HOCHSCHULE FR TECHNIK UND WIRTSCHAFT BERLIN MASTER OF BUSINESS ADMINISTRATION & ENGINEERING

Case Study A1 The Great Candies

Diana Montana, Daniella Chacon, Harry Utama, Tanvir Mahmud, Carlos Soares, Michael Khnlechner

Submitted to Dr. Birgit Hilberger Strategy, Organization and HR Management 21.01.2013

Table of Content
1. 2. Executive Summary ........................................................................................................ 2 Understanding of the situation and objective .................................................................. 3 2.1 Food Industry................................................................................................................ 3 2.2 Key Drivers of Food Industry....................................................................................... 3 2.3 Market Outlook ............................................................................................................ 3 2.4 Competitors Analysis .................................................................................................. 3 2.4.1 Nestl ......................................................................................................................... 4 2.4.2 Kraft Foods Inc .......................................................................................................... 4 2.5 Customer structures ...................................................................................................... 4 2.6 Structured description of the actual situation of the company ..................................... 4 a. c. 3. Actual organizational problems of The Great Candies to be solved ........................... 4 Actual HR issues to be solved ..................................................................................... 5 Analysis and Insights ...................................................................................................... 5 3.1 SWOT Analysis ............................................................................................................ 5 3.2 Strategic Management ................................................................................................ 11 3.2.1 Derivation of strategies in The Great Candies ........................................................ 11 3.2.2 Corporate strategy.................................................................................................... 11 3.2.3 Business strategy ..................................................................................................... 11 3.2.4 Functional strategy .................................................................................................. 12 3.2.5 Interfaces and interdependencies ............................................................................. 13 3.2.6 Product portfolio management ................................................................................ 13 3.3 Organizational options for The Great Candies ........................................................... 14 4. Recommendations and Solutions .................................................................................. 20 4.1 Positioning in Market and Strategy of The Great Candies ......................................... 20 4.2 Strategic and Organizational Implementation Plan .................................................... 21 4.2.1 Implementation of Communication ......................................................................... 22 4.2.2 Organizational Change Plan .................................................................................... 23 5. Summary and next steps ................................................................................................... 24 List of Literature ................................................................................................................... 25 b. Actual strategic problems to be solved ........................................................................ 5

1. Executive Summary
The present case study is focused on the German company The Great Candies, a supplier of consumer goods that offers products all over the world. It has a portfolio of candies, milk products, mainly oil-based food, and some chilled products. Therefore the company is divided in different segments within the food sector and has many competitors, in segments such as processed and frozen foods, beverages, milk products, and snacks. The major players in the sector are Nestl and Kraft Foods.

Nowadays, The Great Candies is facing several strategic and organizational problems that should be resolved to regain its profitability and to increase its revenues. In order to do this, a SWOT profile was developed by using an external and internal analysis. During this phase the rivalry among existing competitors and the bargaining power of buyers were identified as the most important forces according to the model of five forces of Porter. On the other hand, the development of the companys value chain helped to determine the key leverage points and major cost drivers of The Great Candies. Additionally, a comparison with Nestl was performed to identify imrpovement opportunities of The Great Candies. Using the SWOT profile as an input, corporate, business and functional strategies for The Great Candies were derived. Based on the results of product portfolio management using BCG matrix, it was found that the company has to disinvest in its yogurt products and to focus on marketing and product development of chilled food to increase its market share. In addition, three organizational options such as adjusted functional, divisional and matrix structure were proposed as possible solutions for The Great Candies. After an evaluation, the divisional option was selected as the most effective one. As a part of the strategic planning process for the next five years, the mission and vision, for The Great Candies were redefined. Furthermore, four key parameters for its market positioning were identified like premium product offering, closeness to customer, internationalization, and care for health and wellness. In order to capture growth opportunity in international market and expand the market share, the company implemented product-market Ansoff matrix. Finally, an implementation plan for the strategic and organizational changes based on change management approach was established, to cover cultural and organizational behavior aspects was developed. The mentioned plan for The Great Candys was developed in compliance with the approach of Dr. John Kotter.

