CONT ENT S Introduction............................................................................................................ 3 1
Coca cola’s Global coverage....................................................................................3 History................................................................................................................... 4 Revenues............................................................................................................... 4 Products and Brands............................................................................................... 6 Mission, Vision and Values...................................................................................... 8 Organizations and Organizational Effectiveness.....................................................10 Stakeholders, Managers, and Ethics.......................................................................12 Organizational Design........................................................................................... 14 Designing Organizational Structure: Authority & Control.........................................15 Designing Organizational Structure: Specialization & Coordination.........................17 Managing in a Changing Global Environment.........................................................18 Organizational Design & Strategy...........................................................................20 Creating & Managing Organizational Culture..........................................................21 Organizational Technology.................................................................................... 21 Organizational Transformations.............................................................................22 Decision Making.................................................................................................... 23 Managing Conflicts, Power and Politics..................................................................24
INTRODUCTION The Coca-Cola Company is a beverage company, manufacturer, distributor, and marketer of non-alcoholic beverage concentrates and syrups. The company is best known for its flagship 2
product Coca-Cola, invented by pharmacist John Stith Pemberton in 1886. The Coca-Cola formula and brand was bought in 1889 by Asa Candler who incorporated The Coca-Cola Company in 1892. Besides its namesake Coca-Cola beverage, Coca-Cola currently offers more than 400 brands in over 200 countries or territories and serves 1.6 billion servings each day. The company operates a franchised distribution system dating from 1889 where The Coca-Cola Company only produces syrup concentrate which is then sold to various bottlers throughout the world who hold an exclusive territory. The Coca-Cola Company is headquartered in Atlanta, Georgia. Its stock is listed on the NYSE and is part of DJIA, S&P 500 Index, the Russell 1000 Index and the Russell 1000 Growth Stock Index. Its current chairman and CEO is Muhtar Kent.
COC A COLA’S GLOBAL COVERAGE.
HISTORY The Coca-Cola Company was originally established in 1891 as the J. S. Pemberton Medicine Company, a co-partnership between Dr. John Stith
Pemberton and Ed
Holland. The company was formed to sell three main products: Pemberton's French Wine 3
Cola (later known as Coca-Cola), Pemberton's Indian Queen Hair Dye, and Pemberton's Globe Flower Cough Syrup. In 1884, the company became a stock company and the name was changed to Pemberton Chemical Company. The new president was D. D. Doe while Ed Holland became the new Vice-President. Pemberton stayed on as the superintendent. The company's factory was located at No. 107, Marietta St. Three years later, the company was again changed to Pemberton Medicine Company, another co-partnership, this time between Pemberton, A. O. Murphy, E. H. Bloodworth, and J. C. Mayfield. Finally in October 1888, the company received a charter with an authorized capital of $50,000. The charter became official on January 15, 1889. By this time, the company had expanded its offerings to include Pemberton's Orange and Lemon Elixir.
REVENUES According to the 2005 Annual Report, the company sells beverage products in more than 200 countries. The report further states that of the more than 50 billion beverage servings of all types consumed worldwide every day, beverages bearing the trademarks owned by or licensed to Coca-Cola account for approximately 1.5 billion. Of these, beverages bearing the trademark "Coca-Cola" or "Coke" accounted for approximately 78% of the Company's total gallon sales. Also according to the 2007 Annual Report, Coca-Cola had gallon sales distributed as follows: a. 37% in the United States b. 43% in Mexico, India, Brazil, Japan and the People's Republic of China c. 20% spread throughout the rest of the world
United States Mexico, India, Brazil, Japan and the People's Republic of China Rest of the world
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In 2010 it was announced that Coca-Cola had become the first brand to top £1 billion in annual UK grocery sales. The data for the year 2009 is given in the table below:
PRODUCTS AND BRANDS The Coca-Cola Company offers nearly 400 brands in over 200 countries, besides its namesake Coca-Cola beverage. Tab was Coca-Cola's first attempt to develop a diet soft drink, using saccharin as a sugar substitute. Introduced in 1963, the product is still sold today, however its sales have dwindled since the introduction of Diet Coke. The Coca-Cola Company also produces a number of other soft drinks including Fanta and Sprite. Fanta's origins date back to World War II when Max Keith, who managed Coca-Cola's operations in Germany during the war, wanted to make money from Nazi Germany but did not want the negative publicity. Keith resorted to producing a different soft drink, Fanta, which proved to 5
be a hit, and when Coke took over again after the war, it adopted the Fanta brand as well. The German Fanta Klare Zitrone ("Clear Lemon Fanta") variety became Sprite, another of
the company's bestsellers and its response to 7 Up. During the 1990s, the company responded to the growing consumer interest in healthy beverages
by introducing
several
new
non-carbonated
beverage
brands.
