Kraft Foods International Business Strategy by Jolito Ortizo Padilla

1.       Executive Summary

The Board of Directors of Kraft Foods Inc. declared a regular quarterly dividend of $0.29 per common share of Class A stock payable on July 14, 2010. According to their advertising, Kraft Foods makes today delicious in 150 countries around the globe. Their 100,000 employees work to make delicious foods consumers can feel good about it. Kraft’s American brand icons include Kraft cheeses, dinners, and dressings. Maxwell House coffees and Oscar Mayer meat, to global powerhouse brand like Oreo and LU biscuits, Philadelphia cream cheeses, Jacobs and Carte Noire coffees, Tang powdered beverages, and Milka, Cote d’ Or, Lacta and Toblerone chocolates.

The largest food company in the United States, Kraft first quarter 2009 profit increased 10 percent and its organic revenues increased 2.3 percent. The company’s North American sales rose 2.9 percent, helped by much higher demand for its cereals. Kraft’s second quarter 2010 earnings increased 11 percent to $927 million but sales dropped 5.9 percent to $0.16 billion. The weakest performing segment of the company was North American Foodservice which reported a 10 percent drop in sales. Kraft European segment reported a doubling of profit of the quarter.

2.       Introduction

James Kraft founded what is now known as the Kraft Food Company in 1903 when he sold a few standard varieties of cheese wholesale in Chicago. The company grew and was soon distributing some 30 varieties of cheese packaged under the brand names of Kraft and Elkhorn. By 1914, the cheeses were available in most towns across the United States. In 1916, Kraft was granted a patent for what came to be known as processed cheese. Kraft began to mass produce a number of specialty cheeses like Gouda and blue cheese and began to exports products to Canada and Europe in 1920.; plants would later be established in both England and Germany.

3.       Performance Analysis

A key to the success of Kraft Food was James Kraft’s commitment to developing new products and using innovative advertising methods. Kraft was an early user of all communications media and , as early as 1911, was advertising on Chicago elevated trains, using outdoor billboards and mailing circulars to retail grocers. He was among the first to advertise in consumer journals and was also the first to use colored advertisements in national magazines. In 1993, the company started to use radio on extensive scale. It sponsored the one-hour weekly musical and variety show Kraft Musical Review which headlined notable show business personalities. Kraft’s commitment to innovation was demonstrated through a variety of products that were introduced. These products include items like Velveeta (1928), Miracle Whip (1940), sliced processed cheese (1951), and Cheez Whiz (1952). http://www.kraftfoodscompany.com/About/who-we-are/)

Even though Kraft Foods has a fairly well documented company history, it has primarily operated as a subsidiary to other larger corporations. The first of these was the National Dairy Company in 1930; Kraft purchased Philip Morris in 1988 for $12.9 billion. In March 1989, Philip Morris merged with Kraft and its General Foods units into one entity called Kraft General Foods, Inc. As a result of the merger, the company became the largest food company in the United States and the second largest  the world. Initially the merger created  a competitive advantage for a newly formed subsidiary; the company was able to save $400 million through consolidation and increased purchasing power.

Philip Morris acquired Nabisco for $14.9 in cash plus assumption of $4 billion in debt. Philip Morris completed its acquisition of Nabisco in December 2000 and immediately began integrating the Nabisco operations into those of Kraft Foods and Kraft International. In 2001, Philip Morris created a new holding company for the combined operations known as Kraft Foods Inc. (lacking the comma of the previous Foods, Inc.) The previous Kraft Foods was renamed Kraft Foods North America, giving the new Kraft Foods two main units: Kraft Foods North America and Kraft Food International. The two CEOs of these units, Betsy D. Holden and Roger K. Deromedi, respectively, were named co-_CEO of Kraft Foods . In June 2001. Philip Morris sold a 16.1 percent stake at Kraft Foods to the public, retaining the remaining shares. The second largest initial public offering (IPO) in the US history, the offering raised $8.68 billion, which Philip Morris earmarked to reduce debt it had incurred in acquiring Nabisco. The result of this IPO is that Kraft Foods Inc. is a company that is less than 10 years. http://www.kraftfoodscompany.com/About/who-we-are/)

3.2   Global Code of Business Conduct:

More and more people are dining out, and food producers are devoting more attention to products designed for restaurants, vending machines, and other foodservice providers. Thus, companies are spending more money researching consumer eating habits and preferences at home and restaurants. This is bad news for grocery retailers, but food makers realize food eaten away from home is still food they can provide, many times at higher margins.

 Another trend in the industry has been the development of health foods, such as those containing less trans- fat or lower calories, or those containing only organic ingredients. Bottled water has become established in the market and enhanced waters containing vitamins or supplements gaining popularity.

 Related to the development of health foods is the concern of childhood obesity, which has reached epidemic proportions in the twenty first century with rising rates in both developed and developing world. Rates of obesity in Canadian boys increased from 11 percent in the 1990s to over 30 percent in 2000; during the same time period rates increased from 4 to 14 percent in Brazilian children. As with obesity in adults many different factors contribute to the rising rates. Changing diet and decreasing physical activity are believed to be the two most important in causing the recent increase in the rate of obesity. Activities from self propelled transport, to school physical education, and organized sports has been declining in many countries. Treatments used in children are primarily lifestyle interventions and behavioral techniques.

 

Workers at one of the Krafts’ manufacturers in Illinois turned up a batch of fruits and nuts that were contaminated with Salmonella in December 2007. Another positive sample appeared again in September 2008. It was only after the company conducted thousands of tests that it was able to pinpoint the source for the second positive test. This test showed that the tainted nuts came from California based supplier; more specifically from Setton Pistachio of Terra Bella, Inc. Even though pistachio related illnesses, the company voluntarily recalled more than 2 million pounds of nuts and temporarily shut down its manufacturing plants. http://www.kraftfoodscompany.com/About/who-we-are/)

 Customers today view food as an expression of their cultural and social identity and are therefore asking a lot more from producers than just good quality. Environmental concern, social responsibility, and economic viability are commonly identified as the three pillars of sustainability. With global inequalities becoming more pronounced, food costs climbing, and global warming becoming a major political issue, food producers are simultaneously cast as perpetrator and potential healer. Meeting the needs of the present without compromising the future has to be taken into account by the food industry without undermining the balance sheet.

