The Strategic Development Of Anheuser-Busch Companies

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The chosen organisation here is Anheuser-Busch Companies, Inc., for study of their strategy development. In this report, I have discussed practice and theory of strategy development processes of AB-I.

Critically discuss the practice and theory of strategy development processes in your chosen organisation.

Economic development is hard to visualise, not only because so many different conditions must be fulfilled simultaneously but above all because of the vicious circles: generally the realisation of these conditions depends in turn on economic development. But this means also that once development has started, the circle is likely to become an upward spiral as all the prerequisites and conditions for development are brought into being.

This approach permits us to focus on a characteristic of the process of economic development that is fundamental for both analysis and strategy: development depends not so much on finding optimal combinations for given resources and factors of production as on calling forth and enlisting for development purposes resources and abilities that are hidden, scattered, or badly utilised. Economists have long realised this situation with respect to labour and have coined the term "disguised unemployment" to describe it. But just as an underdeveloped economy can mobilise vast hidden reserves of unskilled labour from its redundant peasantry, so it is able to make capital, entrepreneurship, and all the other "prerequisites" climb unexpectedly on the bandwagon of economic development once it has started to roll. (Pearson, 1957, p. 339)

If this is correct, then too much has perhaps been made of the difference between a situation of cyclical unemployment in a developed economy and the problem of development in an underdeveloped country.

Most businesses that enjoy at least some measurable success begin in an entrepreneurial manner. Organisation founders identify customers who are dissatisfied with existing alternatives. They then introduce something new to the market, which better satisfies those customers' needs. Unfortunately, as organisations grow, they often lose their innovative spirit (Crawford, 1987, p. 25).

Such an innovative spirit is particularly essential in an increasingly competitive environment. This is so particularly because innovation and competition modify each other. Customer desires for innovation stimulate the development of new organisations, or new opportunities for existing players, thereby producing greater competition. In turn, greater competition demands that management returns to organisation innovation roots just to maintain market share or for further development (Crawford, 1987, p. 19).

This extensive history pointing to a lack of innovation effort among U.S. firms demands a stronger, focused coverage of innovation's essential value in a marketing course reaching all business students. Because business students are potential future business managers, it seems imperative to discuss innovation and its implications in courses on the principles of marketing. Unfortunately, the tremendous breadth inherent in such courses precludes a detailed discussion of promoting creativity and generating organisational change.

Vision, Strategic Intent, Mission

The corporate vision, strategic intent, and mission have been determined to comprise the most important, if not critical, first step in the development of Western strategy. The organisation informs its employees of what it considers its vision and what it wants to be. Each employee is expected to apply this vision as a road map to enhance his or her daily performance and actions. A firm may spend hundreds of thousands of dollars to inform its employees of its vision. Their involvement in the development of this vision is thought to increase their commitment to it. The idealised expression of this vision is written in what is called a mission statement. This statement then appears in as many places as possible to continue to reinforce and instil this ideal in all employees.

Levitt Mission Model

Much has been written to justify the mission statement as a beginning step in the strategic process. The article most quoted to justify a mission statement is the one by Theodore Levitt, "Marketing Myopia". It is one of the most popular articles that has ever appeared in the Harvard Business Review. Readers for thirty years believed that this article traced the development of the railroad and film industries in the United States. The conclusion drawn from Levitt's history is that the railroad and film managers were myopic because they failed to respond to new technologies: of transportation in the railroad industry and of television in the film industry. (Levitt, 1960, 45- 56)

The management's inability to identify the shift and then respond to it was supposedly responsible for the near destruction of many American industries. The article recommends that the railroad managers should have envisioned themselves in the transportation business and the film managers should have expanded their vision into the entertainment industry. Both had failed to identify and respond to their customers' needs and wants. If these myopic managers had a clearer understanding of the mission of their businesses, they could have avoided the near destruction of their organisations.

Drucker Mission Model

In the early 1950s, Peter Drucker was one of the first writers to call for a mission statement. Levitt's article clarified Drucker's earlier thinking about the development of a business mission statement. Drucker maintained that only a clear definition of the mission of an organisation makes possible realistic business objectives. The business mission is the foundation for priorities, strategies, plans, and work assignments. Structure follows strategy, and strategy determines the key activities to be performed in a given business. Strategy requires knowing what business one is in and what business one wants to be in.

Kimball Mission Model

According to David Kimball, an organisation's mission should be linked to the written mission statement. Unfortunately, some organisations hesitate to state their missions in formally written documents because they are reluctant to reveal their true missions. They believe that if competitors gain this knowledge, the competitors will have market power. Kimball's study found that the stronger the organisation's sense of mission, the higher its level of profitability. Although the link between having a written mission statement and enjoying increased levels of profits is not as strong, organisations are finding that it is valuable to have a written mission statement. This statement enables them to communicate formally six basic components, which, according to Kimball, are customers, vision, values, employees, quality, and stockholders. These components were determined to be the most important in a survey of 119 executives of the New York Chapter of The Planning Forum. The executives indicated that other components should be added into the organisation mission as well as a written mission statement on an as-needed basis. Although the executives in the Kimball study agreed on the importance of an organisation mission, they did not indicate how strongly they agreed on its importance as compared to the other elements used in designing strategy. Thus, this study does not support the notion that an organisation's mission is the most important step in the designing process. Even though an organisation's mission is important in developing strategy, it alone will not guarantee success. An organisation's mission might have been enough to guarantee success in previous decades when organisations existed in a very mechanistic manner. However, because of the current economic situation and the requirement for speed in decision making, an organisation's mission is no more important than other externally oriented strategic elements, such as an external environmental assessment, a strategy implementation, or an evaluating strategy.

