Organisational Structure: Case on The Coca Cola Company

Introduction

An organisation must structure themselves accordingly to the size and nature of their market(s). Weather an organisation be small or large the area of organisational structure and the division of labour within the organisations are extremely important and have been considered to be two of  the major stepping stones to flawless business practice. To reflect on the above statement, The Coca Cola Company will be examined to demonstrate just how important these areas are in planning, development and defining of business strategies (Coca Cola Consolidated, 2010, Annual Report).This organisation was chosen on the  grounds that it’s a global organisation with one of the most recognised trade marks (The Times 100, 2005).

 

The Division of Work & Grouping within the Coca Cola Company

The division of labour can be unique in many organisations. It has been coined a production process in which a worker or group of workers are assigned a specialised task in order to increase efficiency (Siobhán Tiernan, Michael J. Morely, Edel Foley, 2006). This is the case for the Coca Cola Company.  Primarily the company has a very tall hierarchy in place and subordinates that are then divided up by regions. The Coca Cola Company being a truly global organisation uses the design of division of work by location.  Each area/region has a certain amount of subordinates designated to that specific area; however, the number of employees delegated to one region may be different to another. By dividing its employees up according to geographic location, the company benefits on many levels. For example, being closer to a certain market allows the teams involved to work accordingly with regards to advertising campaigns, meeting the tastes of consumers of that region etc. Each region is then sub divided e.g. Europe divided up in to North West and South East, Nordic and Baltic(The Times 100, 2005).

As mentioned before meeting the tastes of consumers is met more effectively due to the divisions and sub divisions by location. The Great Britain (UK) division would insure all areas such as marketing would be covered appropriately. For example, an advertising slogan that is appropriate to the UK and Irish Public may not necessarily be considered appropriate in another country. This is why there are so many sub divisions within the company. Each division will have its own Marketing manager, Public Affairs Director, Finance Director and so on (The Times 100, 2005). When one of these divisions is planning a new beverage launch or perhaps an advertising campaign, the division must communicate respectively with their superiors. Because the Coca Cola Company has such a tall hierarchy, communication must travel all the way back to the corporate division in North America where a 12 Member executive committee have the final say on any activities that the companies divisions are considering.

Like many organisations today, The Coca Cola Company push elements such as teamwork amongst its employees whenever and wherever possible (The Times 100, 2005). Grouping takes place on many levels within the organisation whether it is on the bottling floor or launching new products.
For example, the Great Britain division brings together a group of employees when creating new product development. Included in such a team will be marketing specialists who will inform others of their market research and testing, food technologists will clarify whether changes to a product are feasible, financial experts will describe the cost incurred with the change and other specialists will also be involved such as the strategic planning director (The Times 100, 2005).

 

The effectiveness of the division of work fostered by Coca Cola

 

For an organisation as big as Coca-Cola, it is vital that the methods they adopt for the division of work among members of the organisation are effective and successful.  They have achieved this through global and local strategies.

Global and Local Strategy

Coca-Cola concentrates certain functions for global strategy in a corporate segment, while having geographic segments dealing with local strategy. They divide the functions, responsibilities and work to avoid overlap and waste while concentrating on the optimum business structure to achieve its goals.

 

Global: The Corporate Segment

As aforementioned, the corporate segment consists of an executive committee of 12 company officers. This head office for Coca-Cola is used to give directions to the organization and make key decisions for the brand.  One member acts as the CEO, the figurehead of the company. Other executive members have other responsibilities e.g. Senior Business Executives, Chief Financial Officer, etc. (The Times 100, 2005). Having a strong corporate segment has proven to be effective for Cola-Cola, bringing confidence and order to the whole company.

Global: In detail

The head offices of Coca-Cola have control over the company’s recipe (technology). They monitor the production of the syrups and concentrates that are then mixed with water at specific bottlers. There are 30 company owned and operated manufacturing plants around the world that produce the syrups and concentrates (Richard Girard, 2005). They’re also in charge of setting up the different production plants around the world and deal with all legal and financial issues that affect the organization as a whole. They have experienced many issues in the countries they produce in. For example, in India, they experienced problems involving environmental pollution and finding high levels of pesticides in their products in 2002 (Richard Girard, 2005). The corporate segment was needed to keep the consumer’s trust in the brand and to deal with all these issues effectively.

 

Local: Strategic Business Units

Coca-Cola has achieved a status of being a global product by operating in local environments all over the world. By dividing the organisation among different countries, Coca-Cola can meet the needs and requirements for different countries (The Times 100, 2005).

SBUs are very effective for they allow Coca-Cola to recognize that tastes, lifestyles, income and consumption patterns vary from region to region. Coca-Cola can now price, distribute and innovate their products to best suit the needs and circumstances of the global market.  The SBUs are also in charge of conducting market researches for their regions and promoting the brand through local advertisements using the native languages (The Times 100, 2005).

