Coca Cola Organizational Management Essay Example

Coca Cola Organizational Management Essay Example Coca Cola Organizational Management Essay Coca Cola Organizational Management Essay On Tuesday, April 23, 1985 The Coca Cola Company announced that it would change the formula of its flagship soft drink; a formula that had been America’s favorite for 100 years. Kansas newspaper editor William Allen White said, â€Å"Coca Cola is the sublimated essence of all that America stands for. A decent thing honestly made [and] universally distributed. † (As cited in Oliver, 1986, p. 4) How could Coca Cola have tampered with the taste of a drink that was distributed to 155 countries and consumed more than 303 million times a day? Years of planning preceded the arrival of New Coke and years of internal problems contributed to the demise of the old one. Some of the seeds to those problems were planted in the original formulation of the Coca Cola Company, but would go unnoticed during the company’s boom years. In 1885 John Pemberton, an Atlanta pharmacist registered a trademark for â€Å"French Wine Cola-Ideal Nerve Tonic Stimulant†. He eventually changed the formula by taking out the wine and adding caffeine and Kola nut. Thus, Coca Cola was born. Pemberton sold the rights to Coca Cola in 1889 to Georgia business man Asa Candler. Candler sold the syrup to wholesalers who mixed the syrup with carbonated water, and sold it to soda fountain proprietors. Also in 1899 Benjamin Thomas and Joseph Whitehead approached Candler with a proposition to bottle Coke. Candler thought it was too expensive a venture and wanted no part of it. Candler sold the bottling rights to Thomas and Whitehead for $1. 00! (Oliver, 1986. ) Each bottler had an exclusive right in perpetuity to bottle Coke in his area and no one else except soda fountains could sell Coke in that market. The bottlers actually owned the Coca-Cola trademark in their territories and the company could not refuse to sell them the syrup. (This set up, which formed the heart and soul of the Coca Cola system, would come under attack nearly 100 years later when the Federal Trade Commission charged the company with violating anti-trust laws by restricting competition. ) Candler contracted with the bottlers to sell them the syrup at a fixed price and by the 1920’s that contract was still binding. In Candler’s day sugar was 7 cents a pound, but post WWI inflation brought the price up to 28 cents a pound. When Coca cola tried to pass the increase on to the bottlers, they sued. They agreed to pay for the syrup according to the price of sugar based on the 1921 price with quarterly adjustments for the fluctuating price of sugar. However, the rest of the syrup ingredients prices were locked at the 1921 level. This pricing strategy worked for 50 years, but then the 1970’s came with its soaring inflation and the company barely made a profit on Coke. In 1923 Robert Woodruff , son of Earnest Woodruff who, as one of several businessmen bought the Coca Cola company from Asa Candler in 1919, became president of Coca Cola. Woodruff, acting as a structural change agent, launched radical new programs insisting on quality control, and firing up the bottling industry to make his product ubiquitous. These strategies signaled singular foresight because up until now, most people got their Coke at a soda fountain. Woodruff, in an effectual mix of theories E and O, fired his sales force and rehired them renaming them servicemen instead of salesmen. Part of their â€Å"new job† was to train retailers to properly dispense the syrup and find better methods for mixing the drink. At bottling plants, servicemen would increase productivity and efficiency by advising on all aspects of the operation. With Woodruff’s sweeping quality control programs, Coke lovers could expect to find one, and only one unmistakable taste in the North and South and from coast to coast. (Pendergrast, 2000) Woodruff wanted to place Coke â€Å"within arm’s reach of desire† anywhere and everywhere in the country. Wherever there are people who get thirsty, make Coke an option. Woodruff realized the enormous potential of the bottle as a means to carry out this dream. Coke in bottles could go anywhere. If people would sip Coke at the soda fountains and then find it on the grocery store shelves, they would probably buy it. Within Robert Woodruff’s first five years as president of the company, Coca Cola in bottles began to outsell Coke sold at soda fountains. Coke cropped up, as the 1927 advertising slogan claimed, â€Å"†¦around the corner from anywhere. † (Oliver, 1986) Woodruff outlined a plan in 1926 to test the drink in Europe. When the board of directors balked, he did it anyway in secret and turned a profit in three years. As Coca Cola went global, some recommended modifying coke’s flavor to suit the taste buds of each nationality but Woodruff stood by his belief in the universal appeal of coke’s single, secret formula. In the 1950’s Coca Cola ruled the soft drink world and its name was as universally known as that of any other product in commercial history. The advertising budget for the company in 1955 was 30 million dollars. Coca