Posted: June 27th, 2015
Sara Lee in 2011: Retrenchment Strategy
Business companies operate in a very volatile and competitive environment. In such an environment, there are many forces that may work for or against the business company. More often, the forces generated from the environment have a negative effect on the business firm. Therefore, firms have to respond and mitigate these forces so that they can continue to thrive in the market. Firms adopt different strategies that seem suitable to the situation. This depends on the nature of effect that the changes have on the internal and external business environment. 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 of strategies. The firm has to be very sensitive when choosing a strategy. This is because the strategy chosen can have long term implications on the operation of the firm. Strategic choices are made depending on what other firms have adopted. This is because the activities of other firms often have an impact on the performance hence contributing to the competitive advantage of the firm. Strategies aim to raise the competitiveness of a given firm in a certain industry (Katz, 2010).
Sara Lee is a fairly old company that has been in operation since the year 1939. It began as a small business and kept creating opportunities for growth. The company underwent a transformation with different strategies including the change of business name on several occasions. The changes also included merger and acquisitions as part of the 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 significantly strategic position within the market (Thompson, 2012).
Sara Lee Corporation, which is a company that is dealing in food, beverage and household products, got a new management in the year 2005. This indicated 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 focused firm dealing in beverage, food and household products. The new president noted that the firm was running many units of product categories that were not strong enough for the collective performance outcome of the company. Therefore, the firm had to reduce the number of units. Though the strategy would result in the reduction of revenues to the company by about $7 billion, it was seen as the best option. Strategic plans will in most cases result to 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 the after sales tax proceeds (Thompson, 2012).
The strategic plan aimed at positioning the selected segments that would strengthen the financial outcomes from the segments and the financial performance of the company. The company was to venture into market segments that were 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 its sales activities, market share, and growth in profits resulting from the selected brands. The company selected brands that showed prospective signs of improvement in marketing for each of the product units (Daft, Murphy & Willmott, 2010).
The company targeted a revenue increment of about $14 billion in the year 2010. This would mark a 12 per cent increment from the time the new strategic plan was set rolling. This was at the beginning of the year 2005. However, these targets were not reached by the end of the year 2010 as had been projected in the plan. Revenue of only $10.8 billion had been raised out of the projected $14 billion. The operating profit of Sara Lee had also improved by only 8.5 per cent from the projected 12 per cent. Therefore, the company had to extend its retrenchment strategies in order to reach the goals that had not been met. The company launched various initiatives including the diversification of international business. There were several other business growth initiatives like “project growth” (Thompson, 2012).
Strategy identification for Sara Lee
For any company to come up with reasonable and implementable strategic plans, it must 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. They must also be aligned to the position that the company is seeking to attain in the industry. All competitive strategies are adopted with the aim of raising the performance and competitive position of a firm in the industry (Daft, Murphy & Willmott, 2010).
Sara Lee chose three main competitive strategies to help it in the post-retrenchment business development activities. The competitive capabilities that were going to be used by the company included innovation of new products, competitive pricing, and brand building. Others included leveraging and category management that were aimed at improving supplies of the company by fostering good relations with the buyers. The management believed that these capabilities were critical in appeasing and attracting customers to the products of the company. 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, 2012).
According to Porter, the selected business strategies must put into consideration the price, the suppliers, buyers, substitute products, entrants companies, and industry of operation. Pricing as a strategy is likened to focus on buyers in the Porter’s forces of competition. New products were meant to match and compete against the products being produced by other companies. Branding of the products was meant to bring out the uniqueness of 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. 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 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 under it. Each strategy has its strengths and weaknesses. Therefore, a company must strive to minimize the negative side of the strategy by fully capitalizing on the positive side of the strategy (Day, 2004).
The competition strategy chosen by Sara Lee was retrenchment. This can be categorized as a low-cost strategy. It aimed at cutting the product units that were not helping the firm to achieve enhanced profits. More cost cutting measures were introduced as the company continued to implement the retrenchment strategy. Sera Lee adopted this strategy for the assessment of the performance of each of the product unit. The management of the firm saw the need for the reduction of the number of units and strengthening the remaining units. This was done in line with the assessment of the industry and the range of products that the Corporation was handling (Daft, Murphy & Willmott, 2010).
When choosing strategies, the company must stress on its strengths. This is because strengths give a company a strong base on which the strategies thrive. The company must understand that it is not possible to attain the objectives that are laid down effectively. Other forces may present themselves during the implementation thereby preventing the firm from attaining the objectives of strategic plans. This should be embraced and used as a basis 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 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 the business from achieving the primary goals that 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 while implementing the strategic plan. This project was meant to speed up cost saving through the outsourcing of efficiencies in its supply chain and overhead reduction. This integrative strategy was fruitful as it had resulted in accelerated savings for Sara Lee. It became very helpful in enforcing the retrenchment strategy adopted by the Corporation. In the year 2010, Barnes was forced to step down as the CEO of the company on medical grounds. The plans that 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 embarked on extending the chosen brands within the 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 up with strategies because of inconsistencies inherent in the prevailing operations. Strategies are thus leading 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 a series of actions and activities. At times, this 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 that the strategies led to some positive 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 that needed 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 within the market. It is cost effective to brand a little number of products than dealing with many products. Therefore, the company had problems 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 is 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 various parts of the world. Its beverages have been widely accepted in the international market gaining strong 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 significant sales for these products. This is a pointer to the fact that customers prefer branded products. Brands end up opening considerable opportunities for a company to thrive. The food industry offered considerable opportunities to Sara Lee (Kotler, & 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 drop 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, and this prevented 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 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 have to be met anyway. 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. On a positive note, it helps a company identify its weak areas of performance and the reasons for this weak performance. This also seals the areas of weaknesses for improved performance. A company must be innovative when crafting competitive strategies. This is because poorly crafted competitive strategies will not lead to the attainment of a competitive position. This may further disorient the company leading to it be outcompeted by competitors in the industry. Sara Lee managed to identify the factors that were leading to poor business performance. This helped the company 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. This also enhanced the position and competitiveness of the firm (Shankar & Carpenter, 2012).
Competitive strategies being used by a company must have a foundation or integrate with the major competitive points of the company. The industry in which the firm operates is an important consideration. This forms the immediate external environment for a company from where competition is generated. The other consideration is customers. The customers are the determinants of the success of the firm, and they must be supplied with well branded products. Sara Lee managed to execute this aspect. This helped the company to acquire and maintain more customers hence boosting sales. A good relationship between the company and its customers must be fostered. This will ensure timely 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 accompanied by brand building exercise so that the new products can have a competitive advantage over their substitutes. Banding is an effective means of creating a strong presence and feeling 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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