Business Strategy of Kelloggs Company - Case Study Example

? [KELLOGG COMPANY] By Insert Presented to Location Due Introduction Firms that are involved in single line of business or multiple lines of business often develop their own missions, objectives and strategies in order to meet the needs of their consumers, increase profitability and expand their market share (Lussier, 2011:143). The development of missions, objectives and strategies for organizations is done after the analysis of the existing business environment. Companies can analyze their own business environment using various strategic planning assessment tools that are in turn used in the development and formulation of vision, mission, objectives, and strategies for companies. This paper examines business strategy of Kellogg’s Company by taking into account its strategic plan, an evaluation of its strengths, weaknesses, opportunities, and threats and the comparison of the company with other companies in terms of strategic planning. Overview of Kellogg Company Kellogg Company is currently the leading producer of cereal and convenience foods such as cookies, cereal bars, frozen waffles, meat alternatives, pastries, piecrusts, and ice cream cones. The products of Kellogg are manufactured in more than seventeen (70) countries and marketed in more than one hundred and eighty countries (180) around the world (Kellogg Company, 2010). Strategic Planning Strategic planning refers to the process of developing a mission and long-range objectives and how such objectives will be accomplished. Strategic plans are often developed for five years but they are regularly reviewed and revised annually to achieve the laid down objectives for five years (Simerson, 2011:135). Strategic planning process entails the developing of mission, analyzing the environment, setting objectives, developing strategies, implementing, and controlling the strategies (Lussier, 2011:128). Strategic planning can help companies to identify products that are suited to the needs, objectives, and resources of the firm and in the development of plans for introduction of new products in the market. Despite the positive contribution of strategic planning in organizational planning, it has some problems. One of the problems associated with strategic planning is the emphasis of quantity instead of quality. Most strategic plans stress on the achievement of quantitative results while ignoring or paying less attention to quality (Botten, 2009). The second problem of strategic planning is the failure or neglect in the analysis of internal and external environment. Another problem that is associated with strategic planning is the implementation of the goals and strategies as outlined in the vision, mission, and goals of organization (2008). Although companies often do strategic planning, its successful implementation is an arduous task. Financial implications are another problem associated with strategic planning. The cost needed to implement strategic plans adds more burden to organizations. Failure by companies to allocate sufficient resources towards the implementation of strategic plans can jeopardize the whole process (Simerson, 2011). Tesco Company was also faced with strategic planning problems. Tesco is one of the largest food retailers in the world with United Kingdom as its dominant market. The company developed a strategic plan and it has yielded results for the firm. Strategic planning has brought fortunes to the company by successfully engaging in branding and effective service delivery to customers (Cavusgil, Knight & Riesenberger, 2008). Through effective strategic planning, Tesco has fostered and established brand identity and awareness through consumer experience and brand extension approaches. Strategic planning has enabled Tesco to compete with other companies in food retail sectors and to adapt to various business environments (Needham, 2009). Boston Consulting Group (BCG) Growth –Share Matrix Due to increase in competition and need for market share expansion, companies are relying on business portfolio analysis for remedy. Business portfolio analysis refers to the process of determining the type of lines of business a company will be engaged in and how the company will allocate resources to the business line(s) (Lussier, 2011). Business portfolio analyses can be analyzed using various tools, methods, and approaches. Boston Consulting Group (BCG) growth-share matrix is a model developed by the Boston Consulting Group for portfolio management of different strategic units or major product lines. BCG growth-share matrix is divided into four cells or quadrants that are used to execute and perform portfolio analysis for each line of business or product lines. Each of the four quadrants represents a particular type of business, business lines while divisions, or products are represented by circles. It is important to note that the size of circles reflects the significance of the division of product to group sales (Boston Consulting Gruop, 2009). Question marks or problem children refer to products or strategic business units that are in a high growth markets but where the market share is relatively low. They are termed as question marks because they are still early in the product life cycle and hence have the potential of bringing profits or repaying the initial investment during its life cycle (Botten, 2009). Due to high growth environment, question marks receive a greater percentage of investment as firms do commit considerable amount of resources in them. On the contrary, the fact that such products or strategic business units operates in low relative market share limit their chances of surviving in the long run since they are likely to experience a lower cost competitor. The main strategic options for question marks include market penetration, market development, and product development (Boston Consulting Gruop, 2009). Successful question marks have the potential of becoming stars. Stars refer to strategic business units or product lines with relative