Diageo Has Existed In Current Guise Business Essay

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1. INTRODUCTION

The organisation I have chosen to study is 'DIAGEO' (1). The company itself is relatively young and although its parent companies have existed since 1749, Diageo has existed in its current guise for little more than a decade. With heritage and pedigree in the food and beverage industry spanning some 250 years, the merger of United Distillers & Vinters with Guinness and also Grand Metropolitan International Distillers & Vintners in 1997, saw the formation of this global conglomerate recognised today as Diageo. Ever evolving, Diageo sold all food assets in 2002; a strategic move enabling them to focus on its global collection of premium drinks. Year on year, Diageo continues to deliver double digit market growth; performance not many businesses can claim in recent years due to the global economic downturn.

2. RATIONALE

My rationale for choosing Diageo is that I recognised it as a large scale multi national manufacturing business, which I felt would suit this topic. Having grown up in Brora, a small village in the Scottish Highlands where a malt whisky named Clyneleish is produced, I feel as though I have a connection to Diageo, as they own the Clyneleish distillery and members of my family work there at the distillery. As Diageo are a global conglomerate, I felt that they could also provide me with sufficient information in which to investigate their business processes further. An additional benefit is that I have a family member with 22 years of experience working within a Diageo owned distillery; I felt that this may provide me with an additional opportunity to discuss the Diageo management structures, business processes, organisational objectives, environmental issues and achievements further.

3. AIMS & OBJECTIVES

Focussed on it's staff, consumers and customers, Diageo's aim is to become one of the world's most trusted and respected companies and has a business strategy (2) of delivering sustainable organic growth through the stewardship of an outstanding range of premium drinks. The Diageo ethos is 'to do the right thing every day, everywhere, with a view to increasing market share, adding value, whilst meeting financial objectives.

4. ORGANISATIONAL STRUCTURE

As a publicly owned global beverage manufacturer, the Diageo brand is segregated into 4 geographic locations, with £3 billion in revenue generated in over 180 markets. Each continental headquarter has one Director, who manages their business process and environment. Operational functions are executed by geographic regional management, each being responsible for meeting Diageo strategic objectives; responding to regional market analysis and opportunity. Within a global suprasystem, this internationalised (3), democratic and progressive organisation fully involves its staff in decision making due to the value placed on workforce knowledge and experience by management. Increasingly managed scientifically (4), Diageo operates 129 different facilities, 50+ of which are in Scotland. Global and European headquarters are based in London and more pertinently, within Scotland there are 4 main offices controlling operational assets, such as:

27 Malt distilleries

3 Grain distilleries

4 Malt-houses

7 Warehouses

4 Cooperages

3 Bottling halls

3 Packaging plants

5. ANALYSIS

The illustration below demonstrates the Inwards systems approach adopted by Diageo in order to increase efficiency and reduce operating costs. This is demonstrated by use of a standardised supply chain, manufacturing and distribution procedure throughout their global network. I believe the careful management of the internal manufacturing, process standardisation, accompanied with the unique set of resources captured within Scotland has led to Diageo producing a strategic business resource and has led to them gaining a significant and competitive advantage over their business sector rivals.

Diageo

North America

Diageo

International

Diageo

Europe

Diageo

Asia Pacific

Retail

Operations

Global Supply

HRM

Marketing & Innovation

Corporate Relations

Legal

Procurement

Value Chain

Diageo have a sophisticated value chain that links to Porter's Model (5), ensuring value is added at each operational stage by forging relationships with businesses that have similar core values. Seeking mutual benefit and also to raise social standards, the Diageo Value Chain aims to create economic opportunity for other businesses involved within it and focuses on 3 key areas:

Customers - Diageo customers are the product distributors and retailers. Diageo creates business for customers by providing the product and by offering commercial skills and resources to enable responsible business growth, maximising customer returns.

Suppliers - Diageo works with approximately 20,000 suppliers. Promoting responsible relationships, Diageo examines commercial considerations and ethical issues such as labour relations, health and safety, environmental management and business integrity.

