Coca Cola 2007Strategic Management

BY:

Ahmed Elfar

Amr Elsharkawy

Hossam Saber

Salem Abdelatif

Tarek Fahd

March 2010

Strategic Management

External AuditEFECPM

InternalAuditIFEFIN

Analysis

Long-TermObjectives

Strategy Selection

QSPM

ManagementIssues

Measure &Evaluate

PerformanceBSC

Mission

Strategy Formulation

Coca Cola Mission Statement

Our Roadmap starts with our mission, which is enduring.

It declares our purpose as a company and serves as

the standard against which we weigh our actions

and decisions. • To refresh the world... (1) & (3) • To inspire moments of optimism and happiness... • To create value and make a difference. (6)

Strategy Formulation

PEPSI Co. Mission Statement

Our mission is to be the world's (1) (3) premier consumer products company focused on convenient foods and beverages (2). We seek to produce financial rewards to investors (4) as we provide opportunities for growth and enrichment to our employees (9), our business partners and the communities in which we operate. And in everything we do, we strive for honesty, fairness (6) and integrity (8).

Mission Statement Evaluation Matrix

COMPONENTS 

Organization Customers Products Services Markets

Concern for Survival, Growth,

Profitability

Technology

Coca Cola The world No The world No No

PepsiCo Yes Yes Yes Yes No

COMPONENTS 

Organization Philosophy Self-Concept

  Concern for Public Image

  Concern for Employees

 Coca Cola The whole mission statement

No  No  No

  PepsiCo Yes No Yes  Yes

Proposed Mission

• At Coca Cola we believe our main responsibility is providing customers (1) with refreshing beverages including soft drinks, water, energy drinks, juices, and tea (2) to fit any occasion in their day to day lives (6). Our signature product, Coke (7), is a favorite around the world and a wide variety of our products are sold in over 200 nations (3). We use the only the most sophisticated equipment (4) to process and make our products to ensure each glass of Coke product is as good as the last (5). Our employees (9) are fairly compensated and we practice fair trade in all markets we compete. We value our responsibility to all communities we serve and support many educational and leadership programs (8).

Strategy Formulation

• Input Stage

– External Assessment:• Competitive profile matrix CPM• External Factors Evaluation Matrix EFE.

– Internal Assessment• Internal Factor Evaluation matrix IFE

Strategy Formulation

• Matching stage:• SWOT Matrix• Internal & External matrix IE

Strong IFE & Medium EFE (Zone or rank 4); So Grow & Build strategies would be used:

Integration (forward): Use of manual distribution centers Market Penetration: Increase marketing budget (i.e. create digital program

with iTunes) targeting audiences under the age of 12 & main sponsor of world cup 2010) and more focus on North US market

Market Development: energy and healthy drinks Product Development: Food industry, Innovation in Products (i.e. Jianchi)

means "strong inner energy" in Chinese.

The drink, made with fruit juices and plant extracts and available in three flavors, is inspired by ancient Chinese wisdom to enhance the inner balance.

Long term objectives

– Increase the company revenue by 50%  in two years (current revenue 24 bill).

– Increase the book value/share by 25% in three years (current value $8.52).

– Generate cash flow by 1 bill in two years (current value 2,320 bill).

– Increase the net income by 30% in three years (current value 6,824 bill).

Strategy Formulation

• Decision stage:

– Quantitative Strategic Planning Matrix QSPM

Strategy Implementation

Management Issues

1. The Rewards / Incentive system

• THE ANNUAL INCENTIVE PROGRAM– Corporate incentive scheme based on

- Sales of company products (volume)

- Economic profit (profit).

These two objectives become the target for the division for annual incentive purposes.

– The performance of each division is assessed versus its objectives for the year - If divisions meet their objectives exactly, incentives are funded at 100% of target.

- If they exceed objectives, they are funded at greater than 100%,

- if they fall short, they are funded at less than 100%.

• THE STOCK OPTIONS PROGRAM

The process for stock option awards is similar to that of annual incentives:

Option pools are funded based on performance against unit case sales and economic profit objectives, and individual option grants are determined based on specific contribution to those objectives.

