In the case, major differences across European markets had led UC to establish national subsidiaries. Each subsidiary is led by a country manger and focused on local products and markets. Therefore, with the segmentation of the market and identification of target market, UC has positioned itself in focus part with the matrix. Further, each subsidiary had its manufacturing, marketing, R&D and other functions. The country managers could operate with wide latitude to make product and marketing decisions based on their market understanding that would maximize the subsidiary’s local profit. New products are innovated and different marketing approaches are designed in each market to differentiate UC with other competitors. In this sense, UC’s competitive strategy is certainly closer to differentiation focus strategy. However, with increasingly competition of European cereal market, the margin of UC came under pressure. Achieving lower costs and implementing more efficient processes became vital. Most CMs now relied on cost reductions in their existing portfolios to maintain profits rather than launching new product. As a result, the competitive strategy of UC might turn to cost focus strategy.
The implementation of “UC way”
Without regarding the attractive vision and “UC Way”, the “brand management” system, which was pioneered by UC in the food industry, is absolutely a significant factor to keep UC as the market leader over a century. In this system, brand managers are authorized with the leadership of cross-functional teams. Each brand is managed as a mini profit center and is constantly measured against other brands. Based on this structure, intense competence for the support from R&D and the resources for product development do exist among different brands, which greatly reduced lateral communication within the system. However, the vertical communication is strong within each brand, and top managers are very involved in seemingly mundane brand decisions, such as advertising copy and label changes. With the special emphasis on the vertical communication, it is definitely a complex process to obtain the final approval for each single brand due to the high value attached. The complicated process itself reflects the “UC Way” pretty much by “honoring the past”. During this process, all brand managers are supposed to “listen to the customer” for making the right decision in order to “spot the trend and make the market”. In the end, few risks, as a result of this process, are taken by the company, which is certainly meaningful for “embracing the future”.
Obviously, highly competitive relationships among these small profit centers drove each brand team to improve the productive efficiency with limited resources. In this way, resources (R&D supports, budget, etc.) could be most efficiently used. However, there could be a fair problem if the resource distribution is more liable to the more effective brand teams. Prudent attitude for every big or small decision keeps an ideally low level of the risk for the company and protects the good image of the brand, which is profitable for UC. But the deliberate cautiousness generates more administrative, marketing and transaction cost. Within the “brand management” system, how to grab the market chance which is likely profitable in time while other competitors also could discover is an extremely vital problem to be solved.
We should step further into more specific of its implication and how it reflects UC’s own positioning according to Porter’s generic strategies. Based on the different requirements from each “mini UC”, different combinations of more than 100 branded products are distributed to each individual national subsidiary. According to the various preferences among these European countries, brand managers produce new products or promote the same branded product in different proper way to adapt the local situation, this is apparently in line with UC’s positioning in the differentiation focus strategy. With regard of the increasingly competitive cereal market and the huge price and profit pressure, limited budget provided little chance for developing and launching new branded products with high costs. Therefore, brand managers preferred the product extensions than new product introductions. In this sense, it is largely in line with UC’s positioning in the cost focus strategy.
II. The European Market
a. The SWOT analysis of UC’s environment in Europe
SWOT is a widely recognized analysis tool that is used in strategy decision-making. It combined the analysis of internal resource “S” (Strength) and “W” (Weakness) with external environment “O” (Opportunity) and “T” (Threat).
In the external analysis, an opportunity is a situation that the firm is favorable when considering its environment. Deregulation or improved political, innovation of new technology, and decreased barging power to suppliers or buyers are several representatives of opportunities. A threat is a situation that a firm is unfavorable when considering its environment. Social change or tightly regulation, undesired technology changes, and lost of key suppliers or buyers are some representatives of threats. For internal analysis, strength is a resource that a firm owned and has competitive advantage compare to other firms. Strength makes a firm to serve its customers more or better than its competitors. On the contrary, a weakness is a resource impedes a firm to meet the needs of customers or reduce the efficiency of it. A weakness is what a firm wants to avoid and to minimize the bad effects.