Local: In detail

The SBU’s are sub-divided into divisions. This allows for the further spreading of Coca-Cola departments and production plants around different regions.

(The Times 100,2005)

The UK division (located in the North West Europe division) is an example of a Coca-Cola company that uses a more local level of management compared to the global positions in the corporate segment. As mentioned before, the company consists of different departments that specialize in different tasks. A president overlooks and represents the entire company (The Times 100, 2005). This use of specialization allows for the company to be run efficiently. The company provides for their division by dealing with public affairs and maximizing the satisfaction of its customers.

 

 

The Coca-Cola System

Coca-Cola doesn’t just operate on its own. They use external organizations for bottling and distribution. This is referred to as “the Coca-Cola system”. In this system, the syrups and concentrates are sold to bottling and canning partners who package and distribute the finished products. This relationship between Coca-Cola and the external bottling and canning organizations allows for the branded goods to be produced and distributed around the world with unmatched quality and service (The Times 100, 2005)

How Division of Work is related to Strategy within The Coca Cola Company

 

The main strategy of Coca Cola is to globalize their products while also creating a local structure in each country.  The regional companies of Coca-Cola serve to connect with the people in each region by evaluating consumers’ attitudes and perceptions.  With its wide range of products, Coca Cola capitalizes on each markets particular conditions, lifestyles, and tastes.   The Coca Cola company is able to respond and interact with the needs of a changing market by introducing new products which are in demand in certain areas.  Since only the syrup is produced by Coca Cola International, independent bottlers can adjust how sweet the beverage will be according to local tastes.  The bottlers for example have the option of using sugar instead of corn syrup.  In Mexico, Coca Cola made a 2 and a half litre bottle since Mexican families are usually quite large and tend to gather together during meal times.

This company has a very effective distribution system in each region, relying on both independent distributors and sometimes going into partnerships with local distributors.  Coca-Cola has recently opened its 42nd Chinese bottling plant in partnership with local bottlers.  One of the benefits of working with local bottlers is that these companies have an understanding of how the local market works.  In a time of economic crisis such as now, many governments are restricting the import of foreign goods and encouraging the purchase of local products.  Coca- Cola has managed to evade being classified as an import by connecting with the local business community.  When consumers look at the Coke product, they read that the beverage is locally assembled.  Not only does the company provide employment in its bottling plants, but also with its methods of distribution.

The division of power amongst employees creates a flatter, more flexible arrangement which is vital in global companies. Major decisions are taken at the highest level of the company, such as the sponsorship of the World Cup in 2002.  The regional executives have the ability to choose and alter new products due to the decentralized structure of the company.  The executives of the Coca Cola Company have experience in all areas and regions of this international company.  As a result, the managers can bring different perspectives of dealing with issues that could arise.  With such a huge company, there are bound to be communication problems.  In 2006, the CEO implemented a new strategy which included face-to-face meetings between local division managers in order to promote the exchange of ideas and to keep employees involved.  This would increase motivation which had suffered before due to the fact that employees did not feel like they had input in the direction of the company.

Quality control is a key component to achieving growth and globalization of the Coca-Cola Company.  Bottlers are only allowed to source ingredients from approved suppliers.  To provide consistent quality in all regions, the company must achieve effective coordination and coordination with their bottlers.  In Coca-Cola Serbia, all finished products are tested in on-site labs as well as annual audits by international representatives.  In Serbia, Coca-Cola deals with over one thousand suppliers of sugar, cans, PET packaging, labels, etc.  After conducting extensive research on the motivational aspect of their employees, they realized that their workers work more efficiently when they sense that they have an imperative role in their team.  To increase motivation, the company provides educational opportunities as well as employee benefits.  In many regions this has paid off, such as Coca-Cola Hellenic Serbia gaining the title of the Most Desirable Employer in 2011

 

Recommended changes to apply within the organisation

 

Tall Organisational Structure:

A clear hierarchy of authority exists within the Coca-Cola Company. However, the chain of command has numerous layers as the company has offices in over 200 countries worldwide (Coke, 2011 ). For example: The UK Division is accountable to the North-West Europe Regional Division. The North-West Europe Regional Division is, in turn, accountable to the Europe, Eurasia and Middle-East SBU (Strategic Business Unit).

Finally, the 5 regional SBU’s, which encompass the entire globe, are accountable to Coca-Cola Head Offices in Atlanta, Georgia (The Times, 2005). Furthermore, interior organisational structure exists within Head Office, the 5 SBU’s, the regional divisions and the country divisions (The Times, 2005).

