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In order to understand the environment surrounding an organization, a deep insight of the organization itself is a good starting point. As an MBA student, the concepts relating to organizations including organizational forms, decision making levels, corporate governance, sustainability and corporate social responsibility are not unfamiliar to me. However, all these ideas remained very theoretical since I was not able to understand its real implications on organizations.
The Global Organizational Environment course has made those concepts alive to me. My lecturer kept me from thinking of the complex organizational structures as any more complicated. Rather, simplifying things drove better understanding and in some case, bring them closer to reality. For instance, thinking of stakeholders as "anyone connected to the organization" instead of "any group or individual who can affect or be affected by the performance of the organization" makes it easier for me to identify an organization's stakeholders. Also, getting to know the reasons for different organization's forms gave me the answer to the question why corporate governance (to prevent agency problem) and corporate social responsibility (to satisfy widen stakeholder's expectations) had become increasingly important.
According to the "Legal structure of the firm", the author says that there commonly exist to school of thought toward corporate governance. The first one- the shareholder value model- derives from the notions that shareholders own firms and managers are their agent. Therefore, corporate governance is to design rules and institution to make managers accountable for shareholders. Whereas, the contender of this idea looking from the society's point of view, believes that organization has not only stockholder but also stakeholders-people whose contributions count and/or whose interests are affected by the organization's activities. This gives rise to the domain of "business ethics", "social issues" and "corporate social responsibility".
Topic 2: Stakeholders (To be marked)
That organization is under the pressure of meeting different stakeholder groups' expectation has raised the question of how it can live up with them all. Especially when the conflict of interest exists, focus on one group's benefits also means sacrificing those of others.
I've found the Mendelow stakeholders matrix introduced in the course a very strategic tool for organizations to overcome such matter. This matrix helps an organization to categorize their stakeholders in term of their power and interests and allow it to satisfy them accordingly. Besides giving the organization a "big picture" of its stakeholder, the matrix suggests the relevant approaches to reconcile their interests. From determining the key players, the keep satisfied, the keep informed to the minimal effort group, organization can better allocate their resources and effort so that the interests of those stakeholders a maintained at a optimal level and does not obstruct the organization's development.
This reminds me in the Accounting theory book that mentions the disclosure of corporate information. The text mentioned the existence of positive and normative stakeholder theories. In one hand, the normative stakeholder theories hold that company should disclose information for all of its stakeholders. On the other hand, the positive theory sees information as scared resources and only aims to focus on the most important group of stakeholders. While the issue of disclosure relates more to legal and ethical matters, it's apparent that some group of stakeholders might need more information than the rest. For example, while investors need to have a reliable financial statement of the company, suppliers' interest might limit to some area such as the company's liquidity and leverage. Therefore, differentiating the stakeholders will be important to give their "due benefits".
Topic 3: The PESTLE environment (To be marked)
In this class, once again I came into contact with the PESTLE analysis. This is a common tool used to keep track of the impacts that the political, economic, social, technological, legal and environmental trends can possibly assert onto an organization. PESTLE analysis, from my opinion, is a handy and effective tool the management can use to foresee the opportunities and threats that face its organizations and to come up with corresponding solutions.
However, PESTLE analysis has been used too popular as a strategic tool that it creates little strategic advantages for organizations but rather a tool for risk defence. Since the PESTLE focuses on the mega-forces that affect the organization, it is prone to reflect a rather general context and might not suggest actions to deal with any specific situation. Moreover, analyzing the external environment will consume a lot of time as well as expose the management to overwhelming but diluted information which impede the relevance and accuracy of the results.
I find my opinion similar to that of â€¦....author. â€¦.emphasizes the necessity for organizations to integrate the PESTLE analysis into the SWOT one with the purpose of better captures the relationships between the organizational bodies with its external environment.
Topic 4: The macro-economic environment
As reflected in its name, macro-economics concerns with the big picture of the market through aggregate demands and supplies instead of looking into individual economic behavior. Through the fiscal and monetary policy, governments have the objective of maintaining a stable macro-economic environment in which national output and inflation increases gradually while the unemployment rate is kept at the minimum level. Nevertheless, the macro-economics environment is so complicated that for many times, the rigid applications of the governmental policies might not result in expected outcomes. For example, when the money is borrowed to increase government spending in an expansionary fiscal policy, government's debts might increase the market interest rate; hence "crowds out" private sectors from the lending market.
