Change Management – Coca Cola Corporation
How it works
The Coca-Cola Company is a leading nonalcoholic beverage company, owing or licensing and marketing more than 500 brands. Among the world’s top five nonalcoholic sparkling soft drink brands, four of them is owned and marketed: Coca-Cola, Diet Coke, Fanta and Sprite. There are two main businesses ‘concentrate business’ consists of beverage concentrates and syrups as well as fountain syrups; and ‘finished product business’ implies finished sparkling soft drinks and other nonalcoholic beverages are manufactured and sell in the markets. Generally, net operating revenues generated by finished product operations is higher but lower gross profit margins than concentrate operations.
Coca Cola Corporation has gone through many internal and external changes since it is among one of the oldest corporations of the world. The use of techniques of change management and innovation helped Coca Cola to survive from the consequences of those events.
How it works
Change can be alternations in people or in structure or in technology. Basically, “change is a variation in the common way of doing things. Whenever people perform a task in a certain way, they get accustomed to them. They develop methods which they can implement routinely to achieve these tasks. Any variation in these methods is nothing but CHANGE.” (L1-Changement, p3) Change occurs due to external and internal factors. External factors are such as marketplace, government laws and regulations, technology and economic, while internal factors are technology, workforce, corporate strategy, equipment and employee attitudes. (L1-Changement, p4-6)
According to MacCalman and Parton, external environment is the most influential factor that triggers changes in an organization:
- “due to competition, changes occur
- the tastes and expectations of the consumers changed
- the value systems of the society changed
- the supply chain and the distribution chain changed
- due to modifications in the economy whether local or internationally, changes occur
- technology being utilized changed
- because of legislation by the government, changes occur
- the communications media changed”
Resistance to change can adversely affect organizations resulted in higher risks and losses. In this case, “Coca Cola like any other company is a type of company that requires making changes in its products and business strategies according to the consumer expectations and external environment.”
“The nonalcoholic beverage segment of the commercial beverage industry is highly competitive and Coca Cola’s competitive challenges include strong competition with from small to large and well-established companies in all geographic regions and, in many countries, a concentrated retail sector with powerful buyers able to freely choose among Company products, products of competitive beverage suppliers and individual retailers’ own store or private label beverage brands. Significant competitors in many other countries including the United States are PepsiCo, Inc., Nestlé S.A., Keurig Dr Pepper Inc., Groupe Danone, Mondel?z International, Inc., The Kraft Heinz Company, Suntory Beverage & Food Limited and Unilever. It also competes increasingly, against smaller companies that are developing micro brands and selling them directly to consumers through e-commerce retailers and other e-commerce platforms.” (10-K filling report)
“Products are competitive which are sold to consumers in both ready-to-drink and other than ready-to-drink for, including numerous nonalcoholic sparkling soft drinks; various water products, including flavored and enhanced waters; juices and nectars; fruit drinks and dilatable (including syrups and powdered drinks); coffees and teas; energy, sports and other performance-enhancing drinks; milk and other dairy-based drinks; functional beverages, including vitamin-based products and relaxation beverages; and various other nonalcoholic beverages.” (10-K filling report)
“Competitive factors impacting its business include pricing, advertising, sales promotion programs, in-store displays and point-of-sale marketing, product and ingredient innovation, increased efficiency in production techniques, the introduction of new packaging, new vending and dispensing equipment, contracting with marketing assets (theaters, sports arenas, universities, etc.) and brand and trademark development and protection.” (10-K filling report)
Coca-Cola is the market leader in the non-alcoholic beverage industry, with sales of $ 42 billion and serving more than 500 brands in more than 200 markets. Soft drinks seem to be a mature market to some extent, but the market is still growing at an annual average of 4%. Coca-Cola has a clear value creation model that it has a consumer-centric brands and shares the value gained by brand stretching among companies, intermediary companies, customers, etc., and enhances brand value by further investing in systems. (Investor Overview)
However, environment is changing over time and it is facing the issues such as the natural environment, sugar and functionality, digital evolution, changes in shopping patterns, and increased awareness of importance of social license.
Thus, Coca Cola is in the midst of change to transform the company as below:
- Accelerating a consumer-centric brand portfolio
- Reducing sugar footprint
- Driving top-line growth and operating margin expansion
- Segmented revenue growth strategies
- Delivering productivity
- Implementing a new operating model
- Leading a system of strong aligned partners
At the beginning of 2014, it focused on 5 strategic actions to drive their transformation: focus on core business model; streamline and simplify; drive efficiency through aggressive productivity; focus on revenue through segmented market roles; disciplined brand and growth investments. And it had revitalized activities such as organizational capacity and leadership structure, brands, portfolios, bottling systems, cost reductions, and marketing communication. These actions have resulted in higher core business sales compared to the market environment (Personal Consumption Expenditure).
