Strategic Management the of Sara Lee Corporation - Case Study Example

Strategic Management – the case of Sara Lee Corporation What is Sara Lee’s corporate strategy? How has its retrenchment strategy changed the nature of its business lineup? The corporate strategy of Sara Lee has been changed in accordance with the strategic plan of Brenda Barnes – new president and CEO. Under the specific plan, the operational costs of the company will be reduced focusing on the promotion and selling of specific products – mainly those that are well known to the public, i.e. they have a strong brand name (like the Douwe Egberts coffees, the Hill-shire Farm meats, the Sanex personal care products and so on, case study). The particular initiative has been considered as an appropriate solution taking into account the stability in the firm’s profits – the years 1998-1999 was a period with no increase in the firm’s profits despite the facts that the investment on the firm’s units remained high. The plan of Brenda Barnes was based on the ‘divestiture of weak-performing business units and product categories accounting for $8.2 billion in sales’ (case study). The specific strategic decision could be characterized at a first level as risky – the business units involved in the plan represent the 40% of the firm’s revenues. In this context, the firm’s profitability would be reduced; however, Barnes believed that the specific initiative would lead shortly to the increase of the firm’s profitability. In accordance with the above, the retrenchment strategy suggested by Barnes has changed the firm’s existing line up. Up to the introduction of Barne’s strategic plan the firm was based on the simultaneous promotion of various products/ services but also the continuous expansion of the firm’s operational activities through the acquisition of competitors; Barne’s strategic plan has led to the limitation of expansion of the firm’s activities but also to the increase of its strength regarding specific products/ services – those with strong brand names. The effectiveness of the specific strategy will be analyzed further on taking into consideration the market conditions and the position/ power of competitors. 2. What is your assessment of the long – term attractiveness of the industries represented in Sara Lee Corp.’s business portfolio? The products offered by Sara Lee represent a wide range of industries. At its beginning (1939) the firm was related with the distribution of specific products (sugar, coffee, tea). Gradually, the firm’s activities were expanded to many different industries (selling of meat, canned products, vacuum cleaners, personal care products, household products, athletic wear, grocery, bakery products, coffee brands and so on). The long – term attractiveness of these brands cannot be guaranteed; because all these products need to be equally promoted, the investment of specific funds on the firm’s marketing is required; however, the pay-back of these funds can be doubted. Not all these products have a high profitability. The specific risk is minimized through the strategic plan of Barnes; through this plan, only products that have strong brand names are going to be supported and promoted; the expenses on the marketing of the rest products of the firm are going to be reduced. Under these terms, the risk of limitation of the attractiveness of part of the firm’s products – a risk that could be extremely high – is going to be limited – if not eliminated. 3. What is your assessment of the competitive strength of Sara Lee Corp.’s different business units? As it is noticed above, the power of the firm’s business units is going to be differentiated after the implementation of the Barne’s strategic plan; within the context of this plan certain business units (those referring to products with strong brand names) are going to be strongly supported while others are going to be limited. Under these terms, the competitiveness of Sara Lee corporation should be evaluated using the market trends, the firm’s position in its market but also the assumptions developed in the literature regarding the specific issue. In accordance with Cook et al. (2001) a firm’s managers should concentrate on ‘making and keeping relationships, implementing new technology in the supply channel, the use of forecasting to increase supply chain effectiveness, outsourcing to increase efficiency, and cost management as a strategic weapon’ (Cook et al., 2001, 14). It is not made clear whether the above study refers to the firms of a specific size; it can just be assumed that the above initiatives should be made by managers who are interested in increasing their firm’s competitiveness. Innovation should be also part of the strategic management of firms that seek to remain competitive in the global market. In this case, innovation would be applied on the following business parts: ‘1. Finance, 2. Process, 3. Offering and 4. Delivery’ (Kesler, 2000, 26). From a different point of view it is suggested that ‘an organization could increase productivity simply by increasing the happiness and satisfaction of its employees, and both organizations and employees would benefit’ (Landy, 1989, R. Wright, 2000 in Barrick et al., 2003, 30). Using the above views and the characteristics/ market position of Sara Lee corporation we could assume that the