 

Issues with Layers:

Such “tall”, rigid management structures can often lead to employee frustration and disgruntlement. The existence of many layers can make staff feel like their opinions are unimportant and their contribution is insignificant. This can lead to organisational problems such as absenteeism and high staff turnover, which can, in turn, reduce the efficiency of the business. According to official company figures, Coca-Cola lost 185,608 days of labour in 2010 (Coke, 2011). While some lost labour is due to legitimately sick employees some employees may skip work due to a lack of motivation.  Furthermore, the same report shows staff turnover figures were very high in 2010, with some sectors of the company recording turnover rates of 20%.

Recommendation #1:

I would recommend that Coca-Cola implement flatter management structures in their regional and local divisions. It’s more likely that employees this far down the chain are to feel that their opinions and work goes unnoticed, as opposed to mid and high-level managers who call the shots. Such a structure would move the company from a mechanistic style of management to a more organic approach. This style could potentially serve to engage and motivate employees, which should give the firm a competitive advantage. Furthermore, the introduction of this policy should decrease staff turnover, which will cut down on the costs of hiring and training new staff.

Centralised Power Structure:

At present, the Coca-Cola Company is managed using elements centralisation and decentralisation (The Times, 2005). However, the decentralised power held by the SBU’s (and their subdivisions) is often limited to the advertising and market research side of business. On the other hand, the centralised power, which operates in Atlanta, has substantial power over the firm’s “bigger” decisions. According to the Times document, Head Offices are “responsible for giving the Company an overall direction and providing support to the regional structure”.

Issues with Centralised Power Structures:

Due to the sheer size of the company, elements of corporate power are needed to govern regional offices (Johnson, 1946). I would argue that too much decision making power lies in the hands of corporate office of Coca-Cola, while regional offices lack decision making power in terms of finance, innovation and strategising.  One major problem with centralised organisational structures is that they often ensure that changes within the organisation take longer to be implemented. Often the benefits of centralisation are outweighed by its limiting effect on regional divisions (Campbell, Kunisch and Muller Stewens, 2011). Campbell also suggests that it can distract and de-motivate regional workers. Some authors even argue that centralisation can lead to a lack of innovation in the workplace (Johnson, 1946; Nakamura 2003). This could point to the reason why one article suggests that Coca-Cola has lost its innovative roots and is starting to “lose its fizz” due to a recent lack of creative flair (2006,”Why Coca-Cola has lost its fizz: Unwillingness to innovate is blamed for Coke’s weakened position in the Cola war”, Strategic Direction, Vol. 22 Iss: 1 pp. 19 – 21)

Recommendation #2:

Decentralising some aspects of the organisational structure could yield improved organisational performance. It would allow the SBU’s, divisions and sub-divisions to make quick changes that are relevant to their workers and to their specific geographical locations. In addition to that, decentralising the organisational structure would place more creative power in the hands of regional and national divisions. This freedom to experiment would more than likely motivate and engage the workforce in a way that would be impossible under centralised restraints (Campbell, Kunisch and Muller Stewens, 2011). Thus, it would serve to positively affect organisational performance.

List of References:

http://www.thecoca-colacompany.com/sustainabilityreport/TCCC_2010_2011_GRI_Report.pdf

2006 “Why Coca-Cola has lost its fizz: Unwillingness to innovate is blamed for Coke’s weakened position

n the cola war”, Strategic Direction, Vol. 22 Iss: 1 pp. 19 – 21

The Times Newspaper Limited and MBA Publishing Ltd 2005, ‘Creating an Effective Organisational Structure’

Campbell, A, Kunisch, S, & Muller Stewens G 2011, ‘To Centralise or Not to Centralise”, McKinsey Quarterly, 3, pp97-102

Johnson, R 1946, ‘Break it Up’ Saturday Evening Post, 218, 27, pp.20-78

Nakamura, L 2003, ‘Let a Hundred Flowers Bloom! Decentralisation and Innovation. Business Review, p.21

Johnson, V. Peppas, C. S. Crisis management in Belgium: the case of Coca-Cola. 2003. Vol 8. .18-22

Product Quality: Coca-Cola Quality. 2012. Product Quality: Coca-Cola Quality. [ONLINE] Available at: http://www.thecoca-colacompany.com/citizenship/quality.html. [Accessed 14 April 2012]

http://en.coca-colahellenic.rs/Towardssustainabilit/Marketplace/High-qualitybeverage/

Coca-Cola Hellenic Serbia – High-quality beverages. 2012. Coca-Cola Hellenic Serbia – High-quality beverages. [ONLINE] Available at: http://en.coca-colahellenic.rs/Towardssustainabilit/Marketplace/High-qualitybeverage/. [Accessed 14 April 2012]

About these ads

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

%d bloggers like this: