Front page

STRATEGIC MANAGEMENT ASSIGNMENT

ANALYSIS OF KELLLOGGS CORPORATE

STRATEGY: MARKETING FOCUSED

IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR:

MASTER OF BUSINESS ADMINISTRATION IN FINANCE

17TH AUGUST 2011

LONDON SCHOOL OF COMMERCE

PRESENTED BY:

SIDNEY OGAJI ONYONGHO

UNIVERSITY OF WALES INSTITUTE CARDIFF

TABLE OF CONTENTS

Front page .............................................................................................................................................. 1

TABLE OF CONTENTS ..................................................................................................................... 2
1. INTRODUCTION......................................................................................................................... 3
1.1 OBJECTIVES OF THE STUDY ............................................................................................ 3
1.2 RATIONALE OF THE STUDY............................................................................................. 3
2. REVIEW OF RELATED LITERATURE .................................................................................. 5
2.1 BRIEF HISTORICAL DEVELOPMENT OF CORPORATE STRATEGY ............................... 5
2.2 OVERVIEW OF KELLOGG ....................................................................................................... 6
3. ANALYSIS OF KELLOGGS CORPORATE STRATEGY ................................................... 8
3.1 SETTING OF GOALS AND OBJECTIVES ............................................................................... 8
3.2 VISION AND MISSION STATEMENT OF KELLOGG ........................................................... 9
3.3 ENVIRONMENTAL ANALYSIS ............................................................................................. 10
3.4 SWOT ANALYSIS OF KELLOGG........................................................................................... 12
3.5 KELLOGGS MARKETING STRATEGY ............................................................................... 14
4. PORTERS STRATEGIC ANALYSIS OF KELLOGG AND RECOMMENDATIONS ... 17
4.1 PORTERS 5 FORCES............................................................................................................... 17
4.2 PORTERS GENERIC STRATEGIC ANALYSIS .................................................................... 18
4.3 RECOMMENDATIONS ............................................................................................................ 19
5. REFERENCES ............................................................................................................................ 20
1. INTRODUCTION
In recent times, organisational survival and sustainability has increasingly been
a challenge (Liebowitz, 2006). Many businesses have existed for less than a
decade and organisational existence depends inevitably on how effective an
entity can envisage long term outcomes while taking into consideration the only
constant factor, change.

Among many leading companies in the world, Kelloggs has established a

successful corporate strategy and firmly rooted its existence in the market of
cereals and convenience foods. From the notions of Theodore Levitts
marketing myopia, Kelloggs has grown into a marketing conscious company
which focuses its branding on customer values by doing extensive Market
research and product branding in order to align to its customer oriented culture.

1.1 OBJECTIVES OF THE STUDY

This study is based on Kellogg and how it has used its corporate strategy to be a
market leader. The analysis will involve a detail analysis of Kelloggs corporate
strategy which will involve examining the following;

- A brief historical overview and growth pattern of Kellogg.

- The mission statement, goals and vision of the company.

- The corporate structure of Kellogg.

- Environmental analysis.

- Strengths, Witnesses, Opportunities and Threats.

- Marketing strategy.

- Porters strategic analysis of Kelloggs Strategy and recommendations.

This analysis will involve the use of relevant literature and academic principles,
models and theories to support the opinion and recommendations.

1.2 RATIONALE OF THE STUDY

This study is done to understand core considerations in setting a business
strategy and how to manage a business from the corporate level. The study uses
an existing company with a sound corporate policy to examine the strategies
used and provide some recommendations.

The case study, Kellogg, is an ideal choice because it is a multinational

company which has used systematic strategic processes to become a market
leader. Kellogg has world recognition and has maintained a good public
relation. The study will focus on the Kellogg international head quarters in the
UK because the marketing strategy of Kelloggs is evident in the UK where
most of its international revenue is derived.
2. REVIEW OF RELATED LITERATURE
A number of definitions of corporate strategy exist. A.D. Chandler (1962)
defines a corporate strategy as a long-term determination of goals and
objectives of an entity and the course of action to allocate resources towards
achieving these goals. Scholars like Hofer and Schendel (1978) define corporate
strategy in terms of how an organisation fits to its environment. K. Ohmae
(1982) defines strategic management in the competitive perspective by asserting
that it is an integrated process to alter a companys strength relative to its
competitors in the most efficient way.