 

3.3   Improvement of Industry Leading Capabilities

The Kraft Foods Inc. mission statement was presented to the general public during the CAGNY conference in February 2009. According to the Kraft Foods, Inc, Website (http://www.kraftfoodscompany.com/About/who-we-are/) the mission statement consists of three words and reads as follows:

 

Make Today Delicious

 

In order to fulfill Kraft Foods, Inc. focuses on consumers in everything that they do. The company also understands that action speak louder than words, so at Kraft Foods:

 

·         We inspire trust

·         We act like owners

·         We keep it simple

·         We are open and inclusive

·         We tell it like it is

·         We lead from the head and the heart

·         We discuss. We decide. We deliver

         Because of the large numbers of food, health and environmental scares over the past decade, a greater cynicism about government, politicians, big business and brands has emerged. Ethical consumerism has been a response to this and reflects the desire to gain control over one’s life. Buying ethical products from supermarket involves no major life changes, but it is an easy way to make the consumer feel he or she is making a difference. In these circumstances, prices are often of less importance than how the product is positioned.

Because of the growing awareness of the ability and personal responsibility for individuals to influence their own health, the greater evidence regarding links between diet and disease, and the shift from the welfare state to the individual, there has been an upsurge in the emphasis given to the lifestyle management. Underpinning this is the recognition that diet is an important contributor to healthiness (“ I am more concerned about what I eat and drink than I used to be”)  and that children today are increasingly exposed to smoking, pollution, drugs, stress and the lack of exercise. There is, though a general confusion over how to eat healthily, the advice given on healthy eating is always changing and growing body of consumers who just opt out or cannot afford to participate ( “I would like eat healthier foods but it costs a lot more to buy the higher things”).

With society generally becoming wealthier, the rises in consumers disposable income and the number of people considering themselves “middle class”, tastes and aspirations are changing. Stressful lifestyles and time famine means there is a greater need for pampering and enhanced leisure time. Even in times of economic hardship small indulgencies remain intact; in fact, these are increasingly seen as essential.

3.4   Market Entry Strategies

Kraft Foods Inc. manages over 100 different brand name food product and tracks operating income in five specific consumer segments.

 

Figure 1

 

 

 

Figure 1 provides a summary of the Kraft Brands and operating segments:

·         Snacks- primarily biscuits (cookies and crackers), salted snacks, and chocolates confectionery

·         Beverages – primarily coffee, packaged juice drinks, and powdered beverages

·         Cheese- primarily natural, process, and cream cheeses

·         Grocery- primarily spoonable and pourable dressings, condiments, and desserts

·         Convenient Meals- primarily frozen pizza, packaged dinners, lunch combinations, an processed meats.

According to Nielson Company Kraft only lost 0.3 percent of market share during 2009 despite 9.8 percent increase in pricing.

The introduction of Kraft Foods Inc. in February 2009 was accompanied by the launch of a new corporate website: http://www.newkraft.com. Visitors at the site can view commercials from around the world while learning about new product innovations. Kraft Foods Inc. has also launched several websites that would considered viral in nature. One of these is the Oreo Double Stuf Racing League (DSRL) site :http://www.dsrl.com; visitors can watch videos, play games and of course they can join the league.

Even the main website for Kraft Foods Inc. has undergone a facelift. The new site address is http://www.kraftfoods.com.

Although Kraft Foods Inc. has the effective management the element of marketing mix is largely evident. The need to pay attention in which the mix  is managed and how the various elements can be integrated in such a way that a high degree of synergy is achieved. In the absence of this it is almost inevitable that the nature of the interrelationships between the different elements of the mix will be ignored or misunderstood and conflicting messages will be sent to the market. In discussing this , Jobber (2002) highlights the ways in which an effective marketing mix being used by Kraft Food Inc.

·         It matches customer needs by reflecting the issues of importance to them and the choice process.

·         It creates a competitive advantage

·         It matches the resources available to the organization

·         It is well blended in that each of the elements contributes to a single consistent theme.

In order to achieve this , Kraft Foods Inc needs to have a clear understanding not just of what the mix is designed  but also the spectrum of factors that contribute to and inhibit organizational capability. There are several ways in which the integration can be achieved, but most obviously by being clear about the product’s strengths and weaknesses, its current and future market positioning, how the competition is behaving, and the role of each element of the mix is capable of playing within the market. Against this background, Kraft Foods Inc. can then focus upon linkages that exist between the mix element and how they might possibly be leveraged.

3.5   Trade Limitations/ Barriers

Market structures are not affected by the number of firms in an industry and their relative output, but also by the potential number of new entrants to the market. Firms in an industry where there are unlikely to be new entrants may behave differently from firms in the industry where there are many strong potential competitors.

 

Kraft most important limitation is the legal barrier where the law gives particular privileges. Patent law can prevent competitor firms from making a product for a given number of years after invention. Since Kraft products are well researched to the needs of the consumer this may not be hindrance to the company.

 

With the advent of the high spending of advertising and marketing, existing firms in an industry may be able to erect barriers. The purpose of these is to make consumers associate a particular type of good with the firm’s product creating a powerful brand image.

 

3.6   Financial Position

Kraft recent income statement shows that the revenue increased to $42.2 billion in 2009 , while earnings increased to $3.9 billion. Kraft weathered the 2009 global recession really well from a revenue /earnings perspective.

Kraft recent balance sheets has over $ 37.5 billion in goodwill , which is not good , and also has over $19.5 billion in long term debt, which is also not good. Kraft long term debt increased about 50 percent in 2010 from 2009.

 

3.7   Skills Shortages

One factor which influences the demand of labor is the price of labor. The higher  the wage rate, the less will be demanded. One reason for this is that the higher the price of labor, the more incentive there is to substitute capital for labor. In the workplace, machines can be bought which will do the work of labor. If wage rates rise and the price of capital remain the same, producer will buy more machines and use less labor.