2. Understanding of the situation and objective

The Great Candies is a supplier of consumer goods that offers its products all over the world. The company has in its product portfolio candies, milk products and food, mainly oilbased, some chilled products. Based on its portfolio The Great Candies is inserted in different segments in the food sector, so, this case study will analyze each of the segments. 2.1 Food Industry The global dairy market is expected to reach almost $371 billion in 2014, representing nearly 24% expansion over five years, reported by Market Line (1). Furthermore, milk represents more than 35% of the overall dairy market. The market leader of this industry is Nestle with 14% market share and followed by Danone with 11% market share (2). The global chilled food industry has shown 6% growth in 2011 based on chilled food association (3). This market is expected to expand 19% over five years to exceed $228 billion in 2015 (4). The global chocolate, snack and sweet markets are predicted to reach almost $335 billion by 2015. The main factors of this behavior are income levels, consumer perceptions and demographics (4). The market is highly fragmented and intensely competitive, with an abundance of industry players. 2.2 Key Drivers of Food Industry According to MarketLine, the worlds milk market is expected to exceed $ 146 billion in 2015, a 21% hike in five years (1). By 2015, the market volume is expected to reach 110,000 million liters, representing nearly 13% growth in five years. Unflavored fresh liquid milk is the markets leading segment, at almost 47% of overall market value. By 2015, the worlds cocoa market will reach almost 5 million metric tons. The demand is particularly strong in developing nations. The market is fuelled by increased coverage of health benefits from eating certain types of chocolate for advantages such as nutrition content and the cancer-fighting potential of chocolates with a high cocoa content (5). On the other hand, the growth of chilled food industry has been leveraged by the consumers need of ready-to-eat meals. Furthermore, the economic recession has fuelled the market growth as consumers looked for more convenient and cheaper meals. 2.3 Market Outlook The global dairy industry is very competitive and pushes the market leaders to cut costs and boost profit margins. Demand is rising due to economic growth in developing nations and higher incomes coupled with evolving diet patterns, though the industry remains at the mercy of extreme price volatility. Frozen prepared food manufacturers have the trend to continue concentrating their efforts on product innovation and packaging. Convenience is also the key in this segment and the awareness of the consumer concerning the benefits of a fresh foods diet is an obstacle, according to Ibis World. T he EU is the worlds largest cocoa market, with France, Germany and the Netherlands showing high consumption. AsiaPacific is expected to show the most rapid growth, led by Malaysia. The world confectioneries market is expected to exceed $186 billion by 2015 (4). 2.4 Competitors Analysis In the segments of processed food the great candies have many competitors. Although the company and others sell similar products, each company has its differences by choosing

their own sales strategies. This case study highlights some of the competitors strategies below. 2.4.1 Nestl The company invested U$2.7 billion in R&D and Advertisement. Nestl is strongly focused in International Strategy as a global organization, so, International strategy is at the heart of their competitive focus. When operating in a developed market, the company strives to grow and gain economies of scale through foreign direct investment in big companies. Another strategy that has been successful for Nestl involves striking strategic partnerships with other large companies (6). 2.4.2 Kraft Foods Inc The company invests $ 81.4 million in R&D and more than U$72.3 million with advertisement. Kraft Foods have a strong Distribution system with more than 316 distribution centers and depots all around the world. Out of these 316, the Kraft Foods owns 39 distribution centers and leases 125 distribution centers. Also it owns three depots and leases 149 depots worldwide (6). 2.5 Customer structures The general customer structure of the food industry can be defined geo demographics situation, taking in consideration aspects as climate, tradition, behavioral data, purchase history, current and future customer behavior. One of the possible segmentation according to the demographic patterns is: Kids: 4-12 years old; Teenagers: 1317 years old; Adults: 18 44 years old; Elderly: 45 above. 2.6 Structured description of the actual situation of the company Currently, the company is functioning as a formal organization using a structure which divides management into several functions which are: Finance, Controlling, HR & Law, Purchasing, Operations, and Sales & Marketing. There are two reporting levels in the organization and the New Product Unit is directly coordinated by the Chairman of the Board. The Great Candies is facing not only structural problems but also strategic and HR issues that need to be solved in order to improve the organizational efficiency and effectiveness to meet the markets challenges. In addition the management has to take the opportunity to review the strategic approach for the international market. In this context, by declining sales and profitability in the market, the Great Candies has been facing stagnating revenues. According to the companys life cycle scheme, The Great Candies is in post maturity stage at the moment. As a result of its poor management, the profitability has begun to fall. a. Actual organizational problems of The Great Candies to be solved 1st Reporting level of The Great Candies: Centralized organizational structure where the functional managers make decisions and provides direction for the company. Lack of organizational efficiency and effectiveness resulting in non-realizing synergies within the organization.

 The New Products department is stated under the Chairman of the Board but is not clearly defined as Research & Development department. There is no flow of information of new product development possible in this structure. 2nd Reporting level of The Great Candies: Absence of IT department within the organization. The organizational structure is not internationalized and a regional sales force is missing. Lack of coordination between divisions and departments. The organization is working as a single-line-system; the information paths are too long. Poorly defined functions for division responsible to international market. b. Actual strategic problems to be solved

Ineffective strategically approach to deal with declining profit by launching new products. Poor internationalization approach characterized by centralized controlling of foreign markets Cost efficiency, specific distribution channels and precise promotion of products under same niche are not differentiated. Absence of general approach to implement strategies or to coordinate international activities Unsuccessful attempts to launch new products

c.

Actual HR issues to be solved HRs responsibility for wages and salaries instead of also dealing with training and personal development of employees. Recruitment process, which is not, clearly defined along the HR functions. Eight managers from second reporting level will retire soon and the companys need to solve this matter and prepare transition plan.

3. Analysis and Insights

3.1 SWOT Analysis Taking into consideration the market analysis and the actual situation of The Great Candies previously addressed, external and internal tools were used in order to identify the strengths, weaknesses, opportunities and threats of the company. For the external assessment it was used the P.E.S.T analysis and the Model of Five Forces of Porter. On the other hand, the value chain and competitor comparison were performed as internal tools in order to derive The Great Candies SWOT profile.

