MLJP - Vjezba 1. - CS Coca-Cola

8/2/2019 MLJP - Vjezba 1. - CS Coca-Cola

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2e Coca-Cola Company: CokeBack to Business

ith production facilities in over 200 countries in the world, there ar e few products as internationally recognized as the ubiquitous Coke bottle. To put this in perspective, another American icon, McDonald's, has locations in only 119

2 As one ofthe world's best-known brands, Coca-Colacapitalized on opportunities and thrived. However, thehas not been without some upheavals.When Roberto Goizueta. it s CEO for 17 years, passedon October 18. 1997. after a short bout with lung cancer,future looked uncertain. During Goizueta's tenure at Cocath e market value of th e company had dramatically in

from $4 billion to nearly $150 billion. This made himof the greatest value creators in history. While the appointof CFO Douglas Ivester as his replacement did not immeallay the concerns of the finanCial market, th e value ofstock continued to increase until mid-1998. Since then.value of the stock has declined and as of late November

003, the market value of Coca-Cola was $115 billion. DouglasDaft, president and chief operating officer. with 30 years ofCoke experience. replaced Ivester as chairman and CEO in2000.3 The question, then and now, on many investors' mindsremains: "Can Coke recapture it s previous growth pace andstock value without Goizueta's legendary leadershipT

CocaCola's GlobalDominanceThe larger a company is. theharder it is to continue togrow at a steady pace. Thisremains the major challengefacing the Coca-Cola Company. Th e U.S. market is already well developed. with anaverage consumption perperson of one serving per dayof Coke products in both2001 and 2002. The European and EuraSian marketgrew slightly from 2001 to2002, \vith average consumption increasing fromone and a half to two servings pe r week. The LatinAmerican. Asian. and Africanmarkets' consumption levelswere unchanged from 2001to 2002 at four servings perweek. two servings per

month, and three servingsper month, respectively.4However. even given th cmuch lower consumptionrate internationally than inth e United States. more than70 percent of Coca-Cola's income is generated outsideth e United States. This isprimarily due to populationdifferentials.

Coca-Cola. recognizingthe importance of international sales, has been verysensitive to local market conditions. Products are developed to meet the varied tastepreferences of consumers. Infact, Coca-Cola producesmore than 300 brandsworldwide in addition to it sflagship brands. Coke andDiet Coke. The bottling anddistribution system is alsoadapted to local needs. For

instance, al l bottlers are loca l companies either independently owned or only partially o\vned by th eCoca-Cola Company. In thisway, Coca-Cola gains th ebenefits of intrinsic localknowledge. The distributionsystems range from boats inIndonesia to four-leggedpower in the Andes to fleetsof trucks in the UnitedStates. In each case. localconditions are considered.Coca-Cola prides itself onacting as a local citizen in aglobal marketplace.

Coke's DominanceCoca-Cola has achieved it sdominance in th e globalmarketplace through its consistent loyalty to th e Coke

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heritage and the image andstandards that it conveys.Coca-Cola histOrically hasnot been a company notedfor innovation; it was almost10 0 years after th e introduction of Coke that it introduced Diet Coke. After th edisastrous introduction ofNew Coke, there was reluctance to tamper with Coke.As Douglas Daft. chairmanand CEO. put it in his 2002letter to share owners, ~ R e -sponsibility for th e world'smost beloved and valuablebrand requires extreme carein how, when. and why weextend it . We don't risk consumer loyalty to the brand orseek an artificial bump involume by spinning outproduct after product tochase th e latest fad."5 However, 2002 represented a period of unprecedented innovation-Vanilla Coke. DietVanilla Coke. and Diet Cokewith lemon attracted newconsumers.

Historically, carbonatedbeverages have been thebackbone of th e Coca-ColaCompany; in 2002 they accounted for 85 percent ofsales. Coca-Cola acknowledgment of changing consumer tastes has fostered acontinued expansion of it sline of noncarbonated beverages. Growth in sales of noncarbonated beverages was 28percent from 200 1 to 2002.This growth has been fueledboth internally and throughacquisitions and licensingagreements. Coca-Cola ishoping to achieve profitability through economies ofscale and by capitalizing onit s existing distribution system.