The demand for labor in UK is affected by changes in the price of labor in other markets. In recent years , globalization and expansion in the European Union into Eastern Europe has meant that many goods and services are produced abroad in lower wage economies like China and Poland. This has reduced demand for workers in UK which compete directly with products imported from these countries. At any given wage rate, UK employers in a wage range of industries.

 New technology often means that machines replace workers. So the demand for labor will fall. On the other hand, the demand for labor for workers servicing new technology will rise. If the demand makes rises, then the demand for labor making the product will rise. If the demand for Kraft Food Inc products rises for a long time, then demand of labor rises.

 In many poorer developing countries around the world, birth rates have been high and there are large numbers of young people entering the workforce each year. This increase in supply will depress wage rates. In the developed countries, particularly in Japan and EU, there is the opposite problem. Birth rates have been low over the past thirty years and the number entering the workforce has been falling. This is likely to raise wages.

 

3.8   Laws and Regulations governing Business Activities:

With many markets having grown in their complexity in recent years, so the demand for increasingly detailed and effective market intelligence systems has escalated. Although many of the inputs to a market intelligence system can be obtained through relatively straightforward and conventional market research routines, the much more strategically useful – and indeed more necessary –information on competitors’ intention, capabilities and strategies can, as we saw in Kraft Foods Inc. often only be obtained by radically different approaches. Although the legality of these approaches has been called into question, the law, both in Europe and the USA , has many instances failed to keep pace with the developments that have taken place in information and electronic data distribution.

 The implication of this is that whilst the techniques used to gain the more confidential forms of competitive information may not be strictly legal sense be wrong, the ethics of the approach are arguably rather more questionable. The net effect of this in many companies the search for a competitive edge has led managers to enter what has been referred to as “ the twilight zone of corporate intelligence” , in which the traditional boundaries of legal and ethical behavior are blurred.

 

4.       Performance Assessment

There are two organizational Issues Kraft Foods Inc, needs to address in its Global Operation; Suggestions have been made by Hayhurst and Wills (1972), that changing organizational needs may lead to the disintegration of a marketing organization. This could be achieved by the separation of operational activities and on the one hand and the planning activities on the other. Selling and distribution might fall into the former category.

It is clear (Hooley, et al; 1984) that the increasingly competitive environment in which marketing is undertaken has created recognition that organizational flexibility is a necessary element of marketing orientation.

 

To large extent the successful implementation of marketing strategies relies upon an appropriate structure. As Hughes (1980) has pointed:

 

“ Many marketing plans fail because the planner did not consider the fact that the organization was not capable of implementing the plan. Short range plans will require adaptation to the existing organization, whereas long range plans may require redesigning the organization.”

 

Apart from  serving as a means of linking the organization to its environment, thereby ensuring that the outputs and activities are compatible with the external milieu in which organization is operating, planning also serves as a means of integrating the goal striving activities of the organization into a coordinated whole. This latter role is facilitated by effective organizational design, as Nathanson et al (1982, p 93) point out:

 

“ Organization design is conceived to be a decision process to bring coherence between goals or purposes for which the organization exists, the pattern of division of labor and inter-unit coordination and the people who will do the work”.

 

5.       Suggestions

In considering the framework for Kraft Foods Inc. I suggest that it could be guided by:

·         Allocating task responsibilities to individuals

·         Designing formal relationships leading to hierarchical levels and spans of control

·         Grouping individuals into department, departments into division

·         Designing systems for integration and communication

·         Delegating authority and evaluation

·         Providing systems for appraisal and reward

Gailbraith , M( 2001) has developed a conceptual framework in which Kraft Food Inc. determine the number of variables over which choices must be made by managers in creating an organizational design. These are task, structure, information and decision processes, reward system and people. In choosing how to balance those elements, top management of Kraft Foods Inc. has considerable scope for varying and influencing all five. However, the organization design that emerges should be one that fits the product –market strategy of the Kraft. If a consciously developed strategy is to be effectively implemented, this needs to be done via a properly designed organization.

 

In the Global market the tendency towards increasingly unpredictable and discontinues change implies that organizational forms need to be considered as being short term and subject to adjustment in response to the frequent changes in the contingencies that underpin it. Doyle (1979) points to such factors as an increased focus on integration, a change from volume to productivity orientation and a move towards a portfolio management as indicating that a traditional functional structure is becoming less appropriate. A more complex and ambiguous set of alternatives is to be found in divisional and matrix forms of organization, but these too may be transitory.

 6.       Conclusion:

 

Kraft just reported strong second quarter of 2014 result. Although revenue declined 5.9 percent year over year to $13.2 billion, primarily due to unfavorable negative 8.1 percent of foriegn currency and a negative 0.7 percent impact from divestitures. Kraft’s organic revenues increased 3.9 percent. For that quarter Kraft’s North American segments (KNAC) sales were flat year over year as gains in US Convenient Meals (7.1 percent, US Grocery (6.7 percent) , US Beverages (6.0 percent) and US Snacks (1.3 percent) were offset by the declines in US, Cheese (8.7 percent) and Canada and North American Foodservice (10.0 percent). In the International segment, net revenues in the European Union decreased 17.4 percent. Based on the strong year to year to date performance, CEO Rosenfield has raised guidance for 2014. She now expects earnings of at least $3.0 per share compared to $2.0 guided earlier, http://www.kraftfoods.com.

 

7.       Recommendation:

Among the most obvious consequences of market becoming more competitive and customers more demanding is that many of the traditional bases of competitive advantage have been eroded. One way in which to combat this is for KFI to differentiate the organization from its competitors, by focusing upon the delivery of greater customer value.

 The basis for a strong considerable amount of marketing thinking for many years was the idea of strong selling propositions, in which the customer would be presented with one or more good reasons for buying the product-this is reflected in the notion of “ buy this product, receive benefits”. From here , thinking moved to the idea of the unique selling proposition (USP), in which the strategy was based upon a feature or benefit that was unique to the organization or brand. However, in a highly competitive market like food products, the scope for retaining uniqueness in anything other than the short term is limited unless the product is protected by a patent. The notion of the USP based strategy has been therefore largely undermine from the brand over the past few years.