competitive strength of Sara Lee will remain at its current (high) levels in the future; it cannot be estimated though whether failures will occur in specific business initiatives; the strategic choices of the firm’s managers up to now – especially the strategic plan of Barnes – can lead to the assumption that the competitiveness of the firm’s units – both of those that are of primary importance and those that are of secondary importance - is going to be kept at high levels for a long period of time. 4. What does a 9-cell industry attractiveness/ business strength matrix displaying Sara Lee’s business unit look like? Industry Attractiveness/ Business Strength matrix for Sara Lee Industry Attractiveness RANK HIGH MED LOW Business strength High Selection of business activities Exit of industrial sectors Harvest/ investment Enforcing existing strategic methods Med Development of existing units Targeting the increase of profit Identification of investment opportunities Specialization Emphasizing on firm’s strengths Low Expansion in new industries Investment and innovation Acquisition of competitors The strategic priorities in Sara Lee can be represented through the McKinsey Industry Attractiveness – Business Strength matrix which would be developed as above taking into consideration the firm’s position in its market, its strategic priorities and the strategic chances for further expansion. 5. Does Sara Lee’s portfolio exhibit good strategic fit? What value-chain match-ups do you see? What opportunities for skills transfer, cost sharing, or brand sharing do you see? As explained before, the strategic plan of Burnes is based on the promotion of specific products – those with a strong brand name – and the limitation of the marketing of others that are less known to the public (and that have rather low profitability if compared with the firm’s high profitable products/ brands). Among the brands that are going to be supported through the firm’s strategic plan belong the ‘Sara Lee breads and bakery products, Ball Park meats, Douwe Egberts coffees, Hill-shire Farm meats, Jimmy Dean sausage, Kiwi shoe care products, Sanex personal care products, Ambi Pur air fresheners and Senseo single-serve coffee products’ (case study). In other words, the firm emphasizes on the promotion of food and personal care products while there is no reference to wear products or electrical appliances. The product portfolio of the firm – as promoted through the strategic plan of Burnes – can be characterized as quite effective. In fact, food and personal care products can be characterized as products of ‘first need’ while other types of products would not have high profitability under current market conditions. In accordance with Robertson et al. (1995, 547) ‘because private sector organizations are driven primarily by market or consumer preferences, organizational effectiveness is more readily measured in terms of efficiency and profitability’. In the case of Sara Lee the profit margin of the products chosen for the firm’s product portfolio has been appropriately evaluated if taking into consideration the current social, political and financial conditions within the international market; the strategic fit of the firm’s product portfolio is quite effective as all products chosen belong in two major categories: food and personal care; the potential value – chain match up of these categories is clear under the terms explained above having in mind that products belong in these categories are likely to present a stable level of profit even under adverse market conditions (as already explained before). The development of marketing and cost management strategies for the specific products would be more effective – if compared with similar plans that would involve the products belonging in all the firm’s product categories. As for the chances offered for skills transfer, cost sharing and brand sharing between the specific two categories, it can be noticed that such plans could be viable but under specific terms and conditions – training, development of knowledge – sharing, improvement of cost management methods and accurate – as possible - estimation of the brands prospects in the long term. 6. Does Sara Lee’s portfolio exhibit good resource fit? How profitable are each of Sara Lee’s three business segments? How did the profitability of its divested businesses and Hanesbrands compare to the businesses retained after the retrenchment was completed? Sara Lee’s portfolio exhibits a good resource fit. In accordance with the firm’s strategic plan, a profit of 2-4 percent annually has to be achieved in order for the specific plan to be considered as having achieved its targets. The development of the firm’s business units is based on the three competitive capabilities: ‘competitive pricing, innovative new products, brand-building capabilities’ (case study). In accordance with the firm’s retrenchment plan, three business units are going to be strongly supported – the firm will exit all other industrial sectors, including the apparel market. The first of these units is the ‘Sara Lee Food & Beverage’ (case study) unit which include ‘Ball Park franks, Jimmy Dean sausage, Sara Lee deli meats and so on’ (case study). The performance of the specific unit has been significant – a ’19.6 percent share of the North American retail meat