Analysis 1

Managerial Decision Making Research and Analysis Robert Baca BUS640: Managerial Economics ro!" Michael #hirtle $o%ember 1&th '01(

Analysis ' Managerial Decision Making Research and Analysis Introduction )oca*)ola has had many managerial decisions that +ere made o%er time and ha%e battled some challenges" ,rom the change in the market to com-etition -ro%iding a challenge. )oca* )ola has had to stay its co/rse and do +hat it can to remain on to-" )oca*)ola is one o! the leading so!t drink and be%erage man/!act/ring com-anies" 0ne o! the reasons it has achie%ed this stat/s is d/e to the great decisions it has made +hen it comes to management and the strategies that they /se" #o remain as a to- -lay in the market yo/ ha%e to maintain a strong re-/tation and make good decisions" 1hat )oca*)ola has been s/ccess!/l on is ada-ting strategies that other com-etitors /se to achie%e the s/ccess that they ha%e" #he -/r-ose o! this -a-er is to e2-lain those challenges it has o%ercome +hile also addressing the !ollo+ing to-ics: ro%iding a brie! history o! o-erations and !inancial -er!ormance o%er the years 3denti!ying the risk or /ncertainty o! its o-erations based on the stat/s o! the economy 4o%ernment reg/lations that ha%e a!!ected the com-any5s o-erations 3n-/ts that are /sed in the com-any5s -rod/ction $e+ -rod/cts introd/ced and the im-act on !inances rice !l/ct/ations and demand elasticity ro!itability and the a!!ect o! its costs and o-erations )om-etition )om-etiti%e strategies )om-any obser%ations and recommendations Financial Performance and History

Analysis ( )oca*)ola +as established in the United States in 16&6 and gre+ by merging and ac7/iring se%eral other com-anies in the market" Some o! the com-anies it ac7/ired are: Min/te Maid 816609 Bar75s 8166:9 ,/;e Be%erage 8'00<9

)oca*)ola also attem-ted to e2-and in 16&' by ac7/iring )olombia ict/res !or =66( million" #hey later sold the mo%ie st/dio to Sony !or =( billion in 16&6" 3t has been mo%es like this that has made )oca*)ola s/ccess!/l" #he gro+th o! the com-any +as reali;ed d/e to its sale o! syr/and other -rod/cts to its s/bsidiaries" #he ability to bottle their o+n -rod/ct hel-ed gro+ in 1661 +hen >ohnson )oca )ola bottling gro/- merged +ith )oca )ola enter-rises" D/e to the e!!ecti%e management strategies. the com-any +as able to bring on in%estors +ho +ere im-ressed +ith the strategies" #hese in%estors ga%e the com-any the needed !inancial stability to e2-and its ser%ices" Since '00& the com-any has made a h/ge !inancial lea- +hen it comes to net o-erating assets" $et o-erating assets is e7/al to o-erating assets min/s o-erating liabilities" #he chart belo+ sho+s the im-ro%ement o%er !i%e years: Coca-Cola Co., balance sheet computation of aggregate accruals
USD $ in millions Dec 31, 2012 Operating Assets Total assets Less: Cash and cash e !i"alents Less: Sho$t%te$m in"estments Less: 'a$(eta)le sec!$ities Operating assets Operating Liabilities Total lia)ilities Less: Loans and notes *a+a)le 86,174 8,442 5,017 #,092 69,623 5#,006 16,297 Dec 31, 2011 79,974 12,80# 1,088 144 6 ,939 48,05# 12,871 Dec 31, 2010 72,921 8,517 2,682 1#8 61, 8! 41,604 8,100 Dec 31, 2009 48,671 7,021 2,1#0 62 39,! 8 2#,#25 6,749 Dec 31, 2008 40,519 4,701 & 278 3 , !0 19,657 6,066

Analysis 4
Less: C!$$ent mat!$ities o, lon-% te$m de)t Less: Lon-%te$m de)t Operating liabilities