Generally a corporate strategy can be defined as;

A dynamic management process concerned with analysing the environments of

an organisation, setting the goals and objectives and determining the most
feasible methods and courses of action on the available resources to effectively
achieve the short term and long term objectives.

A corporate strategy is the main direction of an organisation. Having a good

strategy means a good strategic plan has been established to guide the
organisation.

A strategic plan is a systematic and integrated set of actions aimed at

increasing the strength and overall wellbeing of an organisation. A strategic
plan seeks to set a course of action which will direct the various sub units of a
business. It shows the perspectives of senior management about the existence of
the business in the foreseeable future.

2.1 BRIEF HISTORICAL DEVELOPMENT OF CORPORATE

STRATEGY
Strategic management until the 1940s was a term of war. Leaders considered a
strategy as something done out of site of an enemy. The origin of strategy can
be traced from The Art of War by Sun Tzu (around 500BC). At this time a
strategy was considered the process of planning and use of tactics to win battles.
Over the years the use of strategy was leaked into business affairs.
Organisations and entrepreneurs started to deem it a necessary tool to expand
and have victory over their competitors. Strategic management evolved from
five important eras:

- Basic financial planning, James Mckinsey (1900s) was a major

contributor: This era was focused mainly on budgeting and quantitative
planning.

- Long range planning: George Steiner (1960s) was a major contributor:

Characterised by long range planning and forecasting by management.
Drawing 5 to 10 years budgets in line with management objectives.

- Strategic (External) oriented planning: Alfred Chandler (1971): This

period brought the practice of debating long term decisions among
managers.

- Strategic management: This era brought a sense of competitive edge and

uniqueness. Management by objectives (MBO) was a common term used.

- Complex system strategies: This was the development into the modern
era. (Historical development of Strategy, www.vjaykumarbhatia.com)

It is from these divisions that strategic management sprung up to what it is

today, strategic management marks the identity of an organisation, determines
the long term objectives and nature of activities.

2.2 OVERVIEW OF KELLOGG

Kellogg has grown to be the leading world cereal producer and has shaped the
eating pattern of nations. It would be quite wonderful and resourceful to know
how the company actually started.

On 19 February 1906, William Keith Kellogg officially incorporated the Battle

Creek Toast Corn Flakes company after the accidental discovery of the new and
popular corn flake in 1876 by Keith and his bother Harvey. The company
produced and marked Kelloggs Toast Corn Flakes which was then very
popular. It was until 1922 that the company was officially reincorporated as
Kellogg. In the 20th century, Kellogg established a unique policy of 30hr work
week as opposed to the 40hr work week. During this period the company
acquired other small businesses such as Salad Foods, Mrs. Smith's Pies, Fearn
International and Pure Packed Foods which were all in the food industry. The
company started international expansion by 1914 in Canada and opened a
branch in the UK by 1938.

The company grew with a lot of challenges and competition from cereal and
readymade meal companies like Quaker Oats and General Mills. By the
nineteen eighties, Kellogg under the governance of William E. Lamothe carried
out an extensive marketing strategy which shaped the preferences and likes of
the middle aged class and hence boosted their market share. During this time the
company was a market leader as most competitors were struggling to catch up
with their growth pace.