Then turn to UC’s case. The European market provides several opportunities for UC. In traditional, the European counties have different tastes and habits of breakfast. However an interest of healthy foods, which is mainly showed among aging baby boomers in both United States and Europe, has grown in the late 1990s. More natural and less sugar in cereal products has become a key trend in the cereal industry. This gives UC an opportunity to launch a new product to meet the new demand of the Europe market. Besides, the technology of freeze-dried fruits enables UC to produce healthy cereal without many additives. Moreover the EU has loosen its regulation of labeling, advertising, and general marketing practices, which also represent some opportunities for UC in the European market.
On the other hand, some major threats are facing UC in the European market. In 2003, Kellogg, the toughest competitor, has already introduced Special K with freeze-dried strawberries to the European market, with Cereal Partners followed in 2007. These two firms compete fiercely with UC in almost every European country. The competition is growing dramatically in European market. In addition, the market growth of cereal industry has slowed to less than 1% annually, which makes UC’s margin growth under great pressure. Moreover, contract to the trend of customers’ preference to lower-priced products after the global recession, UC has experienced growing price and may continue to suffer from this trend.
b. The Porter’s Five Forces analysis of UC’s environment in Europe
In the article “How Competitive forces Shape Strategy” of Michael E. Porter (Micheal E. Porter, 1979), Porter listed the major five forces which consist of the competitive environment a firm is facing. They are threat of new entrants, bargaining power of supplies bargaining power of customers, threat of substitute products or services and position among current competitors (competition in industry). The relationships between the five forces can be seen in Figure 1.
Threat of new entrants
Bargaining power
of customers
Competitions in industry
Bargaining power
of supplies
Figure 1
Threat of substitute products
- Threat of new entrants. Usually, new entrants will grow the capacity of the industry, but also increase the competition for recourses and customers and may cause the market share to change. In the European market, the experience of Pod Café coffee pods showed that the entry barriers are not high enough to stop new entrants. Thus for UC, the threat of new entrants is not low and UC may face many newcomers in the market.
- Bargaining power of supplies. The more bargaining power the supplies have the more pressure a firm bear to earn profit. With the growth of the bargaining power of supplies, the firm is difficult to cover the cost. In the European market, UC is facing increasing price, which indicate that the bargaining power of supplies cannot be ignored.
- Bargaining power of customers. Similar to the bargaining power of customers, the more powerful of customers, the less profit a firm can earn. The sales price is hard to make a profit when the customer has great influence on the price of the products or service. Through the 2008-09 global recession, the customers are intending to choose lower-priced products. This actually increases the bargaining power of customers and put pressure on UC.
- Threat of substitute products. Substitute products usually limited the capability of a firm to earn more profit by placing a ceiling on the price. In order to keep the customers or even draw back customers, updated products should be available. In European market, there is a variety of national traditional for breakfast. Customers are easily and frequently eat different foods for breakfast other than cereals. Keep on developing new products to meet the customers’ need is important for UC to maintain its market share.
- Competition in industry. In a highly competition industry, its difficult for a firm to earn abnormal profit and rapid growth rate. Low price, high quality or differentiation products help a firm to compete with other players. In UC’s case, the two biggest firms UC and Kellogg control a total of 46% market shares, with the biggest four make of 70% market share and numerous smaller firms divided the remaining 30%. The cereal market in Europa is a highly competitive market.
c. The standard expanding way of UC’s business in Europe
When a firm decides to expand to international markets, there are several ways to choose. Export, franchising/licensing/contract, joint venture, foreign branch, private equity investment, and wholly owned subsidiary are of commonly used approaches (Pearce, J.A. Robinson, 2009).
In 1952, UC first entering European market by acquiring an established company located in UK. In the following 30 years, UC used the approach, wholly owned subsidiary, to expand its operation in European. First acquiring an established local firm, then introducing products of US lines to grow it. Through the stand way of expand, up to 2009, 20% of global sales of UC are contributed by European market.