These
included Minute Maid Juices to Go, PowerAde sports beverage, flavoured tea Nestea (in a joint
venture
with Nestle), Fruitopia fruit
drink
and Dasani water, among
others.
In
2001, Minute Maid division launched the Simply Orange brand of juices including orange juice. Coca-Cola is the best-selling soft drink in most countries. While the Middle East is one of the only regions in the world where Coca-Cola is not the number one soda drink, Coca-Cola nonetheless holds almost 25% market share (to Pepsi's 75%) and had double-digit growth in 2003. Similarly, in Scotland, where the locally produced Irn-Bru was once more popular, 2005 figures show that both Coca-Cola and Diet Coke now outsell Irn-Bru. In Peru, the native Inca Kola has been more popular than Coca-Cola, which prompted Coca-Cola to enter in negotiations with the soft drinks company and buy 50% of its stakes. In Japan, the best selling soft drink is not cola, as (canned) tea and coffee are more popular. As such, the Coca-Cola Company's bestselling brand there is not Coca-Cola, but Georgia. Some claim Coke is less popular in India due to suspicions regarding the health standards of the drink. 6
On July 6, 2006, a Coca-Cola employee and two other people were arrested and charged with trying to sell trade secrets information to the soft drink maker's competitor, PepsiCo for $1.5 million. The recipe for Coca-Cola, perhaps the company's most closely guarded secret, was never in jeopardy. Instead, the information was related to a new beverage in development. Coca-Cola executives verified that the documents were valid and proprietary. At least one glass vial containing a sample of a new drink was offered for sale, court documents said. The conspiracy was revealed by PepsiCo, which notified the authorities when they were approached by the conspirators. The company announced a new "negative calorie" green tea drink, Enviga, in 2006, along with trying coffee retail concepts Far Coast and Chaqwa. On May 25, 2007, Coca-Cola announced it would purchase Glaceau, a maker of flavoured vitamin-enhanced drinks (vitamin water), flavoured waters, and energy drinks, for $4.1 billion in cash. On September 3, 2008, Coca-Cola announced its intention to make cash offers to purchase China Huiyuan Juice Group Limited (which has a 42% share of the Chinese pure fruit juice market for US$2.4bn (HK$12.20 per share). China's ministry of commerce blocked the deal on March 18, 2009, arguing that the deal would hurt small local juice companies, could have pushed up juice market prices and limited consumers’ choices. In October 2009, Coca-Cola revealed its new 90-calorie mini can that holds 7.5 fluid ounces The first shipments are expected to reach the New York City and Washington D.C. markets in December 2009 and nationwide by March 2010.
MISSION, VISION AND VALUES Following are the mission, vision statements and company’s core values taken from the company’s official website:The world is changing all around us. To continue to thrive as a business over the next ten years and beyond, we must look ahead, understand the trends and forces that will shape our business in the future and move swiftly to prepare for what's to come. We must get ready for tomorrow today. That's what our 2020 Vision is all about. It creates a long-term destination for our business and provides us with a "Roadmap" for winning together with our bottling partners. Mission Our Roadmap starts with our mission, which is enduring. It declares our purpose as a company and serves as the standard against which we weigh our actions and decisions. 7
a. To refresh the world b. To inspire moments of optimism and happiness c. To create value and make a difference.
Our Vision Our vision serves as the framework for our Roadmap and guides every aspect of our business by describing what we need to accomplish in order to continue achieving sustainable, quality growth. a. People: Be a great place to work where people are inspired to be the best they can be. b. Portfolio: Bring to the world a portfolio of quality beverage brands that anticipate and satisfy people's desires and needs. c. Partners: Nurture a winning network of customers and suppliers, together we create mutual, enduring value. d. Planet: Be a responsible citizen that makes a difference by helping build and support sustainable communities. e. Profit: Maximize long-term return to shareowners while being mindful of our overall f.
responsibilities. Productivity: Be a highly effective, lean and fast-moving organization
Our Winning Culture Our Winning Culture defines the attitudes and behaviours that will be required of us to make our 2020 Vision a reality. Live Our Values Our values serve as a compass for our actions and describe how we behave in the world. a. b. c. d. e. f. g.