1,577 14,7#6 20,396

2,041 1#,656 19,!8 46,454 #,057

1,276 14,041 18,18" 4#,#97 15,405

51 5,059 11,!66 27,992 2,797

465 2,781 10,3! 25,195

.et o*e$atin- assets 49,227 /alance%sheet%)ased a--$e-ate acc$!als 2,77# Balance-Sheet-Based Accruals Ratio, Comparison to Industry Coca%Cola Co0 50801 2nd!st$+, Cons!me$ 3oods 10161

60801 90241

4#0161 50401

100521 00421

Stoc( 4nal+sis on .et 56660stoc(% anal+sis%on0net7 Co*+$i-ht 8 201# 9/2T :inancial 4nal+ses Cente$

,rom December (1. '00& till December (1. '01' the net o-erating asset im-ro%ed !rom =':.16:.000.000 to =46.''<.000.000" #hat is an ama;ing im-ro%ement and is something that )oca*)ola sho/ld be %ery -ro/d o!" >/st as im-ressi%e is the cash !lo+ based aggregate accr/al" #he chart belo+ sho+s the im-ressi%e lea- !rom =:66 million to =6"<<& billion: Coca-Cola Co., cash flo# statement computation of aggregate accruals
USD $ in millions Dec 31, 2012 .et income att$i)!ta)le to sha$eo6ne$s o, The Coca%Cola Com*an+ 9,019 Less: .et cash *$o"ided )+ o*e$atin- acti"ities 10,645 Less: .et cash *$o"ided )+ 5!sed in7 in"estin- acti"ities %11,404 Cash-flo#-statement-base$ aggregate accruals 9,""8 Cash-Flow-Statement-Based Accruals Ratio, Comparison to Industry Coca%Cola Co0 200441 2nd!st$+, Cons!me$ 3oods 20##1 Dec 31, 2011 8,572 9,474 %2,524 1,622 #0611 #0401 Dec 31, 2010 11,809 9,5#2 %4,405 6,682 180721 10271 Dec 31, 2009 6,824 8,186 %4,149 2,"8" 100481 #0091 Dec 31, 2008 5,807 7,571 %2,#6# 99

Analysis :
Stoc( 4nal+sis on .et 56660stoc(% anal+sis%on0net7 Co*+$i-ht 8 201# 9/2T :inancial 4nal+ses Cente$

#he !/t/re -lans o! )oca )ola are ?/st as im-ressi%e as they -lan to increase re%en/e by < billion !rom '01( to '01: or an increase o! ( billion a year" #he goal to achie%ing this is to !ind a +ay to lo+er the costs o! -rod/ction +hile ma2imi;ing -ro!itability" #his is +here the management strategies ha%e to come into -lace" Ada-ting a strategy to lo+er costs +hile increasing sales +ill be a di!!ic/lt one" #here are obstacles that co/ld come in the +ay s/ch as s/--ly chain management. -rod/ct -lacement. and the economy" Operational Risks Based on Economy #he economy has -layed a h/ge role in many cor-orations do+n!all" 1hen the -eo-le ha%e no money to sho- then the com-anies ha%e no money to contin/e to make a -rod/ct" #his is +hen the +ant has to become a need" 3n the c/lt/re o! -eo-le today. i! the +ant something so bad then it +ill become something they need to get" )oca*)ola has done a great ?ob o! making this transition and relying on its re-/tation to carry them thr/ an economic do+n!all" #here are risks that do come +ith this s/ch as o-erational c/tbacks o! -ossible !actories or distrib/tion centers" #he goal is to ha%e a strategy that +ill c/t back the risks and lead to -ro!it" 0ther -ossible risks are the costs o/t+eighing the -rod/cti%ity being bro/ght in by the distrib/tion center" @ee-ing a close eye on the economy +hile also -lanning !or the +orst +ill hel- c/shion the blo+" 1ith economic h/rdles there comes legal h/rdles" Government Regulations 0%er the years there has been reg/lations that ha%e a!!ected )oca*)ola" Some o! the h/rdles that ha%e held them back !rom e2-ansion are ta2ation and do/ble ta2ation -olicies" #hese -olicies ha%e made it hard !or )oca*)ola to e2-and to other co/ntries" #here ha%e been