I remembered having a huge argument with my peers in a case study about the impact of changing interest rate on a non-financial enterprise. I was enlightened with many interesting concepts, such as interest rate can be used as government's tool to control inflation in an economy.
Topic 5: The micro-economic environment
Topic 6: Globalization (To be marked)
Globalization has brought about radical changes in every corner of life. That the world has become a "small-town" brings about changes for both organizations and individuals. In a class discussion, my friends and I were able to identify several organizational transformations made by globalizations. Firstly, organizations have been able to reach out to the international playground- a competitive market to discover themselves and enhance their competency. Secondly, the transparent and unrestricted flows of information owing to internet and other telecommunication development allows management to have more timely and integral decision making. Besides, organizations can benefit from the outsourcing to achieve cost-efficiency and economy of scales. Lastly, the availability of cross-region technology transfer saves organizations in developed countries from building its technology from beginning while helps them to focus on their core business.
According to the International Research Journal of Finance and Economics by Euro Journals Publishing, Inc., globalization refers to the integration of economies throughout the worlds and growing importance of multinational corporations (MNC's) that are achieved by uninhibited trade, financial flows, as also the mutual exchange of technology and knowledge. The journal also takes India as an example of a developing countries benefiting from the process of globalization. India has received increasing Foreign Direct investments inflows that instigate that countries' GDP growth considerably. The country, thanks to the speed of globalization, may expect to achieve a relatively high annual average growth of 10% in the next several years. This comes to the conclusion that globalization, with its nature of free trade generation; helps accelerate the growth in developing countries http://www.eurojournals.com/IRJFE%206%20goyal.pdf .
Topic 7: Scenarios
SABMiller plc- The company analysis
Type and scopes
SABMiller was established in 1895 naming South African Breweries (SAB). However, not until 1990 did the company reach out to Europe, where it's now headquartered. In 1999, SAB became public to raise sufficient capital for the acquisition of the Miller Brewing Company in North America and had its name SABMiller plc. SABMiller is among the market leading brewers which covers 75 countries in Africa, Asia, Europe, Latin America, North America, South Africa and employs 70,131 people. Its shares are listed on the London Stock Exchange and the Johannesburg Stock Exchange.
SABMiller possesses a diversifying portfolio of 191 beer brands targeting to multi-domestic markets. The portfolio is composed of premium global beers like Pilsner URquell, Peroni Nastro Aurro, Miller Genuine Draft and Grolsh as well as local brands like Aguila, Castle, Miller Lite and Tyskie. Besides, SABMiller is one of the largest Coca-cola bottlers with its operation in 14 countries.
Figure 1: Number of SABMiller brands across regions
Due to the fierce competition in Europe with Anheuser-Bush InBev, Heineken and other brewers, SABMiller concentrates on brand development. The company currently has more than 70 brands in regions. Whereas, the number of brands in Asia is limited to only 20- mainly because this is a new market for SABMiller. Africa, meanwhile, represents a growing market which received huge investment from this brewer: In the past 2 years, SABMiller has built new breweries in Tanzania, Mozambique, Angola, and Southern Sudan and expanded its operation in Uganda, Zambia. With the estimate of growing demand for beer in Africa, SABMiller's brands will continue developing new brands from its existing 45 ones. Latin America and North America also have very diversifying markets that consume more 30 kinds of beer from SABMiller with preference for the company's premium products.
Organization's purpose and analysis of stakeholders:
The increasingly demanding market has forced companies to think deeper than a mere return on investment in order to gain its competitive advantage (JUNE 2009 â€¢ Sheila Bonini, David Court, and Alberto Marchi) https://www.mckinseyquarterly.com/Rebuilding_corporate_reputations_2367. The stakeholder theory also defines that in order to sustain and succeed overtime, a business must be able to create values for its wide range of stakeholders and keep their interests aligned with those of the business. Nevertheless, as different groups of stakeholders might have opposing interests, a company like SABMiller is usually left with the tough position of how to balance them. The Mendelow Matrix, hence, will be a tactical tool SABMiller can use to categorize its stakeholders in term of their power of interests and to develop appropriate measure to meet their expectations.
The Mendelow Stakeholder Matrix:
-Board of Directors
- Executive Committee
- Other committees
Figure 2: The Mendelow's stakeholder's matrix
The "Key player" groups:
The 'Key players' usually are the decisive factors for the company's prospect since their command and benefits are influential to the structure and direction of the organization. This group includes the shareholders, the Board of Directors (BODs), the Executives committees and other committees.