In March 2001 Kellogg acquired The Keebler Company, the second largest US
cookie and cracker manufacturer in order to diversify. Having acquired
Morningstar Farm, Kashi subsidiaries; Kellogg owns, Bear Naked, Natural
Touch, Famous Amos, Cheer-it, Murry, Austin, Gardenburger and Plantation
brands. Enlisted under the NYSE with the abbreviation K, Kellogg has the
largest market share in the ready-made breakfast cereals industry, owning over
40% of the worlds market. The company has over 40 plants in 19 countries and
sells in 160 countries with Head quarters at Battle Creek, Michigan, US and
Factory Head quarters and international Head quarters at Trafford Park,
Manchester, UK. In 2007 the company became the highest UK grocery business
with sales of more than 550. In 2010 Kellogg totalled sales of $12 billion
making Kellogg the biggest convenience foods and cereals producer. Presently
the company is under the governance of John A. Bryant as acting CEO and the
company has a share price range of 48.51p 57.70p and Earnings per share of
3.34p estimate for 2011 accounting year. (www.fundinguniverse.com/company-
histories)
3. ANALYSIS OF KELLOGGS CORPORATE
STRATEGY
The main strategic strength behind the success and development of the
Company is the establishment of a strong and precise marketing plan and
corporate focus. The study will concentrate on the UK international branch of
Kellogg which accounts for the majority of the companys international sales.

3.1 SETTING OF GOALS AND OBJECTIVES

Kellogg operates on the prescriptive strategy approach where most of their
strategy is pre planned, controlled, analysed and proactive, although they
sometimes delve into the emergent approach when need be. The company runs
on principles set by W.K. Kellogg, the founder, which has stood the test of time.

Kellogg has established objectives which have SMART qualities meaning they
are

Specific

Measurable

Attainable

Realistic

Time sensitive

The company laid down the following objectives in its aim to provide valuable
services, enhance public relationship and promote sales:

- Encourage and support physical activity in all sectors of the population.

- Sponsor events concerned with physical activities and organise

community activities focused on physical activity.

- Create a sense of identification between the company and physical

activity

- Use the cereals packs and wrappings to communicate the balance

message to customers.
 - To use food labelling that will make customers be able to make the right
decision about the balance of food.

3.2 VISION AND MISSION STATEMENT OF KELLOGG

A mission statement defines the uniqueness of an organisation and explains its
main reason of existence, the goals and objectives are implied in this statement.
As Drucker proposed, a mission statement should answer the following
questions;

What the business is?

Who the customers are?

What value is offered to the customer?

What the business will become?

Ideally a mission statement needs to be, inspiring, create a common identity and
sense of purpose, competitive, unique, simple and also foster risk taking and
experimentation.

Kellogg has a mission statement and a vision which are deeply incorporated into
their objectives;

Kellogg has the following mission statement;

Kellogg is a global company committed to building long term Growth in

volume and profit and to enhance its worldwide leadership position by
providing nutritious food products of superior value

Kelloggs mission statement underlines its marketing focus which Theodore

Levitt would describe a marketing oriented company. From their statement it
is the companys objective to grow by using customer focused marketing
strategy to serve the needs of their target customers, potential cereals
consumers. Kellogg has also identified its objective to grow, stand out as a
market leader and provide value products to customers.

Kellogg works with the vision to be the food company of choice. Here they
refer to a company whose products will be first choice to consumers, whose
employees will be proud of the business, whose share holders and potential
investors will value and who will create a positive impact on their environment.
3.3 ENVIRONMENTAL ANALYSIS
Kellogg UK is a company with great control over its internal and external
environment. The following table is a summary of Kelloggs environment.

Internal environment

The internal environment comprises of the information systems, organisational

structure, the management styles, the various brands and how their life cycles
are managed and the behaviour of the individuals.

Kellogg has a Twenty-Two person Senior Management Team, forty six next
level key members. There is A The company has senior Organisational Leaders
who are given a level of autonomy in their domain with respect to manage team
work, plan on vacancies, develop employees and carry out performance
appraisal. Kellogg uses a form of 360 degree performance appraisal where
workers are rated by supervisors, employees document self input on
performance and comparative peer group review meetings are organised. 98
percent of employees are paid based on their performance appraisal. The
company communicates core values, mission statement implications and visions
to the employees through departmental objectives, job prescriptions and
orientation packs.
Kellogg is famous for its values called the K values which shape the culture
and guides the way to run their business. In 2005 the company started the W.K.
Kellogg values Award, which is an annual award to the team of employees or
individual who best exhibits the k values in their work. These values include:

Integrity: Portraying respect, devotion, optimism, listening quality, speaking

supportively and respectfully.

Accountable: Accepting responsibility for personal actions, focusing on finding

solutions, avoiding excuses and accusing others, supporting decisions, keeping
commitments and promises, be health conscious and have concern for others.

