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Strategy assignment. Using the alcohol industry and its competitors to draw out dynamics of strategy formulation
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όραση INTERNATIONAL
CONSULTING
DIAGEO
DIAGEO
DIAGEO • World’s leading premium drinks business• 80 countries• 25,000 people
North America£3,556m
Europe£2,949m
Africa£1,447m
Latin America & Caribbean£1,239m
Asia Pacific£1,501m
DIAGEOFounded in 1997
Grand Metropolitan
United Distillers and Vintners
2000Focus on
Premium DrinksSells Burger King
and Pillsbury
Introduction - VMOST
The Vision
To be recognized as the industry leader for the distribution of deluxe wine spirits and champagne in the world market.
MissionAs custodian of our brands, we will nurture them and optimize their value by driving brand equity, volume and market share in order to enhance our long termposition in the market place.
Objectives
• Faster organic net sales growth: 6% CAGR in the medium term• Organic operating margin improvement: 200bpts by year ending 30 June 2014• Eps growth: Double digit growth in core* eps
* excluding exceptional items and the exchange impact on operating profit
• External Analysis – Alcoholic Beverage Industry• PEST• Porter’s Five Forces• Industry Life Cycle• Key Success Factors• Customer Analysis• Competitor Analysis• Degree Of Turbulence
• Internal Analysis - Diageo
• Gap Analysis
• Strategic Direction
Agenda
External Analysis - PEST
Political
•Laws to limit Alcohol Consumption
•Regulation of bottle labelling
•Licenses Trademarks and Patents
Economic
•Unemployment Rate in Europe
•Price of Raw Materials
•Import and Excise Duties
Social
•Increased lobbying against alcohol consumption: alcohol awareness
•Environmental Issues
•Increase in number of female consumers
Technological
•Automation technology in distilleries
•IT Technology •improve efficiency of Supply chain•Improve business Intelligence
•Social Media and internet marketing
Threat of New Entrants (Low)
High capital requirement
Exit barriers are high: difficult to sell assets
Government Policy: tariffs and import duties, distribution channels
Cost Disadvantage for new entrant
Bargaining Power of Suppliers (Low)
Many Supplier Options
Major Competitors buy in Bulk
Long term contracts with Suppliers control price fluctutations
Bargaining Power of Buyers (High)
Switching Cost for buyers is low
Many brand options are available to the consumer
Concentration of buyers is high
Threat of Substitute Products (Low but growing)
Indirect substitutes are present:•Soft Drinks•Coffee•Water•Juices
Rivalry Among Existing Competitors (High)
Open competition for highest market share
High Fixed Cost
High Level of Advertising
Porter’s Five Forces
2
2
4
3
4
Development Growth Shakeout
Maturity
Decline
External Analysis - Industry Life Cycle Analysis
• Overall unattractiveness
• Excess capacity• High Price competition
External Analysis - Key Success Factors Ohmae’s 3Cs
External Analysis – Customer Analysis
Pernod Ricard
•Strengthen existing brands through marketing across the board
•“Premiumization” of their brands to attract
•Focus on operational efficiency and agility
Bacardi
•Main focus on Rum
•Couples its product with knowledge of cocktails and mixes
Brown Forman
•Primary focus on whiskey, especially its top brand: Jack Daniels
•Limited Diversification in Vodka, Tequila and Wine
Competitor Analysis
External Analysis – Degree of Turbulence
Complexity National Economic
Regional technological
Global Socio political
Familiarity of Events
Familiar Extrapolable Discontinuous Familiar
Discontinuous Novel
Rapidity of Change
Slower than Response
Comparable to Response
Faster than response
Visibility of Future
Recurring Forecastable Predictable Partially Predictable
Unpredictable Surprises
Turbulence Level
1 2 3 4 5
Degree of Turbulence: (4.7+4.6+3.8+4 )/4= 4.3
4.7
4.6
3.8
4.0
Pred
icta
bilit
y an
d Ch
ange
abili
ty
• External Analysis – Alcoholic beverage industry
• Internal Analysis - Diageo•Resource Audit•Value Chain•VRIO•BCG Matrix•Mc Kinsey 7S•Core Competencies•Distinctive Capabilities•Portfolio Analysis•Generic Strategies•SWOT
• Gap Analysis
• Strategic Direction
Agenda