Although not directly involved in the operation, shareholders are an indispensible part of a public listed company to which they provide a significant source of funds. Shareholders have the voting right to elect the directors as well as to pass the company's constitutions. They also reserve the right to know about the company's strategies and performance and to question the BOD on specific matters and to receive dividends. Understanding the shareholder's power and vital financial interest in the company, SABMiller makes increasing shareholders' value its priority, which basically aims to higher the return on share capital. SABMiller also reports relevant information to the shareholders in the annual general meeting to assure their interest and power.
In the financial year 2010, SABMiller declared a 17% rise in share dividends, delivered by the sale increase and the company's effective cost control. This was an impressive gain in shareholder's value, given the global economic downturn.
Figure 3: SABMiller's financial result year ended 31 March 2010
The Board of Directors and the Executive Committee:
While the BOD lead the company by setting visions, missions, strategies together with the performance criteria and investment policies as a preset risk parameter, the Executive committee practice its authority by implementing the company's day-to-day business (Appendix I). Since the BOD and the executive committee have the delegated power, their interests should be considered carefully so that to prevent the agency problem. The executive directors have to strictly follow the shareholding guideline to ensure the alignment of their interests with the other stakeholders. Both the BOD and the executive committee are required to sign in a service contract that allows the company to deduct from their salaries their obligation for mitigating the company's loss if any in order to increase their due diligence. In return, SABMiller's executive directors and executive committee receive a quite comprehensive compensation benefit plant to award them for the contribution made.
While efforts were paid to improve the benefit of the executive directors and executive committee, the interest of non-executive directors in SABMiller was somehow overlooked. Their fees, for instance, were below average. The question arise was whether with the lower-than-average wage, they can really committed to bring more values to the company.
Nevertheless, the question also refers to another aspect: the ethics in management. It's important that both the BODs and the executives can themselves create the tone at the top through being accountable and transparent in their management, and also hand those values down to the employees
Other key player in SABMiller's is The Audit committee, Remuneration Committee, Nomination committee and Disclosure committee. They function to increase the accountability and transparency of the corporate governance through different procedures such as the internal control and audit, risk management, relationship with shareholders and whistle blowing. Different nomination and remuneration schemes developed by these committees have to be complied with the government's rules, foster the corporation's ethics and productivities as well as to attract and retain talents.
The 'keep-satisfied' group:
Governments and local communities fall into this type. With the power to issue and withhold permits or impose quota, this group has great power in the existence of SABMiller. As a result, it's the company's obligations as well as interests to keep up with this group's expectation. SABMiller has to come up with measures such as governing its financial reports to meet the accounting standards, increasing the environment stewardship (Appendix II), generating local jobs and sponsoring social projects in order to gain support from the government and local communities.
The 'keep-informed' group
Although having little power in the company's operation, the "keep-informed" group is bound to the SABMiller in term of their interests. Thus, reliable and enough information about the company should be provided to them to justify that SABMiller's is doing to their benefit.
Customers are related to SABMiller chiefly through the products that they use. Beer, being a kind of beverage, has to be in good quality and safe for consumers' health. In response, SABMiller creates a standardized supply chain to ensure its products are made from good-quality ingredients and through a clean process. It also satisfies its customers by developing and extending a wide variety of brands to help customers get the right products they are looking for. The company also discourages irresponsible drinking, showing its great concern for this group. In contrast to the customers, employees concern mostly about their working environment and wages. SABMiller commit to create a productive environment where employees are given objectives that are congruent with their personal ones. They are also offered training of average 4.2 days per years. Their working conditions are also improved with the evidence that 4% of the industrial injuries has been reduced in compared with last year. During 2010, employee pay was raised by 5% compared to 2009.
The 'minimal effort' group
With its recent international scale procurement, SABMiller has succeeded in improving its purchase power and expected to experience no difficulty in finding and negotiating with in the short term. In 2010, the SABMiller even raised its debt turnover to 48.2 days from 39.3 days in 2009. Nonetheless, that global warming in the long term will have inverse effect on farming and its yield makes SABMiller really have to reinforce the relationship with its suppliers from now.
UN global compact: http://www.sabmiller.com/index.asp?pageid=116
The key external environment
The PESTLE environment:
As an open system, SABMiller is under the influence of the evolving external environment. Failure to stay connected with the outside world will put the company in danger of being behind the trend and losing its market share. Whereas, understanding and actively research its environment might give the entity a key to gain its competitive edge.
