Question 1: Assess the Firm and its Strategic Consistency
- Assess and describe the firm’s organizational performance.
- Operating performance
Hershey’s company is the largest chocolate manufacturer in North America. The company manufactures and distributes its chocolate branded products as well as those for the British Cadbury in the US. Its net sales for the year 2015 were $ 7.39 billion. Moreover, it had a pretax income of 901.84 million. Noteworthy, the company has been able to continuously post profits for the last four years. In light of this, Hershey’s Company has a strong operating performance.
- Organization Health
Hershey has a well-experienced and professional management. In addition to this, it ensures that there are high levels of safety and operational standards in its facilities. On the same breath, the company’s partnership with British Cadbury in the manufacture and sale of chocolates has made it a popular and strong brand in the US. Actually, Hershey’s Company is the market leader in the manufacture of chocolates. Consequently, it has a strong organization health.
- Current goals of the company of the firm, and describe each component of the current strategic orientation of the firm.
Hershey’s main objective is to maximize the interests of its shareholder’s through profit maximization and implementation of prudent financial management. Notably, the company’s objective of achieving this goal can be witnessed with its consistent payment of dividends to its shareholders. In effect, the company has one of the best performing shares in the stock exchange market. Similarly, Hershey substitutes cocoa butter with hydrogenated oil for some of its products in order to minimize its production cost.
- Current capabilities Hershey’s Company
Notably, the most significant capability of Hershey’s is being the price maker. Since the confectionary business does not have many players, it usually operates as an oligopoly. In this case, industrial leaders are usually the price makers. Noteworthy, price makers always set the prices at the position where they make the most profits. As a consequence, since Hershey is the market leader, it can sell its chocolates at a price where it makes the most profits.
- Use the Criterion of Consistency to assess overall fit (environment ←→ Strategy ←→ business capabilities) and identify key issues/problems.
To begin with, the current business environment provides Hershey with a conducive environment for its operation. Notably, the US has good roads, telecommunication, air, shipping, and internet connections that link all its states. Noteworthy, this infrastructure enables the company’s distributors to supply chocolates to all retailers. Similarly, Hershey’s strategy of buying already established companies and brands has enabled it to avoid the immense startup costs and challenges that are present in most businesses. Moreover, acquisition of rival enterprises has enabled Hershey Company to avoid unnecessary competition for customers.
On capability, since Hershey is the largest chocolate manufacturer, it is able to have huge economies of scale. Ideally, these economies of scale enable the company to manufacture its products at a low cost in order to make maximum profits. Further, since the confectionary industry normally operates as an oligopoly, the company also has the ability to be the price maker.
- Strategic Choice
- Proposed changes to current goals of the firm
The company should change its main objective from maximizing profits to the establishment of multiple manufacturing locations in various markets. Notably, it can make more profits by tapping into the Asian, European, and African markets. Noteworthy, most of these markets are untapped. Consequently, they do not have stiff competition.
- Proposed changes to the current strategic orientation of the firm
Contrary to the company’s current policy of acquiring enterprises, partnership is the best strategy for Asia and Africa markets. In general, the formation of partnerships is the best option since these markets have a different operation culture from the ones in the US. To begin with, most of these regions do not have proper infrastructure. In addition, the company is unaware of the culture and business strategies in these regions. In light of this, it should collaborate with local investors who have the techniques and experiences needed to overcome these challenges.
- Proposed changes to one or more categories of capabilities of the firm necessary to affect your proposed change.
- Changes to customer capabilities
Essentially, it is prudent for the company to use the already set market prices since it does not know the purchasing power of the locals. In this case, the already established prices will enable it to estimate the income levels of the locals in these regions. Moreover, it will also inform the business on the most suitable prices for the products. Ideally, the use of already established market prices is because the income levels of individuals in these two regions are lower than those of the people in the US.
- Changes to operational capabilities
Importantly, Hershey’s Company should consider the operational techniques, expertise, and availability of technology in its new areas of operations. Essentially, most countries in Asia and Africa do not have similar technologies to those in the US. For example, in Africa, most of the available technologies are outdated. Moreover, there is also a severe shortage of competent staff to operate modern machines. Notably, these changes may affect the efficiency of Hershey Company in the manufacture of its chocolates.
- Changes to innovation capabilities
Ideally, a company’s environment may significantly affect its ability to innovate. In this case, Hershey may find itself in a dilemma between producing goods that are targeted to the US market or those for Asia and Africa. Generally, due to the lower income levels in Asia and Africa than in the US, the company may be forced to innovate in the production of cheap chocolates.
- Strategy Implementation
- Identify most critical department for the implementation of the capability changes you have identified.
Notably, the most important department for the successful implementation of this strategy is the production department. Evidently, the quality of the products that the company will manufacture in foreign countries will depend on the expertise of the available labor as well as the available technology. In order to penetrate this new market, the business will use the following plan:
Year 1: Recruiting and training of the company’s management.
Year 1: Formation of partnerships with local businesses and investors.
Year 2: Training of African and Asian engineers in US-based Hershey Company chocolate manufacturing plants.
Year 3: Establishment of local training as well as the installation of modern chocolate making equipment.
Year 4: Localization of Hershey’s products to meet the demands of the Asian, European, and African markets.
Year 5: Utilization of the opportunities available in these countries, which are cheap labor, low cost of raw materials, and few taxes, to manufacture products for other chocolate making companies.
- Estimate costs that would be incurred to implement the proposed departmental strategic plan
Costs $, 000
Recruitment and training of managers 300
Forming partnerships with local investors 10,000
Training of engineers and technicians in the US 500
Training of engineers and technicians in their local towns 5,000
Installation of modern chocolate making machines 300,000
Localization of Hershey’s chocolates to market needs 5,000
Manufacturing chocolates for export 3,000
- Develop a change agenda, analyze starting conditions, and provide a summary of an action plan for the proposed departmental strategic plan
The main change agenda for the production department will be to establish multiple manufacturing sites in Asia, Europe, and Africa. In light of this, the production department will have to ensure that the manufacturing plants have access to essential infrastructures such as roads, electricity, and communication facilities. In addition to this, the department will have to establish that all employees in its new plants are competent enough to use it machines.
Summary of an action plan
Simply put, an action plan is a systematic guide of how an enterprise intends to achieve its project. Importantly, it enables a business to identify all matters that are needed in its activities. The action plan for the production department is as follows:
Step 1: Train the key engineers and technicians, in the US, on how to operate chocolate manufacturing machines.
Step 2: Import chocolate manufacturing machines in each region.
Step 3: Assemble and install the chocolate manufacturing machine
Step 4: Create a local training facility on how to operate the chocolate manufacturing machines
Step 5: Regularly monitor the machine to avoid breakage.