BMG734 Strategic Management : External Environment Factors

Introduction:

An organisation is a group of people with the same agenda. Strategic management is an important part of building an organisation and achieving the objectives as it helps the management take in account all the favorable facets and overcome the unfavorable ones (Hill, Jones & Schilling, 2014). Any organisation devoured of the objectives has the plan and strategies that helps in achieving the goals. Strategic management is that part of management which helps the company to from policies and takes decisions. There are a number of concepts and theories that has been formulated over the years by scholars to help the management in taking these decisions. There are two environments in which an organisation operates. Internal environment are the factors of the organisation that the management has full control over, these are the resource and capabilities of the company and can be manipulated as and whenever required. The strengths and weakness of a company is based on the aspects that are in the internal environment (Wheelen, Hunger, Hoffman & Bamford, 2017). On the other hand, the external environment factors are not under the control of the organisations they are dynamic in nature and have the opportunities as well as threats for the company. It provides a company growth prospects as well as threats associated with any of the external factors. The management of the company has to keep changing and evolving the policies and decisions to suit these factors to help the company grow (Stead s& Stead, 2014).

According to Hill, Jones and Schilling (2014), apart from the business environment, concepts such as competition, logistics and supply chain, change management, quality management etc are some of the basic attributes of strategic management. Factors such as organisational behavior, structure, culture, governance etc are also a part of strategic management as these have to be in sync with the decisions and policies that are formulated for the company in order to have an effective and successful outcome. In order to run an organisation towards achieving the objectives, these strategic management decisions are based on a number of theories and facts that the management has to keep in mind while formulating the decisions.  

There are a number of concepts and theories of strategic management used by the organisations which help to formulate the policies. For example: there are a number of frameworks and guidelines formulated by Michel Porter which is widely used in the process such as Porter’s five forces, porter’s generic strategies etc.  The management of the company not only has to decide according to the resource that the company has but also has to decide according to the other competitors in the market. In case of a business with profit motives, competitive strategies are one of the most important aspects of the management. The management of the organisation is responsible for formulating the policies however; the operations employees are responsible for implementing the policies.  An organisation can be divided according to the various functions that have to be fulfilled.  Usually there is an administration, finance, operations and human resource department in the company; decisions regarding the same are based on the environmental factors that have been discussed above (Morden, 2016).

For a business organisation there are a number of aspects that impact the decisions that are made, not only that there are a number of legal boundaries as well. As the scale of the company grows that legal obligations also keep becoming more and more complex (Cardy & Leonard, 2014). For a large scale public organisation, there are a number of obligations that the company has to fulfill, for example: the annual report of a public company has to be published for all the stakeholders viewing in order to let the people know the status of the company and the prospects that the organisation have for the future. However, legal boundaries are different from one country to another. According to Meyer, Neck and Meeks, (2017), the legal boundaries and obligations are some of the most important aspect in the external environment that the company has to keep a check on (Cardy & Leonard, 2014).

This report focuses on the various aspects of the strategic management decisions that are taken by a company for the betterment of the organisation and overcoming some of the issues that has been associated with the company. The case study that has been selected to analyze in the report is about Fonterra and the loss that the company has faced from the time of inception in the last financial year. The assignment is based on two news articles that were published in the newspaper regarding the loss that the company had faced. The articles that have been selected for the case study were published on 14^th September 2018 after the management of Fonterra announced that the company has faced losses first time in 17 years of its operations. Dairy industry in New Zealand play an important part in the economy and a large scale corporation like Fonterra, facing losses is being highly speculated. Therefore, this report will help in understanding the dynamics in which the company has failed to perform in the last financial year. Not only that, the report will also focus on some of the scope that the company has and recommend strategies aligned with the resource and capabilities of the company. Several frameworks and theories are going to be used in the process of analysis. The leadership and governance of the company is going to be analyzed as it will help in understanding the success strike of the company so far. In order to understand the advantages and disadvantages that the company has both in the internal and external environment SWOT analysis will be conduct, on the other hand, DEPSTGP framework will be used to determine the industry or the macro environment that the company operates in.  Along with this the Porter’s five force framework shall be used to understand the competition in the market and accordingly recommend strategies to overcome the challenges. In order to gather information for the report secondary research will be held. Important documents of the company like the annual reports and the company website as well as relevant, authentic and peer reviewed journals will be used to complete the report. The structure of the report will be like any other business report starting with Introduction, then discussion and end with recommendation and conclusion.  

