Sara Lee in 2011: Retrenchment Strategy
Business companies operate in a volatile or competitive environment. In such an environment, there are many forces which may work for or against the business company. More often, the forces generated from the environment have a negative force on the business firm. Therefore firms have to respond to and mitigate these forces so that that can continue to thrive in the market. Depending on the nature of effect which the changes in the internal and external business environment, firms adopt different strategies which seem suitable to suit the situation. These strategies are referred to as competitive strategies (Katz, 2010).
Firms can either opt to focus on a single strategy or choose to employ different strategies in what is referred to as integration and differentiation strategies. The firm has to be very sensitive when choosing a strategy because the strategy chosen can have long term implications on the long-run operation of the firm. Strategic choices are made depending on what other firms that fall within the same industry because their activities often have an impact on the performance thence the competitive advantage of the firm. Strategies aim to raise the competitiveness of a given firm in the industry and the market in which it is operating (Katz, 2010).
Sara Lee is a fairly old company which has been in operation since the year 1939. It began as a small business and kept creating opportunities of growth. The company underwent transformation with different strategies including the change of business name severally. The changes also included merger and acquisitions as part of divestitures. Divestitures as adopted by the management were aimed at sharpening the business focus of the company. It was aimed at putting the company in a more strategic position in the market (Thompson & Gamble, 2012).
As Sara Lee Corporation which is a company that is dealing in food, beverage and household products got a new management in the year 2005; it was evident that changes were needed to transform the corporation. The corporation appointed a new president; Brenda Barnes who came up with a strategic plan that was ambitious. The plan was aimed at transforming the corporation into a more focused firm dealing in beverage, food and house hold products. The new president noted that the firm was running many units of product categories which were not strong enough for the collective performance outcome of the company. Therefore the firm had to cut the number of units. Though the strategy would result in the reduction of the revenues of the company by about 7 billion US dollars, it was seen as the best option. Strategic plans will more often than not result in the disruption of the normal activities and functioning of a company. However, this is supposed to have a short-term effect, owing to the vision and objectives of the strategies used in effecting the plan. The retrenchment plan was expected to result into an increase in after sales tax proceeds (Thompson & Gamble, 2012).
The strategic plan aimed at positioning the selected segments which would in turn lead to strengthen the financial outcomes from the segments and the financial performance of the company. The company was to venture into market segments which looked brighter and promising for the products of the company. The retrenchment initiatives rolled out by the company were to be implemented in a systemic manner. This would see the company improve in sales activities, market share and the growth in profits resulting from the selected brands. The company selected brands that showed prospective signs of improvement in marketing in each of the product units (Daft, Murphy & Willmott, 2010).
The company targeted a revenue increment of about 14 billion US dollars by the end of the year 2010. This would mark a 12 percent increment from the time the time the new strategic plan was set rolling – the beginning of 2005. These targets were however not reached by the end of the year 2010 as had been projected in the plan. Revenue of only 10.8 billion dollars had been raised out of the projected 14 billion dollars. The operating profit of Sara Lee had also improved by only 8.5 percent from the projected 12 percent. Therefore the company had to extend its retrenchment strategies in in order to reach the goals which had not been met. It launched various initiatives among them the diversification of international business and launched several other business growth initiatives like ‘project growth’ (Thompson & Gamble, 2012).
Strategy identification for Sara Lee
For any company to come up with reasonable and implementable strategic plans, it must be able to understand both the internal and external business environment. The firm must also understand the forces of competition and how they can be applied in the firm to raise its competitiveness. The selected strategies must be in line with the main vision and objectives of the company and the position which the company is seeking to attain in the industry in which it exists. All competitive strategies are adopted with the aim of raising the performance and the competitive position of a firm in the industry in which it operates (Daft, Murphy & Willmott, 2010).
