Diageo and The Recession

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Table of Contents

Introduction
Diageo Plc
Diageo SWOT analysis
Porters Five Forces Analysis
Pestle analysis
The challenge of CSR
Recommendations
Conclusion
Reference List

Introduction

Successful management in today’s business environment requires that managers understand that the concept of management involves various function and that these functions are interrelated. As such successful managers need to understand how to combine and apply each of these functions in the organization they are running.

Boddy (2002) explains that management is a wholesome process that incorporates several function such mapping, arranging, directing, controlling and learning in the process.

Mapping a management plan involves the act of clearly establishing the available organization resources and allocating them to achieve the set objectives.

This means that setting desired objectives is part of management (Ghosh and Ghosh 1991). Because managers manage people as well as resources they have to establish the best relationship with this people to establish best support mechanism.

Management is also intended for the achievement of certain objectives and as such there has to a strict monitoring process. The monitoring ensures that there is an established mechanism of control that provides learning opportunities on management.

Ghosh and Ghosh (1991) also add that since not all management is form the benefit of man, then special consideration can be given to this perspective to include the attainment of a prior set objective.

There are various approaches to management each of tem having unique characteristics. Despite the fact that these approaches have varying propositions they all congregate around Quinn et al (2003) Competing Values Framework, CVF (See appendix 1).

This model is frame work that describes the management functions as driven by a number of competing factors. It is quite a difficult task to create employee satisfaction by enhancing cooperation, unity, flexible job roles, team work cohesion amongst is maintained while maintaining rational goals.

This is because setting of rational goals is an individualistic and such destroys team work. Goal setting also involves a lot of instructions thus becoming an unreceptive and demoralizing to employees (Quinn 1988; Quinn et al 2003).

This is because internal control involves a lot of tracking and rationalization of the team as well as employees’ roles and tasks. Internal controls are characterized by skepticism and cynism that may affect employee Morales.

Moreover it also becomes difficult to have an open system in a work place that encourages innovation. Open systems require a lot of negotiated brokerage in problem solving. Internal controls do have the tendency to conflict with open systems.

Diageo Plc

Diageo plc, registered in London is the biggest alcoholic drinks company in the world in terms of sales, market capitalization as well as products range (Diageo 2011a; Wakely 2001).

The company motor is to provide an opportunity to make merry during any of the merry making occasions at any location in the world.

As such the company prides itself in having some of the world’s most famous alcoholic brands. Among many popular brands, the company brand portfolio includes Johnnie Walker, Crown Royal, J&B, Windsor, Smirnoff, Baileys, Captain Morgan, Jose Cuervo, and Guinness among many others.

Some of the company’s brands such as Guinness and Jonnie Walker have been in the market for hundreds of years while others such as Jose Cuervo have been developed in recent past to take care of an emerging market for new tastes in alcoholic drinks (Diageo 2011a).

Diageo management

Diageo is a truly global business and as such has established well grounded operation in 180 countries in all continents. Due to its expansive business the company has established operational offices in 80 countries.

To ease the manufacturing and supply chain logistical hurdles, Diageo has established d manufacturing plants in various countries in Europe, African, Asia and the Americas.

This means that the company has to employ a big number of employees to drive its expansive business. As at the year 2010 the company had managed to gather together a group of about 20000 employees who are mandated to drive the company’s dominance in the alcoholic beverage market (Diageo 2011a).

Despite the fact that the company assets fell to £5,407 from £5,650, the company’s annual profits for the period ended March 31 2011 indicates that there has been a 5% increase in sales buoyed by a 7% increase in organic net sales. In general the growth can be attributed to the company’s model of priority branding (Diageo 2011b).

Diageo SWOT analysis

Market strengths

The company presence in the market is built on a number of strengths. To being with the company has endeavored to create a comfortable working environment for all its employees thus the ensuring satisfaction of employees.

This has lead to high level employee loyalty which further leads to improved business productivity. Furthermore the company also operates on the strength domineering brands.

Diageo aims at strengthening the products brands rather than the company name brand. The company’s pricing criteria also ensures that its products are affordable (Thompson and Martin 2010). This is one of the key factors for improve sale.

Weaknesses and market opportunities

The company does have a number of weaknesses. Diageo operates on a minimal marketing budget which means that its marketing activities are at risk. Furthermore the company has not established itself well in the lucrative wine business.

The poor presence in the wines market thus provides the company with one of the opportunities for growth. This is especially true in the American markets where wines do very well. Diageo’s business is threatened by the continued effects to educate the public about the dangers of alcoholic drinks. This is being driven through aggressive public campaigns (Thach and Matz 2004).

Market threats

The company has number of threats especially due to the efforts by government to turn away from alcohol. Its market is also threatened by its gates rival in the world market SABMiller which retails recognized brands such as Castle. It market for wines is also under threat since the company has not established itself well in this market (Thach and Matz 2004).

Porters Five Forces Analysis

Competing rivalry and alternative brands

Diageo, being the leader of the world in the alcoholic beverage industry has manipulated a very large chunk of this market. The company does this through proper branding and position of its products in the market. However the existing market threats due to its tendency to operate on a modest marketing budget.

As such it faces a considerable competition in the market especially due to the fact that there are a number of companies that are offering drinks that are very similar to its own. Furthermore some of its rivals in the market such as Heineken and Carlsberg engage in aggressive marketing campaigns.

The company is countering this by having a wide range of products that cater for all consumer tastes (McInerney and Barrows 2010). Furthermore it seeks to achieve the best from its limited marketing budget.

Threat of new entry

The threat by new entrants especially in the spirits market is very low. This is because this market requires a tidy some of investment capital as well as proper market positioning, something new competitors have not managed to do. Furthermore due to the fact that there is a very low threat of subsides in the alcoholic beverage market, the company is not facing any significant challenge on that front.

Supplier power

Due to the raising prices and the extreme competition in the commodities supplies market, the company’s supplier’s power is very low. This low power is also influenced by the fact that the company operates depends on agricultural raw material such as barley, wheat and fruits.

These raw materials are produced in diverse location and the production also fluctuates. However the company can take advantage of such fluctuation and suppliers low power and buy high when the supply is high to stock up for low supply season. This will keep the cost of raw material down.

Power of buyer

The buyer power of the company’s products is moderate due to the emphasis that the company puts in maintaining affordable prices. This is further coupled by the wide range of products that the company offers.

The rising prices of beer brands such as Guinness and spirits such Johnnie Walker may not have a big impact on the buyer power due to the loyalty of Diageo consumers. As such the company is relatively safe (Gibbins 2009).

Pestle analysis

Political influence

In most of the countries that the company’s operating there is a lot of political influence in the beer market. This is because politician’s are bowing to pressure and passing laws that limit the advertising of alcohol in public.

Furthermore entry into new market is usually difficult as a result of the politics of wanting to protect already existing brands. In entering the wine market properly the company will have to do a lot of political concessions before being allowed to enter into new market such as North and South America (Diageo 2009).

Diageo business environment

The alcoholic industry environment is increasingly becoming volatile due to a number of factors. This includes the fluctuation in the supplies market occasioned by rising prices of raw materials. The environment is also affected by the ever increasing public campaigns against alcoholic drinks and as such a number of consumers have resulted to light alcoholic drinks such as wines.

The business environment is also facing a significant marketing of both alcoholic and non alcoholic drinks. Suffice to say that the company operates on limited marketing budget with the it’s limited budget

Social factors

One of the most significant challenges facing the company is the changing social preferences and the changing drinking culture in Europe.

A majority of the adult population are shifting allegiance from heavy alcoholic drinks to wines especially after meals. Furthermore, the younger generation is shifting its allegiance to non alcoholic soft drinks as well as mineral water. This is occasioned by an increasingly health conscious population (Diageo 2009).

Economic factors affecting Diageo

The current global economy is characterized by constriction in the capital markets. This means that the debt markets are increasingly becoming less liquid thus affecting the cash flow.

This is creating pressure on Diageo’s business as it is almost impossible to maintain long term strategies without affecting the growth rate targets.

Furthermore a volatile foreign exchange rate market is reducing the company’s returns. On a positive note the company heavily depends on the UK and the US markets which are currently experiencing good times. But should such markets economic experience turbulence then the company’s business is in great risk (Diageo 2009).

Technology at Diageo

The company aims to keeping with the ever changing face of technology. The company has recently improved its information delivery system as a generate business improvement strategy.

Improved information systems is also intended to avoid cyber hacking and as such reduce chances of that its information system will be corrupted from outside. Furthermore the company has acquired the latest financial management software’s to improve its financial systems.

Legal platform

In the recent pat the company has found itself with increased legal liabilities. These include meeting strict manufacture standards, product liability, supply, importation, tagging, marketing, labor related, pensions and environmental matters.

All these issue have dynamic legal requirements as well as government regulations that govern them in respective markets. The company thus esteems to meet all these legal requirements.

As such the company is always incurring extra costs in meeting new regulations in labeling marketing and advertising its alcoholic brands.

Management model at Diageo

Diageo upholds a number of strengths that its sees as the central focus in the success of the management of its global business. The company’s business process, which includes manufacturing as well as marketing, is aimed at creating worthy products brand in the alcoholic beverage industry.

Furthermore the company has bought classis alcoholic brands such as Guinness and Johnnie Walker. Diageo ensures that the brands are not just a marketing gimmick but also meets consumer preferences and taste.

As such the company sees its brands as the best way to enforce good customer relations from loyalty to its brands. Added to this is the company pricing strategies that ensure that its products are relatively affordable (Thompson and Martin 2010).