By wholly owned the foreign subsidiary, a firm is flexible to introducing new products from matured market into the new market. This give UC the advantage to diversify the product line and to meet different needs of customers. Besides, through acquiring local company, UC entered the new market by using the existing distribution channel and relationship with suppliers. These help UC to reduce the complexity of new market, which may face most wholly owned foreign subsidiaries.
Several disadvantages also associated with this approach. First, it is always a challenge to integrate the acquired firm to the global company group and share the same corporate values, policies, and views. Moreover, compare to other approaches, the subsidiaries has to take the whole risk and deal with it solely when facing any unfavorable conditions (bankrupt, operation loss, and etc.). However, through other approach listed above, the parent company can take some risk for its foreign branch and the cooperation local company can share the risk with the parent company. All can reduce the risk a firm face when expanded the operation into a foreign market.
III. Strategic Choice: Launch of Healthy Berry Crunch in France
a. To launch or not to launch
Based on the previous analysis of the European environment, Laura should launch the Healthy Berry Crunch in France. The following facts also support our decision.
First, France has shown interest in healthy food. The test results for Healthy Berry Crunch blueberry version in 6 French cities had 64% intention to buy which is an exceptional number considering this as a new product. Besides, the consumer panel results in Benelux and Germany are also in favor of Healthy Berry Crunch. This meets the previous SWOT analysis, which pointed out that the trend of the industry its move to more healthy food, which gives an opportunity to UC. Moreover, as mentioned before, EU has loosened its regulations of labeling, marketing practicing, which also indicate an opportunity to UC.
Second, The Kellogg’s special K with strawberries is the only competitive product in the French market in this new segment since last 4 years. Meanwhile there are rumors about the launch of Berry Burst Cheerios in France by Cereal Partners, another competitor. Moreover, the Podcsafe case tells that the changes in the market and the launch timing will decide the fate of the product line. In this new segment the competition is now fierce yet but new entrance are coming, so become a new comer will have some advantages. Hence the product should be launched in France first.
Third, considering the savings of 10-15% in the overall costs of all Europe, the launch of Healthy Berries Crunch seems to meet the company’s long-term strategy of streamlining the operations and product matrix of Europe. Also the innovation in the products had been at the core of UC’s history and the launch of Healthy Berry Crunch will be in line with this core value.
In addition, some experts may also agree with the decision to launch this new product. One of those is Kurt Jager, Northern Europe Divisional VP and Europe’s most knowledgeable person about Breakfast Cereal Strategy in company. In his statement, the customer tastes in “Europe is converging and old cultural habits are disappearing.”
b. How would the launch reflect the UC way
Based on the analysis in the first part of this essay, the launch of Healthy Berry Crunch appears to be only partially in line with the UC way.
- Constant innovation: The launch of Healthy Berry Crunch cannot be considered as a totally innovation but as an improvement of the already existing product line Healthy Crunch. Market research in France, UK, Germany, and Benelux showed that the improvement is just right for the market.
- Customer and market oriented: By launching Healthy Crunch, UC already did this. As the growth of Healthy Crunch is now constant and new trend is moving to more healthy food, the market can be extended by adding new product line, which is by introducing the Healthy Berry Crunch in France. This extend fits the way well.
Thus even though the launch of Healthy Berry Crunch will not exactly fit the UC way, it is in line with it.
IV. Strategic Choice: Should Healthy Berry Crunch become UC’s First Eurobrand
a. The concept of “Eurobrands”
Eurobrands is a coordinated Europe wide strategy towards product marketing, which had succeeded in product development for UC. As Consumer tastes are converging, old habits are disappearing, and EU regulation is eroding market differences, a potential can be seen in having homogeneity of products across Europe, by standardizing the products as well as their marketing, promotion and advertising.
By launching Eurobrands, UC will be able to cut their product development and marketing costs by 10% to 15% over 3 years. It will also give UC to be a step ahead of their competition. By being the first one to introduce such an idea, it will give UC a strong market penetration if the idea turns out to be successful. This launch will also expand responsibilities of country managers as a lot of cross-country interaction will be required. This interaction will also bring UC employees much closer and make it a true European entity. But this could lead to a change in existing structure at UC, which is a vertical structure with a long authorization channel. Eurobrands will require a very flexible management structure.