Sara Lee chose three main competitive strategies to help it in the post-retrenchment business development activities. Among the competitive capabilities that were going to be used by the company were innovation of new products, competitive pricing and brand building. Others were leveraging and category management which were aimed at improving supplies of the company by fostering good relations with the buyers. The management believed that these capabilities were critical in pleasing and attracting customers to the products of the company. All the selected competitive capabilities formed what can be termed as differentiation strategies for a business company. Product differentiation strategies must touch on the five major forces of competition as was explored by Michael Porter (Thompson & Gamble, 2012).
According to porter, the selected business strategies must put into consideration the price, the suppliers, buyers, substitute products, entrants companies and the industry in which the firm operates. Pricing as a strategy is likened to the focus on buyers in the Porter’s forces of competition. New products were meant to match and compete the products being produced by other companies. Branding of the products was meant to bring out the uniqueness of the products in the industry in which Sara Lee is operating. In one way or another, the competitive strategy selected by a company will often have a relation with the competition forces mentioned above. These competitive strategies form the core pillars on which competitive strategies are formed and implemented (Porter, 1998).
Different categories of competitive strategies exist and the strategy that is chosen by a company often falls under any of these strategy categories. The two main categories of competition strategies are differentiation and low-cost strategies. Each of these strategies has several other strategic approaches lying under it. Each strategy has its strongpoints as well as weak points. Therefore, a company must strive to minimize the con side of the strategy by fully capitalizing on the pros side of the strategy (Day, 2004).
The competition strategy chosen by Sara Lee; retrenchment can be categorized in the low-cost strategy. It aimed at cutting the product units which were not helping the firm to achieve more profits. More cost cutting measures were introduced as the company continued to implement the retrenchment strategy. Sera Lee adopted this strategy form the assessment of the performance of each of the product unit it was dealing in. The management of the firm saw the need to cut down the number of units and strengthen on the remaining units. This was done inline with the assessment of the industry and the range of products that the corporation was dealing in (Daft, Murphy & Willmott, 2010).
When choosing strategies, the company must stress most on its strengths as strengths give a company a strong base on which the strategies thrive. The company must understand that it is in business and therefore, it is not often possible to fully attain the objectives which are laid down. Other forces may present themselves during the implementation thereby preventing the firm from attaining the objectives of strategic plans. This should not come as a surprise to the company but should be used as a founding block on which to craft other minor strategies. These strategies help in refocusing the activities of the firm towards the achievement of strategic goals. The strategies that are introduced in the course of implementing other strategies are usually integrative in nature. They either introduce new activities or invigorate the existing activities. A lot of care must be taken while integrating strategies. If they are not properly introduced, the integrated strategies may sway away the business from achieving the primary goals which preformed the strategic plan (Day, 2004).
The management of Sera Lee introduced a strategic plan in which it laid down the business objectives and targeted outcomes at full implementation. The project accelerate was launched by the company in the year 2008, in the course of implementing the strategic plan. This project was meant to speed up cost saving through the outsourcing of efficiencies in its supply chain and overhead cut-down. This integrative strategy was fruitful as it had resulted in accelerated savings for Sara Lee. It became very helpful in enforcing the retrenchment strategy of the corporation. In the year 2010, Barnes was forced to step down as the CEO of the company on medical grounds. The plans which had been laid down by her had not met the targeted outcomes. Nonetheless, the strategy was productive and the company picked up from where Barnes had left. It ventured on extending the chosen brands in new markets in different parts of the globe (Hill & Jones, 2013).
Analysis of performance of the retrenchment strategy of Sara Lee
Firms reach decisions of coming ump with strategies because of inconsistencies inherent in the prevailing operations. Strategies are therefore leading roads to the improvement in the competitive ability of a business firm. The selected strategy has to eliminate the threats that are posed to the business as well as providing new channels and options for bettering the position of the company. The incorporation of new strategies into a business involves series of actions and activities. These at times calls for a change or adjustment of the structure of an organization. The business picks up slowly as the strategies are enforced and structures tailored to accommodate the changes. It is important for a company to keep assessing the strategies and making necessary adjustments (Hill & Jones, 2013).
