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Business firms these days , are ever conscious of the competition they have to face from rivals offering similar products. In the process they are on a constant look out to differentiate their brand and product with anything that can carve out a segment for themselves. Customer segment retention has become a very huge challenge that, with the ever expanding market with multiple players, distinction or a change in "strategy" is the prime focus of the managements. (W.Chan Kim)
It has often been argued that a "structuralist" approach is only applicable in favorable environments where there are enough resources for an organization to achieve a competitive advantage. But, when it comes to an industry where the conditions are unfavorable, the approach could not be right. Instead, another approach like reconstructionist approach could be used. (W.Chan Kim)
In this dissertation, we discuss some of the strategies and the impact on their structures and performances of some of the companies which have been listed in the fortune 500 list, 2009.
Our analysis of this aspect chiefly revolves around the following set of questions.
How can an organization continuously adaptÂ its structure to the ever changing consumer needs? In the process, what impact can it have on the strategy to ensure sustained organizational growth and performance?
What is the role of competitors in the decision making process of the company pertaining to structural changes?
How can an organization ensure that there is consistency in adapting to the changed structure across all the business operating units taking into consideration the changing internal laws and the culture?
As said above, we majorly focus on the structural/strategical changes of the 5 companies that we have taken as case studies on the basis of the above three questions.
How can an organization continuously adapt its structure to the ever changing consumer needs? In the process, what impact can it have on the strategy to ensure sustained organizational growth and performance?
Every industry has its own set of limitations and looks for opportunities to cash in. Let us consider the case of Information Technology sector. IT sector took a whole new turn with the concept of 'off shoring'. 'Off shoring' basically means awarding the contracts to manage the IT systems in the organization to places where the cost of labor is relatively cheaper when compared to the home country. This brought about a revolution and the developing economies immediately looked to cash in on the opportunity. Lots of countries opened up their markets by deregulation of economic policies, reduced land rates for companies willing to invest in their countries etc. So this was a major strategical change as far as the IT sector is concerned.
We shall take the case of 'Accenture' which is a fortune 500 company expanding globally and is known for its aggressive strategy making. But before that, lets take a brief look at its history.
Accenture is a fortune 500 global company which is headquartered in Hamilton, Bermuda. Its operations basically involve global management consulting, technology and outsourcing services. One of their missions is to deliver innovation to their clients in terms of the solutions they provide, and contributing to the client's businesses by making them cost effective.
The company divides its operations into five main groups which are as follows:
Communications and high technology
IT Industry and major developments in the recent past
The need for businesses to increase efficiency and reduce costs has helped the IT sector grow at a phenomenal rate in the last couple of years. IT consulting is a highly competitive business where there is a need for innovation and effective solutions. One of the biggest threats to the bigger companies in this field is the phenomenal rise in the number of players in the market. The other challenge that this industry faces is the ever changing needs. A version of software cannot sustain in the market for a really long time. We see versions getting released over a simple piece of software. Hence, it would be an additional burden on the companies sometimes to train their employees according to the change in versions.
Accenture - Strategies
Accenture's business model is supposed to revolve around the following two main pillars :
1)Service Delivery Model (SDM) :
SDM essentially consists of the following :
Global Delivery entre Network which consists of 40 delivery centers around the globe providing technology and outsourcing services.
Teams of professionals who are skilled enough to understand and are extremely client focused.
Standard Processes, tools to enhance productivity. (Jean-Paul Thommen)
2) Changing Workforce Model
CWM structure essentially means segregation of the workforce into the following layers
The following strategies have been adopted by Accenture ever since the Enron scandal broke out:
Just like the other players in the IT sector, Accenture is expanding to emerging economies and pursuing and making the fullest use of its outsourcing operations.
Accenture has laid a prime focus on volume/efficiency and over the last decade or so, it has experienced astronomical increase in the number of employees. This, in a way has lead to decrease in the knowledge productivity and has led to more stress on adherence to processes. This, in a way, has further brought down scope for innovation which is supposed to be the prime brand promise of the company.