 

References

Doyle (1979) P, (1994) Marketing Management and Strategy London, Prentice –Hall,pp78,79

 

            Gailbraith, J.K ( 2001), The Affluent Society, Harmondsworth: Penguin Book, pp243.

Hayhurst and Wills (1972),  Organizational Design for Marketing Futures; London: Allen and Unwin, pp345-246

http://www.kraftfoodscompany.com/About/who-we-are/); published 2014

http://www.kraftfoods.com.;published 2014

http://www.newkraft.com; published 2014 (see website)

 

Nathanson et al (1982, p 93); Effective Strategic Planning and the Role of Organization Design, Chapter 6 (pp 91-113.

 

 

 

 

 

 

 

Costa Coffee: Strategic Role in Business Environment

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Costa Coffee : The Changing Role In Business Environment

The secret our great delicious coffee is hot piping cup coffee of take away. Costa have eco-friendly paper cups made of pulp of wood which are sustainable coming Northern Europe forest. The cup is covered with 100% recyclable content and it is known in the world as environmentally safe and perfectly designed cups.

The smart coffee machines are always ready to serve our customers and are carbon emission free. Costa was given and first to be accredited as environmentally friendly Roastery in 2012. Coffee sacks are recycled into a carpet which is gives Costa its uniqueness when it comes to sustainable corporate responsibility. The coffee roastery has a refill of 0% landfill with and energy supply of 100% that reduced carbon and pollution free

 Tons of wastes of over seven thousand were diverted. Organic waste recycled and ground coffee is recycled thereby creating a renewed fuels. Uniforms that were not used were also recycled with the use of delivery vans to pick up these unwanted clothes.

Costa management is being supported by British farmers because what they produced are of quality standards and certainly all of Costa’s dairy products comes from British farmers which upholds its virtues of the highest quality of raising beef, chicken and other farm products. These are included and written in the packaging.

The vital links to Costa coffee is milk and are Farm Assured by British Agricultural Authorities. Costa has taken responsibilities about the British Dairy Industry, although Costa provides a volume of only 0.5% but the company ensures that the price they paid to farmers are fair. For almost years, Costa has the same suppliers and sees that they coordinate with this farmer supplier and ensure that they are capable of sourcing, monitoring and a well -coordinated efforts in order to produce healthy food products Because of this, Costa benefits to the long relationships with all of their suppliers.    

Costa use British which is an important product for Costa and all milk that are being used is Farm Assured. Although Costa's has taken responsibilities and seriously about dairy UK dairy products and ensure that a fair price is paid to farmers. Costa sourced their milk through innovative processor and took milk from the farmers of the same group for years of operation. This means that we are able to speak directly with the farmers as well as the processor and we all benefit from having long term relationships.

Description of Management Function

Costa Coffee has a structure which is functional and is related to line organization. Various levels should be preserved in every specialized section. For example, a human resources manager in a branch, reported direct to the plant manager, but in human resource matters is also supervised by the head office human resource officer.  There are divisions of loyalties and questions may arise so that the distinction about the role and scope of each in the structure are well defined. 

Functional organization is applied to systems where the responsibilities of manager activities are having the executive authority.  Functional department may, however will set programs and standards upon the authority of the general management which each department will comply.

 Functional relations arise when a specialist contributes greatly to the service in the level of line manager and organization executives. This specialist is often called a ‘functional” officer, with the responsibility to pursue all activities are being productively performed within the organization. The specialist advises “line” colleagues and is responsible for assisting line managers.

Those specialists having their own staff, has the relationships of a “direct”. The functional must not interfere with the service, advice and direction in relation of the manager’s authority along the chain of command , Dale McCkonley (1998).

Lateral (horizontal) relations are those existing between executives or supervisors at the same level of responsibility and holding equal authority at the. Similar level exists between executives and supervisors with equal authority which are responsible for the productivity. This is called lateral (horizontal) relations that are necessary to cooperate in support to reach organizational goals and objectives. The relationships should act according to the knowledge of the supervisors or executives along with their line staffs. This is known as Fayol’s bridge theory. There are two types (a) colleague relationships, which are those between managers in the same department who work together under one superior; and (2) collateral relationships, which exists between managers in different department s and serve to discharge responsibility more effectively.

In the pure form of the organization, neither line nor functional type’s effects exist separately. The main operational activities exists in a pattern of a line along with the specialized activities which are non operational in nature in which senior executives and staffs has a proper relationships from the line nature to the executives.

Costa Coffee common goals is to produce quality and tasty coffee. Communication plays an important role to each of the members to achieve these goals. The ethical and proper behavioral patterns are developed and expected which we called it as norms. Whenever there are deviation to the norms are not acceptable. The output as compared to the norms will be an admonishment to the group members, Caroll, P (2001).

Pressures cannot be prevented by managers. This will be done in a constructive way and tasks and channel them accordingly to the interest and harmony within the organization. This could be done by employee participation and interaction in decision making policy to the interest of the group members and to the management.

Cohesiveness and unity can influence the group over other individual in the organization. The solidarity and unity of the group can results to the sound decision making policy which can be effective. Each member group will not deviate from group norms if they are completely attached with each other.   

Awareness by Costa coffee managers on a certain aspects of group performance must be closely monitored.   Once the group is cohesive, this will be an influential factor that will encourage the group members to have a high productivity and the choice of employee to be selected to work on a certain tasks. This will involve employees and management to work together in a sound decision making process which may result to reduce antagonism and see themselves as a part of the whole organization. I

Communications, formally or informally provides group with security, social satisfaction among members are the essence of productive groups. They can also be liable to suggests solution to the problems in consideration for achieving goals.

3. External Environment

·         The Changing Role of Business in Society (Economic Environment)

The beginning of “laissez faire” is being scientifically studies by the ideas of Adam Smith, 1776, as an economic approach. Love of self, the habit of labor, the exchange need and being independent is being motivated by human conduct.

 

Competition within the organization was beneficial so as to ensure that they create innovativeness and produce goods and services people need to use. Over pricing would lead to sales of the competitors. The organization that pays poor wages will result that this employee will transfer to competitors, so is to the company’s interest to produce products or services at competitive prices. The price mechanism also affects the changing needs of customers and thus the intervention by the government is not necessary. Duncan, J, (2010).