Politics and legal environment:
A stable political weather will promise a better opportunity for long term growth. For instance, the non-government situation in Belgium (http://www.globalaffairs.es/en/belgium-the-non-government-country/) and the recent political turbulence in Egypt (http://topics.nytimes.com/top/news/international/countriesandterritories/egypt/index.html) have shown that those countries are not potential places for SABMiller to invest in. Besides the knowledge of political situation, the insight of legal system in the relevant country is necessary for SABMiller to maintain and strengthen its business. Since the legal systems vary across countries, SABMiller might not be able to apply some of its business behavior. An example is while several Asia countries allow alcohol drinking from the age of 18, Western countries prohibit it until 21. Moreover, as patents and trademarks in Africa and Asia are more prone to infringement due to loose implementation of law, the company has to closely steward its intangible assets.
No matter how stable the politics and well-defined the legal system is, a business can never survive without taking into account the economic condition of a countries. Taking the fact of Greece's national debts which led to the Greek's household spending slump for continuously 4 quarters, SABMiller should not expect this country's beer market to grow in the near future. Meanwhile, African economic growth with the estimated rate of 7% in 2011 promises a good investment for SABMiller. Emerging economies in Asia like China or Vietnam with one of the most positive CPI over the year 2010 will also be a prospective market.
However, in the overall context of the world's economy crippling after the financial crisis, SABMiller has to come up better solution than merely expanding its business. Concentrating on cost savings, for instance, will squeeze more profit out of the company's current operation.
This aspect more or less relates to the habits, the norms, value and taste of people coming from a certain social background. Therefore, market research gives a vital tool to determine the local demand and to provide products that meet their tastes. As Africa has high temperature that makes people prefer cold beverage, SABMiller has embarked on a program of supplying more than 4,000 extra cold fridges to African retailers who can keep the beer chilled for the consumers.
With today penetration of technology in very business, keeping technology ahead of the race will give SABMiller vigorous competitive advantage. Otherwise, the company's might miss a step and be left behind the trend. In 2010, SABMiller together with is partner, the Pacific Beverage has launched a new state-of-art Bluetongue Brewery which was equipped with latest brewing technology costing a total of $120 million. This brewing mill adopts a triple hopped process that not only creates a balanced flavor and new aroma for the beer but also is more environmentally friendly.
SABMiller also invested in its intranet and universal IT platform that maximize the company's purchase scale and information flowing to support case-by-case problem solving, save time and increase management effectiveness.
The competitive environment:
While the PESTLE analysis gives a generic view of the mega-forces or trends that shape the company and its environment, the competitive environment-which also refers as the industry, narrow SABMiller's external forces down to the brewing sectors where SABMiller can have more interaction with its outside forces.
The "Porter's five forces" present a good model for SABMiller to analyze its industry.
Following a multi-domestic strategy with a diversifying portfolio of brands, SABMiller faces competition with competitors coming from all types and scopes. Until 2010, SABMiller still keeps its second position in the international brewing market. Its international competitors are Anheuser-Bush plc- the top worldwide brewer and Heineken which stays the third in ranking. While Heineken focus on its one-branch only beer, Anheuser-Bush is more aggressive as a competitor with more than 200 beer brands having the ability to compete with SABMiller in every range of prices and quality. http://www.mg.co.za/article/2009-03-12-sabmiller-brews-up-scheme-to-beat-competition/. Besides the international rivals, SABMiller also have to compete with local beer companies that, even though don't have the economy of scale advantage, have better understanding of the market.
Power of suppliers:
SABMiller's main suppliers are farmer, glass and cans producers. In buying malt, barley and hops, SABMiller's has relatively high negotiating power, especially when it starts the global procurement strategy to optimize the supply sources and create mutual benefits with suppliers. This global-scale method is also applied to cans and glassware purchase in some pilot programs in Europe and Latin America.
Power of buyers:
This factor depends mainly on regional market. In Latin America and Africa where SABMiller takes over almost the whole brewing market, the company is relatively free in term of pricing and branding. Nevertheless, in more intensively competitive companies such as UK or Australian, the situation is reversed. As beer has very low switching cost, it's essential that SABMiller has prudent operation, marketing and pricing strategies in order to gain new customers as well as to keep its loyal ones.
Brewing industry is low barrier to entry. There is always the risk that the company's business is challenged by new competitors. As a result, SABMiller should achieve economy of scales in production and use it as the company's competitive advantage. Building up loyal customers through different sale and marketing will be necessary to win the market.