Passion: Show love and pride in the companys products at all times and places,
provide quality customer services, promote and integrate innovative ideas and
solutions, aggressively promote and protect the company reputation.

Humility: Have humility and the anxiety to learn, provide honest and
constructive feedback, admit mistakes and learn from them, never
underestimate competitors.

Simplicity: Break down internal barriers and processes which slow down
business success, deal with issues and people directly with total disregard to
hidden agendas and strive for better results and acceptability.

Results: Achieve results and celebrate. Make people feel valued and
appreciated, Have a can do attitude, encourage team spirit, help others in the
best way possible.

These values define the company culture and what is expected of each
employee. The company through this has developed an advance performance
evaluation technique which has incorporated these qualitative values.

External environment

The external environment comprise of the factors which constrain or limit the
activities of the organisation and are not readily controllable by the
organisation. The main external factors affecting Kellogg in the UK are the
socio-cultural, technological, economic, ecological, political, industry life cycle
and competitors.

Socially, the UK Population presents a great opportunity for sustainability

because of the intrinsic culture of eating readymade and fast foods. The UK
represents their largest international market. Ecologically, the company has
adapted to the seasonal changes and their social implications. It is common
practice for the company to carry out promotion and boost sales in spring and
summer when the population is very active, people stay out of home for long
and rely highly on fast or readymade foods.

The economy and fiscal policy of the UK has also been a concern. The global
economic breakdown and tightened government policy on taxes has negatively
affected consumer spending and increase in the Value Added Tax has led to a
slight rise in prices. The company has done some extensive adjustments on
pricing strategy to provide moderate and competitive prices.

Technologically, Kellogg is moving up to speed in the technology industry.

The company has an advance Supply chain management which incorporates the
primary, secondary and tertiary production. The company uses specialised
transport agents and logistic specialists to manage supply chain. Kellogg
collaborates with TDG for supply chain logistics. It also has an agreement with
Food and Drink Federation (FDF) to improve packaging, waste, use of water
and transportation. The company has recently adapted the OB10s e-invoicing
solution to simplify accounting and reduce costs for its UK and Europe
branches.

Kellogg is in the fast food readymade cereals industry which is at its peak and is
a sustainable industry. Kellogg has for long resisted diversification of cereals
production because they relied on the sustainability of the industry, their
reputation and prospects for innovation and branding. But they have started to
realise the competitive thread which results from being too focused. Hence in
2001 Kellogg purchased The Keebler to diversity into cookies and crackers.

3.4 SWOT ANALYSIS OF KELLOGG

The company presents the following strengths and Weaknesses

Strengths:

- Have control of over 40% of the sweet cereals which is more than triple
any of its competitors

- Have the strongest market brand recognition

- Has established a focused and specialised product market

 - High awareness among the young population

- Strong innovation and R&D abilities

- Good cost control strategies.

Weaknesses:

- Slow in diversification

- Product focused

- Slow market share growth rate in the past years

- Less competitive pricing strategy.

These strengths and weaknesses are under the control of the company and
depending on their decisions; they can readily tailor them towards success.

Kellogg has the following threats and opportunities

Opportunities:

- Great prospects for international expansion

- High prospects of success in low cost and high market share with a good
pricing strategy.

- High feasibility to diversify while staying in the cereals focus.

- Increase in customer awareness and interest in health

Threads:

- Weetabix and General Mills are using pricing strategy and product
diversification to rival Kelloggs market

- Discounting by competitors is affecting the marketing position of the

company.

- Customer awareness of sugar and salt level present in breakfast cereals.

3.5 KELLOGGS MARKETING STRATEGY
The main strategy which keeps Kellogg afloat is the diverse and effective
marketing plan adopted. Their global marketing strategy has the following
Goals:

- Product innovation leadership.

- Promoting the growth of convenience foods business.

- Improving the companys seven largest markets.

- Cost leadership cost reduction

- Developing a much focused organisation.