 

The value system and industrial structure has changed .Business capabilities has seen an increasing size in terms of expansion and growth and secure economies of scale. This expansionary market concentration leads to a so called competitive pressure. Costa coffee has its strategy and resources to overcome temporary setbacks and they have the power to influence the allocation of resources and can instigate the transfer of cost internally and willing to diversify. They are financially stable and secured and can easily adapt to the competitive pressure of the market. This is through long term strategic planning.  Another important feature  Separation of control ownership to professional salaried managers as if they do not have shares of stocks has been viewed as a broader enhancement to Costa Coffee survival in the market place with accompanying growth in a long term, than in a short term profits.

 

·         Changing values and attitudes (Demographic Environment)

As the living standard rises above and over the minimum and subsistence level the standard of living rises and people focus more in education thereby there is a change in priorities, needs, wants and expectations. They become more interested in material possessions and concentrate to the betterment of their lives, job satisfaction, security and stability and environmental concern, Ibsen, H, (2010).

 

Most Industrialized countries gives higher priority to the growth of economy and focus with social costs associated with their growth like air and water pollution thus affecting plans. In many countries, pressure groups are more common whose objectives are to decrease environmental pollution.  Others are concern with the equality and fairness of income distribution, the underprivileged workers and workers the participation of the worker in the organization.

 

While the public opinion is focused on these areas of activities, acceptable standards that failed are publicized.  The effect of these is that Costa Coffee’s economic role of profits exists though this legal rule. By not following this rule, the approach will become irresponsible.

 

·         Government Influence on Business Purposes (Political Environment)

Private companies have relied upon government aid whether from. Subsidy or direct aid to its citizens has been the most important factor that contributes to the economic welfare of the people. As the business organization increase in size it become a complex entities that industrial conflicts cannot be evaded. 

 

Costa coffee management strategies of the Laissez-faire model believe that the organizations need to maximize profits. Competitors like Starbucks will eventually forced them to make losses once they did not do consistently well in the market. Market share and limited raw materials are of the utmost importance.  

 

The government is the major regulators, subsidized good and enacts laws that will enhance the economic condition of the country. The political unrest in the Middle East raised the price of oil internationally and results to inflation. The world is increasingly dependent in the government to improve its market and the people welfare thus it is the imperative that the firm is to consider the impact of political environment, Stobaugh, R and Telesio,P. (2009)

Protectionism is the is being practiced by most countries to protect and safeguard their own industries so as they tightened their policies of trade guidelines so as not foreign countries to market the product locally. High tariff rate and custom duties is meted to those countries who wanted to import the products and compete locally or barred them to import such product.

·         Social Responsibilities

Costa provides good services within its customers and stakeholders and that standard of raw materials and the way they operate are in accordance to the laws and regulations to the country where they operate.  They will not ignore the environment in which it operates and the success of organizations may depend to a large extent upon their public image. The attitudes of the organization to its employees form part of this image.

 

The attitude of management to labor is at the core of the social responsibility of management. Workers have become better protected e.g. like staff status claims and security of tenure. Management must give a lead in these matters and the government periodically “exhorts” industry to do things which would aid the country socially, for example the location of Costa branches in development areas Padilla, J (2010).

 

·         Consumers have the right not to be exploited by an organization which depends upon the community in many ways. Management therefore cannot avoid the fact that its responsibility for industrial and commercial direction is mainly its responsibility to society.

 

Other social issues Costa Coffee manager face upon which they have to decide policies are:

1.       Marketing policies- Avoiding product that is detrimental to one’s health.

2.       A policy that social costs like pollution and waste disposal – the organization must have proper waste segregation and disposal.

3.       The relation which Costa with the government.

 

Social and political change should be implemented and formulated according to the strategic plan which may be challenging and assess and evaluate to ensure that the organizational could be achieved. 

 

·         Technological Environment

Costa Coffee for 2014 used enticed its customers through website by 50% a rise of 30% as compared in 2013. Technology is a key to Costa Coffee success as it strives to compete with Starbucks in Bahrain market.  The website is digitally interactive and customers can view how coffee is being mixed to their delight and satisfaction. The loyalty promotions are promoted heavily in the website.

 

The opportunities and threats changed through internet by altering the life cycle and spreads by introducing any other condiments and expanding into a new market and branches that erased the traditional spread of distribution in between trade-offs towards standardization of of product, MacCkonkey, D (2010). The economies of scale changed with entry barriers thus redefining the relations of various industries and its stakeholders.

 

New markets is created by  technological advancements  resulting  in the proliferation of new and improved products, change.ng the cost position of each of the competitors that render the obsolescence of the product , Padilla, J (2010)

 

4.       Costa Communications Strategies

 Costa management is concerned with how the jobs are done effectively by means of proper interactions and communications among staffs and managers. Communications therefore is the means of exchanging information and other interactive forums with regards to the operations of Costa. It is an exchange of ideas, facts and emotions by two or more people by the use of words, letters, and symbols Padilla, J, (2012).

The following points considered by Costa as to effectively communicate with their employees:

1.       Clarity- the language used in Costa must be clearly defined and concise to communicate the objectives of the company.

2.       Attention and presence of mind must be always emphasized.

3.       Integrity and Sincerity. Transparency of information about the company’s present and future plans should not be withheld to the workers. The management should foster the dignity and respect to raise the morale and encourages harmonious relationships among employees. Any communications should be carefully explained at an early stage. Communications should wherever possible also be sent down the accepted line of authority, because if people are by-passed they lose status and resent the action.

4.       Costa emphasized that the right information in communications both internally and externally

·         Face to face  interviews, during meetings and conferences

·         Orally or verbally telephone or other social media.

·         Written through letters, memos, circulars, periodicals and manuals

 

5.       Conclusion and Recommendation:

 Human Resources is a vital part of management process whereby its external context becomes explicit in the course of Increasing turbulence in the market and industries around the world.  Its framework deals with collecting data and evaluating economic, social, demographic, political, governmental and technological information. Empowerment among managers and employees makes them explicit in stature because it mobilizes, identify, monitor and evaluate the external forces that convert these into emerging opportunities to pursue an effective and productive work environment.

