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The purpose of strategy is to help organizations achieve a sustainable competitive advantage. Strategic management is about analyzing the situation facing the firm and on the basis of this analysis formulating a strategy and finally implementing that strategy (Henry 2008).
2.0 Strategic Analysis
Strategy analysis allows the organization to evaluate how well it is positioned to exploit the opportunities in its external environment (Henry 2008). This report contents a strategic analysis of H.J. Heinz Company, particularly in the Europe Market. Firstly, PEST Analysis will be given in this report to analyses the external environment. Moreover, the competitive advantage of the company and an analysis of the micro-environment of the company in the Europe Market. Eventually, a summarization and suggestion will be given.
2.1 PEST Analysis
PEST analysis which include political, economic, social, and technological factors, are involves an overall look at the main external influences on the company (Johnson & Scholes 1999). Furthermore, PEST analysis is a common method of the external environment analysis, it can be divided into four aspects and covering the whole environment factors may influence the company.
2.1.1 Political Factors
In the political or legal dimension, the policies and action taken of the governments wherein H.J. Heinz Company is operating and located, no matter it is in the national or local politics will impacts on the business of the company. The business of Heinz Company in Europe will has been effect by the political and legal factor. For instance, Heinz Company will expansion its business in Europe, if the government of a particular country, is more open in setting up new manufactory and is more open in importing the manufacture which were produced in low source countries. Political stability also is a consider factor in the external environment of the company. Heinz Company will not set up their business and will shift to other nation that is more stable politic, if the country is no stable chances for the politic.
2.1.2 Economic Factors
Economic factors is relate with the overall view of the economy. The macro economy of a country, as well as in the case of H.J. Heinz the Europe Union has huge impact on the business of the company. Heinz Company will not take the risk to expand their business in the economy unstable country because that will cause the company possibility lose their capital.
In the case of Heinz Company, the consumer stagnant expenses in Western Europe, as well as with the increasing coalition and price competition and buying power from the higher costs of inputs and the discount supermarkets which cause the food sales for Heinz has been reduced in the specific region in Europe. Apart from that, the prices of fuel which increased in the international market are bring out a great effects in the business of Heinz Company owing to the company also dispense their own products to supermarkets, grocery store and restaurant. However, Heinz Company will not difficult to carve new markets and businesses in Europe that are because the Europe countries of the Europe Union commonly have stable economies.
2.1.3 Social Factors
In the Europe Market, Heinz Company have experienced decrease sale due the most of the consumers have more started to buy the crude food, chilled fresh foods and organic food than the Heinz Company offers frozen food. The business of Heinz Company in Europe has been greatly affected because of the changing trend of consumers in buying the safer and healthier foods. To deal with the problem, reported that the Heinz Company will focus just for the three market classification and which are infant foods, ketchup, sauces and condiments, and meals and snacks.
Besides that, the increase of the older population in Europe also is a problem for the Heinz Company. This is because the company which is having plant in Europe and has many employees, are having the older population people more than the younger ones. Thus, Heinz Company is not easily to get more employees due to the decrease of replacement and the retirement of employees is getting higher.
2.1.4 Technological Factors
The modern technology merger with the business success achieved by raises the effectiveness, efficiency and competitiveness. Using technologies in research and development for new services and products are developed and it has impact on the business of Heinz Company. Furthermore, the contributions of the e-commerce and internet are huge to the technological factors due to the consumers could give reactions and feedback of the products of the company and be a helping in research and development.
2.2 SWOT Analysis
SWOT which contain of strengths, weaknesses, opportunities, and threats, is a simple technique, often used for strategic planning (Hubbard 2000; Johnson & Scholes 1999). As mentioned by (Business Environment 2005) the internal and external environment of the company and its strategy can been using this analysis to evaluate each degree of them. It also gives methods to see whether the company can protect from the weakness and threats and obtain the strengths and opportunities.
It will distinguish the strong event of the company, the demand of the consumers and the competitors in the market is related to it is a vantage of the resources. The products of Heinz Company is one of the strengths owing to the consumers are using the products of the company, as a result product loyalty is one of the strengths of the Heinz. Besides that, the products of Heinz are continual proceed since the company centralize on research and development for their company products. The company not only has a strong management team and is very suitable local at Europe, but it also has a competitive reimburse equity and assets.
That is important to identify the weak point in the view point of the company and the consumers. Heinz Company is has declining margins which is it weaknesses. This is because of the increase labor costs and prices of fuel in Europe, then lead to increase the cost of food production and become expensive. There are many consumers hardly to remember the Heinz’s products especially the new products and it is not good for the business of the company, particularly when the company is introduce new products in the food market. The company has lack of strong marketing due to the consumers difficult to remember the products. The declining sales of products of Heinz in Europe lead to poor cash flow for the company operating activities.
Company has to continue to develop in the food market. For case of Heinz, the chance in the surroundings of the company like government policies, social standard, and evolution in technology have been utilized by the company. For instance, Heinz Company can develop the organic food products through changing trends of going organic as an opportunity. Tomato is the most important products of Heinz Company. Hence, the company has to more focus and invest on research and development in this specific food product following to determine the lycopene affects anti-oxidant and produce this tomato-based product to market on the health of consumers. New markets in Europe are other opportunities and this offers more potential and to diversify the other products.
Even though the companies dislike the threats in its business, but the company must face it and cannot stop it. Companies should have prepared to create measures to deal with those threats. For the case in Heinz Company, the trend of eating out which increase that will become a threats for its. The Heinz products in the grocery market have been threatened owing to the consumers prefers taking dinner or food at outside. There will be new players which will appear in the Europe market is as another threat. The global economic slowdown like the Asian Financial Crisis is possible in this era of globalization, and then it is also a threat. Therefore, the Europe market price may be able to become sensitive.
2.3 Value Chain Analysis
Value chain analysis, which was devised by the Porter (1985), is a technique which helps us assess an organization’s resources and in so doing determine its strengths and possible weaknesses. The value chain comprises primary activities and support activities. Primary activities include inbound logistics, operations, outbound logistics, marketing and sales, and services (Henry 2008). In case of Heinz, it is use the inbound logistics generic category which means that the value chain activities that cover receiving, storing, and distributing inputs to the product. It includes material handling, warehousing, inventory control, vehicle scheduling and returns to suppliers. While support activities assure that primary activities operate efficiently and effectively, organizations add value through the configuration of their value chain activities and the linkages between these activities. The primary activities for Heinz Company are packaging materials such as plastic, metal, glass, fibreboard, paper and other materials in order to manufacture products (H. J. Heinz Company 2009). And the support activities for it will be human resource management, technology development, and procurement. Therefore, Heinz Company is suitable using this analysis to estimate their resources and to consider its strengths and possible weaknesses, so it can be to reduce costs or improve differentiation which provides a competitive advantage resulting in a win-win situation for all parties (Henry 2008).
3.0 Strategy Formulation
A key part of strategy formulation is strategy evaluation which recognizes that an organization is seldom faced with one strategy but requires a criterion to judge competing strategies (Henry 2008). Markides (1999b) argues that ‘effective strategic design is a process of continuously asking questionâ€¦correctly formulating the question is often more important than finding a solution.’ Ohmae (1984) also makes a similar point. He mentions that a vital part of strategic thinking is to formulate questions in a way that will help find a solution. Strategy formulation primarily takes place at two different levels within the organization: the business level and the corporate level.
3.1 Business Level Strategy
Business level strategy is a means of separating out and formulating a competitive strategy at the level of the individual business unit (Henry 2008). Competitive strategy is concerned with the basis on which an organization will compete in its chosen markets (Henry 2008). This is periodically referred to as a strategic business unit (SBU). A strategic business unit is a distinct part of an organization which focuses upon a particular market or markets for its products and services (Henry 2008). In other words, business strategy is concerned with how the Heinz Company is going to compete in its chosen industry or market. The aim of business strategy is to achieve a sustainable competitive advantage.