Cola continued to spend huge amounts of money on advertising, and Coke remained the favorite soft drink throughout the 50’s, 60’s and 70’s. Comfortable profits up to and including 1984, made it very difficult to Coca Cola’s top officials to accept that as Coke neared its 100th birthday it’s lead over Pepsi was decreasing fast. Coca cola spent more than Pepsi on advertising, it was competitively priced and was more widely distributed that Pepsi. Apparently marketing technique was not the problem. In the end, the company felt it had no choice but to consider the product itself. Around this time, in 1984, we were experiencing the â€Å"Cola Wars. † Pepsi was going all out to prove that consumers liked the taste of Pepsi more than they liked the taste of Coke, and the â€Å"Pepsi Challenge† proved it. Exclusive Pepsi drinkers rated Pepsi higher than exclusive Coke drinkers rated Coke. Coca Cola had been collecting evidence and concluded that taste had to be the single most important cause of Coke’s decline. No matter how much money Coca Cola poured into its marketing programs, the results were not significant enough. â€Å"We estimated that the system, including bottler’s and the company, annually outspent Pepsi by 100 million and still their share declined. In 1980 when Coke’s market share grew, they outspent Pepsi by 150 million. † (Oliver, 1986. p. 95) The company’s top executives were also very busy at the time fighting law suits with their bottlers over the price of syrup, and not paying attention to a new and growing market population. Market analysts believed baby boomers were more likely to purchase diet drinks as they aged and became more health and weight conscious. Therefore any future growth in the full calorie segment had to come from younger drinkers, who at that time favored Pepsi and its sweetness by even more overwhelming margins than the market as a whole. While Coca Cola was enjoying a 52% share of the soft drink market, and fighting with the bottlers over rising syrup prices, Pepsi was hard at work attracting a younger, more â€Å"with it† segment of consumers. Pepsi had Michael Jackson touting its soft drink to this up and coming consumer group, and Coke had Bill Cosby, who was their parents’ age, as its spokesman. Younger people and teens were no longer depending on their moms to come home with the beverage of her choice. With this population becoming more economically independent, they were able to choose their own soft drinks and convince mom or dad to pick Pepsi up with the week’s groceries. Coca Cola’s senior executives commissioned a secret project named â€Å"Project Kansas† to test and perfect a new flavor for Coke itself. Much of the market research conducted between 1983 and 1985 on the possibility of a new Coke was discouraging. One set of focus groups said that Pepsi could improve its formula, but the answer to a Coke reformulation was a resounding NO. In other focus groups, there was another problem. When asked, What is your favorite drink? most people said, Coke!   Ã‚   When asked, What do you drink? the response was shocking:   sometimes Coke, sometimes Pepsi, sometimes even a generic if it was on sale. As Thomas Oliver puts it, There appeared to be a disturbing gap between what people said and what they did. (Oliver, 1986. p. 104) When Roberto Goizueta took over as CEO in 1980, he pointedly told employees there would be â€Å"no sacred cows in how the company did its business, including how it formulated its drinks. † (Newsweek, 22 July 1985. p. 39) Robert Woodruff was still alive and in his 80’s when Goizueta made this statement. Goizueta even said that Woodruff agreed with him about changing the taste of Coke. Bearing in mind what Woodruff said about 50 years before regarding the â€Å"single secret formula† being the only one for Coke, one must question the idea of Robert Woodruff being on board for a flavor change. The company’s marketing department went out in the field armed with samples of possible new drink for taste tests, focus groups and surveys. The results of that were strong; the high fructose corn syrup mixture overwhelmingly beat both the regular Coke and Pepsi. A small majority felt angry and alienated at the very thought, saying they would stop buying Coke altogether. Their presence in focus groups tended to skew results in a more negative direction as they exerted indirect peer pressure on other participants. The surveys, which were given more significance by standard marketing procedures of the era, were less negative and were key in convincing management to move forward with a change in formula for 1985. (Hays, 2004) But the focus groups had provided a clue as to how the change would play out in a public context, a data point that the company downplayed but which was to prove important later. In addition, the researchers never made it clear to the consumers that old Coke wouldn’t be available at all. Not stressing in the tests that the new taste would replace the old taste. Goizueta even defended the change by pointing out that the drink’s secret formula was not sacrosanct and inviolable. Referring of course, to the fact that the formula had been