Leadership: The courage to shape a better future Collaboration: Leverage collective genius Integrity: Be real Accountability: If it is to be, it's up to me Passion: Committed in heart and mind Diversity: As inclusive as our brands Quality: What we do, we do well
Focus on the Market a. b. c. d. e.
Focus on needs of our consumers, customers and franchise partners. Get out into the market and listen, observe and learn Possess a world view Focus on execution in the marketplace every day Be insatiably curious 8
Work Smart a. b. c. d. e.
Act with urgency Remain responsive to change Have the courage to change course when needed Remain constructively discontent Work efficiently
Act Like Owners a. b. c. d.
Be accountable for our actions and inactions Steward system assets and focus on building value Reward our people for taking risks and finding better ways to solve problems Learn from our outcomes -- what worked and what didn’t
Be the Brand Inspire creativity, passion, optimism and fun.
ORGANIZATIONS AND ORGANIZATIONAL EFFECTIVENESS What allows an organization to continue to operate for over 125 years, and along the way, become one of the most globally recognizable brand names? The ability to adapt and find new markets has helped Coca-Cola become an icon of the American culture. Coca-Cola was invented in 1885 and since The Coca-Cola Company’s incorporation in 1892; a strong focus on growth and marketing has existed. Besides traditional advertisements in the local newspaper, the company’s founder, Asa Candler, distributed thousands of coupons for free glasses of Coca-Cola so that many more people would be inclined to taste the product. He also distributed countless souvenirs that depicted the Coca-Cola trademark logo. By 1900, the organization, already, had operations in the United States and Canada. This focus on aggressive marketing is, still, the cornerstone for The Coca-Cola Company’s strategy and culture. The Coca-Cola Company was eager to take advantage of new markets, and expansion efforts quickly led to Cuba, Puerto Rico, Guam, and the Philippines Before long, Coca-Cola was being sold in Europe. When The United States entered World War II, Coca-Cola was being sold to both sides. The Coca-Cola Company turned what many would view as a threat, into an enormous opportunity. In 1941, the company’s president, Robert Woodruff made an order to provide American troops with Coca-Cola, regardless of where they were, and what it cost to the company. During the war, 64 bottling plants were set up in Europe and the Pacific. This not only allowed American troops to acquire a taste for 9
the drink, but it left Coca-Cola with a solid foundation to greatly expand its operations overseas. Over time, The Coca-Cola Company has remained adamant about staying in the nonalcoholic beverage industry. Besides soft drinks, The Coca-Cola Company sells energy drinks, juice drinks, sports drinks, tea, and water. The current focus of The Coca-Cola Company is still that of growth. The current objective of the organization “is to use our formidable assets-brands, financial strength, unrivalled distribution system, global reach, and a strong commitment by our management and employees worldwide-to achieve long-term sustainable growth” The key inputs for production are the raw materials used in the beverages. The company uses different types of sweeteners depending on where the concentrate is being produced. Water is one of the main ingredients used in every beverage. Since the organization greatly focuses on marketing, human capital is an important asset to the company as well. Without its employees’ knowledge and abilities, The Coca-Cola Company would not be nearly as successful. The secret formula for Coca-Cola is another key input for the company. The Coca-Cola Company does not actually produce soda. They produce the concentrate or syrup, which is then sent to distributors. Distributors add carbonated water and any other ingredient necessary to create the final product. The production process of Coca-Cola is a secret; however, it mainly consists of adding the correct amount of ingredients, and mixing them. The process to create each beverage is extremely mechanized in order to achieve quick and efficient production. The outputs of The Coca-Cola Company are the syrups and concentrates of its beverages. The Coca-Cola Company faces a number of challenges, many of which stem from the fact that the organization operates on such a large level. Each market has its own trends and demands. Consumers in some markets have become more heath conscious. In order to react to this trend, many diet and low-calorie drinks have been created. The Coca-Cola Company is always trying to find ways to be innovate. Due to the anti-carbohydrate trends created by the Atkins diet, Coca-Cola C2 was introduced. It is supposed to have the same taste as Coca-Cola, but contain half the carbohydrates. Another problem The Coca-Cola Company faces is derived from the social and political differences of each market. For example, different countries have different laws. Most developing countries have more relaxed pollution requirements. In some countries, bribes of government officials are considered normal and expected. While it is company policy that The Coca-Cola Company will follow the laws of every country that it operates in, it still has 10
strong criticism from other parts of the world for its actions. The company has recently been the subject of strong criticism the company’s bottling plants in Colombia are alleged to have killed workers who were attempting to unionize. Even though the bottling plants are independently owned and operated, and nothing has happened legally to the bottling plants in Colombia, The Coca-Cola Company has been facing strong criticism for it in the United States. The Coca-Cola Company’s structure has characteristics of both organic and mechanistic models. The organization has a more centralized structure, however in recent years there has been a movement towards decentralization. A more in-depth analysis of the organization’s structure will be discussed later. The Coca-Cola Company measures success in many ways. The Coca-Cola Company believes that if they analyze sales based on volume growth, it is an indicator of trends at the consumer level. The company obviously looks at profit as a way to measure success. Recently, The Coca-Cola Company has been focused on being a more responsible global citizen. The company has over 70 clean-water projects in countries all across the globe.