 Costa work is an activity based on groups, and teamwork is a major feature of human behavior and work organization. Cooperation among members is being carried out. Harmonious working relationships and good teamwork support and help staffs a sense of belonging and value which is the essence of staff morale and excellent organizational performance .Value and norms are developed thereby respect and dignity to work in Costa is of importance.

 Performance should be related to such factors as increasing profitability, improved service delivery or obtaining the best results in important areas of organizational activities. Costa has to insure that they meet satisfactorily, or exceed, the demands and requirements of customers, and are adaptable to specific requirements, changes in external environment and the demand of the situation.

References:

McConkey, Dale, Planning in A Changing Environment, Business Horizons, September –October 2002, pp66

Caroll, Paul, No more Business As Usual, Wall Street Journal, October 23, 2003, pp 24

Duncan, Jack , Organizational Dynamics , Prentice Hall, pp456-457

Ibsen Herman, Corporate Cultures The Rites and Rituals of Corporate Life )Reading, MA: Addisson-Wesley, 2006) pp23

Padilla, Jolito, Strategic Management, 2^nd edition, 2010

 

 

 

 

 

 

 

KTG Corporate Strategic Management by Jolito Ortizo Padilla

Please note: Copyright Infringement is punishable by Law

Executive Summary

KTG is a consulting company with diverse services to its client in the field of mining, engineering, architectural, construction and environmental services. KTG management have recognized that there are variables that will surely increase as companies grow more complex and will then become more difficult to trace the side effects of a change in dealing with a specific area of management responsibility.

There are many problems to be solved.  The challenge for KTG is to consider changes in structure of organization and the locations of authority and responsibility. The vital point to be considered is that the structural, technological and human aspects cannot be separated as they all interact.  When KTG changes from a functional to a services grouping, problem of interpersonal relations occur. This may in turn affect the techniques of control. A knowledge streams should enable a manager to understand that it may not be easy to find a simple answer to a problem but, by using facts and using available knowledge wisely, answers can be much more accurate and effective.

Introduction

There are many ways of looking at leadership and many interpretations of its meaning. Leadership might be interpreted in simple terms, such as “getting others to follow” or “ getting people to do things willingly” or interpreted more specifically, for example as “ the use of authority in decision making”. It may be exercised as an attribute of position or because of personal knowledge or wisdom. Leadership might be based on the function or personality or it can be seen as a behavioral category. It may be viewed in terms of the role of the leaders and their ability to achieve effective performance from others. Leaders can also be discussed in terms of a form of persuasion or power relationship.

From a comprehensive review of leadership theory and research, Bass, M (2010), concludes that: “There are almost as many different of leadership as there are persons who have attempted in defining the concept. According to Crainer, K, 2008, there are over 4000 definitions of leadership and “it it is a veritable minefield of misunderstanding and difference through which leadership, but essentially, it is a relationship through which one person influences the behavior or actions of other people. This means that the process of leadership cannot be separated from the activities of groups and effective teambuilding.

The changing nature of work organizations involves moving away from an emphasis on getting results by the close control of the workforce and towards an environment of coaching, support and empowerment. This places an ever growing importance on leadership. The leader follower relationship is reciprocal and effective leadership is a two way process that influences both individual and organizational performance. Leadership is related to motivation and interpersonal behavior. A major report from the Advanced Institute of Management Research refers to the dual role of leadership. Leaders both motivate employees and design effective organization. There are two broad conception of what leaders do-they motivate their followers and they design organizational contexts to enable their followers to function effectively.

Strategy

Corporate Level Strategy

Corporate Strategy is defined by Drucker as “ a continuous process of making entrepreneurial decisions systematically and with possible knowledge of their futurity, organizing systematically the effort needed to carry our these decisions and measuring the results against expectations through organized systematic feedback.

KTG should include the following in their corporate strategy:

·         Rational allocation of resources

·         Improved coordination and anticipation of technological change

·         Increased profitability

It is really more of the style of management working in an atmosphere of change. Corporate strategy is therefore needed to cope with social and political change. The need to equally careful thought in setting social objectives, policies, and plans to ensure the gain of social change of company’s ideas. The idea behind is to adapt the organization to its environment, and this will usually mean fundamental changes in management and the organizational structure(Padilla, J; Chan M; 2010)

Certain key factors should then be identified which improve KTG position. The final assessment would cover specific areas that follow:

·         Research and development

·         Human resources- the need to ensure staff are available of the desired quantity and quality

·         Knowledge Stream

·         Business Stream

·         Finance

The essential need is for the plans from the various areas of a business to be integrated, so the functional plans are interlinked to form an overall corporate strategy. An interesting account of the various strategies which can be adapted and classifications of opportunities and risks is given in Managing for Results by P.F. Drucker. He points out two important strategies which have to be decided:

a)      Decide what opportunities or wants the company wishes to pursue and what risks it is willing and able to accept.

b)      Decide on the scope and structure and the right balance between specialization and integration.

The classification of opportunities (additive, complementary and breakthrough) and of risks are interesting and practical guides to help the formulation of strategies. A capability profile of company strengths and weaknesses can be drawn up; one method is a point’s scale related to a desired level of performance.

Ansoff consider that the measurement of “synergy” is similar to what is frequently called “evaluation of strength and weaknesses” In synergy joint effects are measured between staffs , in strength and weaknesses evaluation, the firm’s competencies are rated relative to some desired performance level.

Long range planning enables management to anticipate difficulties and take steps to eliminate them before they arise and can help to bring about a more unified approach. Plans, though, must clearly state which manager is accountable and for what results, i.e. it must be management by objectives.

To be effective KTG must be goal driven. By setting goals or objectives is therefore a key step in the strategic process and provide the organization with a sense of direction, provide a basis of motivation, as well as benchmark against which performance and effectiveness can be subsequently measured. It is the heart of planning process, and is prelude to the development of strategies.

Management by Objectives must not be looked at as just another management technique. It can be considered to be an approach to practical management. In essence, it embraces a clear cut strategic plan and its translation into departmental and personal goals, which are reviewed when results are obtained. The emphasis appears to be more on human needs and motivation and increasing subordinates’ participation in setting objectives.