Accenture's strategy is pretty plain and simple these days - Hire more people to improve the turn over of the company.(Report Buyer)
Accenture has always believed in enable its employees to innovate on solutions and this has been its major differentiator from others in the market. In this way, Accenture feels that employee retention will not be a problem.(Accenture.com)
However, with the rising number of employees each year, stress would be more on policy and process adherence than actually giving the employees the required freedom to innovate on solutions.
Accenture - Corporate Structure
The corporate structure of Accenture is a direct reflection of its core competencies. In terms of consulting, Accenture primarily addresses business management and IT issues. It is during this stage that individual solution strategies are chalked out with the client. This involves identifying strategic potential and and analyzing how processes like customer relationship management/logistics can be optimized.
Accenture and its response to ever changing consumer needs
The following developments can be talked about in the company in the last 5 -10 years.
The competition in the IT industry has increased so much that every player in the field has to look out for a differentiating factor to enable them to have a competitive advantage over others. For Accenture, it is 'Innovation' to its employees and 'Extreme Quality' deliverables to its clients.
In the process of facilitating quality oriented and effective solutions to its clients, Accenture has tied up with the major business solution providers like Oracle, SAP.
The prime idea is to work closely with these companies and have a closer look at the R and D processes there.
The R and D and Innovation centers are located all over the world and are still expanding
Accenture has realized that quality can be a very major differentiating factor and has aligned its internal processes extremely client oriented.
Some of the examples include strict adherence to coding standards, documentation patterns etc. It is not very surprising that any employee can find relevant documentation on various technologies, thanks to the vigorous documentation standards followed.
Accenture - Role of Competitors in the decision making process of the company
Major competitors of Accenture include IBM, Cap Gemini, CSC to name a few.
Competitors play a very major role in the decision making process of the company in terms of internal processes and also in terms of the way the clients are generally dealt with.
Accenture believes that it is only a very strong and skilled workforce that can ensure better deliverables to the clients. Entry level employees would have to go through close to 500 hours of rigorous training and are trained on various processes/technologies. This is the differentiation it tries to make as far far as beating competitors is concerned.
Apart from developing a highly skilled workforce, Accenture also focuses on Business Consulting, which is their prime revue generator.
Accenture - Consistency in structure implementation across business units
Accenture has a firm strategy of adapting very quickly to the changed strategies.
Lets take the case of India, its major outsourcing projects destination. Accenture has so well beaten the onslaught of Indian IT service providers like TCS, Infosys that even its competitors like IBM, EDS are trying to emulate the off shoring business model flowed by Accenture in India.
The fact that at least 40000 of the employees out of the total 1,60,000 employees will be in India is indicative of the aggression with which Accenture follows its business model - Low cost and greater effectively.
Hence, to sum it all up, Accenture has largely been successful due to its incredible outsourcing strategy, which involves rapid adaption to the country to which the works have been outsourced to. It is this quick
Brand Coca Cola
Coca-Cola Enterprises, established in 1986, is a young company by the
standards of the Coca-Cola system. Yet each of its franchises has a strong
heritage in the traditions of Coca-Cola that is the foundation for this Company.
The Coca-Cola Company traces it's beginning to 1886, when an Atlanta
pharmacist, Dr. John Pemberton , began to produce Coca-Cola syrup for sale in
fountain drinks. However the bottling business began in 1899 when two
Chattanooga businessmen, Benjamin F. Thomas and Joseph B. Whitehead ,
secured the exclusive rights to bottle and sell Coca-Cola for most of the United
States from The Coca-Cola Company.
Beverages Industry - Major developments in the recent years
Barbara Mooray(2006) explains in her book "For years the story in the nonalcoholic sector centered on the power struggle betweenâ€¦Coke and Pepsi. But as the pop fight has topped out, the industry's giants have begun relying on new product flavorsâ€¦and looking to noncarbonated beverages for growth."
The market size of this industry has been rapidly changing. It would be surprising to note that soft drink industry constitutes only 46.8 % of the non alcoholic beverages industry. Data Monitor(2009) found that the total market value of soft drinks reached about $500 billion. Further in 2008, the total soft drink value was 435637.3 litres. This clearly illustrates the fact that soft drink industry is extremely lucrative with a lot of scope for high profits but the fight to capture major share of the market is still on and doesn't seem to end any sooner.