STAKEHOLDERS, MANAGERS, AND ETHICS The stakeholders for The Coca-Cola Company as stated in the company’s Corporate Responsibility Review are: a. b. c. d. e. f. g. h. i.
Shareowners Employees Bottling partners Governmental agencies Suppliers Retail customers Consumers Local Communities NGOs
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Because each group of stakeholders has a different goal, conflicts arise. The shareowners are concerned with earning a profit, while local communities care deeply about environmental issues and labour standards. Suppliers want to charge as much as possible to create more revenues, and The Coca-Cola Company wants to get the lowest prices to decrease costs. Management wants to keep labour costs down, while employees want raises and increased benefits. The organization’s divisional managers run company operations in a general region of the globe. The functions of each vice president are divided into functions such as human resources, innovation/research and development, marketing, and public affairs and communication. The two functions most critical in taking advantage of the company’s competitive advantages are marketing and innovation/research and development. As stated time and time again, the organization tries to capitalize on its brand name as much as possible, which is why the marketing function is so important to the company. The Innovation/research and development department must come up with the products that the marketing function demands. The majority of the top level managers at The Coca-Cola Company have worked in many different regions and areas of the company. Many have worked for or ran the bottling companies that partner with the organization. The fact that 12
members of the top management team have well rounded backgrounds allow for problems to be looked at from multiple angles.
ORGANIZATIONAL DESIGN The Coca-Cola Company realizes that it needs to be able to meet the ever changing demands of its customers. This is why the company pushed towards decentralization in the nineties, and even more so recently. The organization has two operating groups called Bottling Investments and Corporate. There are also operating groups divided by different regions such as: Africa, Eurasia, European Union, Latin America, North America, and Pacific. Each of these divisions is again divided into geographic regions. By allowing decisions to be made on a more local level, the organization can quickly respond to changing market demands, and higher-level management can focus more on long-term planning. Certain divisions of the company, such as finance, human resources, innovation, marketing, and strategy and planning are centrally located within the corporate division of the company. Some of these functions take place at lower levels in each of the regions of the company; however, most decisions are made at the top of the hierarchy. For example, in 2002 the decision to sponsor the World Cup was done at the corporate level. Corporate headquarters, however, allowed the local divisions to make the advertising decisions. This allowed each division to specifically design commercials and ads that would appeal to the local market. When Neville Isdell took over as CEO and chairmen of The Coca-Cola Company in 2004, he began to using more complex integrating mechanisms. In order to deal with organization’s extremely low growth rate, Isdell used teams of top managers to create solutions to the organization’s most pressing problems. Face-to-face meetings were held regularly at the local levels so employees could remain informed. Besides the use of teams and meetings, the intranet was overhauled to provide a source of real-time sharing of information. The use of complex integrating mechanisms is important in such a tall and wide organization. It is important that each function of the company is able to share up-to-date information quickly with each other. The organization seems to be doing an excellent job of balancing standardization and mutual adjustment. The Code of Conduct for the organization is a guidebook for how every employee should act. Should an employee act improperly, they are subject to disciplinary actions. Due to the changes implemented by Isdell, mutual adjustment has started to play a larger role in the organization. Employees feel more engaged and turnover has been reduced. Isdell’s changes have led to increased growth rates for the
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organization, and return on equity for stockholders went from a negative return to a 20 percent return. This balance is essential, because it allows employees some flexibility, but also gives the organization some predictability. The Coca-Cola Company’s structure is a hybrid of both mechanistic and organic models. The focal point of The Coca-Cola Company is on responsiveness.
