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Strategic Formulations &
Recommended Implementation
Submitted by Ric Osuna
June 21, 2009: CONFIDENTIAL
June 21, 2009
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Table of Contents
June 21, 2009: CONFIDENTIAL
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Introduction ......................................................... 3
Company Background ................................................... 3
Part One: Kellogg – Kashi Analysis ................................... 4
SWOT Analysis ...................................................... 4
Porter’s Five Forces in Action ..................................... 4
Remote Environmental Factors ....................................... 4
Economic Factors ................................................. 4
Social Factors ................................................... 5
Political Factors ................................................ 5
Technological Factors ............................................ 5
Ecological Factors ............................................... 5
Industry and Competitive Environments .............................. 6
Operating Environment .............................................. 7
International Environment .......................................... 7
Resource-Based View of Kashi Foods ................................. 7
Value Chain Analysis ............................................... 9
Primary Activities ............................................... 9
Support Activities .............................................. 10
Financial Statement Analysis of Kashi Foods ....................... 10
Profitability ..................................................... 11
Liquidity ......................................................... 12
Leverage .......................................................... 12
Activity .......................................................... 13
Summary of Financial Findings ..................................... 13
Part Two: Competitive Analysis ...................................... 14
Qualitative Analysis .............................................. 14
Quantitative Data Analysis ........................................ 15
Summary of Competitive Analysis ................................... 17
Part Three: Strategic Formulation ................................... 17
Grand Strategies in the Long Term ................................. 18
Generic Strategies in the Short Term .............................. 19
Implementation Plans .............................................. 20
Monitoring the Strategy ........................................... 21
Conclusion .......................................................... 21
References .......................................................... 23
Appendix ............................................................ 24
Appendix A ........................................................ 25
Appendix B ........................................................ 26
Appendix C ........................................................ 27
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Introduction
The purpose of this company analysis is to formulate a strategic
response to external and internal market conditions in order to
preserve the Kellogg Company’s standing in the packaged food industry,
while helping its subsidiary, Kashi Foods, achieve broader market
success.
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According to Pearce and Robinson's text, entitled Strategic Management
and Financial Ratio Analysis (2009), an examination of factors will
assist Kashi Foods’ strategic planning. Since Kashi Foods is a
subsidiary of the Kellogg Company, detailed information will be
derived from Kellogg’s annual reports and earnings, which incorporates
all of its subsidiary information. The Kellogg Company allows Kashi
Foods to operate independently while adhering to the Kellogg values
and corporate guidelines, which closely reflect Kashi Foods’ own.
Therefore, any strategic recommendations suggested are aimed at Kashi
Foods and the Kellogg Company.
Company Background
Because of its founding philosophies that minimally processed foods
should be obtainable by everyone, Kashi Foods is rooted in a deep
value system (Pearce and Robinson, 2009). This value system helps to
differentiate its product, so consumers will feel connected to a
company that is seemingly putting their health in front of its
profits. Kashi Foods’ successful mission statement may define its
market – health food – but preempts its vision, which outlines where
it wants to go. Kashi Foods’ vision statement fits this criteria, as
it defines the organization’s need "to provide good tasting and
innovative foods, made with all-natural ingredients, that enable
people to achieve optimal health, wellness and weight management
goals," (Kashi Foods, 2009).
June 21, 2009: CONFIDENTIAL
A mission statement serves as the foundation of the strategic roadmap
of an organization and should set itself apart by defining an
organization’s scope and expertise. Of course, as with any corporatelevel directive, a mission statement should be inclusive of
stakeholder expectations, unifying purpose and strategic objectives
(Pearce and Robinson, 2009). “Everyone has the right to healthy food,”
the mission statement for Kashi Foods, embodies the characteristics of
a successful mission statement while reflecting the organization’s
intent to secure its survival through growth and profitability (Pearce
and Robinson, 2009).
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The understanding of this value system is imperative for any strategic
implementation in order to ensure the strategy recommendations are
inline.
Part One: Kellogg – Kashi Analysis
SWOT Analysis
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Within the appendix section and attached as Appendix A is a SWOT
analysis of Kashi Foods. By outlining the strengths, weaknesses,
opportunities and threats that externally (and internally) face Kashi
Foods, additional risks and/or factors will be brought to light
(Mulcahy, 2008).