Rather than seeing the corporation as either a single entity or a collection of unrelated businesses, senor managers should seek to identify and exploit the linkages across units that could potentially add value to the corporate whole.

There is often substantial hidden value buried in the linkages among business units. This value is realised when units identify and jointly explore white space opportunities, when competencies are redeployed from one unit to another or combined in new ways across units or when units cooperate in building strong banner brands serving multiunit customers. There is a risk that in the pursuit of devolution and decentralisation, the substantial value that can be derived from collective action across units is inadvertently lost.

The potential for extracting value out of the management of linkages only becomes visible when unit executives from across the organisation participate in a horizontal strategy development process. The identification and management of linkages emerge not from a corporate staff exercise but from a process where line managers from across the organisation come to recognize the potential value added of collective action. Needed is enlightened collective strategy. Because the value of managing linkages better is seldom if ever quantified, no vice president is likely to feel responsible for it or is anyone pained when the value goes unrealised. Nevertheless, even General Electric, an organisation where the prerogatives of unit managers have been more jealously defended than perhaps in any other organisation, has come to recognize the potential value in being a limitless organisation. Likewise Hewlett-Packard, an organisation that has thrived on individual entrepreneurship, has come to recognize that there are some cross-unit opportunities that are just too attractive to sacrifice on the altar of absolute unit autonomy.

The development of collective strategy requires managers to adopt a more cooperative and less competitive posture with their peers. They must recognise that for every instance of resource sharing, cross-unit support or sacrifice to the greater good, there may not be an immediate quid pro quo. They must also have reason to believe that cooperative behaviour will be rewarded and that career advancement depends as much on taking responsibility for collective progress as on making one's own numbers. (Johnson et al, 2008)

Critically discuss the strategic implications for enhancing your organisation's strategic capability through organising, resourcing and change management strategies.

The texts used in these courses typically present only a brief overview of innovation strategies and a short mention of product failure rates as one of the major risks of innovation. (e.g., Kotler, 1994; Zikmund & d'Amico, 1993)

Anheuser-Busch: About The Company

Anheuser-Busch Companies, Inc. is the largest brewer in the world, producing more than 100 million barrels of beer each year. The company's primary brands, Budweiser, Bud Light, Michelob, and Busch, are market leaders, enabling the massive St. Louis enterprise to claim nearly 50 percent of the U.S. beer market. Anheuser-Busch also operates nine theme parks, including Busch Gardens and Sea World properties at several locations.

Innovation, a long-standing strategy at Anheuser-Busch, represents the path to greatness. Adolphus Busch employed this strategy 120 years ago to make Budweiser the first national beer--using new ideas like pasteurising beer, refrigerating railcars to transport it across the country and mobilising grassroots salespeople to market the product. Today, Anheuser-Busch has some of the most innovative brewing, packaging and adventure-park facilities in the world. Leaders keep their eye on the future and continually find new ways to think about their business. Anheuser-Busch is no exception. (Sellers, 1997, p. 90)

Corporate and Worldwide Strategy

Anheuser-Busch also known as ABI has a two-sided strategy: 1) Build Budweiser into a global brand and 2) build and worldwide business through equity investments in top foreign brewers. In seeking expansion, ABI emphasizes part rights in foreign brewers, joint ventures, and contract-brewing engagements. These give the organisation openings to use its marketing expertise and its management practices in foreign markets. The success of these development opportunities relies largely on finding the right partnerships that form a net gain for both organisations. Other alternatives for worldwide expansion include license-brewing arrangements and exporting. ABI's goal is to allocate the best practices with its partners, allowing an open exchange of ideas that will benefit both partners.

Imported beers cost two or three times as much as locally brewed beers in South America. But thanks to cable television and product positioning in U.S. movies, Budweiser was already a well-known brand in South America when the organisation began exporting to the continent.

Strategy

According to Charlie Acevedo, ABI has seen double-digit increases in Latin American sales in the past five years. The gains came from both an increase in disposable income and increasingly favourable attitude toward U.S. products, especially in Argentina, Brazil, Chile, and Venezuela. Because Latin America has a very young population, ABI expects this market to grow at 4 percent annually. Furthermore, with NAFTA and a free trade zone, the organisation expects to see a significant rise in personal income in Latin American countries, which translates to great development potential for ABI brands.

North American products and lifestyles are very much accepted in South America, but beer consumption still lags far behind U.S. levels. Argentines consume about 30 litres annually per capita, Brazilians 40 litres, Chileans 35 litres, and Venezuelans 65 litres, compared to 90 litres per person annually in the United States.