The
complex
integrating
mechanisms
previously
discussed
are
characteristic of an organic structure. The surveys and interviews used by the company allowed information to flow from the bottom-up, and the intranet allows for information to be exchanged laterally. The surveys have also caused The Coca-Cola Company to pursue simplification and standardization. Centralization and high standardization are associated with a mechanistic structure. The blending of both types of structures seems to be ideal for the organization. Flexibility is essential when trying to appeal to such a vast number of independent markets, however, high standardization is important to remain efficient in production. The use of complex integrating mechanisms allows for easier coordination for the global company. Centralization keeps organizational choices aligned with organizational goals. Now that information in the company is flowing in every direction, upper-management will have access to information more quickly, adding to the organization’s flexibility and responsiveness. The recent shift towards a more decentralized and organic structure corresponds with the uncertainty of the organization’s environment.
DESIGNING ORGANIZATIONAL STRUCTURE: AUTHORITY & CONTROL The Coca-Cola Company currently employs approximately 94,800 employees. According to a general organizational chart obtained from the company’s website, there are more than 5 hierarchical levels at the corporate level.
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QHAWFPM RI DRU AN O O MARA R ND LKNI N LTUE C I TC LE I YTI N N I GO E MKND E A M R N A A N G A E G R E R RES R S For example: the head of the Canadian division reports to the president and COO of the North American Group. That president reports to the CFO, who reports to the Office of the General Counsel. The General Counsel then reports to the CEO. It is fair to assume that there are at least a few more steps in the hierarchy at the local level. Due to its tall structure, the organization has experienced communication problems. One of the problems discovered through a survey, was that the people and the company lacked clear goals. Tall hierarchies also cause motivation problems, which is why the organization is attempting to get employees more engaged. The increased usefulness of the company’s intranet will greatly increase the communication between every level of employees, and allow upper management to effectively communicate to the front line employees. Based on information from Report 2006 this span of control seems somewhat slim for the CEO of such a large organization. The CEO is also a member of the Senior Leadership Team. This team consists of each head of the eight operating groups aforementioned, and also has other top executives in areas like innovation and technology and marketing. Although there are only six people that answer directly to the CEO, the CEO is able to receive input from a wide variety of divisions because of this leadership team. Since the team is comprised of members from various divisions, the CEO is able to obtain a wide variety of information. The move to decentralization has caused structural changes for The Coca-Cola Company. New offices have been opened to facilitate decisions being made closer to the local markets. The organization has also undergone centralization of some of the company’s departments. In 2006, the Bottling Investments division was created to “establish internal organization for 15
our consolidated bottling operations and our unconsolidated bottling investments.” It appears that the organization is striving for a hybrid structure, which allows them to have advantages of both mechanistic and organic structures, while trying to minimize the negative consequences of each. The strategic structural changes that the organization has gone through in recent years have created a much needed positive impact on the company. Sales growth increased and employees are much more satisfied. The organization is trying to create a more innovative culture by pushing towards decentralization.
DESIGNING ORGANIZATIONAL STRUCTURE: SPECIALIZATION & COORDINATION The Coca-Cola Company realizes that a divisional structure gives the organization the best opportunity to react to the changes in its uncertain environment, but also allow it to maintain a level of stability. The multidivisional structure is beneficial for the organization for a variety of reasons. The division based on geographic region allows certain aspects of the company’s operations to be tailored to the individual market. One advertising campaign or slogan may not be appropriate for another market, so decisions about specific ads are made closer to the individual markets. Multidivisional structures allow divisional managers to handle daily operations while corporate managers are free to focus on long-term planning. There are also problems associated with this type of structure. If the company creates divisional competition, coordination may decrease because each division wants to have an advantage over everyone else. Communication problems may also exist because information can become distorted when it has to travel up and down tall hierarchies. A multidivisional matrix structure may be better suited for The Coca-Cola Company. This would increase coordination between corporate and divisional levels, and managers at each level would work together to create solutions to problems. While such a structure may be too complex for a global organization, the company may want to look into it.
