Coca- Cola Company Strategic Management

12 Pages   |   3,225 Words

Contents

An Overview of the Organization. 3
Strategic Management 3
Key Features of Coca-Cola’s Strategic Management Function. 4
Entry into New Markets. 4
Takeovers. 5
Financial Management 5
Assessment of Coca-Cola’s Strategic Management 6
Bargaining Power of Suppliers. 6
Bargaining Power of Buyers. 7
Threats of Substitution. 7
Threats of New Entrants. 7
Rivalry among Competing Firms. 7
Assessment of Coca-Cola’s Strategic Management in the Light of Academic Literature. 8
Recommendations. 9
Conclusion. 10
Bibliography. 11

An Overview of the Organization

Coca-Cola is one of the most recognized brands of the world. It is also one of the largest manufacturers and distributors of beverages and snacks in the world. The magnitude of the operations of Coca-Cola can be gauged from the fact that it is amongst the top companies of the world according to Fortune Global 500 magazine (Fortune, 2007). It is a multinational company in a real sense with the presence in almost every country of the world. Coca-Cola has been able to achieve success through an overall strategy, which is aimed at producing and producing famous products such as Coke and Kinley and supporting them through creative advertising. Despite strong brand equity, the management of the company gives great importance to the management of strategy in the organization. This is primarily attributed to the strong competition faced by the company in the shape of renowned brands such as Pepsi and RC Cola. However, Coca-Cola is able to counter by employing its strategy of effective management of resources according to the requirements of the marketplace. As a result, Coca-Cola has implemented radical changes in the organization through expanding into new markets through acquisitions and takeovers. Such strategy has both advantages and disadvantages, which will be discussed comprehensively in the succeeding sections. As Coca-Cola is a global organization, the critical review of its strategic management will be done in the context of its global operations. This report will also analyze the way the company has used strategic management to minimize risk and increase profitability (Bell, 2003).
 

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Strategic Management

In comparison to the business policy, strategic management is more a technical approach related to the management of organization’s competencies and weaknesses. Generally, strategic management can be referred to as a group of managerial decisions that have considerable long-term effect on the performance of the organization. From this definition, it can be seen that strategic management is related to the decisions, which determine the strategic direction of the organization (Freeman, 1984). In the context of Coca-Cola, strategic management involves strategic processes, which allows the organization to define the business objectives and enables it to link these objectives with the environment. The environment usually consists of internal and external situation. The linkage process is conducted through the development of strategy and it is implementation in the marketplace. Likewise, another key characteristic of strategic management is constant monitoring and evaluation of the strategy for the purpose of identifying deficiencies and bringing improvement. Overall strategic management involves environmental scanning, strategy development, strategy implementation and strategy monitoring. For Coca-Cola, the purpose of corporate level strategy is to maximize the profitability in order to increase the value of the firm (Bhatia, 2003). This is done through internal assessment of the strengths and weaknesses of the company. After this, a strategy is developed, which uses these strengths to exploit external opportunities in order to build competitive advantage in the market. One pertinent example in this case is the strategic decision made by the Coca-Cola to close down the South Korea’s facility in the wake of human resource problems (Dawar & Dai, 2003).

Key Features of Coca-Cola’s Strategic Management Function

Following are the key characteristics of the Coca-Cola’s global strategy:

Entry into New Markets

It is one of the primary objectives of corporate-level strategy of Coca-Cola at the global level. In addition to this, this objective also includes consolidation of the company’s position in those markets, where it is currently present. According to one estimate, Coca-Cola has a market share of 59% of the world beverage market. This figure makes it the largest soft drink brand in the world. Coca-Cola has achieved this position through acquiring rival companies. Despite prevalent presence of the company in the soft drink segment, it faces challenge to consolidate its position due to the volatile nature of the market. Moreover, this segment is also growing, which makes it difficult for the competing to firm to retain their respective market share. In order to increase it market presence organically, company extensively make use of strategic management. This enables the organization to maximize the potential of the company in the external environment. Moreover, the firm enjoys a number of advantages in the market. These advantages exist in the shape of large market share, renowned reputation and brand familiarity in the consumers (Kaul, n.d.). The organization’s strategies use these strengths to increase consumers’ awareness regarding the product through creative marketing and advertising techniques. In addition to this, company also invests heavily in innovative projects to develop new products and improved present line of brands. Such innovations usually manifest in the shape of improvement in the product’s packaging and design in order to attract target market. One pertinent example in this regard is the launch of round bottle of Coke reflecting the shape of women in order to attract male segment of the market through the application of metaphor marketing. This enables the company to keep the competition at bay and consolidate its position in the market.

