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Example research essay topic: Campbell Soup Competitive Advantage - 1,748 words

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1. Describe Campbell Soup's corporate strategy under Gordon McGovern's tenure. What key changes did David Johnson make? What about Dale Morrison? Joseph Campbell founded Campbell Soup Company in 1869.

They are considered a leader in their industry. They employ over 24, 500 people and have revenues around 6 billion. Currently they have over 2000 products on the market. Over the years they have diversified into a number of businesses, however soup has been its core business.

Since 1980, Campbell Soup Company has undergone three different strategies under three different CEOs who brought their own agenda in order to build value for the company and its shareholders. Gordon McGovern took over as CEO in 1980. Immediately upon assuming his new position he began initiating changes in the century-old company. Under McGovern, Campbell's strategic focus was on developing and introducing new products, and expansion of the business portfolio through acquisitions. He wanted his employees to be creative and have a willingness to experiment. He encouraged entrepreneurial risk, by decentralizing Campbell's management and rewarding employees who showed these traits.

He also had a strong focus on the consumer. He expected his employees be knowledgeable in the areas that were important to the consumer. McGovern organized the business into six different divisions. They were Campbell U. S. , Pepperidge Farm, Vlasic Foods, Mrs. Paul's Kitchens, Other United States, and International.

He set 4 specific key performance targets that he wanted to reach - a 15 percent annual increase in earnings, a 5 percent increase in volume, a 5 percent increase in sales revenue, and a 18 percent return on equity. Unfortunately for McGovern his strategy had flaws, and he did not met his performance targets. McGovern was experiencing a lot of pressure to resign and eventually did in 1989. Campbell's new CEO was David Johnson. He took office in January of 1990 and took a different approach then Gordon McGovern. "His first priority was crafting a new strategy for Campbell that would grow earnings and win the confidence of the Dorrance heirs" (436). He wanted to boost the company's performance quickly to discourage a takeover.

He set new key performance targets - 20 percent earnings growth, 20 percent return on investments, and 20 percent return on assets. "Johnson disagreed with McGovern's view that Campbell's growth should come primarily from the acquisitions of small, fast-growing food companies and from the introduction of new products that served some niche of the food industry" (437). He believed that it would be more beneficial to concentrate on their best know brands and grow sales that way. He reorganized Campbell's business strategy for the better. He restructured McGovern's 6 business units into three. The new divisions were U. S.

A. , Bakery and Confectionary, and International Grocery. Johnson put more emphasis on cost reduction and wanted better use of existing assets. He sold 8 plants, shut down 12 plants, and reduced the workforce by 8000 people during his first 18 months as CEO. He divested 26 unprofitable and slow-selling product lines, and took a more cautious approach to new product development. Johnson also saw the importance of the foreign market. He believed that Campbell's need a stronger presence in the global market and wanted at least one-third of its sales to come from there.

With this new strategy Campbell's was more profitable and Johnson had revitalized the company. In July 1997, Johnson stepped aside as CEO when his contract expired. When Dale Morrison took over Campbell Soup as CEO, his goal was to enhance David Johnson's plan. Campbell's strategic focus continued to be about increasing sales growth, increasing market share, and share holder value. He focused on the more profitable businesses with the highest growth potential and continued to divest the non-strategic businesses.

He also wanted to penetrate the international markets. He believed he could do this by making profitable acquisitions overseas. He was committed to boosting performance of the company and hoped to achieve this by increasing advertising from 3. 5 percent to 8 percent of sales. He set forth a buyback plan to repurchase common stock to boost EPS and ROE. Morrison, like the previous CEO's, also realigned the business units. The new divisions were Soups and Sauces, Biscuit and Confectionary, and Away from Home.

His portfolio restructuring effort had little effect on Campbell Soup Company's financial performance though. By the end of 2000, stock price declined to its lowest point since 1995, and Morrison resigned as CEO. 2. Why did Gordon McGovern fail? When Gordon McGovern took over as Campbell's CEO in 1980 he put a lot of emphasis on new product development to capitalize on consumer trends. At first he saw a lot of success with this strategy but by 1985 the success had slowed.