Effective strategies and planning use the approach of MBO having a clear defined objective for function in the company. These objectives must also be part of contribution to other objectives of KTG. Drucker goes a stage further by suggesting that KTG managers at every level should participate in devising objectives for the next higher level of management. The important thing is to ensure that the individuals’ objectives are related to the common goal.

Douglas McGregor (Human Side of Enterprise) stresses the value of MBO especially the It is aspect of performance appraisal. McGregor approach suggests that KTG look at two sets of assumptions about individuals and their reaction to work as quote:

“Participation is one of the most misunderstood ideas that have emerged from the field of human relations. It is praised by some, condemned by others and used with considerable success by still others. Some proponents of participation give the impression that it is a magic formula which will eliminate conflict and disagreement and come pretty close to solving all management’s problems. These enthusiasts appear to believe that people yearn to participate,  that is a formula which can be applied by any manager regardless of his skill, that virtually no preparation is necessary for its use , and that it is spring full blown into existence and transform industrial relationships overnight.

Some critics of participation, on the other hand, see it as a form of managerial abdication.  It is a dangerous idea that will determine managerial prerogatives and almost certainly get out of control.  It wastes time, lowers efficiency and weakens management efficiency. A third group of managers view participation as a useful item in their bag of managerial tricks. It is for them a manipulative device for getting people to do what they want, under conditions that delude the “participators” into thinking they have had voice in decision making.

A fourth group of managers make successful use of participation, but they don’t think of it as a panacea or magic formula. They do not share either the unrestrained enthusiasm of the faddists or the fears of the critics.

It is therefore very important to specify exactly the main objective of any scheme for participation. It is concerned with power sharing power to allow employees to influence decisions. This may be specific (i.e relating to an employee to influence decisions. This may be specific (i.e . relating to an individual –his career, promotion, remuneration). Or general (i.e. representing groups of employees who are involved in decisions affecting sections of the workpeople) and may refer to participation in profit sharing, ownership of assets and decisions that affect the career or remuneration of employees.

There are therefore many possible levels of involvement in participation where management and employees commit themselves to voluntary or legal agreements. The main point to consider is “what is participation designed to achieve”? It could be considered to be either:

·         To improve the material well being of the employees (e.g. profit sharing and bonus scheme)

·         To improve the efficiency of the company (e.g. to set up works councils, planning, and consultative committees)

·         To own an enterprise (e.g. worker representative on board and transfer of ownership schemes)

·         To safeguard position of individuals.

It was mentioned earlier that mutual confidence between management and worker is of paramount importance. If this is not present it is very doubtful if this can be installed by legislation. It requires employees to look at the needs of the enterprise as a whole and not to pursue sectional interest, and the employees have a right to be consulted and kept informed.

Behavioral Traits of KTG Leadership

A trait is a physical or psychological characteristic that accounts for the behavior of a person. Trait theories grew out of qualities found in great or well known natural leaders, whom it was thought were born with leadership qualities. It was later considered that if traits of natural leaders were identified it would be possible for others to acquire them through learning and experience.

Social psychologists were interested in leadership as an aspect of behavior in the workplace and not just in personal characteristics. There are studies led by Padilla, J and Chan, M. (2010) and both concluded that there were two principal aspects of leader behavior:

·         A concern of people

·         A concern for production

These studies led to the development of matrix to depict managerial leadership styles. This was created by R. Blake and J. Mouton and called “ The Managerial Grid”

R. Tannenbaum and W. Schmidt (2008) found that managers were often uncertain to handle specific types of problem. In particular, to distinguish between the types of problem they should handle themselves and those that should be resolved with their subordinates.

They concluded that in making an appropriate choice of how autocratic or democratic to be, a manager needed to consider three sets of issues:

1.       Personal concern- managers had to consider their own values, their inclinations toward leadership, and the level of confidence they had in their subordinates.

2.       Subordinate Concerns –managers had to consider their subordinates’ needs for responsibility and independence, their knowledge and interest of the problem , and the amount they desired to be involved in solving problems.

3.       Concern for the situation- this included concern for the nature of the problem, the competence of the group in handling the problem, the time available and the type and history of the organization.

They suggested a continuum of possible leadership behavior which is available to a manager, along which may be placed various styles of leadership. At one extreme, leadership was born-centered (or authoritarian) and at the other extreme, leadership was subordinating centered (or democratic). The continuum therefore, represents a range of action which relates to the degree of authority used by a manager and the area of freedom available to subordinates in arriving at decisions.

 Coordination

In order for KTG to be successful, coordination must not be directed in an autocratic manner, but rather encouraged in a democratic manner, everyone participating in a unified way. It operates vertically as well as horizontally and should be affected at the most appropriate time . In addition to these points , Mary Parker Follett suggested three more factors of effective of coordination:

·         By direct contact between the person immediately concerned

·         It must commence at the earliest stages of planning and policy making

·         It must be a continuous process

It is apparent that everyone is influenced by their colleagues and by the total environment: coordination will be easier to achieve if they understand each other’s jobs and they will compromise more if information is exchanged. The ideal is for arrangements for coordination to be such that problems can be anticipated and therefore more easily prevented.

As previously stated, coordination exists horizontally and vertically, and it is essential for authority and responsibility to be clearly delegated so that department heads know the limits of permissible behavior. It can be appreciated that as more functions are self contained the number of organizational relationships will be reduced and less cooperation will be required.

If authority overlaps, coordination generally will be more difficult; but this may be permissible in some cases especially if the objectives of each department concerned were different.

Motivation

A large part of a manager’s task is getting things done through people; he must therefore try to understand people’s motivation. This aspect of management element of direction is concerned with inducing people to work to the best of their ability. All aspect of motivation of employees cannot be provided by management as other influences occur outside the working environment, e.g. community and family pressures. Motivations refers to the way urges, aspirations, drives and needs of human beings direct or control or explain their behavior. It may simply be described as keenness for a particular pattern of behavior.

