable the company make maximum profits from the overall investment. It also enables the management to determine when and what quantity to produce from each unit depending on the prevailing global market demands and prices. Finally, resource allocation as a management strategy is a key factor that influences diversification (Hoffman, 2013). Most companies would want to reap from the merits of investing in a broad range of business sectors with different time zones. It has been argued that the main task of corporate-level strategy lies in identification of which business in which the firm would compete. In the case of Associated British Foods, the factor played a key role, because the company could not find a sole unit to allocate its resources and expect a maximum yield and thus ended up settling in five units. Corporate Parent in ABF Corporate parent encompasses the entire body of managers and workforce not assigned to a business unit (Millard, 2010). It also includes corporate headquarters, division, group, region, and other intermediate levels of management. The chief role of the ABF’s parent company is purely strategy formulation and planning (Millard, 2010). Therefore, the focus of the senior managers is setting the strategies of their subsidiary companies. They are prevented from meddling in operating details and mundane issues which should be left to more junior managers albeit with direct responsibility for them. Their interaction with the management of subsidiary companies is therefore, limited to such activities as are essential for the charming running of the whole system. Consequently, constant interruptions are not entertained (Millard, 2010). Strategy formulation focuses on making the products quality and their competitiveness in the market. It also aims at identification of the business ventures that would enable the company to realize more profits. Upon coming up with sufficient strategies, the parent company, which in this case doubles up as the senior management team, communicates such strategies together with their recommendations to ensure operationalization of those strategic plans. ABF’s parent company also does portfolio planning as part of the management process plan (Hoffman, 2013). This enables managers to compare different businesses and thus enabling the top management to set appropriate objectives and, on the basis of which, they can allocate resources for their various business networks. Portfolio planning therefore enables the company to carry out helicopter view of the needs of each business unit under it and allocate resources appropriately to meet each unit’s peculiar needs (Hoffman, 2013). This, in the long run, enables the company to reap the maximum from each business unit and thus successful returns to the entire company. Justification for the inclusion of Primark in ABF’s Portfolio Primark is the company’s textile retail business trading in the high streets of United Kingdom, Republic of Ireland, Spain, Portugal, Germany, Netherlands, Belgium, Austria and France (Hoffman, 2013). Unlike the rest of the company’s business ventures, it does not deal in foodstuff but rather textile. The company’s inclusion of Primark can be justified in two ways. First, it was introduced to take advantage of the vast management skills of the company. Since the retail business required no unique managerial skills from other businesses, Primark was therefore introduced to take advantage of the company’s existing management (Millard, 2010). Secondly, the management have seen retail business as profitable considering that they only needed to buy what has been manufactured by other industries for the purposes of retailing. This is further explained by the company’s desire to have as many business units as possible. This would utilize the same production facilities like common advertising means and sales force (Millard, 2010). In addition, Primark value shares with the parent ABF natures the relationship between itself and shareholders. Its inclusion in ABF portfolio brings in vital business principles including respect for human rights and employment guidelines. Further, Primark’s manufacture of textiles at low costs through the use of lean production aimed at minimizing wastes and inefficiency in the process of production was overly beneficial. Primark’s model which is based on high sales volumes and low retail margins with minimal advertising attracts high value offer and truncated prices. Such prices are essential in assuring future success of ABF Company. How ABF’s Development Reflect Goold and Luch’s Historical Perspective of Corporate Diversification Goold and Luchs looked at the history of corporate diversification as having been shaped by a myriad of factors. Such factors, they argue, would include management skills, the presence of a conglomerate and corporate strategy (Goold & Luchs, 1993). Associated British Foods was founded in 1935 as a food investment company. In 1963, the company acquired Fine Fare, then a leading British supermarket chain (Kenny, 2009). Fine Fare was thereafter sold in 1986 and the company subsequently acquired British Sugar in 1991. In 1997, it sold its retail shops in Northern Ireland and Tesco followed by the sale of Burtons Biscuits in 2000. “In 2002, it bought the Mazola corn oil; Argo & Kingsford’s corn starch, Karo and Golden Griddle syrups, and Henri’s dressing varieties, along with several Canadian brands, from Unilever” (Goold & Luchs, 1993). A precarious investigation at the progress of the Associated British Foods reflects the development of corporate diversification as advanced by Goold and Luchs. The company’s development pattern seems have been a direct response to the various factors that led to the diversification of various multinational corporations. The group started as a purely food investment then diversified gradually by blending the food production with supermarket business and by the year 2002, the company was investing in various unrelated business – conglomerates. This was motivated by the notion that the same managerial skills could be applied across all units. The company therefore, saw a need to come up with other units of production to further increase their business base. It would as well utilize the already available managerial skills and thus increase the overall productivity of the company. ABF’s diversification processes have also been a result of growth of synergies in their overall business venture (Hoffman, 2013). By moving towards somewhat related business units, as is the case currently, the company is hopeful in reducing the overall cost of production by using the common sales force, advertising channels and manufacturing facilities. In the ultimate analysis, the development of ABF’s from the time it was incepted in 1935 hitherto is a mirror image of Goold and Luch’s perspective of corporate diversification (Hobson, 2010). References: CAMPBELL, A., & FAULKNER, D. O. (2006): The Oxford handbook of strategy: a strategy overview and competitive strategy. Oxford, Oxford Univ. Press. GOOLD, M., & LUCHS, K. (1993): Why diversify? Four decades of management thinking. Academy of Management Executive, London, Kogan Page. http://www.jstor.org/discover/10.2307/4165132?uid=3738336&uid=2129&uid=2&uid=7 0&uid=4&sid=21103414016313 KENNY, G. (2009). Diversification strategy how to grow a business by diversifying successfully: London, Kogan Page. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=473914. MILLARD, B. J. (2010). Future trends from past cycles identifying share price trends and turning points through cycle, channel and probability analysis. Petersfield, Hampshire, Harriman House. http://www.contentreserve.com/TitleInfo.asp?ID={D8132326-B2BE-4093-BB6F-16839AAF8B65}&Format=410. HOBSON, R. (2010). Understanding company news how to interpret stock market announcements. Petersfield, Harriman House. http://www.contentreserve.com/TitleInfo.asp?ID={1C7129B6-0FCD-4C3C-A74F-C1F37A34A2B9}&Format=410. ASSOCIATED BRITISH FOODS PLC. (2000). Associated British foods plc: interim report 2000. London, Associated British Foods plc. WETHERLY, P., & OTTER, D. (2013). The business environment: themes and issues. HOFFMAN, B. (2013). Behind the brands: food justice and the big 10 food and beverage companies. Oxfam GB. Read More