3.1.1 External Analysis

P.E.S.T Analysis The P.E.S.T analysis constitutes a general assessment of the environmental framework where the company operates by the addressing the following factors: political-legislation, economical, socio-cultural, and technological. In despite of its apparent simplicity, this tool provides a first holistic approach to identify potential elements that might influence The Great Candies as we can see in Table 1.
SOCIO-CULTURAL Advertising legislation. POLITICS LEGISLATION Rigid control and governmental regulations. Exportation governmental policies. Increasing governmental labor legislation. Nutritional awareness of consumer. Growing concern for the environment. Volatility of consumer preferences. Population growth rate. Continuous technological advances along the food processing value chain, including machinery, processes, R&D, logistics, packaging, marketing, etc. Social networking tools.

Changes in tax regulations.

Free Trade Agreements. International monetary instability.

Table 1 Great Candies - P.E.S.T analysis Model of five forces of Porter

The five forces of Porter is a practical approach that use an integral view of the industrys situation where the company belongs to, helping to determine the threads and opportunities of the environment. The result of this analysis delivers a valuable input to formulate strategies for the companies profitable growth.
This model was developed as it follows.

TECHNOLOGICAL

Global economic recession. ECONOMICS

High Intense rivalry among existing firms Highly competitive industry Presence of big competitors: Nestl, Kraft, Unilever Strong price competition Constant marketing wars between competitors Continuous product introduction by competitors Local brands increasingly trusted by consumers High level of dealers own brands

Low Threat of New Entrants Potential Entrants Threat of New Entrants Industry Competitors Rivalry among existing firms Bargaining Power of Buyers Buyers High level of capital requirements Presence of well-positionated brands Strict sanitary control by govermental authorities High level of infraestructure requirements High logistics costs

Suppliers

Bargaining Power of Suppliers

Medium Bargaining power of Suppliers Minimal substitutes in supply Increasing concentration amoung suppliers

High Bargaining Power of Buyers High level of price of sensitivity and quality demand of customers High variety of shopping types and places available Increasing brand conciousness of customers

Threat of substitute products

Substitutes

Low threat of substitute products There are no real substitutes for food-grocery products.

Figure 1 Model of five forces of Porter 3.1.2 Internal Analysis Value Chain

The value chain, as a tool, provides a general overview of the companys core and support processes. Furthermore, it helps to identify leverage points, success factors, major cost drivers, as well as strengths and weaknesses for The Great Candies along the main activities and/or functions of the chain. According to Michael Porter (1980) "the value chain" is a simple perspective for assessing and analyzing the competitive strength and position of a corporation or business organization. Companies tend to use this tool to have a better understanding of the activities which develops a competitive advantage (7). Thus, in order for Great Candies to meet its margin point, both the primary and support activities will need to work as a team to be able to gain profitability. The value chain of The Great Candies is presented in Figure 2.

Value Chain

Procurement

R&D / Design / Engineering

Manufacturing

Marketing / Sales

Customer service

Leverage Points for competitive advantage

Strategic alliances with key suppliers. High quality suppliers with HACCP (hazard analysis and critical control points and GHP (goog hygiene practices) certifications. Lead / delivery time. Bulk purchasing discounts.

Product variety / diversity. Innovation. Patents. State of the art. Rate of new product development. Packaging. Developing responsiveness to consumer needs in different markets.

Operation under compliance of the GHP / HACCP standards Implementation of lean six sigma, TPM (Total productive Maintenance), 5S. Automation. Definition and fulfilment of procedures, standards and processes. Capacity utilization Location. Quality control. Employee conmitment and motivation

High level of Advertising Customer research and analysis (needs profile and behaviour) Promotion Pricing Market targeting Product line selection Product positioning (local and worldwide) High quality sales-marketing force Sequence of product introduction around the world Strategic alliances with well known retailers worldwide

Communication channels with customers and consumers

Major Cost drivers

Location of suppliers. Volume order.

Productivity Quantity /Frequency of change of new products Number and location of R&D centers.

Degree of automation Utilization of capacity / resources. Level of wages. Degree of rejections. Number and location of Production facilities. Quality Management

Coordination of pricing (local and worlwide). Location of production facilities vs target markets. Level of wages Advertising

Location of call centers / outsourcing

Support processes

Human Resources
Recruitment Training Rewarding HR developing

Finance

Storage

Fulfillment of GHP /HACCP requirements. Definition and compliance of standards Quality Checkpoints along the produtive process (raw materials, machinery, personnel, production conditions, work in process, finished product, storaging) Microbiological and physicochemical analysis along the process

Figure 2 The Great Candies value chain

Comparison with competitor

One way to look at competition is by performing a comparison with the companys m ajor competitors. By doing this, the Great Candies can identify and develop potential enhancement improvements and strategies. In Table 2 it can be seen that The Great Candies was compared against Nestl, using the following parameters: Companys philosophy and Competitive advantages, Growth drivers, Products/Brands, Management, Procurement, Engineering, Technology, R&D, Manufacturing, Marketing, Sales & Distribution, and Customer service.