Takeovers

Takeovers are another important characteristic of Coca-Cola’s global strategy. Takeovers have enabled the company to experience phenomenal growth in comparison to its traditional rivals. Using mergers and takeovers, the company has been able to conduct accurate surveys to discover markets needs and customer preferences. At the same time, it is able to deliver to the markets and customers in most appropriate and efficient manner. However, mergers and takeovers are not without problems and challenges. The most common problem related to mergers and takeovers is maintaining the morale of the new management team. Otherwise, the new employees may not feel part of the company, which can subsequently affect the performance of the organization. In order to integrate the employees of the acquired companies, Coca-Cola has developed a specific strategy. This strategy provides the required incentives to the new employees in order to give the employees feeling of ownership of the new environment. This is important because motivated employees can go a long way in shaping the fortunes of the organization in the marketplace. In addition to this, Coke has also developed partnerships and synergies in order to improve the performance of its supply chain. These partnerships and synergies have been mostly concentrated in the areas of production and distribution. This has enabled the organization to effectively manage costs and pass on the benefits of effective cost management to consumers through reduction in prices. At the same time, this has also brought considerable improvement in the distribution of the company in different markets resulting in market penetration for the company’s products (Keller, 1998).

Financial Management

One of the keys aspects of strategic management is effective management of organization’s financial assets. In previous years, Coca-Cola has struggled to effectively manage its finances, which has adversely affected the organization’s resources. It is imperative for Coca-Cola to use strategic management to measure and ascertain the profitability and business efficiency. In 2008, in some markets, Coca-Cola was earning less than its cost of capital, which is not a healthy sign for the organization. This also implied that the company’s earnings were not up to the requirements of rate of return. Likewise, in the same period, a fall in turnover of goods implied that the company used its assets less efficiently in producing profits and cash flows. This is partially attributed to the increased level of investment in certain assets especially those related to the production and the launching of new products. This has resulted in asset overload for the organization. At the same time, changes in the product mix including changes in the price and weakened economy has also adversely affected the total turnover. However, in order to overcome these challenges, the company brought several changes in its strategy, especially relating to the financial aspect of the organization. These changes enabled the organization to increase production efficiency and decrease distribution cost. Moreover, it also brought relevant changes in its management structure to decrease human resource overhead in the organization. It also implemented new systems such as ERP and CRM to integrate different operations and functions of the organization in order to improve the overall efficiency (Pendergrast, 1993).

Assessment of Coca-Cola’s Strategic Management

In order to determine the effectiveness of Coca-Cola’s strategic management, it is important to analyze it within the framework of certain theoretical model. One such a theoretical model is Porter’s 5 forces model (Porter, 1980). Following is the application of Porter’s 5 forces model on the case of Coca-Cola. This model allows the analysis of potential attractiveness of the industry, which can later be translated in terms of profitability for the organization. This analysis will focus on the industry from the perspective of the selected company and in the context of the strategy discussed.

Bargaining Power of Suppliers

Soft drink industry is highly dependent on the inputs and raw material from the suppliers. However, at the same time, most of the supplies are not unique in nature and can easily be supplied by numerous suppliers. Similarly, the opportunity of forward integration for the suppliers is very limited. Moreover, most of the supplies are brought in bulk quantities, which make the bargaining power of companies such as Coca-Cola very high. Overall, the bargaining power of suppliers in this industry is very low, which is an evidence of effective strategic management of the organizations present in the industry.

Bargaining Power of Buyers

Most of the products produced by Coca-Cola and other companies of the industry are FMCG products. Resultantly, there are large numbers of buyers, which can be characterized as consumers of these products. The purchases conducted by these buyers are very small in number whereas the companies in the industry try to capture maximum consumers in order to increase sales. Products such as Coke and Pepsi enjoy great brand loyalty, which further decrease the bargaining power of the customers. On the other hand, the consumers are also very sensitive to price. Overall, the buyers enjoy low to moderate bargaining power.

Threats of Substitution

This industry is characterized by high level of substitution. This can be substantiated from high market budget allocated by the rival firms for the advertising of their respective products. At the same time, this industry also faces strict price and non-price competition, which keeps additional profits of the rival firms in check. The only way to minimize the threat of substitution is through acquisition of the competition, which has been effectively done by Coca-Cola in some markets, resulting in positive results for the organization.

Threats of New Entrants

Threat of new entrants in this industry is very low. This can be attributed to the established nature of the firms operating in the industry. Moreover, the incumbent firms also enjoy considerable economies of scale, which makes the entry of new firms in the market quite difficult. Similarly, the established brands also enjoy considerable brand loyalty in the market, which makes it quite difficult for new firms to position their products. In addition to this, the cost of entry is also very high. Therefore, the threat of new entrants in the industry is very low, which proves the efficacy of the strategy of the established firms.