The Coca-Cola Companyhas positioned itself forgrowth by moving key decision making closer to localmarkets and by fosteringdeeper connections to con

sumers. I t has also restructured. with a managementteam coordinating a new.nimble, and entrepreneurialnetwork. As one of his firstacts as CEO. Daft axed 6.000employees. many of themmiddle and senior managersin Atlanta. The new structurereflects his continuing commitment to a leaner. moreentrepreneurial organization.Under him. there is a lO-person executive managementteam composed of: President and chief operat

ing officer of th e Coca-ColaCompany Senior vice president andchief marketing officer Senior vice president andworldwide public affairsand communications officer Executive vice presidentand chief financial officer Executive vice presidentand general counsel andsecretary Five executive vice preSidents of th e Coca-ColaCompany who are presidents and chief operatingofficers for North America;Europe. Eurasia. and th eMiddle East: Latin America;Asia: and Africa

'1\venty-four divisionand operations preSidentsreport to th e chief operatingofficers. This group of individuals. along with CocaCola employees and partnersworldwide, are responsiblefor implementing the sixstrategic priorities that ar elaid out in the 2002 AnnualReport:61. "Accelerate carbonated

soft-drink growth. led byCoca-Cola."

2. "Selectively broaden ourfamily of beverage brandsto drive profitablegrowth."

3 . "Grow system profitabilityand capability together

with our bottling part-ners. Our drive for profitability throughout oursystem brought us evencloser to our bottlers in2002."

4. "Serve customers withcreativity and consistencyto generate growth acrossall channels."5. "Direct investments tohighest-potential areasacross markets. Ourbusiness approach is tai-lored to each marketbased on its stage of de-velopment. In rural areasof China. we direct our ef-forts toward expandingavailability of affordablepackages, while in citiessuch as Shanghai andBeijing, we execute moresophisticated imagebuilding promotions, actiovating pOints of purchaseso that consumers havegreater connections withour brands."

6. "Drive efficiency andcost effectiveness every-where. We continue todrive efficiency through-ou t ou r system. estab-lishing disciplined routines and gainingeconomies of scale inmaterial and ingredientpurchasing...

Will the restructuringand the new strategic initia-tives help Coca-Cola achieve,its mission of "benefiting andrefreshing everyone ittouches" and regain thegrowth an d value e),:perienced under RobertoGoizueta?Review Questions1. Apply Henri Fayol's five

rules of management to th e Coca-Cola case.

2. ConSider the followingquote from CocaCola'sstatement on diversity:

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rnent lo diversity in all it sforms at The Coca-ColaCompany as a core value.Diversity-of race, gender. sexual orientation,ideas, ways of living, cultures and business practices-provides th e creativity and innovationessential to our economicwell-being. Equally important is a highly motivated. healthy and productive workforce thatachieves business success through superior execution an d superb customer satisfaction. "7

Relate this quote to thecase and to the behavioral approaches tomanagement.

S. How does Coca-Colascore on the eight attributes of performance excellence?

4. Do you think DouglasDaft will be successful inregaining th e growth andvalue experienced underRoberto Goizueta?

You Do the Research1. While stock prices have

declined since 1998. what

has happened to revenues and income overthe same period?

2. What are Coca-Cola'sunderlying beliefs? Seeth e following website:www2.coca-cola.com/ourcompanyIourbeliefs.html.

S. Read Coca-Cola's statement on diversity. Whatinsights does it provide?See the following website:www2.coca-cola.com/ourcompanyI ourdiversity.html.
http:///reader/full/www2.coca-cola.comhttp:///reader/full/www2.coca-cola.comhttp:///reader/full/www2.coca-cola.comhttp:///reader/full/www2.coca-cola.com

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MLJP - Vjezba 1. - CS Coca-Cola