Kashi’s strengths include brand loyalty, access to large resources and
it recognition as a market leader in nutritional foods. A crucial
strength discovered in the internal analysis is how Kashi Foods and
the Kellogg Company promote diversity within its suppliers and
employees (Kellogg Company, 2009).
Weaknesses, on the other hand, center on high prices, abnormal
distribution levels and potential competition. Opportunities it can
exploit involve expanding distribution and allowing its strength in
diversity to open new global communities for the companies.
Threats Kashi Foods face come directly from competitors in the forms
of rival products and lower prices, but these can be countered through
brand loyalty. Furthermore, Kashi Foods can be threatened by supply
issues including fluctuation of costs, high gasoline prices and impact
of eco-friendly packaging delays.
Porter’s Five Forces (Appendix B) was utilized to determine Kashi
Foods’ positional strengths (Mindtools, 1995). The analysis of
Porter’s Five Forces in Action will continue throughout this section.
A comparison between the previous SWOT analysis and Porter’s Five
Forces in Action shows a direct correlation between the two.
Remote Environmental Factors
Economic Factors
The greatest economic factors facing Kashi Foods deal with the cost of
raw materials to produce organic products, delivery of finished goods
June 21, 2009: CONFIDENTIAL
Porter’s Five Forces in Action
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Support Activities
There are number of secondary activities that Kashi Foods and the
Kellogg Company benefit from, as is typical in organizations of this
size. These include general administration, human resource management,
research and technology and procurement.
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Human resources are a specific value to Kashi Foods in the terms that
its employees promote the products by their own use. The Kellogg
Company goes even further by recruiting diverse candidates to further
their employee communities (Kellogg Company, 2009). Citing the Kellogg
Company’s corporate website (2009), the organization writes:
People make all the difference, and Kellogg
employees around the world really are our single
most important competitive advantage. Our goal is
to provide an environment in which each of our
employees can succeed. This requires constant
diligence and the evolution of our developmental
process. As Mr. Kellogg recognized a century ago,
the success of our company is dependent on the
success of our employees.
Financial Statement Analysis of Kashi Foods
Utilizing data from the Kellogg Company’s 2006, 2007 and 2008 annual
shareholder reports available at its corporate website, an analysis
was conducted to indicate the health and vitality of the companies as
compared to the packaged food industry as a whole. When available,
industry averages were derived from CNBC’s Real Market Quotes (2009)
available online to the public.
A three-year ratio analysis was conducted for the specified years of
2006, 2007 and 2008. It was based on four financial groups of
profitability, liquidity, leverage and activity. The table below
presents the final data of the financial analysis. To afford a concise
document, all input data (raw numbers) is located within Appendix C.
What follows is a summation of crucial output data that will help
formulate the strategic recommendation and following implementation.
June 21, 2009: CONFIDENTIAL
Kashi Foods’ financial data is woven within Kellogg’s, so all
financial statistics are derived from the parent company. According to
Pearce and Robinson’s Strategic Management (2009), a financial
analysis measures a company’s performance over a span of several years
in comparison with its industry.
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Ratios
2006
2007
2008
Profitability
Return on Sales Ratio
0.092
0.094
0.090
--
Return on Shareholders’ Equity
0.49
0.44
0.79
0.01
Earnings per Share
$2.53
$2.79
$3.01
$2.56
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Financial Group
2007 Industry
Average
(Median)
Liquidity
Leverage
Activity
Dividends per Share
$1.14
$1.20
$1.30
$1.00
Current Ratio
0.60
0.67
0.71
1.20
Quick Ratio
0.40
0.44
0.46
--
Debt to Assets
1.00
1.00
1.00
--
LT Debt to Equity
3.24
2.91
5.11
0.79
Accounts Receivable Turnover
11.54
11.65
11.22
1.12
Average Collection Period
31.18
30.91
32.09
--
Profitability
The following is a summation of the profitability ratios presented in
the financial analysis table above:
Dividends per Share indicates the Kellogg Company has consistently
achieved higher-than industry average returns for its shareholders.