market share in high markets. The high relative market share that stars operate in enables them to compete effectively and strong. Stars require continued investment in order to maintain their market presence and leadership. Current results of stars may also be poor due to the amount of investment used in keeping and maintaining with the market growth rate. Stars contribute marginal profits in the initial stages but when they mature in their life cycle, they contribute high returns. The strategic options for stars include integration, market penetration, market development, product development and joint ventures or mergers (Boston Consulting Gruop, 2009). Cash cows refer to strategic business units or products that have large market shares in slow growing markets. Since cash cows operate at mature stages, they are safeguarded from future falling prices or volumes. Cash cows also require minimal investment because maturity of a market is positively correlated with investment. Another aspect of cash cows is that they can be used to fund other strategic business units or products that are located in the other quadrants. Funds that are generated from cash cows are also used to meet administrative costs, product development and servicing of loans (Lussier, 2011). This is because cash cows often generate more resources than they need. Strategic options for cash cows include product development and concentric diversification (Boston Consulting Gruop, 2009). Dogs refer to strategic business units or products that have low market shares in slow growth markets. Since dogs have, low returns they are often divested or liquidated when they are unable to provide good profits. Dogs arise from two quarters; formers cash cows that have lost market share due to inadequate or zero investment and former question marks that had a low relative share at the time when the market transcended to maturity (Botten, 2009). Strategic options for dogs include retrenchment, liquidation and divestment in cases where some firms or individuals have shown interest in buying. In summary, successful products can move in cycle from question mark through star to cash cow and finally to dog while less successful products that is unable to attain market presence and position are likely to move straight from question mark to dog (Boston Consulting Gruop, 2009). Explanation of the Launch of Kellogg’s Fruit Winders using BCG Growth-Share matrix Kellogg Company launched a new product category under its business by starting to produce fruit snacks. Kellogg’s Fruit Wander was the first significant non-cereal product that was launched by Kellogg Company. Kellogg’s winders were initiated so as to meet the needs of children aged 6-12 which was the primary target from the company. In the long run, Fruit Winders established a new fruit snack category while at the same creating Kellogg’ brand awareness on young children and their mothers (Pringle & Field, 2009). When Kellogg’s company decided to launch the fruit Winders, the product fell in the cash cow matrix. This is attributed to the fact that when Fruit Winders was launched, the main parent cereal brands were experiencing competition from other rival cereal manufacturing companies and from retailer brands. As a result, there was decrease in revenue and profits but when the new product category (Fruit Winders) was launched, resources increased. Subsequently, when Apple Company launched the new iphone, it directly fell on the cash cow quadrant or matrix. The new iPhones contributed much profits and revenue due to high consumer demand. SWOT ANALYSIS Strengths The brands of Kellogg Company are well known and trusted in the global market. The fact that Kellogg Company has very high brand awareness among consumers across the global market enables them to accrue profits because of consumer trade in their product categories. Kellogg Company also boasts of a strong command and control of a greater percentage of the global cereal and snack market. The global control of the cereal market has been attributed to the growing and ready market for ready-to-eat cereal products and snacks and strong brand appeal to consumers. Another key strength of Kellogg Company is the presence of a strong and robust research and development (R&D) and innovation system. Research and development coupled with innovation has enabled Kellogg Company to expand its product development capabilities in the development of new products and improvement of new products. This has further helped in the strengthening of Kellogg core brands and continual supply of products in different categories, markets and brands (Kellogg Company, 2010). Weaknesses The major weakness of Kellogg Company is the failure to exert control of the United States market due to its inadequate development of new cereal product lines. The problem is further exacerbated by the entry of other rival companies in the United States market. Kellogg Company also relies on the follower pricing strategy model which has been cited has a bad strategy. Opportunities The global market for ready-eat-eat cereal and snack products is growing and expanding. Kellogg Company has the potential of taking advantage of this global trade to penetrate and proliferate in other international markets. Kellogg Company can achieve this by engaging in product diversification and differentiation strategies that is backed by research and innovation. Kellogg Company can diversify its products without necessarily shifting from its core business area. Kellogg Company can therefore venture in the manufacture of new products or into other business lines. Another opportunity is presented by the growing market for cereals products for kids. It is projected that the market demand for kid’s cereal products is likely to grow progressively into the future. Since Kellogg Company has high character awareness among children, it can make use of this opportunity to develop new products that meet the needs and aspiration of the growing kid’s cereal products market. Threats The major threat facing Kellogg