Business Strategy MBA510 Assessment Item 1 CHALSES STURT UNIVERSITY FACULTY OF BUSINESS

TOPIC: CRITICALLY EVALUATE THE POTENTIAL BENEFITS AND LIMITATIONS THAT STRATEGIC MANAGEMENT PLAYS IN BUSINESS OR ORGANIZATION THAT YOU ARE FAMILIAR WITH

Submitted to: Dr. BELINDA FRIDEY Pham Hoang Lan CSU ID: 11467208 Page 1

Business Strategy MBA510 Assessment Item 1 Student name: PHAM HOANG LAN CSU ID: 11467208

Assessment item 1 Value: 40% Due date: 14 Apr 2010 Length: 2000 words

Pham Hoang Lan CSU ID: 11467208

Page 2

Business Strategy MBA510 Assessment Item 1

CONTENTS
PART 1: INTRODUCTION 1. History of Coca Cola4 2. Mission...4 3. Business strategy...4 Pham Hoang Lan CSU ID: 11467208

Page 3

Business Strategy MBA510 Assessment Item 1 PART 2: POTENTIAL BENEFITS AND LIMITATIONS OF STRATEGIC MANAGEMENT OF COCA COLA COMPANY 1. SWOT-Analysis....5 2. Strategy formulation....5 2.1. Differentiation strategy.....6 2.2. Diversification strategy.....6 3. Decision making....8 4. Strategy implementation..9 5. Strategy controlling and evaluation..10 PART 3: CONCLUSION

PART 1: INTRODUCTION
1. History of Coca Cola Coca Cola was founded in May 1886 in Atlanta with operation in the beverage industry. However, until 1895 coke in bottles was sold. Over the past years, Coca Cola has gained popularity and its products become well-known all over the world. Thus from its mere at the beginning of 1886, Coca cola has now grown to a strong multinational corporation with its Pham Hoang Lan CSU ID: 11467208

Page 4

Business Strategy MBA510 Assessment Item 1 products being internationally recognized. In fact, Coca Cola has now become one of the world top-leading brands and widely favorite in over 200 countries. 2. Mission At Coca Cola Company, all strategies are made toward the mission of refreshing the world, inspiring optimism and happiness moments, creating value and making a difference 3. Business strategy Taking the important steps to build positions in different businesses and gain reasonable amount and kind of diversification. A core part in the corporate strategy is to make decision on quantity, types and specific lines of business that the company should specialize in which may relates to making decision of increasing or decreasing the amount and breadth of diversification, closing out some lines of business, adding others and/or changing specialization among lines of business. (Tanmay Vyas, n.d) Taking actions to improve the companys complex performance in diversification: This may involve strongly focusing on the most potential lines of business, maintaining well the other key businesses, consolidating weak-performing lines of business and eliminating the less efficient ones. It may involve raising capital, supporting management, acquiring or merging. (Tanmay Vyas, n.d) Running policies to gain cross-business strategic fits then make use of it as competitive advantages in technology transfer, facility operation, distribution channels and customer services. (Tanmay Vyas, n.d) Setting out priorities for investment and concentrating corporate resources on the most effective lines of business (Tanmay Vyas, n.d) PART 2: POTENTIAL BENEFITS AND LIMITATIONS OF STRATEGIC MANAGEMENT OF COCA COLA COMPANY 1. SWOT-Analysis Strengths: - Long and firm history Pham Hoang Lan CSU ID: 11467208 Weaknesses: Customers weak awareness of

Page 5

Business Strategy MBA510 Assessment Item 1 - Owning a lot of bands - 500 non- few brands alcoholic beverage brands and - It strongly depends on Coca Cola - Cash decline in operation - Distribution on the markets is not equal, and Threats: - Pepsis competition - Dependence on bottling partners - Market is shared by new entrants - Coca Cola brand value has been decreased for the last few years. - It contains some negative health effects - Barriers of language, culture, politics from foreign market 2. Strategy formulation The Coca Cola Company follows differentiation and diversification strategy. It spends enormous amounts of money on advertising and marketing campaigns to differentiate and locate a unique image for their products and provides different products to the customers. It has been very much successful in gaining the leading position among the competitors (Five Different Companies Business Level Strategy - Business Essay, n.d., para. 1). 2.1. Differentiation strategy: Coca Cola has created its differentiation by utilizing soft sell approach and it has successfully positioned itself on customers thinking of strong reputation for quality and Pham Hoang Lan CSU ID: 11467208 most of the beverages reserves and supply restrict to few countries operating in a huge market in drink more than 200 countries. over the world - Large scale of operations Strong financial profit, strong marketing - Coca colas brand is well-know all - Innovation lack

advertising strategies Opportunities: - Growth of peoples income - Growth of bottled water market - Healthy product launch - Huge domestic market