NESTL Good food, good life. Companys Unmatched product and brand portfolio. philosophy and Unmatched R&D capability. competitive Unmatched geographic presence. advantages People, culture, values and attitude" *Nutrition, Health and Wellness. *Emerging markets and PPP (Public-Private Growth drivers Partnerships). *Out-of-home leadership. *Premiumisation. Management Nestl Group is managed by geographies (Europe, Americas and Asia/Oceania/Africa) for most of the food and beverage business. Existence of Nestl supplier code. Strategic alliances with suppliers. *Largest R&D network of any food company in the world (32 R&D centres) network for R&D. R&D, Technology, Engineering R&D in a variety of fields from packaging and equipment, to food processing technologies and manufacturing new production systems Strong emphasis on consumer needs. Manufacturing facilities around the world Implementation of operational models of excellence: TPM (Total productive maintenance), lean manufacturing, six sigma Manufacturing High quality standards, fulfillment of HACCP (Hazard Analysis and Critical Control Point, ISO 22000:2005/ISO 22002-1). Application of good manufacture practices, including design of equipment, standard operating procedures, training, machine maintenance, and handling of materials. Development of innovative technologies of production Marketing Brand maintenance and development. Creation of an emotional approach.

GREAT CANDIES Unique in the market with strong emphasis on branding and high-quality products.

Unclear growth drivers.

Centralized management (Germany) Undefined suppliers management procedures. Absence of alliances with suppliers. Centralized R&D center. Limited R&D (only for products). Weak strategy for new products development and weak emphasis on consumer needs. One production site located in central Germany. *Low definition of manufacturing processes *Absence of operational models of excellence

Procurement

*Focus on high quality products

Use of nine different production technologies for 24 brands Lack of brand maintenance and development. Absence of an emotional approach.

Inyection of new product life cycle. Customer targeting according to economic, geographic and social factors. Strong market orientated company, highly focus on undertanding and fulfilling customer needs. High investment in advertising. Intensive distribution strategy in order to make its products avalilable to a large customer base. Sales & Distribution Wide distribution channel and several manufacturing units around the world. Reduction of distribution costs without affecting the quality and lead times. Customer service Existence of Nestl customer care division. Excellent customer support through different mechanisms.

Inexistence of inyection of new product life cycle. Some of the products are in the same niche and compete for the same target group. Product orientated. 100 Mio euros investment in advertising.

Worlwide products offering. Abscense of programs for reducing the distribution costs. Weak emphasis on customer service. Unclear mechanisms for customer service.

Table 2 Comparison with competitor (8)

SWOT-Profile of The Great Candies

Using the internal and external tools previously mentioned, it was possible to draw a SWOT profile for The Great Candies as Fehler! Verweisquelle konnte nicht gefunden werden. shows. This valuable information will be use as a key input to generate and develop strategies for the company.
Strengths (S) Offer of products all over the world. Strong emphasis on branding and high quality products. High investment on TV-advertising. Internal Market leader in Germany. Factors (IFAS) Weaknesses (W) A formal meeting board does not exist Decision making processes are not structured and are based on face to face discussions. Tasks, functions and processes are not defined in the company, only the process of introduction of new products is defined in detail. Some of the products are in the same niche and compete for the same target group Only one production site (located in central Germany). Inappropiate organizational structure. Unclear growth drivers. Abscense of well-defined alliances with key suppliers. Abscense of knowledge management. Weak emphasis on consumer needs. Opportunities (O) Sales via retailers grow with a rate of 5 % p.a. since 5 years. External M&A. Factors (EFAS) Implementation of operational models of excellence. Emerging economies (emerging markets) Improvements in packaging (cost reductions, news designs) Threats (T) Increasing concentration among retailers. Highly competitive industry: strong price competition, presence of huge positionated companies. Local brands increasingly trusted by consumers. High levels of dealers own brands. Increasing concentration among suppliers.

Table 3 SWOT profile of The Great Candies

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3.2 Strategic Management 3.2.1 Derivation of strategies in The Great Candies Result of the SWOT analysis, and the four tools from chapter 3 were derived to get core of problems and objectives to achieve by The Great Candies. Furthermore, from those defined problems and objectives The Great Candies will divide its strategy into three general parts: corporate, business and functional strategy. Each of them will be defined in detail together with a proposed method and in this work it will also be discussed the implication of these strategies in the organization design of the company. 3.2.2 Corporate strategy Based on SWOT analysis, PEST and comparison with competitor, value chain and the model of five forces of Porter, these are corporate strategies proposed to be implemented by The Great Candies: 1) Define clear mission and vision statements together with strategic goals and objectives, so the companys growth direction will be clear. 2) The Great Candies will focus on premium product with four different product portfolios. 3) Focus on market research to gain optimum information in customer demand and needs, market trends and competitor condition. 4) Give positive contribution to environment throughout Corporate Social Responsibility (CSR). These strategies will have implication in the organizational design of The Great Candies in term of structure and process, such as: 1) Standardize food processing throughout every production plant of The Great Candies. 2) Strong focus on CSR to build up good customer image and make company closer to customer. 3.2.3 Business strategy Based on SWOT analysis, PEST and comparison with competitor, value chain and the model of five forces of Porter, these are the business strategies proposed to be implemented by The Great Candies: 1) Implement differentiation strategy by selling a product at a premium price by providing more benefits and features to the product so that the premium price is justified. 2) Marketing mix using the 4 P approach: product, promotion, price and place. - Product The Great Candies has the policy to sell premium product for new country market only and mix of premium product and regular product in Germany market. - Promotion Expand market throughout intense marketing, advertising and finding the possibility of Merger and Acquisition to increase positioning in market. - Price The Great Candies are proposed to develop pricing strategy based on competitor price and customer perspectives. Furthermore, by utilizing these methods The Great Candies will be able to balancing their profitability and fulfilling customer demand.