Company is increased and intense competition from other cereal and snack manufacturing companies. As a result, Kellogg product categories face both domestic and international competition with other advertised and branded products of similar nature that are produced by rival companies. The influx of cheap and non-branded products in the market also intensifies competition. The presence of unadvertised and private label cereal products that are usually clones or imitation of major cereal brands continue to pose threat to Kellogg’s cereal products (Kellogg Company, 2010). Currently Kellogg Company is faced with inadequate supply of raw materials and increased prices of inputs for its cereal and snack products. Some raw materials for product production and packaging are in short supply and in cases where they exist, they are sometimes imported from countries that are not involved in the production and manufacturing process. Organizational Audit and Environmental Audit (SWOT and PESTLE) Organizational Audit Kellogg Company Strength Strong brand /number one global brand Brand awareness among customers Control of larger global market share Research and Development and Innovation Weaknesses Saturation of United states Market Follower pricing strategy Opportunities Expanding market for ready-to-eat cereals Product diversification and differentiation Expansion into untapped markets and overseas markets Expansion of brand name into new products or business lines Threats Competition from other cereal and snack companies High cost of inputs and inadequate supply of raw materials Increase entry of cheap and non-branded ready-to-eat cereals and snacks Environmental Audit Kellogg Company Political government policies and legislations Prevailing political and legislative conditions Economically Increased competition from other cereal manufacturing companies. Increased prices of inputs Ongoing economic hardship and crunch Socio-Environmental demand for healthy foods market for ready-to-eat cereals consumers aware of health issues Demographic (expanding kid’s market) Technological Research and development Innovation New technologies for production, packaging Environmental Environmental sustainability Facilities subjected to local and international laws Environmental management system Legal Government legislations and policies PESTL Analysis PESTL analysis can also be as a tool for strategic planning analysis. It focuses on political, economic, socio-environmental, technological, and legal aspects. In relation to political factors, Kellogg Company might be faced with business challenges that are associated with the prevailing political and legislative conditions. Prevailing political and legislative conditions in various countries might affect the entry of Kellogg Company in other international markets. Economic factors such global financial crisis has the potential of influencing demand, costs, prices and profits hence Kellogg company should take it into consideration. Other economic factors include high cost of inputs and inadequate raw materials and competition from rival companies. Socio-environmental factors are likely to affect consumer purchasing powers as they often revolve on social issues (Werbach, 2009). The general population is currently weary of their health and is therefore shifting from unhealthy food to healthy food. Demographic changes such as rise in children market can be a major boost to Kellog Company. Technology is dependent on research, development, and innovation. New product development and product improvements are also reliant on innovation and R&D. Environmental factors such as the need for companies to declare their responsibility to the society is likely to impact on Kellogg Company. Manufacturing plants are subjected to domestic and international environmental laws. Legal aspects that might influence business operations of Kellogg Company are related to government legislations and policies. In comparison of the above analysis tools, PESTLE seems to be more comprehensive and diverse in terms of analysis than SWOT. Conclusion Strategic planning is an important aspect for organizations as it directs them towards realization of goals and other business strategies. Kellogg Company has relied on strategic planning and this has enabled the company to increase its profits and venture into other markets. During strategic planning process, it is important for firms to adopt the BCG growth matrix model in analysis of products and strategic business units. Furthermore, companies should strive to use SWOT and PESTLE analysis models to assess both their internal and external environments in order to develop successful strategic plans. References Boston Consulting Group, 2009, Boston Consulting Gruop Matrix (BCG). Retrieved April 18, 2012, from http://www.educationsupport.co.uk/downloads/rjh/BOSTON_CONSULTING_GROUP_MATRIX.pdf Botten, N 2009, Cima Official Learning System Enterprise Strategy,Elsevier: Atlanta. Cavusgil, ST, Knight, GA & Riesenberger, JR 2008, International business: strategy, management, and the new realities, Pearson Prentice Hall: Upper saddle River, N.J. Kellogg-Company, 2010, The Strength of Kellogg Company: Sustainable and dependable performance, Retrieved April 18, 2012, from http://files.shareholder.com/downloads/K/1483851520x0x357380/732ed57c-9e85-4269-a18b-ce285df7f655/Kellogg_Company_Full_AR_and_10K.pdf Lussier, RN 2011, Management Fundamentals: Concepts, Applications, Skill Development, Cengage Learning: Kentucky. Needham, D 2009, Business for Higher Awards,Heinemann: Portsmouth. Pringle, H & Field, P 2009, Brand Immortality:How Brands Can Live Long and Prosper, Kogan Page Publishers: New york. Simerson, BK 2011, Strategic Planning:A Practical Guide to Strategy Formulation and Execution,ABC-CLIO: Santa Barbara. SWOT analysis: a tool for making better business decisions, 2008, U.S. Dept. of Agriculture, Risk Management Agency: Washington, D.C. Werbach, A 2009, Strategy for sustainability: a business manifesto,Harvard Business Press: Boston, Mass. Read More