MANAGING IN A CHANGING GLOBAL ENVIRONMENT Due to its tremendous global presence, The Coca-Cola Company operates in an extremely uncertain environment. Increased competition from global and local companies has led to competition over the most important resource: customers. The Coca-Cola Company must 16
not only compete for customers, but also raw materials needed for each product. In some parts of the world, clean water is becoming increasingly hard to come by. The Coca-Cola Company has only one or two suppliers for some of its raw materials. For example, they view The NutraSweet Company as one of only two viable sources for the ingredient aspartame . The Coca-Cola Company is at a strong disadvantage if they cannot decrease their reliance on a small number of suppliers. If relations with suppliers deteriorate, or if the suppliers go bankrupt, it would have dire consequences for The Coca-Cola Company. The Coca-Cola Company must also compete to get the best employees possible. The production of the beverages does not require skilled labor, but the organization has had problems finding the proper personnel to run the organization. In 2004, The Coca-Cola Company’s top choices for the open CEO position decided not to join the company because they did not like the actions of the Board of Directors. Due to the organization’s high credit rating, the company has the ability to raise funds at a lower cost. This allows the organization the opportunity to finance operations such as expansion through the issuance of debt. This may be necessary if The Coca-Cola Company looks to expand into new markets, or purchase new brands. The environment in which The Coca-Cola Company operates in is extremely dynamic. The environment is difficult to predict and control due to the global nature of the operations. The Coca-Cola Company faces the threat of reduced production or disruption in distribution if there is a problem in a market. The Annual Report (2006) lists risks, such as worker strikes, work stoppages, and the chance a distributor falls on harsh economic times. Another reason the company’s environment is tremendously dynamic is due to the nature of their raw materials. Some of their key raw materials are dependent on specific climates. Climate changes may impact the price of the materials they need to obtain and, in turn, affect the cost of production. The strength and interconnectedness of the general forces that The Coca-Cola Company must deal with make the environment extremely complex. Recently in the United States, two forces have started to become inter-woven: cultural/social values and political/environmental forces. Many American companies are now being lambasted if they do not try to be more environmentally friendly, and The Coca- Cola Company is no different. The company has received plenty of criticism for its operations in India, with claims that they cause a great deal of pollution and have damaged local water supplies. 17
The Coca-Cola Company uses a wide variety of techniques to manage relationships with its stakeholders, the most useful tool being strategic alliances. A former CEO of the organization claimed that 100 percent of its revenues came from strategic alliances. The company uses exclusive contracts with its bottling partners and other customers as well. In 1999, the organization signed a ten-year deal with Burger King to be the restaurants only supplier of beverages. Even though PepsiCo was willing to give Wendy’s a much better deal, the restaurant signed a ten-year deal with The Coca-Cola Company. This example shows how powerful the Coca-Cola© brand name really is. The Coca-Cola Company has done an excellent job managing some aspects of the environment, but done a poor job at managing other parts of the environment. The negative publicity received from its operations in India and the actions of its bottling partner in Colombia has led to boycotts of Coca-Cola products on some campuses. While this is clearly bad for the company, the average consumer is completely unaware of these allegations. This means that The Coca-Cola Company is doing a decent job of damage control. While the company has not had any trouble with suppliers lately, the future is always uncertain. It does not seem like the company is not actively trying to secure supplies, which is why vertical integration was recommended.
