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Case Study: Bubbles Plc.

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Case Study: Bubbles Plc.

The Company:

The Company, Bubbles, was formed in 1959 and is a small scale business employing 55 people. It was started by three brothers and a friend who continue to run the soft drink company while holding the majority of the shares. Though Bubbles is a simply structured firm yet the sales have grown steadily. Even though it has a national distribution network most of its sales are in the southeast. Typical of all firms its sales are highly seasonal with peaks in the summer. Two wholesalers supplying to independent retailers handle its sales in the southeast. Bubbles has market competition with both national and international soft drink manufacturing firms of reputed and established brands. It is laudable on Bubbles part to have survived tough competition by maintaining tight control over costs and competitive pricing. The firm needs to have a future strategy designed to indicate where it will stand in the coming years. It needs to decide on its stand in the coming years whether it should expand or remain financially independent.

Mission Statement:

Bubbles lacks a mission statement. A mission statement is very important for outlining future strategies and also, according to Drucker (1947), developing a business mission is a big step towards management effectiveness. Hidden or half-understood disagreements on the definition of a business mission underlie many of the personality problems, communication problems, and irritations that tend to divide a top-management group. Bubbles could set up a mission statement laying stress on the firm’s name. Its mission statement could possibly be “Bubbles brand power is our pride, our inheritance, our future. With a powerhouse of trademarks that proclaims innovation, quality, and consumer trust, Bubbles will leverage brand strengths to deliver profitable, sustainable volume.”

ternal Analysis:

The only thing certain about the future of any organization is change, and planning is the essential bridge between the present and the future that increases the likelihood of achieving desired results. Planning allows an organization to identify and take advantage of external opportunities and minimize the impact of external threats. It allows a firm to adapt to changing markets and thus shape its own destiny. Swift adaptation is needed today more than ever before because changes in markets, economics, and competitors worldwide are accelerating. Internal strengths and internal weaknesses are controllable activities within an organization that are performed especially well or poorly. The process of identifying and evaluating organizational strengths and weaknesses in the functional areas of a business is an essential strategic-management activity. It is important for organizations to capitalize on internal strengths and improve on internal weaknesses.

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No organization or individual can escape change. But the thought of change raises anxieties because people fear economic loss, inconvenience, uncertainty, and a break in normal social patterns. Almost any change in structure, technology, people, or strategies has the potential to disrupt comfortable interaction patterns. For this reason, people resist change.

According to Edgar Schein (1985) organizational culture can be defined as “a pattern of behavior developed by an organization as it learns to cope with its problem of external adaptation and internal integration, that has worked well enough to be considered valid and to be taught to new members as the correct way to perceive, think, and feel.” Organizational culture significantly affects business decisions and thus must be given due consideration. Organizational culture captures the subtle, elusive, and largely unconscious forces that shape a workplace. Remarkably resistant to change, culture can represent a major strength or weakness of the firm.

Lorsch (1986) in his studies found that executives in successful companies are emotionally committed to the firm’s culture, but he concluded that culture can inhibit strategic management in two basic ways. First, managers frequently miss the significance of changing external conditions because they are blinded by strongly held beliefs. Second, when a particular culture has been effective in the past, the natural response is to stick with it in the future, even during times of major strategic change. This is basically what’s been happening with Bubbles. Even though Bubbles has a forecasted growth of 8% per annum likely to continue yet its directors shy away from expansion. There is a determination among the directors to retain the independence of the firm, and to maintain its sales and profitability. They are being extremely cautious and refraining from adopting expansion policies. The thing that prevents them from increasing the capital input is that at present the company is totally financially independent and if it expands its operation then for that it would require financial assistance, which means financial dependency on the source. This major reason prevents Bubbles from expanding even though it has enormous success potential.

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The only thing certain about the future of any organization is change, and planning is the essential bridge between the present and the future that increases the likelihood of achieving desired results. Planning allows an organization to identify and take advantage of external opportunities and minimize the impact of external threats. It allows a firm to adapt to changing markets and thus shape its own destiny. Swift adaptation is needed today more than ever before because changes in markets, economics, and competitors worldwide are accelerating.

Bubbles needs to have a proper strategic plan for its future and therefore it is necessary to do a SWOT analysis of the firm. According to Weihrich (1982) the Threats-Opportunities-Weaknesses-Strengths (TOWS) Matrix is an important matching tool that helps managers develop four types of strategies: SO Strategies, WO Strategies, ST Strategies, and WT Strategies. SO Strategies use a firm’s internal strengths to take advantage of external opportunities. WO Strategies aim at improving internal weaknesses by taking advantage of external opportunities.  ST Strategies use a firm’s strengths to avoid or reduce the impact of external threats. WT Strategies are defensive tactics directed at reducing internal weaknesses and avoiding environmental threats. Let us analysis Bubbles using the TOWS Matrix.

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Strengths:

  1. Growth of around 8% per annum
  2. Financially secure
  3. Harmony and contentment among the management

Weaknesses:

  1. Lack of strategic-management system
  2. Finance not enough for expansion

Opportunities:

  1. Western European unification
  2. Rising trend to healthier and natural products, including additive and sugar free drinks, and to bottled water, as well as new age drinks such as flavored iced tea.