Page 6

Business Strategy MBA510 Assessment Item 1 innovation, successful communication of perceived strengths of the product and symbol of fun and enjoy. This strategy makes up around 20% of total advertisement budget (Differentiation Strategy Coca Cola, n.d., para. 2). According to Viljoen, J., & Dann, S. (2004, pp. 269-299), differentiation creates competitive advantage through brand loyalty and the fact also shows that Coca Cola has maintained this strategy from early days of the companys life to now and created a strong, brand loyal customer base. This strategy plays very important role in Coca Colas success in marketing and competing. In environment of hyper-competition and over-communication, customers have too many choices and their purchasing decision is always made on the basis of differences. Differentiate or die so that this is extremely appropriate strategy, however, it takes a lot of budgets and time for research to match customers demand for differentiation with the companys capacity of supplying differentiation 2.2. Diversification strategy: Coca Cola Company offers a portfolio of more than 3,300 beverages, fruit juices and fruit drinks, waters, sports and energy drinks, teas and coffees, and milk-and soy-based beverages in over 200 countries. Basing on grand strategy matrix of Coca-Cola Company as follows:

Pham Hoang Lan CSU ID: 11467208

Page 7

Business Strategy MBA510 Assessment Item 1 Coca-Cola Company comes in the first quadrant so the Company management must focus on current market, gain growth by adopting product development, market development and market penetration strategies. By applying related diversification strategy, the Company can limit its risk with broad portfolio or product line. (Grand Strategy Matrix of Coca-Cola, n.d., para.2). When discussing about this matter, Hubbard & Paul Beamish (2010, p.261) also argue that the wider the spread of businesses, the less the variation in risk should be. Besides, when diversifying, the Company can take advantages of existing sales force, advertising, distribution facilities, related technology and transferring know-how, brand name and reputation to new products. In addition, this strategy also encourages the efficiency of capital allocation (Hubbard & Paul Beamish, 2010, p.260) and lower average unit costs may result from the firm's ability to spread administrative expenses and other overhead costs (Joe G. Thomas, n.d.) On the other hand, with related diversification strategy, there are not few limitations for the organization. There is a seasonal or cyclical downturn in the industry and when it happens, all related products will be badly affected. So the Company does not make use of the risk reduction from putting "all your eggs in one basket". Furthermore, diversifying firms ignores business cost to follow the target of varying products and gaining extensive market penetration. The fact shows that, however, there are so many products that the consumer cannot remember that they belong to Coca Cola because there is no focus and appropriate advertising and marketing campaigns for them. Lastly, it makes the company look beyond the existing core competences among staff leading to ineffective management and losing the corporate focus. para. 5,6) The organization should finish their thinking before starting to take action so that when strategy is formulated, it helps to shape the future of business. Mintzberg, H. (1994, pp. 221-321) states that every failure of implementation is, by definition, also a failure of formulation, despite of some disadvantages, however, benefits outweigh limitations in the Coca Colas strategy formulation and it is good pre-condition to execute strategy successfully later on. 3. Decision making Pham Hoang Lan CSU ID: 11467208 Page 8 (Diversification is fundamentally a negative strategy... diversifiers are always running away from something, n.d.,