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3) 4) 5)

- Place The Great Candies will use intensive distribution so that the company can sell the product through the maximum number of retailers and wholesalers, which will lead to more competitive price. Furthermore, products of the company will have special spot in each of supermarket to sell its products. Implement three dimensional market definition by Abbel (9) to avoid releasing products competing in the same niche and customer group. Figure 3 was developed based on it. Build up long term contract agreement with raw material supplier to gain advantage of volume based discount. Problem of increasing of concentration in retailer can be solved by making special agreement with retailer, such as help retailer to obtain market access and in return get better pricing (10) , cooperation between suppliers of food to increase bargain power against retailer (10)

Figure 3 Functional organizational structure for The Great Candies

These strategies will have implication in organizational design of The Great Candies in terms of structure and process, such as: 1) Decentralization of sales and marketing division to get more focus and intense closeness with market. 2) Creation of a new centralized function for innovation technologies and R&D in corporate center. 3) Creation of a new centralized function for logistic in corporate center and implement global supply chain management throughout supplier until retailer. 3.2.4 Functional strategy Based on SWOT analysis, PEST and comparison with competitor, value chain and the model of five forces of Porter, these are functional strategies proposed to be implemented by The Great Candies: 1) Optimization process management in company by introducing IT as main driver. 2) Optimization of sales by increasing customer satisfaction level. 3) Optimizing flow of information and procedures for new product development. 4) Develop excellent and continuous training and skill development to replace recruitment of more staff. Because skill and experiences have a huge positive impact in term of productivity rather than adding more people.

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These strategies will have implication in organizational design of The Great Candies in term of structure and process, such as: 1) Establishing new function of IT for company under corporate center. 2) Establishing new function for customer services under sales and marketing. 3) Establishing new function for training and employee development under HR and Law. 4) Create organization structure which will facilitate link of information chain from new product division to sales and marketing division. 3.2.5 Interfaces and interdependencies Interfaces and interdependencies between strategies can be found from several points: 1) Development of new product in R&D should fulfill target for differentiation market in premium product. 2) Sales and marketing should develop their promotion strategy to differentiate The Great Candies as premium product from other product in market. 3) Strategy of marketing orientated business should be follow by intense market research to get full coverage of customer requirement. 4) Intensive marketing campaign in new market should follow by high quality control in food processing in production plant. 3.2.6 Product portfolio management In this work, product portfolio was made by adapting Boston Consultant Group in portfolio management (11). As it can be seen in the Table 4, The Great Candies has five major products portfolios and comparison of revenues main competitor with market volume is taken. This case study took data from global market share and analyzes it per each product segment to gain better accuracy in calculation. For example, in portfolio yogurt, this work only considered global yogurt market in 2010. To develop BCG product portfolio matrix, this work calculated market share relative of each product with (11): Market share relative = (In this case, market growth was collected from official website of each correspondence industry sector).

Product

Revenue The Great Candies 595.00 168.00 802.00 697.00 383.00

Revenue competitor 2,319.62 978.18 2,103.85 752.41 2,633.58

Market volume 53,101.89 48,909.00 56,659.49 2,508.03 75,245.00

Market share relative 0.26 0.17 0.38 0.93 0.15

Market growth 2% 3% 13% 6% 6%

Average market growth 6%

Drink Milk Yoghurt Chocolate Bar Impulse food (snack) Chilled food

Table 4 The Great Candies competitor database (In million EUR) (12) (13) (14) (15) (16)

The product portfolio shown in figure 4 was developed using the data of Table 4.

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Figure 4 Product portfolio of The Great Candies

From table 4, it can be concluded that the market share relative of The Great Candies is smaller than main players in each product portfolio. This problem is one of BCG matrix limitation, where product with low market share doesnt mean its not profitable to company (17). Thats why this work proposed to combine contribution margin data from company to adjust BCG matrix. Furthermore, this work proposed to adjusted market share line from 1 into 0.2 (dotted line) which is separates yogurt and drink milk which has negative and positive contribution margin. This assumption will bring more clear pictures of BCG matrix in The Great Candies product lines, as shown in figure 4. Based on figure 5, different strategies are derived from each of product portfolio: 1) Questions mark Based on market research (18) , this food sector increasing 6% for the next years. This work recommended The Great Candies to invest more in R&D of chilled food and also in advertising, so that this product will get high quality and result on increasing of market share. 2) Star These two products resulting 57% of total revenue of The Great Candies and its recommended to this company to mainly increase their market share through market penetration and market development (based on Ansoff strategies in previous sub chapter). 3) Cash cows Drink milk has become The Great Candies cash cows and resulting 22% of total revenue this company. Strategies for this product is to making cost efficiency production cost, so that revenue from drink milk can be maximize and allocated to finance question mark products. 4) Poor dogs The market growth forecast for this product is only 2.5% (19). That is why this company should disinvest in yogurt product and deleting milk fat reduction production technology to avoid more losses. Resources that are related to this product will be allocated to empowering question mark products. 3.3 Organizational options for The Great Candies As it was stated in the previous section, The Great Candies has been facing some strategic and organizational problems which must be solved in order to overcome its current situation and have success in the competitive food industry. Three organizational options have been proposed as possible solutions as it can be seen in Figure 5, Figure 6 and Figure 7. The company is going to partially migrate from its existing organizational functional structure to a decentralized one that gives our newly reorganize business divisions more direct lines of