Threats:

  1. Increased dominance of supermarket chains, such as Sainsbury and Tesco, selling “own label” as well as branded products.
  2. Significant improvements in cola syrup, which has prompted Virgin to enter the market, and for Sainsbury’s own label to dramatically increase its market share.
  3. Increased competitiveness likely after 1992, with firms seeking to establish European brands.
  4. Significant costs involved in meeting EEC bottling standards from 1997, particularly for firms operating older plants

External Analysis:

External opportunities and external threats refer to economic, social, cultural, demographic, environmental, political, legal, governmental, technological, and competitive trends and events that could significantly benefit or harm an organization in the future. Opportunities and threats may include the passage of a new law, the introduction of a new product by a competitor, a national catastrophe, or the declining value of currency. Social, cultural, demographic, and environmental changes have a major impact upon virtually all products, services, markets, and customers. Small, large, for-profit and nonprofit organizations in all industries are being staggered and challenged by the opportunities and threats arising from changes in social, cultural, demographic, and environmental variables. Local, state, and federal laws, regulatory agencies, and special interest groups can have a major impact on the strategies of small, large, for-profit, and nonprofit organizations.

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Collecting and evaluating information on competitors is essential for successful strategy formulation. The market trends and present situation are some of the important aspects of the soft drink industry.

One common theme affecting the soft drink industry is the product life cycle. The soft drink industry has reached its maturity along the product life cycle within the domestic market. Cost management, product differentiation, and marketing become more important as growth slows and market share becomes the key determinant of profitability. In foreign markets the product life cycle is in more of a growth trend and this is leading the dominant players to place more emphasis on market share abroad.

The soft drink industry realizes a high sense of brand recognition and loyalty. This brand loyalty is heavily promoted by both market leaders and niche producers and results in an effective barrier to new entrants. The brand recognition is present throughout the industry.

Another barrier to entry is the extensive franchised network of bottlers. Control over buyers’ power is attained through franchise rights granted to the bottlers, which create high switching costs and decrease the likelihood of substitution. Power over suppliers is due to the commodity nature of inputs and the ease of substitution between suppliers. One area in which bottlers have power over their concentrate suppliers is the suppliers' ability to switch to a more lucrative concentrate flavor. 

For a firm to succeed it needs to have competitive retailers to carry a line of products or risk the loss of sales.
Soft drink manufacturers over the years have increased competition and rivalry through investments in advertising, promotion and marketing.

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For expansion a company should follow a philosophy of maximizing their worldwide market share. Focus should be on attainment of market share and high levels of volume, which lead to large economies of scale and high sales. This in turn creates profit levels, which allows the company to make less efficient use of its assets and capital and continue to obtain more market share and global distribution

It is foremost in a company’s interest to take a more innovative and dynamic strategy in the attempt to achieve market share at the expense of fierce competitors.

New competitors and even existing small ones, are faced with extensive capital expenditure hyped by the harsh competition brought about by the strong presence of soft drink giants. Further, as the industry grows into the world markets, players will not only be required to maintain their market shares in existing territories (especially in home market) but, will also have to subsidize their expansions to the new ones. The race for market share and profitability in this industry is far from over.

The potential of the youth soft drinks market is huge: American teenagers now consume twice the volume of carbonated drinks as they do milk, whereas the opposite was true in the late 70s. While this trend may be more pronounced in the US, it is being replicated to some extent across the developed world. With children drinking around 200 litres of soft drinks per head in the United Kingdom alone, soft drinks manufacturers are increasingly focusing their marketing efforts on attracting the younger generation. Marketing to the youth market as a single, homogeneous consumer group is no longer a relevant approach. Segmenting young consumers is something manufacturers and retailers need to take to a new level.

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Alternative Strategies:

Bubbles has only two wholesalers in the southeast section if more wholesalers were contacted in areas around the country instead of concentrating solely on the southeast it would help greatly in enhancing its market.

Recommendations:

A major strategic issue facing Bubbles is should it expand with growing global economy or remain a small-scale business and thus financially independent? With annual sales on the rise there is little need for Bubbles to adopt such a cautious policy. As mentioned earlier significant rise in costs are likely to take place after 1997 for meeting EEC bottling standards, particularly for firms operating older plants. This would be very costly for Bubbles and may decrease its profits dramatically as costs rise or even worse can lead to losses as well. With growing market economy it is ideal for Bubbles to expand. To adopt a safer strategy the firm can expand slowly. It should stay national at this stage of expansion but instead of concentrating only on the southeast, other areas of the country must be explored and advertising strategies launched to widen the existing national market. As the demand for Bubbles grows with properly designed marketing and advertising the firm can slowly start expanding its size and experimenting in manufacturing new age drinks such as flavored iced tea.

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References

Schein, Edgar. “Organizational Culture and Leadership” San Francisco: Jossey-Bass. 1985

Lorsch, John. “Managing Culture: The Invisible Barrier to Strategic Change,” California Management Review 28, no.2 .1986

Weihrich, Heinz. “The TOWS Matrix: A Tool for Situational Analysis,” Long Range Planning 15, no.2 .April 1982

David, Fred R. “Strategic Management,” New Jersey. 1997

Retrieved from this website on 19th October 2001
http://www.geocities.com/wallstreet/exchange/5576/coke.html

Drucker, Peter. “Management: Tasks, Responsibilities, and Practices,” New York: Harper & Row, 1947

 
 


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