Business Strategy MBA510 Assessment Item 1 The decision making process in Coca Cola company is centralized. The top management takes time to explore and evaluate all the possible alternatives before giving solution. Programmed decisions are made only by the top management without consultation. The daily and routine decisions are made by the line managers at the middle level after getting permission or approval from the general manager. (Coca Cola, n.d., para. 13). This classical model gives top-level management maximum control and because of centralization in decision making process, the activities will be conducted under their direct and control resulting into uniformity of activities, decision and process. Decision is made quickly also and that is very important in case of emergency. Additionally, this type creates greater flexibility adjusting the current situation. Moreover, Coca Colas decision making method helps to fix responsibility among staff. They well acknowledge their rights and get clear orientation and thereby increasing working efficiency. Over the past years, centralized making decision in the Company has gained highly effective control and helped it to achieve firm growth. However, limitations simultaneously exist. Decision is taken only by the top so all organization highly depends on them and whenever the top is neither available nor is in a mood to take one, this will lead to delay in work and limit the organizations ability of quick and effective respond to changes of the environment. Also, bureaucracy is one of disadvantages which results in discrimination. In fact, the workers feel that there is no appropriate authority in the firm, the salesmen dissatisfy because they are totally powerless to make any decisions by themselves. When work with customers, they have not been given even slightest authority to offer any credit or discount. There is no initiative and charm from work. There is no involvement but the implementation of job as if work like a machine as ordered. Then loyalty among the working force is luxurious thing to expect. (Coca Cola, n.d., para. 13). 4. Implementation Coca-Cola Company develops the tactics and policy for achieving the formulated strategies to obtain its mission and objectives and implements strategies based on different market situation as well as customers response. (Md. Kamrazzaman, Shuvradeb Barai, Abu Zafour, Sahana Parveen & Nazmul Alam Siddiqui, n.d) Pham Hoang Lan CSU ID: 11467208

Page 9

Business Strategy MBA510 Assessment Item 1 It is considered as an action stage in strategic management which helps the firm determine the best approach to take appropriate actions in order to achieve its business mission, target and success. It is also beneficial to adapt the whole company to actual environmental changes. Goals are set, policies are devised, employee are motivated and resources are allocated, formulated strategy will be executed successfully so that strategic implementation benefits Coca Cola to develop strategy-supportive culture, build an effective organizational structure, evaluate efforts, prepare financial fund, improve and utilize information system as well as link people to organizational performance. Besides, this process enables the firm to indentify how to explore efficiently its resource to make its plan come true as well as satisfy the long-term targets. However, in practice, implementation appears several limitations. Customer behavior is so complicated and difficult to understand. Their purchasing decision is difficult to understand and analyze exactly and varies unpredictably. Sometimes, customers response is not trustworthy so that if the Company highly depends on it without careful consideration, there will make mistakes unintentionally and the failure of New Coke is very expensive past lesson of Coca Cola. Furthermore, no body can outguess market so that implementing strategies on basis of market situation results in the fact that the Company takes not few risks because of continuous changes from market.

5. Controlling and evaluation The Coca-Cola Company develops a control framework for their overall controlling of management. Control is done through the evaluation based on the very objective basis. If certain fixed criteria are not met by employees, reasons will be evaluated and corrective actions are taken by the respective managers. Each department has its own criteria, reporting and evaluation systems. For example, in sales department, every sales person is supposed to make daily report of activities and evaluated on quarterly basis. Performance is assessed basing on performance development plan and target achievement which are set in advance at the beginning of the year, each quarter and every month. Besides, Coca Cola also runs following quality management system to ensure the quality of products:

Pham Hoang Lan CSU ID: 11467208

Page 10

Business Strategy MBA510 Assessment Item 1

Source: Md. Kamrazzaman, Shuvradeb Barai, Abu Zafour, Sahana Parveen & Nazmul Alam Siddiqui, Strategic management issues of multinational companies (MNCs): A case study on Coca-Cola Company

One of potential benefits is that it ensures the organization to pursue planed program to meet the goals. In addition, with the reporting and evaluation system, all activities of the whole organization will be updated and analyzed. Mistakes, if any, will be discovered and fixed as soon as possible. Especially, evaluation will help the Company to motivate and promote the human resources, orient them toward the general direction to get the overall target. However, there exist limitations such as it will take a lot of time for reporting and evaluating. Moreover, because of over-dependence on the decision of top-level managers, as a result, they are unable to take advantages of smart employees. If there is any mistake in decision, it will lead to mistake of the whole system. Staff has no opportunity to take initiative in their work so that the internal environment is not dynamic and perfectly competitive as well as inspires the employee to work, create and confirm themselves when they only work and obey like machine. In particular, assessment of firms performance is very important and helps managers to make adjustment for the strategy timely; however, it is not enough. (Lewis, G, 1999, pp. 57-80). The Company should additionally conduct tests of internal and external consistency parallel with evaluation process to have comprehensive control.

