External Environment Analysis for Kraft Foods Group
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Overview of the Kraft Foods Group
Kraft Foods Group Inc. is one of the leading food and beverage manufacturers in N. America driven by the mission of being becoming the preferred food and beverage destination in the entire N. America. Kraft Foods Group was established in 2012 following the demerger of the mother company, Kraft Foods Inc. (renamed as Mondelez International). Kraft Foods Group Inc. is a financially stable grocery company with annual revenue in excess of $18 billion. The company is well-position in the market with the focus being gaining a market command over its competitors (Nestle S.A, ConAgra Foods, Inc. and Hillshire Brands Co.). Some of the Kraft Foods’ familiar food and beverage brands include convenient meals (Oscar Mayer), grocery fare (Shake N’Bake Coatings, Cool Whip topping), nuts (Planters) and beverages (Kool-Aid drinks and Maxwell House coffee). Although Kraft Foods Group Inc. has been outstanding in its revenue base, its performance has been highly influenced by the micro and macro-environmental factors. However, with the company’s sound internal management policies, the focus turns to external environmental analysis.
External Environment Analysis for Kraft Foods Group
SWOT ANALYSIS
SWOT analysis, which entails strengths, weaknesses, opportunities, and threats, is specifically a framework aimed at the identification and analysis of the internal and external factors that can bring about the viability of a firm, project, or a product. SWOT analysis is very vital for a firm in the process of making decisions. According to Fine (2009), after the decision makers have identified the SWOT factors, they should be in a position to determine whether the goals and objectives of the firm can be achieved at the predetermined specific point in time. The analysis helps an organization match the competitive environment with its available resources. According to Peragine, (2008), a SWOT analysis is very vital to the decision makers since it offers them with useful perspectives in every stage of driving the organization. It helps in exploring the possibilities for solutions to problems and new efforts as well as making decisions on the best direction for any initiative. The process involves examining where change is possible and the opportunities for success in relation to the threats that may hinder the organization from achieving the intended success. Opportunities are meant to open wider avenues, while threats are likely to close the existing paths (Fullen, 2006)
In the analysis of the external environment of a business, there is need to narrow down on two aspects of SWOT analysis: opportunities and threats. These two concepts require the decision makers to carry out a wide external assessment. No organization, company, program, or group is immune to events and forces coming from the external environment (Casario, 2012). Decision makers should be for better or for worse consider their connectedness to the external environment in order to define their position in the market environment. There are factors and forces that are beyond the control of an organization. Such forces include: future trends, the economy (national, local, or international), demographics (changes in race, gender, age, and culture), physical environment, legislation, and national, local, or international events. Given the SWOTs, the decision makers should be able to tell whether the objectives they have at hand are attainable (Fridson, & Alvarez, 2011). In case the objectives are not attainable, they should be able to select other objectives. Other aspects of the external environment include technological changes, changes in legislation, microeconomic matters, and socio-cultural changes. There is also the change in competitive position and market situation.
Opportunities
These are the elements that a project or a company can use to its advantage. The best approach to look at the available opportunities is to consider the industry’s strengths and then examine whether such strengths can open up opportunities (Fine, 2009). The other way is to consider the weaknesses and then examine whether eliminating them can open up opportunities. Decision makers need to look for any good opportunity before them and any interesting trend they are aware of. Useful opportunities come from things like: changes in markets and technology on both narrow and broad scale, changes in governing policies, changes in population profiles, social patterns, lifestyles, and so on.
Threats
These are environmental elements that can cause trouble for a project or a business. They include the obstacles faced by the organization, the organization’s competitors; whether quality specifications or standards of the organization change every time; whether the changes in technology are a threat to the organization’s position in the market; whether the organization has problems of cash flow or bad debt, or whether the organization’s weaknesses can seriously threaten the activities of the organization. Casario, (2012) says that PEST analysis is very significant when looking at the company’s opportunities and weaknesses as it ensures that the decision makers do not overlook external factors. The major threat for SWOT implementers is the aspect of competition. Programmes aimed at improving the welfare of the community, like health improvement programmes, may not have any competition in a market sense. But it becomes a threat when there is preference in funding; funding favoring other projects against the rest. Competition should be considered on a very broad sense since it is a very serious threat to the efforts of any organization (Fleisher, & Bensoussan, 2007)
Industry Environment-Porter’s Five Forces Model
The five forces include:
Supplier Power: Involves the analysis of the ease with which the suppliers are likely to drive up the prices (Casario, 2012). It is influenced by the number of suppliers for a particular input, uniqueness of a particular product or service, relative strength and size of a particular supplier, and the cost of switching suppliers.