3.1.1 Generic Competitive Strategies
In the early 1980s, Michael Porter has developed his generic competitive strategies and they are more popular in nowadays business strategies and analysis. When the organizations are seeking to get a competitive advantage, the generic competitive strategies are outlines the three main strategic options which include cost leadership, differentiation, and focus, for them. Each generic strategy helps the company to exploit and establish a competitive advantage within a special competitive area (Hitt, Ireland & Hoskisson 2003). A differentiation strategy which involves producing a unique or different product that has features that is excellent in value for the benefit of the customers (Henry 2008). Therefore, it will clearly make the consumer become more brand loyal.
Hereby, H.J. Heinz has surely chosen a differentiation strategy. This has always been H.J. Heinz Company’s strategy since 1869, when the founder of the Heinz Company, Heinz John Heinz, began to sell horseradish, his first product in clear glass bottles then the customers able to see the difference of Heinz, which are the quality of their products and their use of wholesome ingredients (Food Quality & Safety 2009). H. J. Heinz Company desires to seclude their competition keep away from the market by establishing a strong, brand loyal based on consumer. H.J. Heinz Company is staying the channel to maintain that their brands have always stood for good value (Hoey Associates Management Consultants Inc. 2008). For example, Heinz Ketchup has already enjoys a high brand loyalty and brand awareness within German customers. As Weber (H.J. Heinz Company Corporate 1996) mentioned that “We have gold in our hand”, who team will now only concentrates on enhancing trade distribution and updating the brand’s image with a contemporary advertising and marketing campaign.
This strategy is a best option for H.J. Heinz Company, but it also can bring harmful to the company if they are not carefully. Nevertheless, according to AC Nielsen, in the four weeks to 11 July, the Heinz Tomato Ketchup’s brand share dropped to 74.7%, from 79.9% over the same period in 2008. Heinz Company was launched around 133 years ago and was originally positioned like a convenience food for housewives. It accent its natural with advertisement illustrate a growing plant and tomato slices before the recession (AllBusiness.com, Inc. 2009). The recession which causes the slipping market share in few years may lead H.J. Heinz Company fall into the stuck- in-the middle level which will hard to start over again. A company being confident or being content, there just is a fine line between each one. Therefore, as Heinz Company demonstrative success could over the past century, they better be cautions to avoid doing any mistake confidence with content, as well as it will cause their current situation become stupidity. As a result, if Heinz Company hopes those not only just stay at current situation but also want to succeed in the future, a stronger focus effort trend is needed in differentiation strategy to prove a highly beneficial.
3.2 Corporate Level Strategy
Corporate level strategy is concerned with the overall purpose and scope of an organization and how value will be added to the different parts (business units) of the organization (Johnson et al.2008). The corporate strategy sets the direction in which the organization will go. Its deals with mergers and acquisitions, and allocates resources between the organization’s strategic business units (SBUs) (Henry 2008). There are many corporate level strategies such like directional strategy, growth strategies, portfolio analysis, related diversification, unrelated diversification, and parenting strategy (Henry 2008).
3.2.1 Growth Strategy
The organization might choose to direct its energies to internal growth strategies or it may seek to diversify into other businesses. Ansoff (1965) devised a matrix to analyze the different strategic directions organizations can pursue. These different corporate strategies which are include mergers and acquisitions, internal developments, joint ventures, and strategic alliances.
An acquisition occurs when one organization looks to acquire another, often smaller, organization (Henry 2008). Acquisition is the purchase of a company that is completely absorbed by the subsidiary or division of the acquiring corporation. The acquisition may be in the interest of both organizations especially where the acquiring firm has substantial financial resources and the firm to be acquired possesses proprietary technology but needs funds to enhance it further.
In case of Heinz Company, the company acquired Bénédicta, a sauce business in France for around $116 million in the second quarter of Fiscal 2009. During the third quarter of Fiscal 2009, the company acquired Golden Circle Limited, which is a juice and fruit business in Australia for around $211 million, including the assumption of $68 million of debt that was the company refinance immediately. Moreover, during the third quarter of Fiscal 2009, the company acquired La Bonne Cuisine, a chilled dip business in New Zealand for around $28 million. The company acquired Papillon, a South African producer of chilled products for around $6 million in the fourth quarter of Fiscal 2009. Next, the company also made payments during Fiscal 2009 related to acquisitions completed in prior fiscal years, and none of which were important (H. J. Heinz Company 2009).