It is worthwhile taking a closer look at theories of motivation and one approach which is widely known by managers is clearly set out by Abraham Maslow in his book “Motivation and Personality (1970) end Harper & Row). Maslow theory of motivation claims that human motives develop in sequence according to five levels of need. This theory needs follow the sequence and when need is satisfied it decreases in strength and the higher need then dominates behavior. This leads to the statement that a satisfied need is not a motivator. There is a doubt whether this really applies in practice to the higher needs as it likely that self esteem requires continual stimulation and renewal.

It was not until FV Hertzberg in his book Work and the Nature of Man(1968, Staples Press) presented his two factor theory of motivation that differences between higher and lower needs were elaborated. Here again the outcomes related to satisfaction (satisfiers or  motivators) are those stemming from the intrinsic content of the job (e.g. recognition and responsibility, meaning and challenge) –these satisfy the higher needs; factors which create dissatisfaction (dissatisfiers or hygiene factors) stem from extrinsic job context (e.g. working conditions, pay, supervision)- these satisfy lower needs. An important point in the theory is that as dissatisfaction stems from lower needs not being satisfied, when these are satisfied, this only removes dissatisfaction, and does not increase satisfaction. If hygiene factors did not reach a certain standard (e.g. salary, working conditions, job security, poor supervision) they felt bad about their jobs, and were unhappy. Positive motivation and a feeling of well being could only be achieved, not by improving genuine motivators such as recognition, achievement, responsibility, advancement and the work itself.

Another approach recognizes that people will act only when they have a reasonable expectation that their actions will lead to the desired goals. They will perform better if they believe that money will follow effective performance, so if money has a positive value for an individual, higher performance will follow. This is called Expectancy Theory which places emphasis on performance noting that there must be clearly recognized goal and relationship between performance and outcome

Communication

It has been said that management is concerned with the way jobs are done through people. Communication therefore is the means whereby people in an organization exchange information regarding the operations of KTG. It is the interchange of ideas, facts and emotions by two or  more person by the use of words, letters and symbols.

KTG requires good communication but it is particularly important in directing and will be treated for convenience. It is widely considered that the organizing element of management should concern itself with the system and environment within which communication functions. Management of the communication process requires not only attention to the media of communications, but to the personal interrelationships of people in the organization.

Chester Barnard (2009) stressed the need for communication to occupy a central place in organization theory because the structure, extensiveness and scope of organization are almost entirely determined by communication techniques. Communication can be regarded as the foundation upon which organization and administration must be built. Barnard again stressed that the first executive function is to develop and maintain a system of communication.

Communication is a process which links various parts of a system and problem of communication have been divided into three aspects:

1.       The technical problems of how accurately the symbols can be transmitted.

2.       The semantic problem of how precisely the symbols convey the desired meaning.

3.       The effectiveness problem of how effectively the received meaning affects conduct in the desired way.

Cybernetics has helped to answer problems in group 1 above. Information theory is the quantitative measure of the amount of order in a system. If the properties of a system are known , the maximum rate at which a communication system can transmit information can be calculated. The more probable a message is, the less information it gives and the more uncertain a situation is, then the more information is needed to describe it completely.

As far as group 2 above is concerned –that is the meaning a message has to the receiver – a person may say one thing but may hear something different, even though the same words were sent and received. A manager must try and check whether the meaning of the communication has been understood.

In group 3 above, it is usually found that the more direct the communication, the more effective it is. The more levels of organization it passes through effects the action that is eventually taken. So the problem is really to consider how the receiver actually accepts the communication. It depends upon his needs, past experience, the completely of phrases used, the distinction between facts and opinions and the environment in which the communication takes place.

Formal communications are planned to meet the specific requirements of an organization, but informal communications are very important.  One informal channel is the grapevine where rumor passes quickly around. It is not an accurate method, but can be used to the advantage of management at times. It can be considered to serve the social needs of individuals in the organization.

Recommendation and Conclusion:

KTG must have an understanding of leadership is important for various reasons:

·         Leadership binds a working group together and assists KTG management , enabling an enterprise to perform successfully.

·         Good leadership sets the tone of an enterprise’s culture and creates a climate in which personal growth is encouraged.

·         If KTG managers assume their subordinates are lazy , uncooperative and need to be controlled, they will treat them accordingly (Theory X), but if they assume subordinates are hardworking , friendly, and cooperative they will treat them quite differently (Theory Y).

KTG must identify that communication is important for a number of reasons:

·         The success of KTG depends upon it in formulating and implementing plans and achieving enterprise objectives

·         It forms the basis of successfully introducing change

·         An understanding of the process and barriers to communications should lead to more effective management.

·         It is vital element in external enterprise relations.

People must be attracted or motivated (a) to join an enterprise and remain with it, (b) to exert sufficient energy and effort at an acceptable rate and (c) to maintain and develop the human resources of the enterprise.

For KTG managers to motivate subordinates, they must create a working environment in which their employees can understand how the achievement of organizational goals will simultaneously satisfy a range of their own personal needs.

References:

Ansoff H.I. Business Strategy , Penguin (1987), pp101-103

Abraham Maslow in his book “Motivation and Personality (1970) (edn) Penguin/ Harper and Row, pp89-91

 Chester Barnard (2009); The Value Based Leader, in Chowdhury. S (edn) Management 21C, Financial Times Prentice Hall, pp56-68

Bass, M (2010), Strategy in Action, Manager, The British Journal of Administrative Management, April 2010, pp 235-237

Douglas McGregor (Human Side of Enterprise)Penguin, (1987), pp55

  Drucker P.F. Managing for Results, Heinemann Professional (1989) pp90-92

  Crainer, K, 2008, Exploring Corporate Strategy, seventh edition, Financial Times Prentice Hall (2008)

 FV Hertzberg in his book Work and the Nature of Man(1968, Staples Press)

 Padilla, J 2010 and Chan, M. 2019, Strategic Management, 2^nd edition, Prentice Hall (2010), pp176-179

R. Tannenbaum and W. Schmidt 2008; Organizing and Mastering Works, 2^nd edition Financial Times Prentice Hall, pp 45-46

R. Blake and J. Mouton(2009) Organization: Contemporary Principles and Practice, Blackwell Publishing (2009), pp90-91