ORGANIZATIONAL DESIGN & STRATEGY The core competences that give the organization its best competitive advantages are its strong brand name and its network of bottlers and distributors. Along with its marketing capabilities and broad portfolio of products, The Coca-Cola Company has core competences which are extremely difficult, if not impossible to duplicate. The strong Coca-Cola brand name gives the company a great deal of bargaining power and leverage. In 1999, PepsiCo and The Coca-Cola Company were fighting to become the supplier of beverages for the Wendy’s restaurant chain. Wendy’s opted to partner with The Coca-Cola Company even though PepsiCo was offering much more money. The brand name recognition that the company enjoys is a powerful bargaining tool. The Coca-Cola name even has an influence on consumer tastes. When The Coca-Cola Company was looking to launch Diet Coke, they performed some blind taste tests with consumers. The consumers preferred a glass labelled Diet Coke over a glass labelled Tab by 12 percent, even though the liquids in each glass were identical. It has taken the organization over 120 years to build such a strong brand preference, and this cannot be imitated by competitors. 18
The relationships that the organization has with its distributors are another competitive advantage that cannot easily be imitated. The contracts and relationships between the two groups create symbiotic interdependencies, which mean that the success of both companies has a direct impact on each other. The Coca-Cola Company agrees not to sell to other parties in the local market, and the bottler agrees to only purchase the syrup and concentrate from the company’s authorized dealers. The Coca-Cola Company at times provides the retailers and distributors with promotions, and capital at times. Because the organization does not have to worry about the distribution in the local markets, it allows the company to focus on more important issues. The Coca-Cola Company’s business-level strategy is one of differentiation. This is evident in the previous example of consumers preferring identical beverages just because the Coke brand name was attached. They have been successful pursuing differentiation because the focus of the company has always been on marketing. The Coca-Cola Company is “known for innovative marketing that constantly promotes their brand names and protects their domains from competitors. The hybrid structure of The Coca-Cola Company is ideal for its differentiation strategy. The centralization of the marketing and innovation functions allows the company to retain control over development, marketing and production. By performing extensive market research and creating more local offices, the company is always looking for new ways to serve new customers. The use of complex integrating mechanisms allows coordination between all levels and divisions of the company.
CREATING & MANAGING ORGANIZATIONAL CULTURE The culture of The Coca-Cola organization is mission driven; focused on refreshing the mind, inspiring optimism, and making a difference (Thecocacolacompany.com). The rich history of the organization has allowed the company to compile hundreds of stories of consumers and employees. These stories share real life examples of what Coca-Cola© means to their consumers and gives employees a sense of pride to be a part of something that means so much for so many people. They also inspire new employees to make a positive impact on the world. Stories are so important to The Coca-Cola Company that they created a museum in Las Vegas that focuses on the stories of customers. After visitors heard others’ stories, they could record their own, which the company could use in the future (McLellan, 2006).
19
As stated previously, the company has been trying to change the culture by allowing employees to essentially shape and reform the goals of The Coca-Cola Company (Fox, 2007). The positive stories that the company chooses to focus on provide a foundation to encourage employees to be not only model workers, but model citizens.
ORGANIZATIONAL TECHNOLOGY Currently, output processes are the greatest source of uncertainty for the organization. As previously stated, The Coca-Cola Company does not produce the end product. Distributors and bottlers mix other ingredients (mainly carbonated water) with syrups and concentrates and then sell the products. The Coca-Cola brand name is on the end product, regardless of who bottles it. The company must keep pressure on the bottlers to maintain high quality outputs, or it could have negative consequences for The Coca-Cola Company. There exists very little information about the production of the Coca-Cola syrup. Even at The World of Coca-Cola, a museum for the company, there is no mention of how the syrup is produced. The production of Dasani, the company’s bottled water, is extremely mechanized, and it is fair to assume that the production of every Coca-Cola product is the same. This mass production and high mechanization leads to a high level of technical complexity. Classification Level of Technical Complexity a. Small-Batch and Unit Production Low to Medium b. Large-Batch and Mass Production Medium to High Continuous Process or Flow Production High The typical structure of a manufacturing company that uses mass production is a mechanistic structure, in which efficient production is the desired end. The Coca-Cola Company’s structure is unique in that it has a lot of the characteristics of an organic structure. This is due to its focus on marketing and local appeal. The structural mismatch means that production in the organization may not be as efficient as possible; however, the benefits of the organization’s structure outweigh the consequences.
ORGANIZATIONAL TRANSFORMATIONS The Coca-Cola Company was founded in 1888 to take advantage of the already popular Coca-Cola name. Of the four life cycle stages (birth, growth, decline, death), after 120 years, the company remains in the growth stage because the company’s value creation skills continue to evolve.