The soft drink industry is majorly dominated by three players in the world.
Coke which boasts of a market share up to 50%.
Pepsico which has a market share of close to 21%
Cadbury Schwepps which holds a share of 7%. (Murray, 2006)
According to Coca Cola Annual report, 2009, it has the most bottle sales which is close to $22 billion. The Coke product line basically consists of products like Coke, Fanta, Diet Code, Burq's etc. PepsiCo comes next which has a sale of $18 billion, PepsiCo's product line consists of Pepsi, Slice and Mountain Dew which make up for more than a quarter of its sales.(PepsiCo Inc, 2009). On the other hand, Cadbury Schweppes had a sale volume of close to $6 billion with a product line consisting of soft drinks such as A&W Root Beer, Canada beer, and Dr. Pepper (Cadbury Schweppes, 2009)
Coca Cola is currently the best selling soft drink in the world with Pepsi following behind, It is a known fact that the company has seen double digit growth rates over the last few years (Wikipedia). The only place where Coke isn't the ruler is probably the middle east but figures indicate that it is picking up there as well (Wikipedia).
Competitive Forces for Coca Cola Company
Players in the soft drink industry face very stiff competition from their rivals, owing to the fact that every drink is replaceable to a large extent with one of the drinks in their rival product offerings. Hence, every decision made in this sector particularly, is influenced by their rivals' strategies. Substitute products can be the right word to be used in this particular context to describe the competition faced. Although Coca Cola, PepsiCo and Cadbury Schweppes are the major players in the market, the fact that they are very well established worldwide which increases the competition in the market.
Coca Cola has always believed in adopting a differentiation strategy from the days of its inception. A case in point is Woodruff (President of Coke) refusing to match Pepsi's 6 cent 12 ounce bottle (Pendergrast, 2000).
Coke - Adaptation to changing industry and consumer needs
The first question that should be posed to ourselves before we can start this research is "Why do people drink Cola?"
Cola, as with other drinks is taken to reduce the thirst in the body. But the fact is, consumers can drink water as well to do that. So, what exactly does Cola give to a person apart from eradicating the thirst factor. Is it something to do with emotional satisfaction that one gets out of drinking it?
It can be noted that drinking Cola can be called as a 'want' more than a 'need'. Since all the brands taste alike, it is up to the companies as to how they position their brands in the consumers' minds.
Coca-Cola hopes to create a differentiation in the soft drink segment by a strong, loyal customer base. In the process, it has brought out various products from time to time to cater to specific segments. The major strategy of Coke was to differentiate their products into two types:
It was often thought that one of the major threats of the cola market was the lemon-lime sector which was gaining strength in the mid 90s around the world. However, Coke came up with Sprite to literally diminish the effects of the lime and lemon markets. Sprite has been giving so much competition to 7 Up that Cadbury Schweppes has to re formulate the drink to make it more sweeter and crisper.
Coke has catered to diet conscious consumer segment as well by coming up with an amazing product line which consists of diet coke and a couple of other drinks. Diet Coke is thought about as a product which is low on calories and thereby very healthy when compared the regular coca cola which is believed to have a very high sugar content.
Coke - Influence of Competitors
As discussed above, one of the major competitors of Coke is PepsiCo. Both the companies have been in a virtual war since early 90s to get a hold over the Cola Market. Both the companies have been trying to outperform each other in the form of brand image enhancement techniques/advertising campaigns. Pepsi came up with "Pepsi Challenge" where the consumers were blind folded and asked to choose which of the drinks was better - Pepsi or Coke. Most of the consumers chose Pepsi over Coke which turned out to be a major jolt for Coke in its attempts of market capture. Market share of Pepsi jumped to 14 % from a paltry 6 %. Pepsi was ruling the roost then.
Coke came up with similar tests which gave them more disastrous results. Consumers still preferred Pepsi over Coke. By 1979, Pepsi had a market share of 17.9 % and was closing in on the 23% share that Coke had. By 1989, Coke had only 2.9 % lead while its grocery store market was trailing. The management unanimously ordered for the removal of old coke from the market. Marketing department of Coke figured out that only 12 % of the consumers showed loyalty coke compared to 18% of that of Pepsi.
Market Research proved that there needed to be a major revamp with regards to the taste. Samples which were more sweeter and crisper were rolled out into the market and tests were conducted on the consumers. Consumers gave a thumping response saying that the new taste was much better than Pepsi and the old Coke. However, removal of the old formula evoked widespread protests from various corners of the country. So, the management decided to keep the old classic coke and produce the new coke.
Similarly, the rolling out of Sprite much later saw to it that Coke didn't lose out because of the entry of the lemon - lime club.
Coke - Consistency in adapting to the changed structure
Coke has recently seen a lot of changes to its structure, thanks to globalization and its impact on the business world. Coke has a more decentralized process of decision making now unlike the past. As can be easily said the main departments, that is marketing and production have to work hand in hand to make sure that they counter their competitors and come up with a brilliant output. Hence, ensuring consistency across all the business operating units was never an issue with coke.
Brand - Wal Mart
Wal-Mart is an American corporation which runs a large group of departmental stores which offer bulk discounts and a chain of warehouse stores. Wal-Mart is also the largest private employer and the largest grocery retailer in the United States of America.
Wal-Mart operates under its own name in the United States, operates in Mexico as Walmex, in the United Kingdom as Asda in Japan as Seiyu, and in India as Best Price. Wal-Mart's investments outside North America have had mixed results: its operations in the United Kingdom, South America and China are highly successful, while it was forced to pull out of Germany and South Korea when ventures there were unsuccessful.
Wal-Mart was rated to be the most revenue generating private organization in the Forbes list 2010.
Some of the major operations of Wal-Mart include
->Wal-Mart stores, US
-> Walmart discount stores
-> Neighbourhood market by Walmart
-> Supermercado de Wal-mart
-> Sam's club
-> Walmart International
Wal-Mart : Strategies
Wal-Mart implements a low cost-high volume strategy. The strategy aims at customer satisfaction and at the same time providing the customer a good experience. Some of the basic strategies followed by Wal-Mart are as follows
Low Cost - Wal-Mart is known to have lower operating expenses than the industry average. This comes from the fact that Wal-mart has superior distribution capability which is in turn due to perfect location of the stores, warehouses, cross docking and superior information management.
High Volume - Wal-Mart offers low prices for its good, combined with their lower operating costs. This clearly illustrates the fact that the strategy is to grab a larger volume using mass segmentation.
Customer Satisfaction - Low Prices coupled with advanced data management techniques and motivated staff gives overall satisfaction to the customers than any other discount retailers. In addition to this, Wal-Mart is a one stop solution for a wide range of products.
In the words of Sam Walton, CEO,"Wal-Mart's aims at creating a loyal customer base by lowering their cost of living through offering quality and other products at significantly lower prices, while surprising them on the convenience and service level side." - Perfect way to gauge the company's strategy of mass market segmentation. Wal-Mart acquired enough volume through extremely strategi consideration of locations which were away from competition.
Wal-Mart - Changing consumer needs
As discussed above, Wal-Mart has a basic strategy of offering the essentials to the consumers at highly discounted rates. It is an evident fact that Wal-Mart is retail outlet offering all that are "needs" to the consumers. Wal-Mart follows a strategy of of focusing on the sale of popular products and discontinuing with the sale of not so popular ones. It includes pressurizing the manufacturers of the popular products to have contract with them in order to have a cost cutting mechanism as well as an efficient distribution system.
Since the focus is more on sale of popular products which the consumer endorses, there need not be any special efforts needed to adapt to the changing consumer needs as such. Emphasis has to be laid on identification of the popular products in different segments.
Wal- mart - Competitors and effects
Competition is definitely fierce among the discount retailers. Of the top 15 discount stores of 2001, at least three declared bankruptcy during the recent economic meltdown. The reasons were pretty much obvious.
Lack of differentiation strategy when it came to product offerings.
Extremely volume driven strategies that were aimed at grabbing the market share even if it were at the cost of denting the profits made by the organization.