To achieve these goals the company put forth the following objectives to be
applied to each market or sub segment accordingly:

- Brand differentiation pricing

- Research on new products

- Building brand image in the market

- Cost structure adjustments

Focusing on the promotion and public relation sector, Kellogg has adopted the
following unique practices;

Improving food labelling

Kellogg developed the Guideline Daily Amounts (GDA) on its packages to

explain to customers the recommended daily quantity of nutrients is contained
in the serving of Kelloggs foods. They also have a Body Mass Index (BMI)
guideline which directs customers on how to eat their meals and maintain
healthy lives.

Sponsoring swimming programs

Kellogg is the greatest sponsor of swimming in the UK, providing the Armature
swimming Association (ASA) award scheme with more than 1.8 million awards
to swimmers each year. This link strengthens their brand position as more than
twelve million people in the UK are actively involved in swimming.

Promoting physical exercise

Kellogg also supports physical exercise and good health. Sustrans, one of the
leading UK exercise organisations has support from Kellogg. Sustran tries to
develop different ways of green transportation and exercise.

Community work

Kellogg has organised a range of community programs to encourage community

physical education and have sponsored voluntary community groups to organise
physical exercise clubs such as the St. Johns Centre in Old Trafford which
organises keep-fit classes, Badminton and table tennis.

Kellogg sponsors charity Contin You. This organisation operates a breakfast

club which caters for the breakfast needs of school kids.

By spending over 500,000 a year on promotion, the company is able to build a

positive Public Relation and serve over 500, 000 Breakfasts per year across the
UK.

Kellogg UK market segments

Kellogg as the market leader in the UK cereals and convenience meals has six
segments which were developed over the years following extensive marketing
research and development. Below are the segments with some corresponding
brand examples;

1. Tasty starter: cornflakes and Kelloggs crunchy nut

2. Simply whole: Fruit n Fibre, Alpen and Kelloggs Just right.

3. Shape management: Kelloggs special K and Fitness.

4. Mum Approved: Rice Krispies and shreddies

5. Kid Preferred: Frosties, Coco pops and Weetos.

6. Inner Health: All-bran, own label Bran cornflakes.

These segments represent the market segmentation base in which new brand
developments and innovations are established. In the event that Kellogg wishes
to introduce a new brand or revitalise an existing brand, the company will
determine the characteristics needs of the segment or deficiencies of an existing
brand.
For example with the Special K brand, Kellogg France introduced a new brand
of red berries to the Special K cereal which sold well and presented an
opportunity. Market research in the UK proved to be receptive to this product
and in October 1999, Special K Red Berries was launched in the UK. This
product produced exceptional sales. In February 2003, Kellogg, after extensive
marketing research launched Special K Peach and Apricot. They ensured that
the taste was completely different from the previous launch to ensure customers
do not switch from the old product and kill it.
4. PORTERS STRATEGIC ANALYSIS OF
KELLOGG AND RECOMMENDATIONS

4.1 PORTERS 5 FORCES

Michael Porter suggested five strategic considerations to be considered in
diagnosing and analysing a corporate strategy. They comprise the famous 5
forces which are;

a. Thread of new entrants.

This refers to the ease with which new companies can spring into a market. The
level of entry relies highly on the market entry cost. Entry barriers like buyer
switching costs, good product differentiation and brand power, access to
channels and retaliation from competitors can greatly influence the level on
new entries.

Kellogg, having a huge brand name and well established as the market leader
has very little thread from new entrants. The company can enjoy economies of
scale and carryout very costly advertising which cannot be matched by new or
potential entrants.

b. Competitive rivalry.

Competitive rivalry results from the pressure and challenges other companies in
the same industry exert on a companys position. It relies on the number of
rivals present, the level of control they have over the market, the strengths and
weaknesses of these rivals. Switching costs and growth rate in the industry are
also great determinants to a companys competitive strength.

For the case of Kellogg UK, Weetabix and General Mills are great competitors
with good marketing strengths and provide a great thread to Kellogg. The
competition is quite high and is backed by high advertising and promotion
costs. Kellogg must be aware of the pricing war and develop a good pricing
strategy which is an identifiable weakness.

c. Supplier Power
This feature depends highly on the classical demand and supply laws. The
power of the suppliers relies on the number of suppliers, the availability of
close substitutes and level of collaboration with the suppliers.