As mentioned earlier, Sera Lee adopted several competitive strategies to deal with the situation that was facing the firm. It is important to note the strategies beard some results irrespective of the failure to meet the targets that were set in the strategic plan. The retrenchment of the strategy involved several sub-strategies which involved choosing on a number of products and focusing on strengthening them in the market. Focusing on a limited number of products would help the company in building strong brands in the market. It is cost effective to brand little number of products than dealing with many products. This is the reason why the company was having problems with raising its sales and meeting its financial goals. Exporting the products in the new market was an easy exercise as the brands had been strengthened. It was easy to take brands to new markets once they have been branded. Sara Lee focused on market diversification where it managed to expand its products like beverages in a number of countries across the world. Its beverages have been widely accepted in the international market gaining stronger grounds of competitiveness for the company (Day, 2004).
Well branded products perform well in the market as compared to private or unbranded products. The retail division of the company found in the North- American region concentrated on food products. It attained more sales for these products. This is a pointer to the fact that customers prefer branded products. Brands end up opening more opportunities to a company to thrive in. The food industry offered more opportunities to Sara Lee (Kotler, P. & Pförtsch, 2006).
Economic shocks have negative effects on the implementation of strategic plans by companies. The financial crisis that hit North-America and Europe in the year 2007 was an impeding factor to the success of Sara Lee. The expenditure by customers dropped drastically due to financial crush that necessitated a cut in consumer expenditures. The population was forced to spend less on beverages and restaurants foods where the company was selling its food products. The sales had to drop baring Sara Lee from reaching its goals (Hill & Jones, 2013).
Inventing strategies and setting them rolling do not mean that the management of the company has to sit back. The management of the company has to keep checking on or evaluating the strategies. The management of Sara Lee kept checking on the strategies and making changes as the strategy was in the implementation phase. Strategies are made with objectives and when all the objectives are not met, it does not imply that the strategies were wrong. However, most of the objectives of the objective shave to meet at the end of the day. Sara Lee managed to meet most of the objectives and efforts are still ongoing to meet the extended targets of the retrenchment strategy (Hill & Jones, 2012).
Recommendations for future decisions for the company
Competition has both positive and negative implications for a company. The positive side of it is that it helps a company identify its weak areas of performance and the reasons for this weak performance and seals these areas for improved performance. A company must be very innovative when crafting competitive strategies as poorly crafted competitive strategies will not lead to the attainment of a competitive position. This may further disorient the company leading to kit being out-competed by the competitors in the industry. Sara Lee managed to identify the factors that were leading to poor business performance which helped it to come up with strategies leading to attainment of most of its business improvement goals. The retrenchment strategy was a wise decision for the company as it helped in improving the performance, position and competitiveness of the firm (Shankar & Carpenter, 2012).
Competitive strategies being used by a company have to have a foundation of integrate with the major competitive points of the company. The industry in which the firm lays is an important consideration. This forms the immediate external environment for a company from which competition is generated. The other consideration is customers who are also referred to as buyers. The buyers are the determinants of the success of the firm and they must be supplied with well branded products. Sara Lee managed to execute this exercise. It helped it to acquire and maintain more customers thence boosting sales. A good relationship between the company and its customers must be fostered. This will ensure timely of supplies to the company and delivery of products in the market (Thompson, 2012).
Diversification of products has proved to be an efficient mechanism of dealing with competition pressures arising from the new entrants and increased substitute products. However, product diversification has to be accompanies with brand building exercise so that the new products can have a competitive advantage over their substitutes. Banding is an effective mean crating a strong presence and feelings about the product of a given company in the market. Thus, instead of adopting more defensive strategies, a firm has to concentrate on brand building (Hill & Jones, 2012).
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