The company acquired the license to the Rose’s and Cottee’s premium branded jellies, toppings and jams in New Zealand and Australia for around $58 million in the first quarter of Fiscal 2008. During the second quarter of Fiscal 2008, the company acquired the remaining interest in its Shanghai LongFong Foods business for around $18 million in cash and postpones payment which is planned to be paid in Fiscal 2010. However, the financial performance of the business will be determined as a final consideration amount. The company acquired the Wyko sauce business in the Netherlands for around $66 million in the fourth quarter of Fiscal 2008. Then, the company also need to made payments during Fiscal 2008 to relate to acquisitions completed in prior fiscal years, and none of which were important (H. J. Heinz Company 2009).
In addition, the Heinz Company acquires Renée’s Gourmet Foods, a Canadian manufacturer of premium chilled salad dressings, dips, mayonnaise, sauces, and marinades, for around $68 million. Next, the company acquired the remaining interest in its Petrosoyuz joint venture for around $15 million during Fiscal 2007. During Fiscal 2007, the company also made payments to relate to acquisitions completed in prior fiscal years, and none of which were important (H. J. Heinz Company 2009).
All of the above-mentioned acquisitions have showed that the H.J. Heinz Company is ability to effectuate the strategic acquisitions and their ability to realize anticipated benefits from them. The Heinz Company has ability to efficiently integrate acquisitions and joint ventures into its existing operations also will influence the financial success of such transactions. The company is looking to expand its business through acquisitions and joint ventures. Furthermore, the company’s success depends, in part, based its ability to recognize such acquisition, joint venture, and divestiture opportunities and to negotiate favorable contractual terms. Due to the activities in some areas are regulated by competition laws and numerous antitrust in the U.S., the Europe Union, and other jurisdictions which lead the company have to gain the approval of acquisition and also joint venture transactions by competition legislature, so can satisfy the other legal requirements (H. J. Heinz Company 2009).
4.0 Strategy Implementation
Strategy Implementation is put strategic plans into practice. It is often to say that the best formulated strategy in the world will fail if it is poorly implemented. To implement strategies effectively requires the organization to be sufficiently flexible in its organizational design. Strategies need to be effectively communicated and properly resourced, and the reason for change needs to be understood and properly coordinated with stakeholders inside and outside the organization (Henry 2008).
4.1 Management Issues
The management issues in the Heinz Company are includes policies, restructuring, organizational structure, resources, natural environment, supportive culture, human resources, production or operations, resistance to change, rewards or incentives, and annual objectives (David 2009).
4.1.1 Annual Objectives
There are many purpose of annual objectives which includes the basis for resource allocation, mechanism for management evaluation, metric for gauging progress on long-term objectives, and establish priorities (organizational, divisional, and departmental). In case of Heinz, it is accelerating growth in emerging markets. In its annual report, the most promising new frontier for Heinz is in the Emerging Markets (H. J. Heinz Company 2009). They are growing rapidly in these markets, and expect those to generate about 20% of their total sales by 2013 (H. J. Heinz Company 2009). The Heinz’s sales in Emerging Markets grew 8.8% in Fiscal 2009 and are propelled by sales growth in Indonesia, Latin America, Poland, and India, as well as baby food in China. The Emerging Markets in the Heinz is more than one-third of its organic sales growth on 2009 and generated about 14% of Heinz’s total sales. Heinz Company is well positioned for continued growth as the middle-class expands in these dynamic markets with its solid infrastructure, capable local market leadership, and excellent brands (H. J. Heinz Company 2009).
4.2 Marketing Issues
Marketing variables will affect success or failure of strategy implementation. The marketing decisions are requiring policies such like exclusive dealerships for multiple channels of distribution, heavy, light or no TV advertising, price leader or price follower, advertise online or not, and offer complete or limited warranty. The marketing issues which are centrally important to implementation market segmentation.
