Executive summary
Coca-cola Company is the global leading manufacturer and distributor of soft drinks and beverages. It is a giant company that has continually enjoyed the advantage of manufacturing and distributing top and favorite brands in the United States of America which have spread to diverse markets in the world.
It has also expanded to command a huge market share of the non- alcoholic drinks across the globe with famous brands such as Coke and Sprite. Coca-cola Company has managed to maintain a competitive advantage over such rivals as Pepsi and other upcoming soft drink manufactures.
The competitive advantage has come from the fact that it enjoys key competencies that its main competitors lack as well as maintaining a high goodwill among many consumers such that the soft drinks consumers have become loyal to coca-cola products.
It however needs to come up with a strategy that will ensure that it maintains the current reputation of being the top Company in manufacturing of soft drinks that it has held for so long.
Introduction
Resource based view approach has become a common management tool for coming up with business strategies. This method has grown in popularity among many managers because it reflects on the internal environment of a company rather than the external environment (Comeford & Callaghan, 2011).
The advantage of using the internal environment to formulate an organizations strategy is that the management concentrates on the strengths and weaknesses that a company has (Connely, 2010).
A company is able to manage and manipulate its strengths to achieve desired objective as well as avoiding venturing in areas where is has weaknesses. While the other methods for instance the PEST analysis regard the external environment, Resource Based View will regard internal environment of a company to formulate strategies.
This paper discusses the Coca-Cola Company internal environment with specific regard to the tangible and intangible resources that it has as well as the key competencies that make the company distinct from other companies thus enjoying the competitive environment. This will be based on the Economic Value Added of the company.
Economic Value Added
This is a measure of a firm’s economic profit in a particular time period. It is calculated by subtracting a firm cost of capital times the capital from the Net Operating Profits after tax (Barney, 1991). This is a more realistic and more insightful way of evaluating the firm’s earnings since the Economic Value Added gives a more comprehensive view on the firm’s earnings.
The company’s pretax profits for the year 2010 as reported were $10.8 billion. The overall corporate tax was 40% and thus the profits after tax came to $6.48 billion. The company’s cost of capital was 8.7% while the total capital was reported to be $72.929 billion. The EVA is then obtained as $6.48 – (0.087*72.929) = $0.2 billion. This is the company’s Economic Values Added.
Company’s Resources
A company’s resources are of great important as it employs these resources as inputs so as to deliver the required output. Resources do not necessarily give a company a competitive advantage but if they are optimally used they result in products that are superior to the competitors’ or low costs of production which subsequently result in higher profit margins (Edvinsson & Malone, 1997).
Coca-cola Company has employed various resources both tangible and intangible. These resources enable it to produce superior goods in terms of quality, reduce its cost of production and have strong brands which are preferred by many consumers across the globe.
Tangible resources
The company has various tangible resources that it employs in its pre production and post-production processes. These resources include self owned plants and buildings, adequate financial resources and motivated and highly qualified human resource personnel.
The buildings are an important part of the company’s physical resources since they allow the company to produce within their own property thus reducing the cost of production. This results in higher profits margin when compared to the competitors and lower prices for the same goods that competitors supply.
The financial resources of Coca-Cola Company help it to avoid debt financing thus keeping its equity portion of capital structure high. This helps foster internal management since the firm does not have a lot of external influence on its resources. The human resource personnel at Coca-Cola Company are kept at high motivational level.
This is due to the realization that the workforce act as a driving force towards achieving the organizational goals and objectives. The company has therefore invested in human capital and ensures constant training of its personnel to keep it abreast with the prevailing market conditions. This ensures that employees work at the optimal levels resulting in the desired output by the company.
Intangible Resources
The main intangible resources of any company are goodwill, intellectual resources and Technical expertise. The Coca-Cola Company has for a long time enjoyed these resources since they form the basis of its superiority to the competitors’.
The company’s goodwill has been a long valued asset over the years. Goodwill is an intangible asset that a company has that helps it to produce at better levels than the competitors and or have its products preferred by majority of consumers.
The company’s goodwill helps it to deliver superior products which are preferred by most of the soft drinks consumers. This is because it has for a long time managed to remain as a number one company in the beverages industry and has therefore built a strong reputation in the same market.
The company’s intellectual resources surpass those of the competitors. This is because it has been able to produce many brands within its product which appeal to the consumers. These products have remained intellectual properties of the company and the competitors have been unable to copy them. The company has also high levels of technical expertise.
This is an advantage since the company is able to deliver products which are unmatchable. This has come due to the extensive research that the company has carried over a long time and resulting in the products that are unique and superior. These factors have ensured that the company remains top of the list of best company and always ahead of the competitors.
Distinctive Capabilities
Distinctive capabilities are the processes and or operations that a company bears that help it produce at better levels than the competitors thus enabling it to come up with superior products (Edvinsson & Malone, 1997). Coca-Cola Company has various distinctive capabilities.
These include innovation and economies of scale. The company carries out regular research and development which enables it to come up with new products that highly appeal to the consumers.
Its recent introduction of three new Fanta flavors; pineapple, black currant and passion have enabled it to remain a favorable producer of soft drinks among many consumers.
The company has also been able to gain economies of scale through its extensive presence in the global market and this has ensured that it produces at low unit costs. This has enabled to have its products retailing at relatively lower prices than the competitors thus ensuring that it is preferred by the low and middle class consumers who form majority of its target market.
Conclusion
The company will continue to enjoy the position of being the leading manufacturer of soft drinks across the world in the foreseeable future. This will be fostered by its continuous research and development and innovation that helps it produce goods which are superior to the competitors.
These internal environment factors have and will continue to form a basis of strategy formulation for the company. This will keep Coca-Cola Company at the top of the consumers’ preference lists. However it should be improve on its failing American market and must ensure that it remains the favorable brand in the wake of stiff competition from Pepsi.
References
Barney, J. B. (1991). Firm Resources and Sustained Competitive Advantage. Journal of Management , 99-120.
Comeford, R., & Callaghan, d. (2011). Environmental, industry, and internal analysis. London: Prentice Hall.
Connely, D. (2010). Strategy for Internal Environment.
Edvinsson, L., & Malone, S. (1997). Intellectual Capital:Realizing Your Company’s True Value by Finding its Hidden Brainpower. New York: Harper Business.