Kellogg has a large size and great company recognition. The main supplies are
sugar, food grain and flour which have a pool of suppliers. Kellogg is able to
exert great control over their suppliers and have the leverage to switch among
suppliers.

d. Availability of substitutes

The major determinants of substitutes are; price performance of substitutes,

switching costs, availability of substitutes and changes in taste.

In the case of Kellogg, availability of close substitutes is a thread. Kellogg

needs to realise that cereal bars and pop tarts are entering the market of cereals.
Consumers are also changing their taste to porridge and other new substitutes.
The major problem from Kellogg with respect to this is their slow
responsiveness to diversification and their reluctance to compete substitutes by
using price leadership.

e. Buyers bargaining power

This is influence by switching costs, the number of buyers, brand identity,

quality perception, price elasticity and level of incentives.

In terms of buyer power, Kellogg has tried to reduce it by adopting a good

marketing strategy which does innovation based on market research and
customer wants. Kellogg engages in a lot of physical education and health
maintenance activities through which they create great product awareness and
capture customers. Mainly, Kellogg sells using channels like shops and
supermarkets. The company have a level of buyer thread in pushing its
products to customers using these intermediaries who have their own
preferences and own brands to sell. Kellogg often pressurises supermarkets to
place their product high in the shelves where they are more visible. However,
due to the companys large size and resources, Buyer power is low and
controllable.

4.2 PORTERS GENERIC STRATEGIC ANALYSIS

Porter listed the following as generic strategies for business success.
 - Cost leadership
- Market segmentation
- Product differentiation.

He asserts that, in order for a business to stay strategically healthy at least one
generic strategy must be employed. Any organisation achieving all three
strategies will be operating on the best case scenario.

Applying this ideology to Kellogg, the company has organised a good

marketing strategy which is very customer oriented. Extensive product
differentiation and brand management has added more credit to their strategy
and their effective cost reduction plan has made Kellogg a fulfilled business.
According to Porters generic strategies, Kellogg is working in the best case
scenario.

4.3 RECOMMENDATIONS
Kellogg is a market leader in the cereals and convenience foods industry. The
company has successfully established a high international reputation and has
great brand recognition.

However, Kellogg needs to revise its pricing strategy. Kellogg needs to be ready
to sell at low prices because this weakness is exploited by General Mills to
erode Kelloggs market share. The merger between General Mills and Nestle is
a call for concern. Nestle provides General Mills with a good distribution
Network. General Mills have brands like Cheerio and Golden Graham which
have surpassed their corresponding Kelloggs brand.

Kellogg has to realise the potential decline of the cereals industry because of the
presence of close substitutes. Kellogg has been a little product focuses than
flexible by relied on Marketing campaigns and promotion to push their
products. The company is big enough to diversify into other industries while
maintaining its objective to grow. The great challenge for the company is to
keep up with their brand innovation, marketing research and development.
5. REFERENCES
1. Jay Liebowitz, Strategic Intelligence, Auerbach Publications, 2006, pp7

2. Afred D. Chandler, Strategy and Sturcture chapters in The History of

America, 1978, pp 20 - 21

3. Strategic Fomulation: Analytic concepts,West Publications(1978) pp103

4. K. Ohmae, The Mind of the Strategist, 1982, pp 16

5. Historical development of Strategy, www.vjaykumarbhatia.com

6. Abass F. Alkhafaji,Strategic Management Formulation, Implementation and

Control in a dynamic environment.(2003)

7. Businessdictionary.com

8. www.findinguniverse.com/company-histories

9. www.kelloggs.com

10. Mastersalliance.com

11."Kellogg's". Anti Essays. 15 Aug. 2011www.antiessays.com/free-

essays/63806

12. www.wikipedia.com

13. Micheal E. Porter,The Five Competitive Forces that Shape Strategy, January
2008 Harvard Business Review.

14. Dirk Morschett, Ha.nna Schramm-Klein, Joachim Zentes. Strategic

International Management, Text and Cases 2nd Edition, 2010.