Wal-Mart has focused on the following aspects to beat the competitors around it
Distribution Capabilities - The distribution network of Wal-Mart is massive and is very difficult to replicate by any other existing discount in the market. Especially, when it comes to the efficient utilization of electronic linkage of sales and inventory information using sophisticated ERP systems, Wal-Mart are irreplaceable.
Supplier Relations - Wal-Mart has fostered its relations with its suppliers over the years and it is extremely difficult for other retailers to enjoy such relations with the suppliers for 2 reasons
Wal-Mart's competitors cannot offer the volume of goods that it can offer to the suppliers.
In addition, Wal -Mart beats the other retailers in the compensation offered to its suppliers because it reaps savings in the cost operated areas.
Advanced IT Systems - Wal-Mart's IT systems are very advanced and aid the supply chain structure very effectively. Wal-Mart constantly upgrades its systems to remain up-to-date.
Wal-Mart : Structural Changes and adaption to business units
It is a known fact that Wal-Mart has been hugely successful in the US market. The overall strategy of offering lower prices can be applicable anywhere in the world and hence, Wal-Mart's competitive advantages can be transferred abroad as well. This can be very well known from the fact that the number of stores of Wal-Mart outside US has gone up to 1200 (as compared to 600 in the year 2005). The number of stores in the US is 1647. However, there were cases where Wal-Mart could not successfully assimilate a similar strategy in countries like China, Japan and South Korea due to the following reasons
Differences between Wal-Mart and the local suppliers over the compensations.
Volume not arriving at the right time.
Partnerships of the local retailers with the suppliers, confining the suppliers to have only limited agreements with Wal-Mart.
Differences in consumer preferences which were totally against the pre-conceived strategies of Wal-Mart especially in countries like China.
Difference in consumer purchasing habits.
The 'Dell' Revolution
Dell was founded in the year 1984 by Micheal Dell. Michealo Dell is also known to be the longest serving CEO ever. Ever since Dell entered the Chinese market and began to re-structure itself after choosing a unique marketing strategy, the sales rocketed. Dell's direct sales model, collaborative supply chain, direct service and efficient marketing system made it a global leader in the field of computer manufacturing by giving it an unparalleled competitive advantage.
Dell - Ever changing consumer needs
Dell has always believed that the best way it can take a good share of the a market I by getting as closer to the consumers as possible. Ever since the late 80s when the industry was going through a lot of economical and technological changes, Dell was at the forefront of adapting to them. First by establishing the Internet infrastructure for booking/orders related activities it was able to increase its customer base from existing markets. Using the same infrastructure it was able to carry out its marketing strategies in new offices as well. Notebooks and desktops account for almost 80% of the revenue generation for Dell Computers. The company drives nearly two thirds of its business from large businesses and government entities.
Corporate customers include Ford Motor Company, Boeing, and international giant
Half of the sales came from PCs which had Intel 80386 microprocessor. Dell also integrated its file server with UNIX operating system.
In order to get closer to customers' needs, Dell opened up offices in every part of North America and Europe.
Dell- Competitors and their impact
On of the major strategies of Dell was to beat the competition by collaborations. Dell takes pride in actually collaborating with corporations to diversify its technological base unlike its competitors who like HP who went on an acquisition spree in order to eliminate competition. For instance, Dell's collaboration with Xerox Corporation as a provider of printing products and services was an addition to the list of comprehensive business services that Dell offered.
Dell believes in global collaboration and not just industry specific collaboration. Dell has offices in all parts of the world just to stay closer to the consumers and be able to capture the niche market. Every office has freedom to act independently but at the end of the day, they are wholly accountable for the results.
Dell has never taken a comparison mode when it came to promotions and marketing. Even if you look at the advertisements, it can be observed that they only try to make the consumers aware of the technological benefits they would gather out of a particular product rather than what they would not get our of heir competitors' products. The idea essentially was to project a virtual home with a dynamic wifi and an extremely jovial environment for those who use Dell products. Some of the tag lines also include "I will make my PC make m stereo run for its life." Hence, the essence was to integrate different technologies into a single desktop and market the product in a "Be direct" way.
Management Consulting Today - Jean- Paul Thommon
Pendergrast, M. (2000). For God, Country and Coca-Cola: The Definitive History of the Great American Soft Drink and the Company That Makes It. Basic Books.