In the past ABI has tinkered with its formula and marketed Budweiser under different names to give a local flavour to their beer but had absolutely no success. Purnell said, "What the market does not need is an American brewer trying to make up from scratch, new European-style beers. Bud should be Bud wherever you get it."

ABI wove together several counterrevolutionary strategies to dampen the threat from craft beers in the 1990s and reinforce its position as the dominant force in the U.S. beer industry.

In the early 1990s, ABI was experiencing a market as flat as a two-day-old draft, as development rates hovered between 1 percent and 2 percent a year. But one segment of the market was taking off: craft beers. These were made by numerous small brewpubs and microbreweries like Sierra Nevada Brewing and Redhook Ale Brewery, as well as by contract brewers that outsource the manufacturing of their brews to large and regional breweries. Boston Beer, which markets the Samuel Adams brand, is one of these.

Although in 1994 craft beers accounted for only 5 percent of the market, their sales had been skyrocketing, growing between 25 percent and 70 percent annually since 1990. Craft beers captured the youth and high- to middle-income segments, while brands like Budweiser, Miller, and Coors increasingly appealed only to the older and lower-income segments of the population.

Craft beers seemed to represent a fundamental change in American beer-drinking habits. The same force driving this trend-a demand for ever-greater variety-had revolutionised the coffee and wine markets over two decades. Smaller wineries were supplanting Gallo, the ABI of wines, despite their lack of economies of scale. Flavoured coffees were taking over from the big brands sold by Procter & Gamble and General Foods. Worse, the trend toward craft beers was a global phenomenon. The top four brewers in Germany together held only 25 percent of the market, while 1,200 small brewers controlled the rest. In the Netherlands, industry leader Heineken shared the market with many Belgian specialty beer makers. And the Chinese market was largely made up of thousands of local beers, with only one national brand, Tsingtao.

The microbreweries threatened to make ABI's traditional cost advantage, which was based on mass manufacturing, obsolete. Embracing the revolution, however, was an expensive option. The industry leader would have to invest heavily to emulate Britain's Bass Brewers, whose breweries had been redesigned to handle multiple low-volume products using small kettles and flexible production lines that were not as efficient as ABI's plants.

ABI decided to try a different approach and began its counterattack in 1993 with a series of containing moves. First, it launched a number of blocking products by setting up its Specialty Brewing Group, which distributed small volumes of craft beers like Red Wolf, Elk Mountain amber and red amber ales, and Elephant Red malt liquor, importing some of them from Canada. Rather than trying to replace the organisation's major brands, this group provided products so that ABI distributors would not pick up products from the independent contract brewers and microbrewers.

The incumbent followed this with cash incentives and other "voluntary" programs to get its 900 distributors to carry only its brands. Although this campaign for "100 percent share of mind among 70 percent of distributors" resulted in an investigation, the U.S. Justice Department dropped the probe in October 2001 without taking any action against the organisation. The blocking brands, coupled with the market leader's distribution muscle, confined the threat temporarily.

By mid-1994, the Mammoth Missourian realised that it could not contain the revolution any longer and decided to shape it. ABI became the first mega brewer to invest in a microbrewery when it bought into Seattle's Redhook Ale Brewery. Redhook used the funds to build several plants, including one in New Hampshire, and ABI announced that it would distribute Redhook's products in Boston Beer's home market, New England. That play alarmed the microbrewers. They realised that ABI was trying to shape the revolution by conscripting microbrewers like Redhook to its cause and using them to weaken more-threatening high-development craft brewers like Boston Beer. Boston Beer's founder and CEO, Jim Koch, rightly termed the move "a declaration of war." (Johnson et al, 2008, 519)

ABI also indicated that it planned to attract the uprising as if craft beers had been its idea all along. Certainly, the organisation made its intentions public by stating that its goal was to capture half the $400-million craft beer market in five years. To absorb the threat, ABI began producing microbeers in its big existing plants by varying the ingredients, temperatures, and process. The manufacturing techniques it improvised generated economies of scope, allowing ABI to manufacture a range of craft beers more cheaply than a microbrewery could. The organisation also benefited from its economies of scale in marketing and distribution.

The organisation flooded the market with brands ranging from the nationally distributed American Originals line to micro-targeted beers such as ZiegenBock (which it sold only in Texas) and Pacific Ridge Pale Ale (which was available at first only in California and still is sold only in certain Western markets). The incumbent also leveraged its fading Michelob brand to launch several lower-priced specialty colour beers such as Michelob Maple Brown Ale, Michelob Winter Brew Spiced Ale, Michelob Amber Bock, Michelob Honey Lager, and Michelob Pale Ale.

Conclusion

Crucially, the beer giant was able to attack the revolution head-on, proving that customers would accept a craft beer with a big brewer's name on the label. That neutralised the fundamental tenet on which the craft brewers had originally based their revolution: that high-quality beers had to be made in small breweries by obscure artist-like brewers. As customers lapped up its new beers, ABI turned the craft beer revolution from a microbrewery revolution into a specialty beer revolution. (Greenwald, 1992)

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