1. The Rewards / Incentive system

• IMPACT OF THE PROGRAMS:

• The effect on the business of the clear linkage of incentive and stock option awards to economic profit has been very positive. Some of the benefits include the following:

1. More attention is given in the planning process to the amount and cost of capital required to deliver volume and profit results.

2. Managers and associates now focus more daily attention than ever not only on generating volume and profit, but doing so in a way that covers capital costs and enhances shareowner value.

3. The communication efforts surrounding the importance of value-based management are reinforced financially twice a year through incentive and stock option awards.

4. The economic profit levels of the company and the resulting increase in shareowner value continue to grow at healthy rates. Figure 3-1 shows that as economic profit grew an average of 20.2% per year for 10 years ending with 1997, stock price grew an average of 30.2% per year for the same period.

2. Organizational structure To handle the enormous capacity of its business, the Coca Cola Company has divided up into

six operating units.

Therefore, COCA-COLA is predominantly organized into an international area structure considered as a global product divisional structure.

To meet and match the organization structure with the formulated strategies, new food industry director will be added to structure to manage the new food sector.

New healthy beverage will be managed like the soft drinks beverages.

• Advantages of this divisional structure

Workflow per division Low level of Centralization Flexible and innovative Sensitive to subtle differences across products, regions, and clients

2. Organizational structure

• BI = Bottling Investment• SC = Supply Chain• GC = General Council• PA = Public Affairs

3. Production/operations Cost Control, one of the management issues in operations is cost reduction or cost optimization. It is

clear in the Coca-Cola income statements that Coca-Cola practices cost reduction in 2009 from 11,374,000,000 to 11,088,000,000 and the Revenue decreased from 31,944,000,000 $ to 30,990,000,000 $ so cost control should be done through optimize the process of operation (Raw material, power consumption, fuel consumption), cost of unit case must be monitored.

Inventory/Inventory Control is the main for operation management concerns, it is calculated from the balance sheet that the Coca-Cola inventory turnover ratio is 4.9 which is less than the industry average 7.1, and so Coca-Cola should develop and revise the inventory control system to reach the industry average.

Plant size, food and snakes will be a new industry for Coca-Cola, so new production lines in the existing plants should be established for food industry, capacity will be based on the marketing forecast, so site location analysis is very important.

For food industry, Purchase specialized equipment and add specialized people (human resources).

For Food industry, apply the quality control system to meet the customer satisfaction.

4. ANNUAL OBJECTIVES– R & D function.

• Develop two new products in the food industry.• Develop one new healthy beverage product.

– Production Function.• Increase the inventory turnover to 7. • Implement a new quality control system for food industry.• Decrease the production unit case cost by 5%.• Implement new 3 food production lines in Europe.• Implement new 3 food production lines in North America.• Increase the beverage production by 5%.• Increase the bottled industry production by 10%.

– Marketing Function.• Increase the beverage market share by 2% (from 54 to 56) • Increase the sales volume by 4%

– Financing Function.• Reduce the company liabilities by 5% annually• Finance new 6 food plants.

– Human Resources Function.• Hiring specialized staff for food industry 1200 employees. • Develop employees by 15days training.• Decrease the employees turnover by 50%.

Strategy Evaluation

Balanced Scorecard

A performance management framework used by strategic decision makers to make the right decisions about their business.

Balanced scorecard not only a set of strategic goals; it is also a method for monitoring progress toward organization's strategic goals.

Recommendations

• To survive in the market you have to compete, to compete in the market you have to grow.

• Coca-Cola always competes with Pepsi, so Coca-Cola should look for its competitive advantages to be market leader.

• Coca- Cola should integrate its business in the healthy and energy beverages to compete with the competitors.

• Coca-Cola should diversify its business by food industry to increase the beverages market share and reduce the risk probabilities.

• Coca-Cola should avid to be the follower in the market to discover its competitive advantages.• Coca-Cola leads the digital marketing philosophy in the beverage industry.

• Coca-cola and Apple alliance support Coca-cola in the competition as a new innovated marketing idea.

• Coca-Cola must on the road by sustainable industrial development over the long term.