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The company has faced a variety of internal problems over the years. A constant struggle in any organization is trying to meet employees’ demands while trying to keep labour costs low. In 2005, workers went on strike because management wanted to institute a policy where employees would pay a greater portion of their health benefits. If the organization experiences any work stoppage, the company may not be able to meet customer demand and lose out on revenue. Another internal problem within the company is that the board exercises a great deal of power and influence. As previously stated, the company failed to attract its top choices for CEO in 2004, and the board has even pulled ads because they thought the commercials did not fit the company’s image . Uncertainty in the environment has caused many external problems for the organization, ranging from uncertainty with its suppliers and distributors to political and societal pressures. . While there was not information regarding policy changes because of this, many believe that the power of the board will diminish because long time director Warren Buffet has stepped down. Buffet has been viewed as rather conservative and also involved himself in the decision making of the organization. As the company has continued to grow, top managers have pushed operational responsibility and decision making down to the local levels. This move allows the company to react better to each market, and it also allows corporate managers to concentrate on strategic and long-term planning. By allowing lower level managers to become intricately involved in the company’s growth efforts, Neville Isdell created an environment in which everyone felt responsible for the company’s performance. He has also promoted employees within the organization, which aligns both the goals of the managers and the organization. The fifth and final stage of Greiner’s model is focused on reducing bureaucracy to speed up decision making. In April 2007, COO Muhtar Kent stated that the company is focusing on simplifying the structure to reduce bureaucracy. Theory postulates that an organization in this stage would be wise to pursue a product team or matrix structure. Because The Coca-Cola Company only operates in one domain and has over 400 products, the product team structure would be too costly and unrealistic. A matrix structure would be an idea worth considering; however the organization uses divisions based on geography, not product. Due to lack of information about the company’s regional structure, it is hard to say whether the company should pursue a matrix structure or remain as a multidivisional structure.
DECISION MAKING
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The majority of decisions made by The Coca-Cola Company are done so by using the incremental method. Each year, the company would analyze results, and then make slight changes in operations to create better results next year. The company does not just quickly decide to create a new product, or change operations. Drastic changes take time. Recently, realizing that the company was in desperate need for a drastic change, Isdell sought to figure out why the company performance was declining. By starting at the lower levels of the organization to find solutions, the company was able to make some drastic changes to the company’s culture, how employees were rewarded, and made efforts to get employees more involved. The changes brought on by using the unstructured decision making model created much better results for the company. One of the biggest flaws in the organization is that the board of directors is responsible for some of the non-programmed decisions made by the company. When The Coca-Cola Company was seeking to purchase Quaker Oats, the deal was almost finalized, but then stopped because the board felt the price was too. When decisions are made by the board, it means they lack confidence in the upper management of the company to make vital decisions. This is problematic for the company for a few reasons. Because members of the board have so much money invested in company stock, they want to minimize risk, and thus, are extremely prone to take fewer chances. The members of the board do not or have not worked for the company, so they are not close enough to know all the pertinent information required to make complex decisions.
MANAGING CONFLICTS, POWER AND POLITICS Conflicts can be a healthy way for an organization to improve decision making, and create new ways for looking at problems. Conflicts can also be a significant source of trouble for an organization when they cause production declines or important decisions cannot be made. When the organization sought a new CEO in 2004, their top choices turned them down because the prospects felt that the board had too much power . This type of conflict can drastically affect the organization’s ability to change and adapt quickly, a necessity in the company’s extremely uncertain environment. The example also shows that it can prevent the organization from acquiring important human resources. The marketing department is the most powerful subunit in the organization.
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According to the data, “The marketing department has considerable power because it is the department that can attract customers – the critical scarce resource.” The heavy emphasis on marketing could prevent the company from finding ways to become more efficient in production or distribution. The benefits derived from the power allocated to the marketing function greatly outweigh any negative consequence. By providing the department with more resources, the company can conduct greater market research. For example, even though the organization had a diet beverage on the market, research indicated that by simply using the name Diet Coke, preferences for the same tasting beverage increased dramatically. Allocating more capital to the department also allows for each marketing campaign to be tailored to specific markets, making advertisements more effective. Market research also saves money for the company. If consumer data shows the company that one of their ideas would not do well, the company can decide not to produce that beverage. The strong emphasis on marketing has allowed Coca-Cola to become one of the most recognized brand names in the world, which gives the company an advantage over its competition and gives it more bargaining power. One negative consequence of putting such a great emphasis on marketing research is evidenced in what has become known as one of the greatest flops in history. Taste tests indicated that consumers would prefer a new, sweeter version of Coca-Cola, which lead to the creation of New Coke in 1985. The strong brand attachment that the company worked so hard to achieve with consumers caused a severe backlash towards the reformulation of Coca-Cola. This example proves that market research cannot always be an indicator of what will actually happen.
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