Analysis 6 restricti%e -olicies sets that ha%e made it di!!ic/lt to o-erate s/ch as -olicies on man/!act/ring. -ackaging. and +ater 7/ality" rod/ct s-eci!ic -olicies s/ch as restrictions. ta2ation and go%ernment reg/lations ha%e increased the o-erating costs. +hich a!!ect the o%erall -ro!itability" 4o%ernment -olicies also a!!ect the o%erall -er!ormance o! the com-any. these -olices incl/de antitr/st. health. en%ironment. and labor" Inputs Each com-any needs to ha%e its in-/ts in order to make a -rod/ct" )oca*)olas in-/ts !or -rod/ction are the ra+ materials /sed in the be%erages" #hese ra+ materials can consist o! s+eeteners or +ater" #he im-ortant thing to remember is that )oca*)ola does not act/ally -rod/ce soda b/t the syr/- that makes it" #he -rocess consists o! adding the right ingredients and -ackaging it" A machine to im-ro%e the acc/racy and s-eed o! the -rod/ct does this" D/e to these in-/ts it becomes easier to create ne+ -rod/cts" New Products $e+ -rod/cts are the key to ne+ -ro!it" 3t is im-ortant to do the -ro-er research +hen deciding to come o/t +ith ne+ -rod/cts" )oca*)ola has made se%eral attem-ts to come o/t +ith ne+ -rod/cts b/t is o!ten t/rned a+ay +hen doing testing" Recently they came /- +ith a -rod/ct called S/n!ill. +hich is a -o+dered so!t drink" 3t +as ne%er -rod/ced beca/se it did not meet the market dynamics" )oca*)ola has a ne+ drink called Maa;a. +hich +ill be targeted only at the metro cities initially and +o/ld then be rolled o/t to the A-o+er to+nsB 8M/kher?ee. '00:9" Price !emand and Profita"ility ricing and -rod/ction decisions are the most im-ortant decisions to make as it a!!ects the o%erall s/ccess o! the com-any" D/e to the re-/tation and s/ccess that )oca*)ola has there +ill al+ays be a demand b/t the %ol/me is +hat is im-ortant" #here are certain cities or to+ns

Analysis < +here the -rod/ct does not sell +ell and those are the markets +here concentration is im-ortant" 0ne o! the biggest determinations o! its %ol/me is the demand" 1hen yo/ increase yo/r -rices yo/ in essence increase yo/r -ro!it /nless the -rice dri%es c/stomers a+ay" 0ne o! the risks is that the -rod/ct -rod/ction co/ld s/r-ass the -rod/ct demand" #his is the -oint +hen yo/ see the -rice dro- so that the demand catches /-" #here are -lenty o! times +hen the -rices are raised in order to increase cash !lo+" #here are certain segments o! the com-any that do +ell. +hich +ill ca/se !or an increased -ro!it" Earnings im-ro%ement is e2-ected to come !rom more -/rchases made in the highly -ro!itable Acold drinkB segment o! the so!t drink market. +hich incl/des %ending machines 8Cays. 16669" #ompetition )oca*)ola is in a market that is %ery small and does not see m/ch com-etition" )oca* )ola is the leader in the so!t drink ind/stry b/t has a ri%al that brings great com-etition" e-si* )ola has done e%erything -ossible to o!!er the com-etition to )oca*)ola and has s/cceeded in some as-ects o! the market" 3n 166:. e-si*)ola -aid and estimated =<": million !or a 10*year deal to sell so!t drinks inside #e2as Stadi/m. +hich is the home o! the Dallas )o+boys" )oca* )ola -re%io/sly had the rights o! all the $,D stadi/ms b/t e-si*)ola is o/t to take that a+ay" #eams s/ch as the $e+ England atriots are also making the s+itch" re%io/s com-etition in 16<:. +hich +as kno+n as the e-si )hallenge. led to the !orm/la change o! )oke in 16&: 8 Ro/sin. 166:9" )om-etition can lead to good things and kee-s a com-any !rom -laying it sa!e" 3n the instance o! )oca*)ola. it is e-si*)ola that is dri%ing )oca*)ola to remain on its heels" #ompetitive $trategies 3n order to stay com-etiti%e it is im-ortant to ha%e a strategy" )oca*)ola has ado-ted se%eral com-etiti%e strategies as a marketing strategy" #he +ay to stay ahead is to /se s/bstit/tes