In 2016, it delivered growth and operating margin improvement. As a result, overall sales increased 3%, core business sales increased 4%, and profits increased 8%. But accelerated underlying performance had been offset by currency and structural impact as compared to previous years. (Investor Overview)
The key strategies for 2017 were “accelerate growth of consumer-centric brand portfolio, drive revenue growth, strengthen its system, digitize the enterprise- ‘Click’s reach of desire, unlock the power of its people. It grows its portfolio in 3 ways: innovate locally; scale globally; drive M&A. Five actions were taken to reduce sugar footprint 1. focus on zeros 2. Reformulate to reduce sugar 3. Drive small packs 4. Downsize select single-serve packs 5. Accelerate portfolio expansion of low/no added-sugar drinks.” In order to drive revenue growth, dividing the market into two segments- emerging markets like China and developed markets like North America. By strengthening the system to improve local market performance, franchise system had been significantly changed, and merger of bottling companies and expansion in various geographic regions had been executed.
After the transformation, Coca-Cola’s share of the entire supply chain would be significantly smaller, with independent bottlers in each region account for 97%. Also, as it transferred employees to independent bottlers, the number of Coca-Cola employees would be reduced from 100,000 in 2016 to 39,000. (Investor Overview)
Coca-Cola needs to increase sales and improve profitability while responding to environment changes. The environmental changes include the importance of corporate responsibility (such as sugar reduction) and the acceleration of the digital evolution. To do so, Coca-Cola is promoting changes in its product portfolio and organizational structure. Growth of product portfolio is based on products development, globalization, and M&A, in particular, developing products with reduced sugar and downsizing packages. Due to changes in the organizational structure, the staff of Coca-Cola itself will be greatly reduced, and the proportion of bottling companies in the entire supply chain will increase from 85% to 97%. By doing so, Coca cola aims to achieve both cost reduction and more efficient sales, as well as improved sales and profitability.
Innovation is an essential part for the growth strategy of the Coca-Cola Company. Over the past few years, by accelerating the pace of innovation, it has accomplished sustained growth and success stories in most global markets such as Coca-Cola Zero Sugar. Innovation contribution to unit case volume includes innovation launched in the past 3 years has increased from 9% in 2015 to 17% in 2018. Moreover, the Coca-Cola ® flagship brand has been improved through a more consumer-oriented approach by introducing several innovative beverages around the world which also helped to connect with the modern consumer, including Coca-Cola Plus (with fiber), Coca-Cola With Coffee, and Coca-Cola Energy.
If we look back on history of Coca-Cola, we can learn how innovation helped it to survive against stiff competitions. In 1961, the company developed a product called Sprite to compete against with Pepsi product called 7 Up. Also, in 1974 it was rebranded to Sugar Free Sprite and renamed to “Diet Sprite” in 1983. In 2008, the company introduced Sprite Green which has a different taste of Sprite. During 1985, Coca Cola decided to reformulate its popular carbonated drink, making of a sweeter soda which was named as new Coke.
However, it reverts back to its original product due to market failure, and renamed the original brand as Coca-Cola Classic. “The rebranding was in the effort of creating more customer satisfaction and creating the impression that the product is superior than the original one. This was a psychological approach to customers through a change process.” (IvyPanda, 2019)
Coca Cola should analyze its strengths, opportunities, weaknesses and threats as below Table-1, and identify the need to change by utilizing strengths and opportunities to overcome weaknesses and threats before implementing change management.
The trend in health and fitness and consumer tastes and lifestyles had significantly impact on the business of Coca Cola. Specifically, public concerns about the negative health consequences of certain ingredients in its beverage products, such as non-nutritive sweeteners and biotechnology-derived substances may affect consumers preferences and that could result in additional governmental regulations related to the marketing, labeling or sale of its beverages; possible new or increased taxes on its beverages and threatened legal actions against them or other companies in this industry could damage the reputation and may reduce demand for its beverage products.
If Coca Cola cannot achieve their growth strategy through innovation activities, financial results may be negatively affected. Therefore, Coca Cola should focus on consumer trends and obtain necessary intellectual property protections, and avoid infringing on the intellectual property rights of others. Moreover, if Coca Cola is not able to adapt and thrive in the digital evolution, it will not achieve to increase sales and reduce costs. Therefore, it should find ways to create more powerful digital tools and capabilities for the Coca?Cola system’s retail customers to enable them to grow their businesses; and digitizing operations through the use of data, artificial intelligence, automation, robotics and digital devices to increase efficiency and productivity.