Rivalry among Competing Firms

Rivalry among the competing firm is very high. Globally, Coca-Cola faces stiff competition from Pepsi, which has successfully eroded its market share in many markets. One of the indicators of high rivalry between the firms is price sensitivity among the consumers. As a result, the competition in the market manifests in the shape of both price and non-price.
 

Assessment of Coca-Cola’s Strategic Management in the Light of Academic Literature

The performance of Coca-Cola’s strategic management can be assessed in the light of relevant academic literature. Numerous authors have done considerable work in analyzing the performance of strategic management of multinationals such as Coca-Cola. The works of these authors provide insight into the working of these global organizations and at the same time provide a description of all opportunities and challenges by these organizations. One of the pertinent factors affecting the strategy of this organization is the demographics of their target market. In the case of Coca-Cola, the target market mostly consists of young people. In order to cater to the needs of young population, it is imperative for Coca-Cola to develop a marketing strategy, which will build association of their brands with the needs of the target market. Coca-Cola has been very successful in achieving this target (Sánchez & Heene, 2004). Their numerous campaigns in different markets of the world have been able to tap the potential of young strata of the market. This is one of the reasons Coca-Cola is associated with happiness and other youthful attributes all over the world. Similarly, there is also a growing trend of health consciousness in beverage and soft drink markets. As a result, organizations such as Coca-Cola and Pepsi have been able to introduce new products, which cater to the needs of these new segments. The emergence of such trends forces the organizations to constantly scan their environment and markets and according bring changes in their strategy in order to minimize the risk of losing their customers to the rivals (Wright & Snell, 1998).
The prevalent economic condition of different regions also has a considerable effect on the fortunes of the global companies. The subprime mortgage crisis in the US and the Euro-debt crisis have left many economies in turmoil. At the same time, it has limited and constrained the ability of many firms to raise finance and funds for expansion (Global Economics Crisis Resource Center, 2009). The immediate result is the slowing of the growth of different global companies including Coca-Cola. This economic condition has also triggered political changes in different countries, where the new government has brought new regulations affecting the profitability of the companies in a negative way. At the same time, it also has increased the regulatory and legal costs for different organizations. In order to overcome these economic and political challenges, it is imperative for an organization such as Coca-Cola to bring required changes in their strategy, which will enable them to effectively position their products in the market. At the same time, it is imperative to increase organizational efficiency in order to overcome the monetary and fiscal constraints offered by present global scenario. It is also equally important to incorporate the changes in technology in the overall organizational strategy. Otherwise, the organization can risk losing competitive advantage to the rivals either through low cost-effectiveness or decreased quality of the products (Business Week Online, 1999). It is, therefore, important that the technology is given adequate weight in the strategy of the organization. Similarly, organizations should also invest in new technologies and research and development initiatives in order to develop products, which could easily penetrate in the market on the basis of their attributes and benefits.

Recommendations

Following are the key recommendations in order to bring relevant changes in the strategic management function of Coca-Cola, which will enable it to achieve its long-term goals.
  1. Coca-Cola should invest heavily in the development of infrastructure in the market in order to facilitate the customers. At the same time, this investment will also benefit other supply chain partners of the company including the distributors and retailers, which will enjoy greater penetration and subsequently earn increased profits. This will enable Coca-Cola to build sustainable relationship with customers and other stakeholders.
  2. Coca-Cola should give greater weight to the local tastes in the development of their products instead of sticking to same standardized products all over the world.
  3. Coca-Cola should bring necessary changes in the strategic management, which will enable it to identify new markets. This will give the company opportunity to enter new markets.
  4. It is imperative for Coca-Cola to build partnership and collaboration with other related organizations. These collaborations could be related to the R&D initiative or entry into alien markets. This will enable it to divide the costs and at the same time reduce the overall risk associated with the investment.

Conclusion

Coca-Cola’s strategic management function has been very successful. This can be substantiated from the organization’s position in the international market. However, there are still many gaps in the strategy of the company, which needs to be identified and filled by the organization. It is important for the corporate leadership of the organization to include all the relevant stakeholders in any effort intended to address the deficiencies of organizational strategy. The ultimate objective of the organization is to increase profitability through establishing foothold and dominant status in markets all over the world. For this purpose, Coca-Cola has followed the path of aggressive expansion in different parts of the world. This aggressive expansion manifests in the shape of entry into alien market through heavy investment. Moreover, Coca-Cola also has a policy of acquisition in order to counter competition. This strategy has been very successful in enabling Coca-Cola to achieve its ultimate objectives of high profitability. However, numerous political and economic changes in the world provided the organization with a number of challenges. It is imperative for the organization to take into account these challenges and bring required changes in its strategy. Otherwise, it could risk losing its dominant global status to the rivals.

Bibliography

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