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responsibilities. This will involve an enormous undertaking from the concept point of view as well as the implementation. The proposed model solutions will involve changing reporting lines, structures and business divisions. This process will constitute the first phase of a larger change initiative that will involve operational modifications for building up the companys sales as well as development of products capabilities, among others. 3.3.1 Options The first alternative is shown in Figure 5. The model consists of a functional structure partially decentralized of the current Great Candies organizational structure. The main features are: - The Finance and Controlling departments were joined together under the same responsibilities. - The HR collar salary and the HR blue collar wages within the Human Resources and Law department were combined. Additionally, Recruitment and Training were added to this department. - Innovation Technology and R&D will replace the staff unit of new products in the corporate level. - Elimination of the manager and sales position. - The functions of the Media department were reallocated to the Advertising/Market Research department. - The Marketing I and II departments were joined together under the Marketing and Sales department which was decentralized by regions (Europe; Asia, Africa and Oceania; and the Americas). - A decentralized Customer Service department was created according to the same regions as the Marketing and Sales department. The second option is shown in Figure 6. The model consists of a divisional structure partially decentralized. - The divisions were created according to the existing product lines which are: Milk Products, Chocolate Bars, Impulse Food and Chilled Food. - Each product division is headed by its own manager which reports directly to the CEO. - The Management Board is constituted by CEO, CFO, COO, CTO and the CMO; as well by 4 managers for the four product divisions. - In a Corporate Center were centralized the following centralized functions: HR & law, Controlling, Accounting, Innovation Technology and R&D, Purchasing and Logistics. A centralized IT function was added within the Corporate Center. - The department of Sales and Marketing was decentralized. For the Milk and Chocolate divisions it was done for the Europe and Asia, Africa and Oceania regions. For the Chilled Food and Impulse Food divisions it was done for the three regions (Europe, Americas, Asia, Africa and Oceania). - The Marketing and Sales department includes: Advertising and Marketing Research and Customer Service. - The operation department includes: Production, Quality, Engineering, Safety and Environment. Finally, the Figure 7proposed the last option, which consists of a matrix organizational structure. The divisions were defined according to regions (Europe; Asia, Africa and Oceania; and the Americas). On the other hand, the functions are: Purchasing, Operations, Sales and marketing and Logistics. Each of these functions is common for the three regions. - The Management Board is constituted by the Chairman of the Board and six managers, three for each region (Europe; Asia, Africa and Oceania; and the Americas) and three for the following functions: Finance & Controlling, HR & law and Innovation Technology and R & D.

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3.3.2 Evaluation of the options The criteria used to evaluate the previously describe organizational options is: Effectiveness of communication, Internationalization readiness, Cost saving, Efficiency decision making, and Closeness to market. The weighting given to each parameter according to their level of importance was: 20%, 25%, 10%, 20% and 25%, respectively. The evaluation scale was set from 1 to 5 where 1 is very good, 2 is good, 3 is satisfactory, 4 is sufficient and 5 insufficient The score given by criteria for each of the described options is presented in Table 5. The justification of the scores given per criteria for each alternative is shown in the following tables.
Criteria Effectiveness of communication Internationalization readiness Cost saving (resources) Efficiency decision making Closeness to market Score 3 3 3 3 2 Argument Communication not sufficiently promoted due to single line organization. Only Sales & Marketing is internationally segmented. Additional management staff needed for regional segmentation. High number of interfaces compared to divisional model (but still less than matrix organization) Marketing & Sales and Customer Services decentralized by regions.

TOTAL 2,75 Table 5 Evaluation of adjusted Functional Organization Criteria Effectiveness of communication Internationalization readiness Cost saving (resources) Efficiency decision making Closeness to market Score 3 2 2 1 1 Argument Possible conflict of interests within Corporate Center and Product Managers. Sales & Marketing for each product and decentralized by regions. Cheaper due to Centralized Functions Fast, simplified decision making due to focus on products. Responsibilities are divided by products and different region.

TOTAL 1,75 Table 6 Evaluation of Divisional Organization Criteria Effectiveness of communication Internationalization readiness Cost saving (resources) Efficiency decision making Closeness to market Score 2 2 4 4 1 Argument Communication adequately ensured due to cross connections. Each section (Sales, Operations, Purchase, and Logistics) is covered for each region. Double coverage of management function. Delay of decisions All departments are represented in all regions.

TOTAL 2,35 Table 7 Evaluation of Matrix Organization

According to the evaluation process applied, the divisional organizational alternative is the most suitable option for The Great Candies compare with its actual organizational structure.