Figure 4: Alcohol category growth 2010
From the graph above, it can be inferred that spirit is the main substitute for beer in term of alcohol. Spirit accounts for about 48% of the alcohol, showing great assumption for this product. Wine is also a possible substitute, but its small market share it's not a close substitute for beer. Besides alcohol, soft drink can also be a major substitute for beer. Different from spirit which is highly restricted in certain places, soft drink is more available and might substantially reduce sale of beer. SABMiller, thus, should develop a stronger sale channel to avoid losing customers to its substitutes.
Market position and segmentation in 2010
Within only one year, SABMiller has made a big leap from the seventh position to the third ranking in 2010 in term of the most admired companies in the beverage sector worldwide, owing to the company's restless innovation and expansion in the markets, especially in Latin America and Asia.
"In every market, SABMiller aims to develop a diversifying portfolio of brands that fit to different price ladders", from the economical, mainstream to premium beer. Brands offered, however, depend largely on the development of the company in that market or its strategies at different points in time.
In order to figure out the health of the company in individual nation, a closer look of its market share is provided.
Although SABMiller dominates the African market by holding more than 75% of the beer market share in every country that it supplies to, the upcoming time will requires SABMiller to develop strategic scheme in dealing with its competitor Heineken which built the first non-SABMiller brewery in Africa and still now, enjoyed vital profit climb. The profit that the North African countries and South Africa contributed to the company's during 2010 accounted for about more than a third of SABMiller's total profit in 2010. However, in some countries like Lesotho, Malawi and Mozambique where SABMiller's products have taken almost the whole market, the consumption was not so high, leading to lower North African regional profit contribution of 14%. Whereas, the South Africa market alone brought about 22% to the group's EBITA in the same year.
Figure 5: SABMiller's market share in Latin America
Latin America contributed around 31% to the group's EBITDA which was the second largest contribution during 2010. The company has taken the spotlight in this region by having fairly uniform market share from 70%-90%. This laid a solid foundation for the company to continue penetrating into other countries' market of the same region and at the mean time, reinforcing its performance in North America where it only reserve 15% of the beer playground. However, that Heineken started to have its footprint in Latin America and achieved profit indicated that SABMiller should be prepared for competition in this tough competitor who have relatively strong financial base.
Figure 6: SABMiller's market share in Europe
Behind Latin America and South Africa, Europe brought more than 19% profit to SABMiller. The company currently has the highest number of brands (70 beer brands) in Europe. However, the company was far from to taking over this market a due to the competitive industry structure and strict regulations. In several nations, SABMiller accounts for half of the market. In Russia, UK and Ukraine, nonetheless, the company only has less than 10% of the total market share. Until 2010, SABMiller even has experienced 3 straight years of falling sales in Russia because of the bill passed in this nation which limited sales of beer stronger than 5% to reduce alcohol abuse.
Figure 7: SABMiller's market share in Asia & Australia
While in other markets, SABMiller can really expect the high returns, Asian remains to be a new land where the company commences its first phase of investment. With the market share of 30% in India and the recently achieved 20% of Chinese market, the brewing firm can believe in the growth promise that this region brings about. In Australia, in contrast, the company staying low with only 1% of the beer market shares. With a venture in Australia that gave the company opportunity to explore this new market and SABMiller's director and chairman, Mr. Mackay said he was aiming for the acquisition of Australian Forster's beer division. If the bid is successful, the company's expansion in this market is foreseeable.
Threats and challenges in 2010
Although 2010 represented an accomplishing year for SABMiller in its attempt to fight against the global economic downturn, it was not a smooth road. SABMiller's BODs and managers had to fight hard against many challenges that remain the inherent threats to the company until now.
Change in consumer preferences:
With the process of globalization along with which comes the freely flows of products, consumers are prone to changes in their consumption habit and hence, less loyal. Especially with the dynamic activities from SABMiller's rivals that aims to get more customers, the need to satisfy current customers and retain them has become more urgent but challenging. Since customers won't lose anything when trying new brands due to the low switching cost of beer, keeping customers is and is going to be extremely hard for SABMiller. A survey conducts by SABMiller during the FIFA World Cup showed that 87% of the visitors to Africa wanted to "try different beers and steer clear of brands from the own country". It's likely that by experimenting new products, people might create a taste for new brands, then the demand for them. Demands will stipulate supplies and the appearance of new brewers, says in Latin America and African, with more attractive brands will certainly threaten the market structure there and inversely affect the company's sales.
