Professional Documents
Culture Documents
Strategy Formulation
A. Input Tools
Key external factors that affect the Kraft Foods Inc. were obtained from the PEST
analysis and Porters Five Forces of competition discussed earlier. The relevant
external factors affecting the Kraft Foods Inc. are:
1. External Factor Evaluation (EFE) Matrix
Table 19: EFE Matrix for Kraft Foods Inc.
Key External Factors
Weight
Rating
Weighted
Score
0.1
0.3
0.1
0.3
0.08
0.08
0.06
0.08
4
3
2
3
0.32
0.24
0.12
0.24
0.07
0.21
Threats
1. Increasing trend in dining out
0.09
0.18
2. Health concerns
3. Increasing obesity rate
4. Inflation (transportation)
5. Unfavorable impact of foreign currency
6. Intense competition from Mars Inc, Nestle SA
Total
0.08
0.1
0.1
0.06
0.14
1.00
2
1
3
1
4
0.16
0.1
0.3
0.06
0.56
3.09
Opportunities
1. Operates in many fast growing categories
2. Growing demand for health and wellness
products
3. Decreased input costs (raw materials)
4. Changing lifestyles
5. Growth in the coffee market overall
6. Growth in global confectionary and snacks
market
7. Cadbury acquisition provides new products
The average total weighted score is 3.1. It means that the company is doing well
in handling its existing opportunities and threats in its industry. It indicates that
the firms strategies are effectively utilize to maximize its opportunities and
minimize the external threats.
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The main opportunities for Kraft Foods are the acquisition of Cadbury, the fast
growing market share in some of its products, and also the value they create in
their products.
The threats show the external factors that directly affects the industry of Kraft
Foods. There are more threats in the industry than there are opportunities. One
of the major threats is its competition to Nestle, SA
Kraft Foods
Inc.
Nestle
Congra Foods
0.60
1.00
3.45
0.45
3.75
0.45
2.70
The Competitive Profile Matrix shows the relative strength of Kraft Foods
Inc.
industry. By identifying its strengths, we can also identify its relative weaknesses
and address them to formulate effective strategies.
72
Kraft Foods Inc. is relatively competitive in its industry, showing 3.45 as its
total score. The company has to improve on global strength, market share and
attractiveness as an employer to improve on brand loyalty and customer
retention. Its profit margin has a rating of 3 just like the other industry because it
is considered as a minor strength for they all want to focus on their brand and
customer satisfaction.
73
Weight
Rating
Weighted Score
Strengths
1. Strong R&D
2. Increased organic revenues
3. Availability
0.07
0.05
0.09
4
3
4
0.28
0.15
0.36
0.08
0.32
0.04
0.16
6. Focus on consumers
7. Strong distribution network
8. Strong brand image
9.
Worlds
second-largest
company
0.05
0.08
0.9
0.09
3
3
4
4
0.15
0.24
0.36
0.36
0.04
0.16
0.03
0.05
1
2
0.03
0.10
0.15
0.15
0.07
0.14
Total
1.00
10.
food
from
Weaknesses
1. Difficulty in launching new brands
2. Most of growth is dependent on
acquisitions or expanding into new
market.
2.96
The company receives a total of 2.96 weighted score which indicates that it has
strong internal position. The company is able to handle its internal factors. Being
the second largest food company in the world and having a strong brand image
gave Kraft Foods Inc. its strong competitive position.
74
B. Matching Tools
1. Strengths-Weaknesses-opportunities-Threats (SWOT) Matrix
The opportunities and threats that Kraft Foods Inc. possesses are now
matched against its strengths and weaknesses by using the SWOT matrix in
order to generate appropriate strategies.
Table 22: SWOT Matrix for Kraft Foods Inc.
Strengths
Weaknesses
1. Strong R&D
2. Increased organic revenues
3. Availability
4. Innovative advertising methods
5. Purchasing power
6. Focus on consumers
7. Strong distribution network
8. Strong brand image
9.worlds second largest food
company
10. 25% of global revenue from
emerging market.
1.
O1,S1
performing segments
producer O4,S3,S8
W4,O1
Opportunities
Threats
1.
2.
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3.
4.
6.
Inflation [transportation]
Unfavorable impact of foreign
currency
Intense competition
Rating
1
5
5
5
2
4
4
-1
-1
-2
-2
-5
-1
-3
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Average
Rating
+3.71
-2.14
-5
-5
-2
-5
-4.25
3
1
5
+3.00
Aggressive
CA
IS
Kraft Foods Inc.
(0.54,0.86)
Competitive
Defensive
ES
Based on the illustration, the directional vector suggests that Kraft Foods
Inc.hould pursue competitive strategies. Therefore, the company can adopt
77
Food products
Total
Revenue (in
Mio. $)
Profits (in
Mio. $)
%
Market
Share
%
Industry
Growth
Rate
49,207
4,114
18.67
8.44
= 49,207
X 100%
197, 541
= 24.91%
The percentage industry growth rate was obtained from the annual increase in
revenues.