Analysis & that +ill gain yo/ the /--er hand !or a short -eriod o! time" 1hen yo/ come /- +ith that ne+ -rod/ct it gi%es yo/ the -o+er to collect be!ore other match it" #his is ho+ the com-anies gain a big -ortion o! the -ro!its" 3nno%ation is ?/st as im-ortant as -ro!it as it leads to -ro!it" 3! the -rod/ct has no s/bstit/tes then yo/ ha%e the -o+er to raise the cost +itho/t !ear o! a com-etitor taking the sale to their %ersion o! the -rod/ct" Ad%ertisements are the +ay to stay ahead o! yo/r com-etition" Society is easily ind/ced by a commercial or ad that they can relate to" Using these tools to sell yo/r -rod/ct can be %ery im-ortant" Co+e%er too m/ch ad%ertising co/ld ha%e a negati%e e!!ect" Using the right strategy o! marketing can hel- a%oid that -roblem by /sing the !o/r basic !actors o! marketing to increase cash !lo+: rice * romotion rod/ct lace #ompany O"servations and Recommendations A!ter re%ie+ing the s/ccess o! )oca*)ola o%er the years and the domination it still has on the market. the !irst obser%ation 3 can come /- +ith is that they need to contin/e +hat they are doing" Some o! the im-ro%ements that can be made come internationally" Dooking on the +ebsite !or )oca*)ola. it is clear that they are attem-ting to be s/ccess!/l across the +orld and based on some o! there commercials they are becoming s/ccess!/l" )ontin/ing to +orking on the com-etiti%e strategies and -ricing strategies +ill only increase -ro!it as +ell as demand" 3 +o/ld recommend !or )oca*)ola to /se the S# 8segmentation. targeting and -osition9 o! the -rod/ct in order to increase the market share" Re%ie+ing the s/ccess o! the com-etitors and attem-ting to co/nteract +o/ld only lead to a com-etiti%e edge" Being more in%ol%ed in the comm/nity and

Analysis 6 taking on a social role +ill also hel- in the n/mbers" S-orting e%ents and entertainment %en/es are the main so/rce o! so!t drinks and this is +here the e2cl/si%e deal and marketing sho/ld take -lace" #onclusion 3n )oncl/sion. )oca*)ola has done a great ?ob o! staying com-etiti%e and rele%ant" #hey are the clear leader in the so!t drink ind/stry and e-si*)ola is !ighting !or that right" Making the correct decisions is the di!!erence bet+een being n/mber 1 and being n/mber '" #he decisions that are made not only a!!ect the -ro!its b/t also a!!ect the +ay the -rod/ct is %ie+ed" )oca*)ola has sho+n that +ith the right -lan in -lace and the right -eo-le in%ol%ed. anything is -ossible" #o be the best yo/ ha%e to be like the best b/t better and right no+ e%ery com-any is trying to achie%e that by being better then )oca*)ola"

Analysis 10 Re!erence Do/glas. E" 8'01'9" %anagerial Economics 81st ed"9" San Diego. )A: Bridge-oint Ed/cation" Cays. )" D" 81666. $o% 169" )oca*cola bottler disc/sses its -rice increase" New &ork 'imes" Retrie%ed !rom htt-:EEsearch"-ro7/est"comEdoc%ie+E4(1'&6:06Facco/ntidG(':'1 M/kher?ee. S" 8'00:. A-r 0<9" )oca*cola set to /n%eil ne+ -rod/cts" (nig)t Ridder 'ri"une Business News" Retrie%ed !rom acco/ntidG(':'1 Ro/sh. )" 8166:. A/g 049" e-si deal breaks coca*colaHs $,D mono-oly" ')e *tlanta #onstitution" Retrie%ed !rom htt-:EEsearch"-ro7/est"comEdoc%ie+E41(:((:'&F acco/ntidG(':'1 htt-:EEsearch"-ro7/est"comEdoc%ie+E461<<'(11F