changed before, albeit minutely, to make it Kosher. One could argue that Goizueta was comparing apples to oranges by making this point. The reaction to the new Coke was immediate and violent. Three months of unrelenting protests ensued against the loss of coke. In addition to the noisier public protests, boycotts and bottles being emptied into the streets, the company had more serious reasons to be concerned. The bottlers were expressing concern over the new taste. Most of them saw great difficulty having to promote and sell a drink that had long been marketed as the â€Å"Real Thing†, constant and unchanging, now that it had changed. Bottlers also started threatening boycotts of New Coke. With the company now fearing boycotts from consumers and bottlers, talks about reintroducing the old formula moved from â€Å"if† to â€Å"when†. The resistance was so fierce that on July 11, 1985 Goizueta publically apologized to the American people. This mea culpa, in itself, changed American corporate behavior. Never before had a major corporation told the American people that it was sorry. Coca Cola executives announced the return of the original formula on July 10, 1985, less than three months after New Coke’s introduction. Throughout the 120 years of Coca Cola’s life, there have been a few changes. As Brian Dyson CEO at Coca Cola in the 1980’s said, â€Å"Eventually, anything that oesn’t change in the face of change will wither and die, and that’s the law of nature. † (Oliver, 1986. p. 99) Change is part of organizational life and essential for progress. When Robert Woodruff took over at President of the Coca Cola in 1923, he instituted structural change in that he treated the organization at a set of functional parts. Woodruff reorganized the parts of his machine, and achieved g reater overall performance. Most effectively by creating a service team with his salesmen and making the mixing process of Coca Cola syrup universal. He also substituted the title â€Å"serviceman† for the title, â€Å"salesman† for a team of employees, which changed the way his sales force was viewed by the bottlers. The salesmen were no longer seen as a force to be defended against, but part of the whole organization working together to create a fantastic, one and only product. Woodruff incorporated all four types of change; organizational, cost cutting, process, and cultural change into this one bold move. He was also a strong leader in that he insisted the taste of Coke would be universal throughout the world, and not be changed to suit any one nationality’s tastes. Robert Woodruff effectively mixed Harvard Business professors Michael Beer and Nitin Nohria’s Theory E and Theory O. before the theories were even discovered! (Luecke, 2003) While he aimed for a dramatic and rapid increase in profits by relying heavily on cost cutting, and process change, he also made use of Theory O by creating higher performance in fostering a powerful culture and capable employees through the servicemen training of bottlers and soda fountain owners regarding the mixing and dispensing of Coca Cola syrup. The syrup pricing debacle with the bottlers created a problem that would affect Coca Cola’s relationships and bottom line throughout the existence of the company. While hindsight may be 20/20, there may be no way that Asa Candler could have foreseen the precipitous jump in syrup ingredient prices in the years to come. Perhaps Candler could have used some more economic expertise to successfully forecast future rising prices. As far as Robert Goizueta and his decision to change the flavor of Coke, literally over Robert Woodruff’s dead body, that was clearly a structural process change made solely within the tenets of Theory O. While â€Å"it is impossible to anticipate the what when or where of change, it is something that business can count on and should plan for. † (Luecke, 2003. p. 1) Problem identification is important, but how the problem is identified is also important. Goizueta and his top executives were looking at their bottom line and shareholder value, and virtually nothing else. This included the lawsuits they were involved in with the bottlers over syrup prices. Candler’s deal with the bottler’s many years before came back to haunt them. They were looking at the prospect of Coca Cola being second in the market place for the first time in history. Their tunnel vision did not allow them to see the strides Pepsi was making with the â€Å"younger generation†. Coca Cola had made a structural process change in the flavor of Coke instead of a cultural change focusing on their relationship with bottlers, and most importantly, their relationship with consumers. They did not consider the fact that it was the unique taste of Coke that had made their company so successful. They should have left the taste of the â€Å"Real Thing† real. There were a few other things that could have been changed that needed fixing, rather than fix the one thing that wasn’t broken. For a few dollars more, they could have settled with the bottlers, and concentrated on what they could do to reel in the next generation of consumers without making the huge mistake of changing the formula.