Raw material volatility:
The volatility of raw material is in term of quantity and prices. Due to seasonality and political instability of several countries, the supply source for SABMiller becomes restricted and more expensive. Moreover, the rise of oil prices makes goods transportation more costly. With its global procurement scheme and hedging solutions, SABMiller expects to secure its supply for a long-time horizon in order to stay competitive in the market. SABMiller also starts running many programs to support development of local sourcing for key material such as barley.
Changing economic environment:
Economic environment is always a hot debate for every company in recent years. The overall downturn in the world economy has resulted in formidable repercussions: unemployment, low disposable income, stumbling consumption, low sales and consequential low return. Without surrendering the general obstacles, SABMiller continues to create spread of business and penetrating to win the local market. In one hand, the brewer concentrates on emerging markets to generate cash while escape the hit of economic downturn in developed market. Cash, in turn, is used for investments with the vision to prepare the company with sufficient capability to be on top of the race once the global economy recovers.
New programs aiming at simplify the company's processes, minimize costs, market and brand development are implemented by the group with the expectation to increase the company's sustainability. However, initiatives always come with risks. First of all, the program will consume a lot of times, money and effort given SABMiller's current operation scales. Secondly, any mistakes or errors during the implementation might lead to huge loss in the future. Besides, the modern process might require a new method of management and impeded by resistance to change among the employee. Therefore, it's important that the directors and executives of the company analyze carefully the pros and cons of the transformation by taking into account the big picture for this program and hand down their knowledge to lower-level employees to earn their support.
Scenario as a management tool and example review
It's already mentioned that the director's responsibility is to have vision for the company and from that create supportive strategies to achieve the vision. This vision is developed by contemplating over the pass, looking into the reality and foreseeing the possible issues to figure appropriate solutions to achieve the expected outcome.
The process of foreseeing possible problems to prepare responsive measures is scenario planning, a very vital tool at management level.
One of the challenges for SABMiller is to deal with customer's change in preferences.
Self-content and staying still will be fatal in the evolving world where customers are more demanding and competitors' activities become more aggressive and sophisticated. Offered a variety of choices, customers might easily be allured by a different brand and get rid of SABMiller's one.
Facing the fickle change in customer's preferences, SABMiller should have more creative strategies that enable it to be proactive in the market, or in other terms, to lead instead of going after the trend.
Figure 8: The suggested market leading strategy for SABMiller
Building higher switch-cost for its brands is the first measure that the company should think of. By sponsoring or being associates of community events, the company will be able to building the value for its consumers and create their loyalty to the brands. Regular SABMiller's drinkers can also be kept through methods such as getting one beer free for every 10 empty bottles of the same type that they saved and brought to the retailers. SABMiller can take advantage of its high quantity of local brands to create an exchange in regional taste. By bringing some potential local beer to foreign markets, SABMiller may explore new opportunities to expand its product lines. Nonetheless, it's crucial that SABMiller that through the global purchase programs and its mass market share in some key continents, economy of scales are achieved and maintained so that its products are price-competitive. Besides, the company should encourage employee's rotation among countries to enhance knowledge and experience exchange, a driver for product innovation. Concentrating on the roll-out and improvement of the SABMiller Marketing campaigns, in addition, will be a support for the company to strengthen its marketing and sale capability. Designing a forum for loyal customers will also help SABMiller to keep track of their current demand. Customers participating in debates and topic sharing may also give the company's good suggestion for its next business move. Nevertheless, SABMiller's management should keep in mind that this forum might be subjected to the interference of rival companies and might not always reflect the true position and that innovation should need greater effort than just depending on the facts.
During 2010, the company's cut its research and development investment by almost one-half to US$4 million (equivalent to 1.5% of 2010 revenue) in from US$ 7 million (2% of 2009 revenue) for the previous year. This reduction in expense could result in higher reported profit but in longer term might impair the company's ability to compete for new product. In order to gain the competitive edge, SABMiller should spend more on finding and improving its beer's recipes. The amount reserved on R&D can be estimated in relation to revenue. SABMiller is recommended to invest at least 2% of its revenue for R&D. Together with the investment in R&D, SABMiller will need a committee to evaluate, calculate the return on Research and Development by benchmarking its with the company's goal.
When R&D turns to be costly and the consumer's preference become too hard to predicts, partnership can offer a solution. By getting alliance with other company in certain products or projects, SABMiller can reduce its risk of failure while at the same time enrich the corporate knowledge and expertise through the process of exchanging experiences.