4.2.1 Market Segmentation
Market segmentation means subdividing of a market into distinct subsets of customers according to needs and buying habits (David 2009). Market segmentation can be evaluating by which as a key to matching supply and demand, market-development, product-development, market-penetration, and diversification strategies, allows operating with limited resources, and enables small firms to compete successfully.
4.2.2 Marketing Mix
Marketing mix is the set of controllable tactical marketing tools that the company blends to produce the response it demands in the target market (Armstrong & Kotler 2008). Marketing mix include of everything the company can do to affect the product demand. In many possibilities can collect into McCarthy & Perreault (2002) state that the marketing-mix tools of four variables groups known as the “four Ps” of marketing: product, price, place and promotion.
Product is the services-and-goods combination of the firm offers to the target market. Product can be defined as anything that can be offered to a market for attention, use, acquisition, or consumption and that might satisfy requirements of the product (Kotler et al. 2005). Heinz Company is selling food products such like soups, beans baby foods and sauces such as Heinz Ketchup (Wilson & Gilligan 2005).
Promotion is means that the activities that communicate the advantage of the product and persuade the target customers to buy it (Bennett 1995). For example, Heinz Company is promoting the healthful consumption of the Company’s products (Ethics and Compliance: Communication Guidelines 2008). Heinz Company advertise their promotion or event trough advertising forms, such as newspaper, network TV advertising, and radio advertising. Public relations which means build a good relations with the company’s various publics by obtaining favorable publicity, building up a good company image, and handling or heading off unfavorable events, rumors, and stories (Bennett 1995). As a leading global food purveyor, the H.J. Heinz Company Foundation has been established by Heinz to promote the health and nutritional needs of families and children around the world (H.J. Heinz Company Foundation 2008). Then, the corporate reputation of Berjaya Hills will been increase and save a corporate positive imagine.
Price is the amount of money has to pay by customer to get the product. A company’s pricing decisions are affected by both internal corporate factors and external environmental factors. For example, H.J. Heinz is focus in middle class; it always suggests a high price in the high-income segment. However, competitors’ costs, prices, and offers is another external factor affecting the company’s pricing decisions is competitors’ costs and prices and possible competitor reactions to the corporate own pricing moves. Consumers like to compare the price of Heinz Company with the rival within the market. Thus, this will always affect them to choose a food product of brand.
Place includes the firm activities that let the product available to target consumers. There are very easily to get a product of Heinz. Heinz provides delicious, nutritious and convenient foods for families in 200 countries around the world, famous for their iconic brands on five continents (About Heinz: A World of Good Food 2009). In more than 50 of those countries, they enjoy the number-one or number-two market position. Key Heinz markets are segmented as North American Consumer products, U.S. Foodservice, Europe, Asia Pacific and rest of World (About Heinz: A World of Good Food 2009).
4.3 Corporate Governance
The use of the term corporate governance obtained distinction in the UK succeeding the publication of the Report of the Committee on the Financial Aspects of Corporate Governance in 1992, usually referred to as the Cadbury Report (Cadbury 1992). While companies began to take their present form, corporate governance has been around. Cadbury (2002) state that corporate governance as ‘â€¦power and accountability. They involve where power lies in the corporate system and what degree of accountability there is for its exercise’. Shleifer and Vishny (1997) argues that governance issues are ‘â€¦deals with the way in which suppliers of finance to corporations assure themselves of getting a return on their investment’.
In the case of Heinz Company, it has instituted corporate governance in strong system to assure the Company is responsible to shareholders and the society, and that which is operates in an ethical and socially responsible way (Corporate Governance: Taking Care to Do the Right Thing 2009). The shareholders elect 12-member Board of Directors at the center of Heinz system. There are 11 independent directors (as defined by New York Stock Exchange and Securities and Exchange Commission rules and the Company’s standards of independence) and Heinz Chairman, President and CEO are include in the Board. The Board of Directors monitors the Company and is responsible for ratifying its driving shareholder value and long-term strategy (Corporate Governance: Taking Care to Do the Right Thing 2009). The Board performs under chosen principles that demonstrate its functions, composition, role, and structure. The Board has two female Directors and two minority Directors at the end of Fiscal Year 2008.