This makes sure that the consumers of Diageo’s products are not priced out of the alcoholic beverage consumption. To cater for all customers’ preferences the company has also an extensive product range such that consumers of alcoholic beverages are spoilt for choice from its offerings (Gibbins 2009). Again the company sees this as the best way to maintain best practices in human relations.

Coupled with this is the company’s effort to improve its human resource department. From the year 2006 the company has endeavored to improve its human resource management practices so as to make it the employer of choice. The basis of these strategies is two pronged.

To begin with the company endeavors to ensure employee satisfaction throughout its business operation (Thompson and Martin 2010; Ratra 2009). Secondly the company endeavors to crate a client centered human resource service provisiosn mechanism (Ratra 2009).

The company thus develops its management practices around the maintenance of the best relationship with its clients as well as its employees. Therefore from the analyzing the company, it sis evident that the dominant management model at Diageo is the Human Relationship Model

The challenge of CSR

Diageo CSR efforts go beyond philanthropy to incorporating the communities in socially beneficial initiatives that reduce the harmful effects of its business activities (Ratra 2009). Due to the nature of its business the company is presented with unique SCR challenge.

Alcohol consumption is increasingly facing a lot of scrutiny from authorities due to the possible harmful effects. The company has retaken advantage of this challenge and sees it as an asset to portray it as a socially responsible company.

In this regard the company has partner with various companies such as McLaren Mercedes F1 Team in supporting responsible drinking habits. This is an effort to positively add to the well being of the communities and consumers of its products.

Thus its CSR is seen beyond profit making (Diageo 2011c). However this challenge means that the company cannot aggressively market its alcoholic brands, thus limiting the market for its product (Thach and Matz 2004).

Impacts of the CSR challenge

The challenge of the CSR has had a significant effect on the company’s business. Its is usually a tricky affair to have a balance between meeting its CSR pledge to enhancing responsible drinking campaign at the same time realizing high profits.

This is because the company’s has engaged in various partnerships with other companies to educate the community as well as its consumer on the need to adjust the alcohol intake habits. This leads to a reduced level of alcohol intake and as such affects the company’s desired sales target’s (Diageo 2011c). Furthermore the company is against underage drinking. This means that a significant market segment is eliminated (Diageo 2011d).

Recommendations

From the competing forces framework, it is evident that the company management model is modeled along the human relations model (See appendix 1). The company can utilize other opportunities for growth highlighted in the CVF. For the example the company can embrace the open systems of manage that will ensure that its employees innovate creative products and services.

These innovations are essentially useful in the wines market that Diageo is yet to fully utilize. Furthermore the company should reinforce the internal systems control mechanism. This wills enable the company to realize maximum production from its employees.

As such the company’s manager needs to closely monitor and coordinate the company’s business processes to ensure that optimum outcomes are realized. This will ensure that the company takes care of its human relationship function without neglecting other functions of management (Quinn, 1988).

Conclusion

Management of modern organization is a complex activity as it involves a number of related activities. Such activities include planning for the company’s resources including human capital, directing, controlling, and ensuring valuable human relationships are maintained and deriving valuable lesson for future application.

This means that any successful manager must understand how these activities relate to each other to function effectively. At Diageo the company esteems itself to enhancing the best human relationship through various efforts such as strong branding, market positioning as well as its CSR initiatives.

This management model has ensured that the company maintains a leading role in the alcoholic beverage industry. However if the company is to effectively overcome the problems and challenges it faces then it has to embrace other management practices such as open system, as well as establish a more rigid internal control mechanism. This will guarantee the company a safer business environment.

Reference List

Boddy. D. 2002. Management: an introduction. New York: Prentice hall Diageo. 2009. Risk. Web.

Diageo. 2011a. About Us. Web.

Diageo. 2011b. Interim Management Statement for the nine months ended. Web.

Diageo. 2011c. CSR. Web.

Diageo. 2011d. Alcohol in society. Web.

Ghosh,K. and , Ghosh, A. 1991. Introduction to management. New Delhi: Animol Publication Gibbins, C. 2009. Diageo (ADR). Web.

McInerney, R. and Barrows, D. 2010. Management Tools for Creating Government Responsiveness: The Liquor Control Board of Ontario as a Context for Creating Change. Web.

Quinn, R. E. 1988. Beyond Rational Management: Mastering the Paradoxes and Competing Demands of High Performance. San Francisco: Jossey-Bass.

Ratra, A. 2009. Modern Management: Diversity, Quality, Ethics And The Global Environment. New Delhi: Global India Publications.

Thach, L. and Matz, T. 2004. Wine: a global business. Cornell: Miranda Press.

Thompson, J. and Martin, F. 2010. Strategic Management. New Hampshire: South Western Cengage Learning.

Wakely, J. 2001. The International Spirits Industry. Cambridge: Woodhead Publishing.

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