Consumers - Brand quality is the basis for the trust formed between the consumer and Diageo; this comes from consumer confidence in the product and is achieved through several means, such as product quality, environmental sustainability, continued staff development and the reinforcement of alcohol awareness in today's fragile society (6).

PESTEL Analysis

Every business organisation whether they are inwardly or outwardly focussed is subject to an inordinate amount of external pressure, on areas such as procurement, manufacturing, distribution, advertising and sales. Environmental pressure analysis is crucial to the Diageo success and the following table is a flavour of my initial interpretation of this:

Political

Positive

Negative

Positive contribution to and exertion of influence on the UK Taxation system.

Global social investment programmes in countries where Diageo brands are sold.

Extant global trade agreements.

Excellent cultural and social awareness programmes in place.

Governmental instability and change within countries where Diageo products are sold.

Diageo threatens to move its global headquarters outside UK, due to taxation system.

Economic

Positive

Negative

Global value chain partnerships boosting economic growth. E.g. Recent local investment of £86 million in Fife, Scotland creating 400 jobs at a bottling plant.

Low interest rates and inflation in the UK.

Global recession and economic downturn may have a negative impact on third parties with whom Diageo does business.

Reduction in consumer spending levels on executive products due to recession.

Potential reduction in market share due to increased sector competition.

Social

Positive

Negative

Global demographic varying brand demand.

Excellent strategy for environmental and community project investment.

Excellent media and alcohol awareness strategies, promoting responsibility.

Possible workforce disruption due to organisation re-structuring and streamlining of plant operational processes.

Reduction in general household expenditure due to global recession.

Technological

Positive

Negative

Strong re-investment strategy into production capabilities (R&D).

Global supply and distribution network improvement.

Staff reduction due to increased operational efficiency and process management.

Environmental

Positive

Negative

Fully committed to environmental sustainment through investment in global environmental projects.

Staff inclusivity, development and morale.

Brand value and consumer confidence.

Environmental regulation limitations, increasing production costs.

Ecological restrictions.

Legal

Positive

Negative

Excellent commitment towards responsible alcohol consumption and consumer protection.

Industry specific quality regulations.

Extensive global regulatory requirements increase production costs and manufacturing time.

6. MEASURING SUCCESS

To remain the global market leader, Diageo success can be partly attributed to its active corporate performance measurement. This can be evidenced by its re-investment strategy of committing 1% of operating profit into 'production capabilities', i.e. production improvement, global community and social investment projects (7). Diageo set 60 KPI's last year, measuring success by evaluation of key areas such as socio-economics, environmental sustainability and the media. As a member of several global associations, Diageo continually analyses its own value chain, competitive advantage and market share through production, sales, consumption and economic evaluation. Global media investment in advertising and promotions touches £500 million. In Scotland alone, Diageo re-invests £75 million into production capabilities and is responsible for the following:

20% of Scottish food & beverage worldwide exports are Diageo branded

Employment of 4500 staff within Scotland

Sustainment of 12000 staff in other value chain companies

£400 million paid to Scottish suppliers - raw materials, manufacturing & production

The following is an illustration of area sales year ending 30 Jun 10:

Region

Sales %

Annual Consumption (Cases)

Daily Consumption (Measures)

North America

34

30 Million - Whisky

12 Million - white spirit (Vodka etc)

81 Million - Spirits

19 Million - Beer

4 Million - Branded

3 Million - Wine

Europe

28

International

27

Asia Pacific

11

The illustration below appears to fit the Diageo mission statement of 'doing the right thing' and positively influencing environments and societies around the world.

Ultimately, measurement of success within the manufacturing/retail sector lies within operating profit; however examination of the bigger picture leads me to believe that the global consumer and the society in which they live measure the success of this company. The uniqueness of the Scottish Whisky industry, the staff and their invaluable experience lie at the heart of Diageo, hence its market strength and double digit year on year growth.

7. CONCLUSION

As a global conglomerate, Diageo is a market leader not just in terms of vision and values; but with strategies across many different areas, such as brand heritage and quality, environmental awareness, global supply, social development and many more; the competitive advantage is plain to see. Regardless of the number of awards (8) Diageo wins the global consumer endorses my belief that they are the World's best beverage manufacturer.

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