However, launching Eurobrands could also lead to a potential loss of UC way, which is “Listen to Customer”. Unless UC tests Healthy Berry Crunch across Europe, it would never know if the customers across Europe want it or not. Launching Healthy Berry Crunch in France alone will cost at least $20 million, which is twice the approval level of Laura Brill and 10 times the approval level of Jean-Luc Michel, the Division VP for Southern Europe. Moreover, there is difference in opinions across UC over this strategy and this will create future hurdles for Eurobrands to succeed as a European strategy.
b. The analysis of the establishment of Eurobrands
Launching Healthy Berry Crunch as the first Eurobrand will give UC a first mover advantage over its competitors. Although there are cost associated with the launch of Healthy Berry Crunch as Eurobrand, but also UC is going to save between 10 to 15% in product development and market costs over three years. So the savings will compensate the cost associated with the launch. By establishing Healthy Berry Crunch as a Eurobrand, it will give UC a strong advantage over its competitors and make it difficult for a new competitor to enter this market. Even if the sample size of “the test market and consumer panel results” is too small, the overall outcome is very positive. As mentioned before, Consumer tastes in Europe are converging as market differences are eroding. Hence, it won’t be too unrealistic to assume that Healthy Berry Crunch will be well received across Europe. UC will have to change their organizational structure in order to support Eurobrands and this might lead to some friction within the company. Laura has a very short time period to make her decision and after weighing the pros with the cons, it makes sense for Laura to show a green flag to Healthy Berry Crunch as the first Eurobrand.
V. Organizational Structure to Support effective implementation of Eurobrand
Following the discussion of UC’s strategy, this part will concentrate on the organizational structure of UC to give some advice on how to change the current structure of UC in order to make it consistent with the “Eurobrand” strategy.
a. The relationship between a structure and a strategy
Theoretically speaking, organizational structure is the formal system of task modules, which reflects hierarchical relationships within a company, controls the coordination between employees and motivates employees to behave consistently with the organization’s strategic plan and objectives (Joseph R. Cerami, 2000). Every company has its unique organizational structure, which embodies the history, culture and strategy of this organization. The structure and strategy of an organization are highly correlated. Structure is all related elements, such as the people, procedures and culture, which make up an organization; all aspects involving structure have to be integrated with the organization’s strategy. When the strategy is changed, the structure has to be verified to support the new strategy. If it doesn’t, the structure is like an obstacle in developing the new strategy and will eventually force the company back to its previous strategy. On the other hand, when structure is changed, the strategy has to be changed as well to fit the new structure ( Jones , 2010).
In general, a right structure is the crucial element that leads a company’s success. If management concentrates only on the final target and does not care how the organization works as a whole, people in this organization will work in their individual ways, which is absolutely inefficient for the organization unless every part and every employee works collaboratively and every operate, effort and resource supports the strategy.
b. The analysis of Laura Brill’s structure
According to Laura Brill’s concept, the UC Europe Organizational Structure will firstly contain central Eurobrand Teams which are composed of brand managers from every country subsidiary, delegates from each functional group such as logistics, engineering, R&D and so on, and one appropriate Vice President who is in charge of specific regional divisions. What’s more, the responsibilities of the VPs will be also enlarged: in spite of that they already charged divisions, VPs should also concern as advisory about appointed products in whole Europe, which means VPs will be responsible for the cross-market coordination and communication of certain products. The country subsidiaries system exists at the same time, with the only changes in the importing of brand managers. Laura’s proposed new organizational structure is complex and doesn’t suit to any traditional structures’ form strictly. At first glance, it is a multidivisional matrix structure, since there are also three division VPs who are in charge of different regions in Europe besides one director for each function department. However, the traditional the new structure is more than that: because each division VP is also responsible for different product groups Europe wide, this forms a product team structure. Hence, as is shown above, Laura’s proposed organizational structure is quite complicated.