78
+20
High
1.0
II STARS
Low
0.0
I QUESTION
MARKS
(0,25,8.44)
Kraf
Kraf
tt
Foo
Foo
ds
ds
IV - DOGS
-20
79
Average
3.0 4.0
4.0
Weak
2.0 2.99
3.0
2.0
1.0 1.99
1.0
III
II
High
Grow and build
3.0
Kraft
Kraft
Food
Food
ss Co.
Co.
IV
(2.96,3.09)
VI
Medium
2.0
VII
VIII
IX
Harvest or Divest
Low
1.0
Kraft Foods Co. is in the Grow and Build position which means that its internal
strengths are on the average and response to the external factors are on the
above average. This means that Kraft can proceed in doing intensive and
integrative strategies as suggested by the IE Matrix.
80
Weak
Competitive Quadrant III
Position
Strong
Quadrant IV Competitive
Position
81
Key Factors
Weight
Strategy 1
Strategy 2
AS
AS
TAS
TAS
Opportunities
1. Operates in many fast growing categories
0.05
0.10
0.1
0.2
0.15
4. Changing lifestyles
0.05
0.3
0.3
0.10
0.03
0.4
0.2
0.24
0.08
0.05
0.05
2. Health concerns
0.10
0.2
0.2
0.3
0.08
0.3
0.16
0.08
0.32
0.32
Threats
4. Inflation [transportation]
0.1
0.06
0.08
Key Factors
Weight
AS
TAS
AS
TAS
Strengths
1. Strong R&D
0.06
0.06
0.24
0.07
3. Availability
4. Innovative advertising methods
5. Diverse range in leading brands
6. Focus on consumers
0.05
0.04
0.08
0.06
2
3
3
4
0.1
0.12
0.24
0.24
3
4
4
3
0.15
0.16
0.32
0.18
0.07
0.10
4
4
0.28
0.4
4
4
0.28
0.4
0.03
0.06
0.12
Weaknesses
1. Difficulty in launching new brands
0.12
0.10
4
2
0.48
0.2
4
1
0.48
0.1
0.08
0.32
0.08
0.06
0.24
0.08
0.32
0.08
Total
Strategy 1:
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Strategy 2:
Develop the Maxwell House market by introducing it to cafes.
Result
Strategy 1 Total TAS: 5.00
The recommended strategy for Kraft Foods Inc. would be to introduce a new line
of low-fat products for the health conscious segment.
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3. Promoting good relationship between our company and customer and also the
suppliers of our business.
4. Seeing to eat that we have the best employees that could participate in the
decision making and providing them good working facility and quality trainings
5. Participating in community program and helping the community have a stable
progress.
Financial Objectives
To increase net income at least 30% of the sales for the next three years.
85
To be able to built a new R&D center for the next 3 years in other
coverage area.
E. Recommended Strategies
Upon the using the matrixes presented, the following are the recommended
strategies that Wells Fargo should use.
Market Penetration
Offer extensive sales promotion during peak season and creating bonus
packages.
Decrease the cost of the product if it would be possible so that buyers will
be attracted to patronize it.
Product Development
Develop products containing low fat and calories for those health
conscious individuals.
F. Financial Projections
Table 26: Financial Projections for Kraft Foods Inc (2011-2013)
87
Benchm
ark
Year
2010
2011
2012
2013
Assumptions
49,207.0
54,127.0
59,539.0
65,492.0
Cost of Revenue
31,305.0
32,870.0
34,513.0
36,238.0
Gross profit
17,902.0
21,257.0
25,026.0
29,254.0
__
105.0
121.0
140.0
12,001.0
13,531.0
14,884.0
16,373.0
211.0
222.0
233.0
244.0
12,847.0
5,415.0
13,858.0
7,399.0
15,238.0
9,788.0
16,757.0
12,497.0
5,415.0
1,790.0
7,399.0
2,165.0
9,788.0
2,381.0
12,497.0
2,619.0
3,642.0
1,147.0
5,234.0
1,831.0
7,407.0
2,592.0
9,878.0
3,457.0
4,114.0
3,403.0
4,815.0
6,421.0
16,221.0
21,087.0
27,413.0
35,636.0
79,068.0
82,230.0
85,519.0
88,934.0
Total Assets
95,289.0
103,317.
0
112,932.
0
124,570.
0
Total Liabilities
59,455.0
53,150.0
42,699.0
26,244.0
Equity
35,834.0
50,167.0
70,233.0
98,326.0
95,289.0
103,317.
0
112,932.
0
124,570.
0
Operating Expenses
Research development
Selling, General, and Administrative
Depreciation/Amortization
As an evaluation tool, the balanced scorecard shows the various selected key
strategies on aspects of consumer perspective, internal business processes,
financial perspective and learning growth. A set of quantitative measures has
been enumerated for each strategy to enable the company to monitor progress
or strategy attainment on a regular basis and review whether these need to be
changed or revised.
Strategies
Measures
Time
Completion
Customer perspective
Provide quality products for
all customers
Product development
Immediately
after 2011
Semi-centralization of the
organization
4th quarter
2005 2006
3ndquarter
2011
Financial perspective
Attainment of 2011, 2012, and
2013 revenue target
89
2nd 3rd
quarter 2012
Immediately
after 2011
90