Pham Hoang Lan CSU ID: 11467208

Page 11

Business Strategy MBA510 Assessment Item 1

PART 3: CONCLUSION
Without a strategy the organization is like a ship without a rudder, going around in circles. Its like a tramp that has no place to go to (Joel Ross and Michael Kami), so that strategy plays an indispensable role in corporate success. Strategy, however, is effective or not definitely depending on strategic management of the organization. With Coca Cola in particular and all entrepreneurs in general, strategic management leads the way to the goals of organization. Like building a house, the workers must know the design in advance to make sure what they have to do, a flight must acknowledge the destination before taking off, so do business organizations. Strategy guides the firm to follow the only direction and never lose its way. But in fact, a firm even though has very good strategy, its practice can still appear limitations and restrictions because under increasing competitive environment and non-stop changing market, there are a lot Pham Hoang Lan CSU ID: 11467208 Page 12

Business Strategy MBA510 Assessment Item 1 of factors impact on the Companys strategic management. For gaining success, it requires managers to be very sensitive and flexible to take adjustment steps in management to match strategy to current situation. Despite of limitations in practice, strategic management significantly contributes to Coca Colas increasing growth and helps the Company consolidate its stronger and stronger position in the market.

CONFERENCE LIST
Coca Cola. (n.d.). Retrieved from http://webcache.googleusercontent.com/search? q=cache:P_MLuwncYCQJ:www.scribd.com/doc/28547856/Coca-Cola+Coca+Cola %27s+strategic+decision+making&cd=1&hl=en&ct=clnk&gl=au

Pham Hoang Lan CSU ID: 11467208

Page 13

Business Strategy MBA510 Assessment Item 1 Differentiation strategy Coca Cola. (n.d.). Retrieved from http://kninn.blogspot.com/2010/06/differentiation-strategy-coca-cola.html Diversification is fundamentally a negative strategy... diversifiers are always running away from something. (n.d.). Retrieved from http://ivythesis.typepad.com/term_paper_topics/2009/07/diversification-is-fundamentallya-negative-strategy-diversifiers-are-always-running-away-from-somet.html Five different companies business level strategy - Business essay. (n.d.). Retrieved from http://www.freeonlineresearchpapers.com/five-different-companies-business-strategy Grand strategy matrix of Coca-Cola. (n.d.). Retrieved from http://mba-lectures.com/management/strategic-management/1106/grand-strategy-matrixof-coca-cola.html Hubbard., & and Paul Beamish. (2010). Strategic management (4th ed.). Pearson Joe G. Thomas, D. (n.d.). Diversification in the context of growth strategies. In Diversification strategy. Retrieved from http://www.referenceforbusiness.com/management/De-Ele/Diversification-Strategy.html Lewis, G. (1999). The fundamentals of strategic analysis. In Strategic management (2nd ed.). Sydney: Prentice Hall Md. Kamrazzaman, Shuvradeb Barai, Abu Zafour, Sahana Parveen & Nazmul Alam Siddiqui, D. (n.d). Developing international strategies. In strategic management issues of multinational companies (MNCs): A case study on Coca-Cola Company. Retrieved from http://www.slideshare.net/Zafour/strategic-management-issues-of-multinationalcompanies-mncs-a-case-study-on-cocacola-company Mintzberg, H. (1994). Fundamental fallacies of strategic planning. In The rise and fall of strategic planning. Prentice Hall Tanmay Vyas , D. (n.d.). Business strategy. In Coca Cola business strategy. Retrieved from http://www.authorstream.com/Presentation/abhaysingh7891-542227-cocacola-businessstrategy Viljoen, J., & Dann, S. (2004). Business level strategy alternatives: Managing a competitive profile. In Strategic management (4th ed). Frenchs Forest: Longman Pham Hoang Lan CSU ID: 11467208 Page 14

Business Strategy MBA510 Assessment Item 1

Pham Hoang Lan CSU ID: 11467208

Page 15