Learning from the “fruit juice disaster”, Laura doesn’t want to dilute the authorities of country managers in order that she can get support from these CMs, as a result of which she sets VPs’ roles as advisory for products so that these senior managers’ experience and position can be taken advantage of. Moreover, having gained insights from the European Technical Teams, Laura plans to found Eurobrand Teams which can better serve for her Eurobrand strategy. Laura’s concept can make the very use of significant resources like marketing and R&D; it can also earn coordination, control and overview of the UC’s whole business in Europe, thus solving the difficulties of UC in Europe; because the main problems of UC recently are the increasing pressure from price and profit due to high expenses of marketing and product development teams in each country, as well as the lack of effects on economies of scope and of scale. Based on the real situation and lessons from the past failure, Laura’s concept of “Eurobrands” and her proposed organizational structure take the critical factors into consideration, so it is not sudden to arrive in the conclusion that this concept and the structure will be more successful than the fruit juice launch.
To UC’s generic strategy and “Eurobrands” strategy, Laura’s proposal organizational structure is also appropriate. The current structure of UC in Europe is made up of national subsidiaries led by country managers. Each CM makes his or her own market decisions and determines which product to introduce in order to maximize the subsidiary’s profit. This current structure is lack of consistent strategy throughout Europe. Product selection process is a weakness, because of UC’s limited awareness to regard Europe as a whole. UC’s CM structure in Europe is not helpful for the products and brands that coordinate with their new strategy. As is mentioned before, UC’s original generic strategy is differentiation strategy; however, due to increasing competition in Europe, its strategy has a trend to cost focus strategy. The SG&A cost of current CM structure is 25% higher than the cost of the counterparts in US, because marketing and development has to be done by every country’ working team before product is introduced; while based on the estimation of her finance director that implementation of coordinated European product strategies will lead to staff reductions and other savings, Brill’s proposal structure integrates the marketing and development teams of specific kind of product, which may cut off the cost in accordance with cost focus strategy.
Laura’s Eurobrand strategy is committed to push French Healthy Berry to the whole Europe. Obviously UC’s current structure is not proper for this strategy, since in every country CMs are making decision on their own product marketing and development without reporting to a single person in charge of Eurobrand, and this may make Eurobrand seem like several other brands and lead chaos if Eurobrand really comes into being; while Laura’s proposal structure implicates a European products manager system, which integrates the market operations in different countries and this benefits the Eurobrand by forcing different subsidiaries acting collaboratively.
Though Laura’s proposal structure is appropriate in some sense for both UC’s generic and Eurobrand strategy, the structure can be improved in a few aspects for her inconsideration of some potential problems. For instance, the implementation of new strategy can be effective only when employees within the structure are able to work together and communicate easily. When restructured, the organization should focus on lines of communication. Besides, as division VP evolved in brand management, the hierarchy of UC will become more complex, which will result in a longer information chain; hence, Laura should make sure that hierarchical structure is clear and efficient, and that every employee feel they are evolved in the decision-making process.
Reference
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James C. Collins, Jerry I. Porras (1996). Building Your Company’s Vision. Harvard Business Review.
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M. Pretorius (2008). When Porter’s generic strategies are not enough: complementary strategies for turnaround situations. Journal of Business Strategy. Vol. 29, No. 6, pp. 19-28.
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Ovidiu N. Bordean, Anca I. Borza, alt (2010). The Use of Michael Porter’s Generic Strategies in the Romanian Hotel Industry. International Journal of Trade, Economics and Finance. Vol. 1, No. 2.
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Micheal E. Porter (1979). How Competitive Forces Shape Strategy. Harvard Business Review, pp.102-117.
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Pearce, J.A. Robinson (2009). Formulation, Implementation and Control of Competitive Strategy. 11th editon McGraw-Hill.
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Joseph R. Cerami (2000). Research in Organizational Design: The Capacity for Innovation in Large, Complex Organizations. The Innovation Journal.
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by
amandawenjiao (student)