For the first nine months of that fiscal year, net income grew by less than 6 percent. Meanwhile marketing expenditures continued to expand, compromising over 12 percent of total sales. The performance of new product entrants did not live up to expectations, but McGovern continued to spend a lot of money on them anyways. High failure rates were common, but only 12. 5 percent of new products made it, which is lower than the industry average of 20 percent. At this point someone should have recognized that it was time for a change. Unfortunately Campbell's managers got to deeply involved in new-product development, while ignoring cost control and profit targets, that they neglected the performance of their existing products.

So, McGovern's overzealous pursuit of new product development was one reason he ultimately failed. The second part of McGovern's strategy was to expand the business through acquisitions. The expansion strategy led to unsuccessful diversification of Campbell's business into industries that they had no expertise or competitive advantage. For example in 1983, Campbell's acquired Annabelle's restaurants chain and Triangle Manufacturing Corporation, a sports company, at a cost of $ 26 million.

Campbell's had no experience in either restaurants or physical fitness and sports products. What were they trying to do here? They did not belong in those industries. As, a result of their misguidance the company's cost of production went up and profits went down. On the other hand some of the new business that they acquired did have a strategic fit with each other, but under the corporate structure, it was impossible to combine production efforts or reduce cost by sharing technology between the units. For example Mrs.

Paul's Kitchens and Snow King, both frozen food companies, were acquired in 1982 for $ 55 million and $ 32 million respectively. Instead of combining them with their current frozen food units, they had all three scattered across 3 different divisions. So, McGovern failed here because he had too much autonomy to capture strategic fit benefits. 3. What recommendations would you make to a new CEO regarding Campbell soup's strategy and management of the business portfolio? The first recommendation I would make to the new CEO would be to develop a clearly defined mission statement. A clear mission statement will assist in providing focus to an organization and is essential for effectively establishing objectives and formulating strategies.

The top management team at Campbell Soup Company is so large, that by not having a mission statement, each executive is subject to his / her own interpretation of the company's current vision: Campbell Brands Preferred Around the World. In order for the company to proceed into a future where competition is highly competitive, they need to define who and what they truly are, their concerns, their philosophies, and what gives them the competitive advantage over their competitors. This must be clear throughout all areas and divisions, at all levels in the company, in order for the implementation of the mission statement to be successful. The next issue I would urge Campbell Soup to look at is one of growth. They need to decide: where to grow, how to grow, when to grow, and what to grow. They would need to continue to divest less profitable business.

This allows both capital and resources to be freed up to allow Campbell's to concentrate on growth. Porter described this better, "management found they couldn't manage the beast. Hence, business are selling, or closing, less profitable divisions in order to focus on core businesses. " They also need to invest in new and existing products so that they remain successful. Campbell's has the experience, know-how, brand power, and financial capability to pursue this. While researching this case it becomes evident that there is huge growth potential in the industry. The greatest potential lies overseas.

There exists a huge untapped market that needs to be identified. There are a number of techniques Campbell's could employ in order to expand further into the global market. One would be to acquire competition by implementing horizontal integration. This could increase their economies of scale and distribution centers that they have overseas. This would include increased marketing efforts.

By concentrating on their marketing and advertising abilities coupled with their powerhouse brand names and trademarks they own, they should be able to capture more consumers. They could also develop additional markets by introducing their products in areas they have not yet targeted. Internationally the population is growing faster than on the home front. Campbell's presently relies too heavily on US sales for their overall earnings. If the US market sales continue to slow, the company could suffer financially because of its heavy investment in the US market.

Therefore they need to identify a market development strategy along with the penetration strategy. They could also focus this strategy at the increasing number of people in the older generation who are very concerned with nutritional values of foods they eat. The market has already identified the possibility of adding nutritional vitamins and supplements within food. Campbell having superior research abilities should take advantage of this avenue and further develop this product line. Next, the company should look at their manufacturing costs. Their turnover rate is below industry average of 1. 8 times, as the table below shows: YEAR NUMBERS IN MILLIONS 1997 7, 964 / 6, 459 = 1. 23 times 1998 6, 696 / 5, 633 = 1. 18 times 1999 6, 424 / 5, 522 = 1. 16 times This indicates the company is not operating sufficiently given the size of its total asset investment.

Sales need to be increased and additional research must be done on efficient production. They could explore transferring manufacturing process too more cost efficient locations such as China.


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