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Management Board (1. Reporting level)

Chairman of the Board Innovation Technology and R&D

Manager Finance and Controlling 1) Operating Controlling Operating Accounts

Manager HR & Law 2)

Manager Purchasing 1)

Manager Operations 1)

Manager Sales & Marketing 1)

Law

Special Projects

Production

Advertising / Market Research

Recruitment

Raw Materials

Quality

Marketing & Sales

Controlling Sales

HR Salaries and wages

Packaging

Engineering Europe

Controlling Marketing Controlling Logistics

Training

Milk

Safety and Environment

Asia, Africa, Oceania

Technology

Planning and Logistics

Americas

External accounts Transport Data processing Europe Customer service

Banks, Insurance, Tax

Asia, Africa, Oceania

2. Reporting level) 1) Member of Management, 2) Deputy Member of Management Board

Americas

Figure 5 Adjusted functional organizational structure for The Great Candies

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Management Board

CEO

Corporate center: centralized functions HR & Law Accounting & Controlling IT

CFO

COO

CTO

CMO

Manager Milk products Division

Manager Chocolate bars Division

Manager Impulse food Division

Manager Chilled food Division

Innovation, Technology and R&D

Purchasing

Logistics

Operations

Operations

Operations

Operations

Sales & Marketing

Sales & Marketing

Sales & Marketing

Sales & Marketing

Europe

Europe

Europe

Europe

Asia, Africa, Oceania

Asia, Africa, Oceania

Asia, Africa, Oceania

Asia, Africa, Oceania

Americas

Americas

Figure 6 Divisional organizational structure for The Great Candies

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Management Board

Chairman of the Board

Manager Finance & Controlling

Manager HR & Law

Manager Innovation, Technology and R&D

Corporate center / Centralized functions

Manager Region Europe

Manager Region Asia, Africa, Oceania

Manager Region Americas

Purchasing

Operations

Sales & Marketing

Logistics

Figure 7 Matrix organizational structure for The Great Candies

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4. Recommendations and Solutions

Based on the the results of the analysis, recommended solutions are derived in terms of Great Candies positioning in the market and the implementation of the evaluated options. 4.1 Positioning in Market and Strategy of The Great Candies As a part of the strategic planning process for the next five years, Great Candies has defined its mission and vision as follows: Mission: We are a company that provides a wellness, nutritional and delightful experience through premium food products that goes beyond our customers expectations and creates value to our stakeholders! Vision: By 2018 we will increase our global market share up to 15% by providing exceptional premium food products, strongly focus on customers needs.

Great Candies has therefore established four key parameters regarding its market positioning: premium product offering, closeness to customer, internationalization, and care for health and wellness. The company will apply a product-market matrix according to Ansoff to capture opportunity for growth in international markets and to increase market share within existing markets. Market Products lines Existing product New Product Market Penetration Product development Market development Diversification Existing Market New Market

Table 8 Ansoff Matrix for Great Candies

a) Market Penetration This will be realized by increasing customer base in the existing markets, by winning over the customer base of competitors for further growth by means of open exclusive The Great Candies stores in shopping center, advertisements, promotion, price cutting and loyalty scheme through membership. b) Market Development This is done throughout differentiating marketing campaign based on culture of each country, aggressive price penetration and also collaboration with local retailer to access market easier. Potential new markets for The Great Candies are Asian countries, North America and South America. c) Product development Development of new products is vital for the sustenance of Great Candies as it is essential for the growth of the company. In order to develop a successful product, the company must have an understanding of its customers, the markets in which they operate and its competitors. Due to high growth on chocolate bar market and potential market growth in chilled foods, the company is recommended to focus Innovation and R&D effort into these products.

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d) Diversification This step includes diversification of product portfolio and branding to get full customer profiles and segment. Market growth in chocolate bar segment is highest compared to other segments. Thus, its recommendable to also focus on diversifying this product. In addition, The Great Candies is recommended to make seasonal premium chocolate bar in based on certain special day in different countries to get attention of new market (for example: thanksgiving chocolate bar). 4.2 Strategic and Organizational Implementation Plan The implementation of Great Candys renewed strategy and its desired divisional structure is conducted in compliance with the holistic approach according to Dr. John Kotter. By applying the 8-step model, Great Candies executives will ensure that all employees are well informed about the necessity for change and the associated implementation procedure, thereby increasing their chance of a successful implementation (20). 1. Creating a Sense of Urgency In order to emphasize the urgency of Great Candys change of direction, the board of management develops an action plan including a precise explanation for the intended change. The basic idea is to point out the true status of business characterized by the stagnation of sales figures and the unsuccessful attempts to increase those numbers throughout previous years. To support the indicators, General Managers commissioned a market survey to find out customers need and to learn about their buying behaviour. Beyond this, a competitor analysis is also intended to endorse this reasoning. However, the major argument for implementing the new strategy and for structural change is supposed to demonstrate the potential for future growth of Great Candies. Therefore, the Board of Management plans to make use of the promising result of their investigation on important future markets within their initial announcement. 2. Forming a Guiding Coalition Driven by the idea of getting every employee involved into the implementation process, each Functional Manager is required to identify willing and moreover influential employees in order to form a team which is responsible for managing the change initiative. Also the Department Managers are encouraged to ensure that potential team members are capable to motivate and convince their co-workers that changes are necessary and the implementation is conducted properly. According to the Board of Management, the coalition has to consist of employees from different departments and levels within Great Candies. 3. Developing a change vision and mission The Great Candies develop new vision and mission to synchronize with strategic goals of company to cope new challenges in market by maintaining the established cores values of company. 4. Communicating the vision To manifest the vision into the day-to-day business, the Marketing and Sales department creates an initiative to improve the communication of the companys new vison. This measure mainly affects Great Candies corporate design which has to transport the statement not only throughout the whole company, but also to