With the industry average at approximately $1.00 a share, Kellogg’s
offered shareholders a dividend per share of $1.30 (CNBC, 2009).
Earnings per Share (how much profit was made on each stock) shows that
in the last two years, Kellogg’s has again exceeded industry averages.
Return on Sales Ratio, calculated by dividing net earnings by sales,
indicates a consistent profitability of per dollar amount averaging
around 0.09.
June 21, 2009: CONFIDENTIAL
Profitability data is a quick snapshot of effective (or ineffective)
policies and decisions envisioned at the strategic level and put into
place at the tactical level by an organization's management (Pearce
and Robinson, 2009).
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$1,148,000. This data, combined with the profitability ratios of
dividends per share and return on shareholders’ equity indicate the
Kellogg Company provides higher-than-normal returns for investors
while remaining profitable.
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Although the Kellogg Company extends credit to wholesalers that wish
to market its products, the quick collection period and turnover seems
to indicate credit accounts are paid quickly. The Kellogg Company
seems to have lessened the amount of risk associated with extending
credit to wholesalers and distributors. However, given the current
economic crisis with retail markets, this positive can quickly become
a liability.
According to the 2008 letter to shareholders, Kellogg’s has reinvested
$0.14 of earnings per share for “up-front costs of savings
initiatives” (Kellogg Company, 2009). Although in 2007 and 2008, the
company continued to expand, it anticipates by 2011 an annual costsavings of $1 billion (Kellogg Company, 2009).
Part Two: Competitive Analysis
The competitive analysis will focus on a qualitative and quantitative
comparison of both companies. From the qualitative side, a comparison
of the recent letters to shareholders will be examined. Financial data
is analyzed in a side-by-side comparison for the quantitative
examination. General Mills faces many of the internal and external
factors found in the Kellogg’s analysis, specifically market
conditions, distribution costs, raw material challenges and human
resource values. What follows is a brief analysis of the areas that
largely reflect the main differences and similarities with the
strategic direction of both companies.
Qualitative Analysis
The letters to shareholders offer a nearly identical strategy of
marginal growth, sustainable profits, moderate expansion and
introduction of cost-saving measures for both the Kellogg Company and
General Mills. For General Mills, 2008 saw an increase of net sales by
June 21, 2009: CONFIDENTIAL
The purpose of this analysis is to compare Kashi Foods’ parent
company, the Kellogg Company, with its largest rival, General Mills.
According to Pearce and Robinson (2009), successful strategic
surveillance of General Mills provides broad-based vigilance that can
help shape Kellogg’s and Kashi’s strategy.
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Summary of Competitive Analysis
In conclusion, both companies align themselves with their mission
statements (and visions). Narrative elements within the letters to
shareholders and examination of financial analysis ratios confirm that
the companies are strategically aligned with is market and customer
base while fulfilling core missions.
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However, from a financial analysis, General Mills has clearly
outperformed the Kellogg Company. Kellogg’s boasts a sound philosophy
of “manage by cash” in order to drive sustainable growth and prevent
overextension into global markets. It has greatly reduced shareholder
equity than its chief competitor, General Mills—approximately 3 to 1.
From a shareholder perspective, General Mill’s increased dividends per
share are more or less the reason to select its stock. From a longterm growth strategy, Kellogg’s may be the better bet since its
sustainable growth strategy is slow and methodical to avoid uncertain
market disruptions, if current economic conditions do not impact it.
Pearce and Robinson (2009) describe long term objectives as obtaining
success in seven areas that include profitability, productivity,
competitive position, employee development, employee relations,
technological leadership and public responsibility. The Kellogg
Company and Kashi Foods have achieved incredible results within all
seven areas, as already stated within this document. Therefore, what
follows is blend of generic strategies -- core philosophies to best
compete in a market – aimed at Kashi Foods and grand strategies -- a
master plan that provides a strategic action to achieve business
objectives – directed toward its parent company Kellogg’s (Pearce and
Robinson, 2009).
June 21, 2009: CONFIDENTIAL
Part Three: Strategic Formulation
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