2. Context and Issue

The company that has been selected as discussed is Fonterra; this section is going to include the background of the company and will highlight some of the significant milestones and success stories of the company. This section will also discuss the ways in which the leadership of the company has helped in developing strategic management decisions to achieve the consecutive success.

2.1 Company overview

Fonterra is a co-operative organisation that has been established in 2001. The organisation is owned by a number of New Zealand dairy farmers and is responsible for global dairy nutrition. The perspective that forms the basis of the company is that the people who are associated with the company believe that dairy has the potential to make a difference. The company runs on a collaborated efforts and motivated perspectives to achieve great milestones (Fonterra.com, 2018).

The dairy industry in New Zealand is among the world leaders (Fonterra.com, 2018).  Therefore the company has a significant contribution towards the global dairy requirements on a regular basis. The company is responsible for around 25 percent of the total exports of New Zealand (Fonterra.com, 2018). Thus, it can be said that the company makes a significant contribution towards the economy of the country as well. The organisation has around 22,000 employees all around the world to ensure that the products and services of that the company has to offer the customers are of the best quality (Fonterra.com, 2018).

2.2 The markets of Fonterra

Fonterra is a multinational organisation and world’s largest dairy exporter, the company has its distribution of products to over 138 countries and has a customer base of around 1 billion people whom they serve every day.  In the process of proving so many people with fresh and high quality products the company is proud of all the farmers and other employees who work hard to ensure that the products reach out to the customers on time. The company believes that reputation of the company and the country is in dairy and this helps in building value in the international market. Some of the highlights of the internal markets are as follows:

Australia: this is the second largest supply area of the company apart from the country of origin.  Around 2 billion liters of milk is produced by the company in the country every year. There are around 1300 farmers who supply milk to the company in Australia (Fonterra.com, 2018). The Company has been focusing on cheese production in the country owing to the demand for the product, there has been a new plat established in Stanhope and also the capacity of the old one has been improved. Among the dairy products the western star butter is the flagship item, the company claims that one pack of this product is sold every second in the market (Fonterra.com, 2018).

Latin America: in the Latin American region, the company operates in Chile, Brazil and Venezuela. Out of which Brazil is a significant market. There are around 4300 employees in this region and the dairy market of Brazil’s dairy market is worth more than USD$26 billion (Fonterra.com, 2018). The company in the country operates in a joint venture with Nestle, around 3 billion liters of milk is collected and process on a yearly basis. In the last financial year, the company has revenue of $2.27 Billion from the Latin American region from the 7 manufacturing sites that operate (Fonterra.com, 2018). Soprole in Chile is Fonterra’s oldest offshore investment which severs around 33,000 ingredient and foodservice customers. Around 6 million customers are served with the products on a daily basis in the market (Fonterra.com, 2018).

China: The company has around 1697 employees in china and earned a revenue of $3.98 Billion in last financial year, the company deems the country to be an opportunity to grow and expand more (Fonterra.com, 2018). There are around 7 farms that operate in the market, but have the potential to develop. In the market Fonterra is one of the leading dairy ingredients suppliers, and the focus of the company across the globe is on providing the customers with high-quality products. The products of the company are available in around 13,000 stores across the market (Fonterra.com, 2018).  

Among the other significant markets around the world are: Indonesia and Malyasia.

2.3 The brands

Fonterra has a plethora of brands operating under the umbrella. Some of the more popular global brands are Anchor, De Winkel, Anele, Anmum, NZMP etc. All these brands under the Fonterra Group follow the same vision and principle of providing the customers with the best quality dairy products (Fonterra.com, 2018).

Anchor: The brand focuses on the quality of the products and thus has the image of trust and goodness. The process of operation takes care that the goodness of milk is intact for the customers’ consumption. The brand follows all the global standards of quality and supply chain while operating. Safety and security of the products are also one of the major concerns as the company understands that the products are for human consumption.

Anmum is another global brand that is popular the company specializes in children’s food and nutrition. The company focuses on spreading awareness about children’s health and nutrition among the stakeholders as well. Aligning the vision of the parent organisation the company has also a number of responsible activities under the management.