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customers and suppliers. On this account, email signatures, corporate presentations as well as advertising appearances contain the vision statement. 5. Removing Barriers An external consultancy, specialized on implementation processes, is engaged to identify risks and potential obstacles which are impeding the change processes. 6. Creating short-term wins A rewarding system is introduced to maintain employees motivation to participate actively in the companys change processes. Outstanding achievements are rewarded with premiums or additional paid days off. 7. Consolidating and Proceeding Together with external consultants and the members of the internal implementation team, the Management Board meets on a weekly basis to check the progress of the change procedure and to identify the lessons learned. Based on this information, new goals are defined and the status updates are reported via company newsletter. 8. Anchoring Changes in Corporate Culture Since some members of the guiding coalition may leave the company, a rotation system is applied in order to avoid a loss of knowledge. The change team is also responsible for training new employees in terms of ongoing chances. 4.2.1 Implementation of Communication

Management All changes regarding the companys strategy and its organizational structure have to be communicated company-wide by the Chairman of the Board. This is supposed to happen during an extraordinary employee meeting after all Functional Managers have finally approved the implementation procedure. Operations Additionally, all Functional Managers have to meet with their responsible Department Managers to clarify the implementation procedure. Functional Managers have to provide an implementation guideline document containing all essential measures which are necessary for a successful implementation. Each Department Manager must then forward individual plans by email to every member of the respective department and clarify the procedure within next department meeting. The implementation progress has to be tracked by every Department Manager and directly reported to the General Managers on a regular basis. Externals All major clients as well as supplier will be informed about the significant changes by letter right after final decisions have been made and all employees have been informed. Based on the new product portfolio, existing contracts will be adjusted.

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4.2.2 Organizational Change Plan

Creation of Change Management Project Team The company has to set up a change management team dedicated to take care of the organizational restructuring. Based on the 27 currently existing departments, the change management team will be set up on just as much internal employees who will work fulltime on the restructuring process. The team is required to establish the new structure within 7 month. 1. Renewal of Role and Job Descriptions The Human Resources & Law department was appointed to entirely recreate all relevant job descriptions which are affected by the organizational restructuring. By doing so, Great Candies intends to guarantee that all future roles and responsibilities are clarified and documented upfront. In addition, the department elaborated updated competency requirements, policy charters and employee grades, before the actual change process is conducted (21). 2. Revision of staffing process Since new jobs and responsibilities are created, staffing process needs also to be revised. Therefore, functional managers, together with the HR & Law department, are responsible for creating new requirement profiles for new jobs which have to be filled by internal employees, or if necessary- by external applicants. In analogy to the job description, profiles are also required to be prepared before the changing procedure takes place. Execution 1. Restructuring Board of Management: Chairman of Board will remain in current position Functional Managers will form the corporate officer level (Manager Finance CFO; Manager Operations COO; Manager Sales & Marketing CMO; Manager of New Products CTO) Divisional Managers are elected by c-Level executives (Manager Purchasing Manager Milk products Division, Manager Sales (deputy) Manager Chocolate bars Division, Manager Controlling Manager Impulse Food, Manager Chilled Food Division) 2. Creation of Corporate Centre with Centralized Functions: HR & Law will include Wage & Salary department (combined out of blue/white collar), a Recruiting & Training department will also be established Accounting & Controlling: Operating Accounts will remain, Controlling Sales, Controlling Marketing, Controlling Logistics, Operating Controlling combined Innovation Technology and R&D: New Products, Technology out of Quality/Technology combined with Engineering out of operations Purchasing will completely be shifted and new Department Manager elected Logistics will be created based on Planning an Logistic IT: created upon new employees 3. Creation of Divisional Departments Operations: Production, Quality, Safety & Environment according to previous specialization on different products, departments are divided into the four divisional lines. Additional employees have to be recruited

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Marketing & Sales: consisting of Customer Service and Sales and Marketing for targeted region. Additional employees need to be hired. 4. Senior Manager Retirement and Knowledge Management: Creation of training programs for young managers directed by the managers who are going to leave the company within the next six years. Implementation of Knowledge Management along the organization. Recruitment of retired managers as consultant.

5. Summary and next steps

This case study mainly discussed challenges faced by the Great Candies as food supplier in the global market. Problems of this company are taken into consideration by dividing solution into strategy perspectives and organization perspectives. Based on strategy perspectives, the Great Candies has several critical problems to solve, such as declining profit and poor definition of market for each product portfolio. During this work a SWOT analysis was performed to define more details inside the company as its environment. After that, product portfolio management by BCG is used to define product position in market and Ansoff matrix is carried out to define growth strategy based on existing and new market with existing and new product. Based on organization perspectives, the Great Candies is suggested to change their organizational structure into divisional organization to resolve problem in coordination and communication between innovation division and sales and marketing division during development of new products. Furthermore, this new organization structure will transform companys business into internationalization of market and make them closer to market and customer. After defined two solutions above, this work proposed implementation plan to execute both solutions smoothly. This is done by considering change management plan, cultural and organizational behavior. This work proposed to apply more tools and methods in The Great Candies case study, so that each of problems can have deeper analysis and solutions. Tools such as balance score card for implementation phase, analysis of competitive dynamic, forecast analysis for internationalization and many more is suggested in this case.

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