Internal Analysis – Resource Audit (Grant’s Model)
Internal Analysis – Resource Audit (Grant’s Model)
Internal Analysis – Resource Audit (Grant’s Model)
Infrastructure
Human Resource Management
Technology Development
Procurement
Inbo
und
Logi
stics
Ope
ratio
ns
Out
boun
d Lo
gisti
cs
Mar
ketin
g an
d Sa
les
Serv
ice
Margin
Margin
Seco
ndar
y Ac
tiviti
es
Primary Activities
Internal Analysis – Value Chain
Internal Analysis – Value Chain (Primary Activities)
Internal Analysis – Value Chain (Secondary Activities)
VRIO Framework
VRIOFramework
VALUABLE RARE DIFFICULT TO IMITATE
EXPLOITED BY THE ORGANIZATION
Competitive Implications
Brand Equity(Tacit knowledge)
Yes Yes Yes Yes Sustained Advantage
Effective Distribution
Network (synergy)
Yes Yes Yes Yes Sustained Advantage
Leadership and innovative ability
Yes No No Yes Competitive Parity
Plant Facilities Yes No No Yes Competitive Parity
Marketing Yes No No Yes CompetitiveParity
A sequential decision making approach by questioning each resource and asking if it
is valuable (Lynch, pg 156)
Strategy • Top line growth • To make selective acquisitions of companies with both strong local
routes to market and brands that appeal to the growing number of middle class consumers in the emerging markets.
• Develop a holistic world-class brand asset management system.
Structure • Operational functions executed by geographic regional management, each responsible for meeting diageo strategic objectives thereby responding to regional market analysis and responsibilities.
System • Internal control and risk management system in relation to the company financial reporting process
• Automated systems for manufacturing• Waste disposal system
MCKINSEY SEVEN S MODEL
Style Participative leadership in some regards:
•Employees have the freedom to train themselves through eLearning courses.
•Co-operative team dynamicStaff • Over 25,000 employees.
• Staff required for operation of automated systems• Annual training• Internships for graduate• Rewards systems in place
Skills Diageo’s Academy: home for global learning and development resources. Ranges from:•Classroom training events•E-learning courses•Self development materials•Virtual classesResearch and Development
Shared values • Customer and consumer oriented, team oriented, proud of what we do, strive to be the best, create mutual relationships and partnerships.
MCKINSEY SEVEN S MODEL
Core Competencies
Key success Factor Core Competencies
Customer - Brand Appeal
Ownership of high end brandsCater for both genders: example in beer, they use snappVariety of Brands across price range
Competition - Competitive Pricing
Economies of ScaleEfficient productionSupplier Relationships
Corporation – Skilled personnel
Diverse and Talented and people
Corporation – High Quality Product
Highly automated & mechanized.Quality control procedures
Corporation – Efficient Distribution
Efficient supply chainPartnerships with distributors in different markets
Architecture Employees: Developing World Class Talent: Career development process.
Excellent relationship with supplier.
InnovationOwnership of brand with heritage, tradition and unique tacit knowledge.
Reputation Developed a reputation for ultra-premium blended scotch: Johnnie Walker
Strategic Assets Patents of technology to protect their rights: -process technology, bottle marking technology.
Distinctive Capabilities – John Kay’s Framework
Wine 6% of sales Spirits Beer 21% of sales
Ultra Moet and ShadonChalone
Johnnie Walker BlueCiroc 63%
Super Dom perignon BaileysCaptain Morgan 9%
Premium Blossom HillJusteriniSterlin Vineyards
Jose Cuervo(5%)Smirnoff 5%Johnnie Walker Black
Guiness 3%
Popular JNB (5%)Black and White
Harp LagerRed Stripe LagerBell Lager
Portfolio Analysis
Porter’s Generic Strategy
Nar
row
Broa
d
Cost Differentiation
Differentiation in two dimensions: price differnces, product differentiation: wine, beer and spirits (vodka, gin scotch and rum)Use of premium brands
• External Analysis – Alcoholic Beverage Industry
• Internal Analysis - Diageo
• Gap Analysis
• Strategic Direction
Agenda
Gap Analysis - EVR
Gap Analysis - EVR
Gap Analysis - EVR
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