NZMP, it is the brand that provides the customers with dairy ingredients and solutions. The brand is available in around 130 countries and is focused on providing the customers with best quality products. The brand has also significant investment in research and development in order to bring the customer new, innovative and improved products. Apart from this as a part of Fonterra the brand is focused on sustainability and security of the products (Fonterra.com, 2018).

2.4 Governance

The website of the company provides all the stakeholders with a vivid idea of the organisational structure as well as the governance of the company. As a co-operative, the company has a different structure than a traditional hierarchy. The objective is to look after the interest of the shareholders, making all the aspects of the company transparent among all the stakeholders. The management of the company believes that it is important to maintain a clear and transparent relation with the stakeholders as they have their share of interest on the performance of the company which gives them the right to know.  

The governance of the company includes the board of directors which has 11 members among which seven are elected from the Shareholder base and the rest of the four members are appointed by the Board and approved by our Shareholders at the Annual Meeting. The board is led by the chairman, John Monaghan who is a strong leader and shares the vision and principles upon which the company was established. He has been appointed the chairman in 2018, after the losses that the organisation faced in the last financial year. However, he was a previous part of the Fonterra Shareholders’ Council and the inaugural Chair of the Governance Development Programme (Fonterra.com, 2018).

The management team is headed by the CEO, Miles Hurrell, who is focused on the resource and capabilities that the company has in providing the scope that the company comes across. He has a visionary skill of a leader and has the stability of organizing and aligning the opportunities with the resources in order to achieve the objectives of the company. As an old employee with the co-operation he has developed experience of the way the industry operates and thus is focused upon reviving the revenue number and rectifying the issues that the company has faced in the past year. According to the article written by Hutching, reporting for stuff New Zealand Hurrell is currently focused on analyzing the investment on the Chinese partner Beingmate as this strategic relation and investment has been one of the major reasons for the revenue downfall (Fonterra.com, 2018).

2.5 Principles and vision of the organisation

The principles and vision that allow the management and the governance of the company to run the business are based on six aspects, Environment, trusted goodness, global reach, community, nutrition and innovation (Fonterra.com, 2018).

The company operates in the industry which is based on the natural resources, thus the management of the company understands the responsibility they have towards restoring the resource and ensuring that they is less impact on the environment because of the operations of the business. Sustainable growth is the principle and the focus of the activities are on protecting the waterways, looking after animal welfare and maintaining high standards of sustainability measures in palm products that the company produces.  The organisation also understands the responsibility they have toads the society they serve and thus has a number of activities dedicated to the society in which they operate. This also includes spreading awareness among the people regarding nutrition and food requirements (Fonterra.com, 2018).

Reference:

Cardy, R., & Leonard, B. (2014). Performance Management: Concepts, Skills and Exercises: Concepts, Skills and Exercises. Routledge.

Fonterra.com (2018). About. [online] Fonterra. Available at: https://www.fonterra.com/nz/en/about.html [Accessed 18 Oct. 2018].

Fonterra.com (2018). Annual Report 2018. [online] Fonterra. Available at: https://www.fonterra.com/content/dam/fonterra-public-website/phase-2/new-zealand/pdfs-docs-infographics/pdfs-and-documents/financial-results/fy19/Fonterra-Annual-Report-2018.pdf [Accessed 18 Oct. 2018].

Fonterra.com (2018). Board of Directors. [online] Fonterra. Available athttps://www.fonterra.com/nz/en/about/governance/board-of-directors.html  [Accessed 18 Oct. 2018].

Fonterra.com (2018). Environement. [online] Fonterra. Available at: https://www.fonterra.com/nz/en/what-we-stand-for/environment.html [Accessed 18 Oct. 2018].

Fonterra.com (2018). Management team. [online] Fonterra. Available at: https://www.fonterra.com/nz/en/about/governance/management-team.html  [Accessed 18 Oct. 2018].

Fonterra.com (2018). Our brands. [online] Fonterra. Available at: https://www.fonterra.com/nz/en/about/our-brands.html [Accessed 18 Oct. 2018].

Fonterra.com (2018). Our Markets. [online] Fonterra. Available at: https://www.fonterra.com/nz/en/about/our-markets.html [Accessed 18 Oct. 2018].

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