When the expected scenario is left unclear. ‘Details’ and ‘what should be’ are not specifically recognized, there will have issues in change process so it is important to have a clear ‘expected scenario’ that they want to do for themselves.
In most business organizations which are poorly performing do not fully recognize even ‘current problems’, and it is also important to foresee the prospect of what will happen to the business if this situation continues.
To have a sense of urgency or crisis is very important, however, there are still many people in poorly performing companies who do not feel a sense of crisis.
People who have a sense of crisis in the current situation always ask themselves, ‘What kind of action should I take?’ And ‘Why did this happen?’ In other words, a cause analysis is needed before starting the action.
Successful strategies are always simple. Strategies that cannot be explained without taking a long time are likely to be poor strategies. The “scenario for change program” must be as simple as possible.
If leaders of change management are going to push into truly drastic changes, they must choose high-risk options and make decisions step by step. However, those who do not have the insights of experience tend to procrastinate by saying, ‘I have not decided yet.’
It often happens against change scenario that dispute against each subject matter, the details of the action plan are ambiguous and skip to make decisions when there is lack of ability such as precision and leadership.
Change process can be slow due to the repetition of an action and lack of setting a projection and non-stop competitions.
Hinders the achievement: the rewards for those who take the risk are often unreasonably low and not rewarded in terms of promotions or monetary.
Therefore, it is important to embrace change rather than resisting it, ensuring change will bring advantages to all the parties involved by communicating properly the reasons of the need of change so that a smooth transition towards the new change can be implemented in any types of organizations such as organizational structure, design, culture, management and leadership. Moreover, before-and-after implementing change, it is critical to evaluate whether the change would make a best fit with the organizational goals.
I think, we should address the following issues and make changes for our business’s future growth; to change the company culture; to get aligned with the company philosophy and vision; to raise awareness of managers and unleash the potential of employees to create strong teams; bring out the initiative of field employees. It is said that changing the organization may take an average of three years. However, in order to increase organizational strength, we should take an approach to start from a stage where our change plan can be implemented quickly.
- The members do not have the subjective consciousness like ‘ what I want to do? ‘
- No awareness and actions committed to organizational purpose
- Lack of thinking what they can do alone. Passive character with no mindset to take action
Firstly, it is necessary to make friends since we cannot perform everything ourselves, but also to find someone who have the same goal. Although having a lot of friends seem to be better, at first, we should connect with friends only who have the same aspirations. If we fail to do so, we may not be able to perform well due to having a lot of non-serious friends. So, if we want to change something, we will need serious attempts until we succeed, otherwise, negativity from other members can hinder at any phase of our change program. Hence, at initial stage, we should look for some friends who can share the same thoughts.
Secondly, we should look out the things around us instead of working on big things suddenly. The main important factor is that we just do what can do even though it may be too easy to execute. Many people think that the bigger target is more challenging but we should not stop doing what we can do if it is trivial or challenging. The purpose is to create a decent track record. If we can implement small changes and make achievements, people around us will see differently. In other words, if we did not do anything and have no track record, people around us may see negatively as ‘only words’ or ‘why you were so proud of yourself ‘. In order to prevent this from happening, it is important to start from possible thing and execute to achieve results.
It is interesting to note that when we decide what to do, it should be align with future changes. We need to choose something that will bring even a millimeter closer to our vision what we really want to do in the future. Otherwise, even if our change program is in progress, we will not be able to reach the goals we set.
Finally, achieving results are very important and then we can connect further. Once we decide to do it, we should make sure it works in the next step. Since we are trying on what we can do, we should be able to make it possible, however, we just have to stick to the visible results because as mentioned above, this result will lead to increase more members and to gain trust from our superiors. After we gain an achievement from our efforts, we can move forward to the next step. In order to challenge a little more difficult, we should look for new members. We may need to get permissions from our superiors depends on the situations, so we must appeal about our achievements and consult with them. After that, we can repeat the same steps step by step as discussed above and gradually lead up in a spiral path, then we will realize that our company environment has be changed suddenly.
To conclude, if we want to make a change, it is important to consider taking a small step at the beginning. We may be scared of moving in the wrong direction or sometime we may lose our faith and want to give up, it may not be as easy as we think, however, without executing the change just with considering and planning, we will not see the actual changes after all. We can fix if things go wrong so we should start from a small change and take a step forward. If we have a vision, we should try to change and evaluate each stage of changes by approaching toward that vision is essential, I believe.