4.3.1 Corporate Governance Principles
Board of Directors in Heinz Company always believe that good corporate governance principles and practices will provide a perfect structure to support the Board in fulfilling its accountabilities to shareholders (Corporate Governance Principles 2009). The interests of the Company’s shareholders, creditors, suppliers, customers, employees, consumers, and the communities in which the Company operates, who are all important for the Company’s success which are always recognized by the Board. As a result, the Board has chosen these principles relating to its role, composition, structure, and functions.
Role of the Board
H.J. Heinz’s business is guided by its managers, employees, and officers, under the direction of the Chief Executive Officer (CEO) and the monitor of the Board, to improve the long-term value of the Company for its shareholders (Corporate Governance Principles 2009). The shareholders elect the Board of Directors to supervise management and to be sure that the shareholders long-term interests are being served.
Functions of the Board
The Board reviews the long-term strategy and vision for the Company as part of its oversight function (Corporate Governance Principles 2009). The Board usually meets, reviews and discuss by the management on the performance of the Company, such like its strategic plans, vision, goals, financial objectives and prospects, and also the important issues and risks facing the Company. The Board optimizes the growth and profitability of the Company and the long-term value of shareholders’ equity by ratify the policies, directives, and procedures developed and recommended of the CEO.
Composition of the Board
The directors should have the professional ethics and highest personal, values and integrity and be committed to stand for the long-term of shareholders (Corporate Governance Principles 2009). They must possess a curious and objective perspective, show leadership and mature judgment in international companies or government, accounting or finance, higher education or other aspects. Besides that, they also have to demonstrate their ability to provide Company leadership and relevant expertise, industry knowledge and marketing judgment.
In the food industry, H.J. Heinz Company is one of the leading enterprises and has several locations in the world. Nevertheless, Heinz has to implement the strategic management to present well performance to make sure the fundamental in strategy of the Company will be succeeded.
H.J. Heinz Company was incorporated in Pennsylvania on July 27, 1900. In 1905, it succeeded to the business of a partnership operating under the same name that had developed from a food business founded in 1869 in Sharpburg, Pennsylvania by entrepreneur Henry J. Heinz (H.J. Heinz Co 2010). The Company is the most global of all U.S. – based food companies. Famous for their iconic brands on five continents, Heinz provides delicious, nutritious and convenient foods for families in 200 countries around the world. In more than 50 of those countries, they possess the number-one or number-two market position (About Heinz 2008).
The Company and its subsidiaries manufacture and market a line of processed food products worldwide to provide foods for consumers, as well as foodservice and institutional customers (H.J. Heinz Company Profile 2010). H.J. Heinz was ranking at 26 in the Food Processing’s Top 100 for 2009 (Food Processing’s Top 100 2004). Its principal products include ketchup, condiments and sauces, frozen food, soups, beans and pasta meals, infant nutrition as well as other processed food products. Heinz is a $10 billion global company (Welcome to Our Home 2009). Heinz products enjoy number 1 or number 2 shares in more than 50 countries. Heinz sells 650 million bottles of its iconic Ketchup every year. Heinz’s top 15 power brands account for more than two-thirds of its annual sales (Welcome to Our Home 2009). Heinz employs approximately 32,500 people around the globe (Welcome to Our Home 2009). Heinz is a responsible corporate citizen committed to safe practices, environmental stewardship and giving back to the community. Besides that, H.J. Heinz owns 65 food processing factories, 22 of which are in North America, and leases another 9 factories. Moreover, Heinz also owns or leases office space, warehouses, distribution centers and research facilities worldwide (H. J. Heinz Company 2010).
Heinz Mission Statement
The original Pure Food Company, Heinz which as the trusted leader in nutrition and wellness is dedicated to the sustainable health of the people, the planet and their Company (Mission and Values 2009).
H.J. Heinz Company have five core values such
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