Buyer Power: Involves the assessment of the ease with which a buyer can drive prices down. It is influenced by the number of buyers and the importance of buyers to the industry (Fridson & Alvarez, 2011).
Competitive Rivalry: This is driven by the capability and the number of competitors in every market. Competitors tend to reduce market attractiveness.
Threat of Substitution: Involves customers switching from one product to another in response to price changes. This reduces the market attractiveness and the suppliers’ power.
Threat of New Entry: Fleisher & Bensoussan, (2007) asserts that profitable markets tend to attract new entrants, thereby eroding profitability. The incumbent players need to have durable and strong barriers to entry to avoid the decline of their profitability.
The five forces discussed above are made up of several components: Threat of new entry (cost and time of entry, economies of scale, technology protection, barriers to entry, cost advantages, and specialist knowledge), competitive rivalry (number of competitors, switching costs, customer loyalty, cost of exiting the market, and quality differences), supplier power (size of suppliers, number of suppliers, uniqueness of service, cost of changing, and ability to substitute), buyer power ( price sensitivity, cost of changing, number of customers, differences between competitors, and ability to substitute), and threat of substitution ( cost of change, and substitution performance).
The five forces are very beneficial for any industry that needs to enjoy a competitive advantage. It helps industries understand the factors that affect profitability, and can make decision makers make informed decisions concerning: whether to enter or not enter a specific market; whether to increase the product capacity in a particular market; and to develop competitive strategies (Fleisher & Bensoussan, 2007). The model is influenced by several factors that include: the model should be used in a market situation where there are three and above competitors, impacts of government activities on the industry should be significant, stage of the organization’s lifecycle, and the changing or dynamic characteristics of the industry. The model is only applicable to the industries and should not be used in the analysis of firms. According to Casario (2012) the forces describe the micro environment of an industry and are close to factors that make a company serve its customers well and at the same time make profits. A negative change in any of the forces requires the industry to re-assess the conditions of the market place and analyze the overall impact to the whole industry.
Macro Environment-PEST Analysis
This tool is very vital in assessing or “scanning” the external environment. It involves the analysis of political, economic, social, and technological aspects of a business environment. The actions of a competitor are also considered in this aspect (Casario, 2012). It is important for an organization to consider taking pro-active approach to enable it be ahead of the changes, rather than making hurried alterations to processes and products in a reactive manner. The components of the PEST analysis are discussed below:
Political Changes
Change of a governing body or changes in government policies can significantly influence the operations of a company (Fine, 2009). These changes are closely related to legal changes. Laws affecting business operations include: environmental legislation, consumer protection legislation, employment laws, and safety laws.
Economic Changes
The economy normally goes through series of fluctuations involving general slumps and booms in economic activities. During boom, almost all businesses benefit while most businesses lose during a slump (Fridson, & Alvarez, 2011). Other economic changes associated with business activities include changes in wage rates, interest rates, and inflation rates. Businesses are likely to take risks and expand in good economic conditions.
Social Factors
These relate to the pattern of tastes, behavior, and lifestyles. It involves changes in consumer behavior brought about by changes in style and fashion (Casario, 2012). The population age structure also tends to change over time. A business that understands the social changes has a better of way planning for the future.
Technological Changes
This involves changes brought about by modern communication technologies. According to Fleisher & Bensoussan (2007), the creation of electronic communications and databases has enabled large quantities of information to be distributed and quickly shared, thereby enabling cost reductions and improved services. It is important for an organization to be conversant with the latest technologies to enable it surf the waves of change within no time.
References
Casario, M. (2012). CSS3 solutions: Essential techniques for CSS3 developers. Berkeley, Calif.: friends of ED.
Fine, L. G. (2009). The SWOT analysis: Using your strength to overcome weaknesses, using opportunities to overcome threats. S.l.: Kick It.
Fleisher, C. S., & Bensoussan, B. E. (2007). Business and competitive analysis: Effective application of new and classic methods. Philadelphia, Pa: Wharton School.
Fridson, M. S., & Alvarez, F. (2011). Financial statement analysis workbook: Step-by-step exercises and tests to help you master financial statement analysis. Hoboken N.J: Wiley.
Fullen, S. L. (2006). How to get the financing for your new small business: Innovative solutions from the experts who do it every day. Ocala, Fla: Atlantic Pub. Group.
Peragine, J. N. (2008). How to open & operate a financially successful personal training business. Ocala, Fla: Atlantic Pub. Group.