industry’ (case study) has been among the successes of the specific unit. In accordance with the firm’s financial statements, the Sara Lee Food & Beverage (first business unit) presented a total profit of 4.4 billion for 2006 and 4.3 billions for 2005. On the other hand, the Sara Lee Foodservice presented a profit of 2.2 billions for 2006 and 2.1 billions for 2005. As for the third unit, the Sara Lee International, its operational activities were less profitable through the years (in 2006 its profit was estimated to 4.9 billions while in 2005 it was estimated to 5.0 billions). After the completion of the retrenchment plan, the profitability of the firm’s units – including Hanesbrands -is expected to be increased. At a first level, a low profit is expected (about 2-4 percent annually); however, through the years the firm’s profitability is expected to be further increased. The amount of $3.7 billion gathered from the disposition of the firm’s units (case study), i.e. those that were not included in the retrenchment plan is going to be invested in the development of the firm’s three major business units. 7. What is your overall evaluation of Sara Lee’s retrenchment plan? Does the resulting business lineup have a good chance of providing the company’s shareholders with above-average market returns? The effectiveness of the Sara Lee’s retrenchment plan should be based on specific criteria. In accordance with Schuler et al. (1998) the following criteria should be used by firms’ managers when having to develop their firms’ strategic plans: ‘a) the business structure, b) the legislative and employment relationship context, c) the patterns of HRM competence and decision-making and d) the national culture’ (Schuler et al., 1998, 159). From another point of view, the effectiveness of business plans has been related with specific strategic policies: ‘1. Layout analysis; 2. Routing analysis; 3. Bottleneck identification; 4. Bottleneck management and 5. Work-in-process (WIP) management’ (Baker et al., 2005, 44). The retrenchment plan of Sara Lee is appropriately developed and monitored being related with specific market sectors – that have similar characteristics and needs – and for this reason it can be characterized as having many prospects to succeed. Under these terms, there are many chances that the firm’s shareholders will be provided with above – average market returns. The evaluation of the plan by the firm’s managers has led to the conclusion that the targeted profit - $3 billion – from the application of the specific plan is achievable. 8. What strategic actions should Brenda Barnes take to improve the corporation’s financial and market performance? What further portfolio changes might she consider? What corporate – wide strategies should be considered to improve the performance of Sara Lee’s business units and overall performance? Apart from the existing strategic plans, Brenda Barnes could proceed to additional strategic decisions in order to improve the firm’s profitability. In accordance with Steyn (2004, 615) ‘successful organisations are knowledge-creating organisations, which produce, disseminate and embody new knowledge in new products and services’. On the other hand, it is supported that ‘the key benefit in the process of deciding what to measure appears to lie in the fact that the process forces management teams to be explicit about their priorities’ (Neely, 2002, 295). In other words, existing knowledge management methods in Sara Lee could be further improved taking into account the firm’s needs, its position in the market but also the resources available for the realization of the relevant projects; the relevant decision should be taken by Barnes who will be responsible for the appropriate distribution of roles in the firm’s various departments (Shay et al., 1999). The expansion of the firm’s existing portfolio could be decided only after the primary results on the specific initiative – retrenchment plan. If the feedback on the above plan will be positive then additional changes could be decided on the firm’s portfolio – similar industries should be chosen in order to avoid risks regarding the investment involved in any relevant initiative. Currently, the firm’s activities are involved in three major units (as explained before); the management (gathering, transfer, process and storing) of knowledge among these units could be improved a fact that could lead to the improvement of the communication/ cooperation across the organization. No further corporate strategies seem to be required – at least for the moment. However, the proposed plan should be carefully applied and monitored ensuring that equality will exist in the management of investments among the firm’s various units. References Baker, G., Maddux, H. (2005). Enhancing Organizational Performance: Facilitating the Critical Transition to a Process View of Management. 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(1998) Understanding compensation practices across firms: the impact of national culture’, Journal of International Business Studies, 29(1): 159-172 Shay, J., Rothaermel, F. (1999) Dynamic competitive strategy: towards a multi-perspective conceptual framework. Long Range Planning, 32(6): 559-572 Steyn, G. (2004). Harnessing the Power of Knowledge in Higher Education. Education, 124(4): 615-623 Read More