Wednesday, November 6, 2013

Strategy: Consolidating the External Environment

As we study ‘The Cola Wars’ case this week, a strategic trend I found very interesting was the consolidation of the external environment and it’s various players to strengthen one’s position in the market. Over the last 40 odd years, Coca-Cola and Pepsi consolidated the fragmented carbonated soft drink industry and created high barriers of entry for new entrants. To further induce growth and high profits, they have constantly diversified and tried to explore newer product lines in the F&B industry.

I found a few ‘industry’ maps which provide insight into different industries and their evolution in terms of both market consolidation (in terms of competitors) and diversification (in terms of de-risking the business and expanding their product portfolios). These industries are in the Late-Growth/Maturity phase of the industry life cycle. We look at three of such maps.

The First
In the FMCG market, ten mega corporations control the output of almost everything you buy.

(Note: The chart shows a mix of networks. Parent companies may own, own shares of, or may simply partner with their branch networks. For example, Coca-Cola does not own Monster, but distributes the energy drink. Another note: We are not sure how up-to-date the chart is. For example, it has not been updated to reflect P&G's sale of Pringles to Kellogg’s in February.)

$84 billion-company Proctor & Gamble — the largest advertiser in the U.S. — is paired with a number of diverse brands that produce everything from medicine to toothpaste to high-end fashion. All tallied, P&G reportedly serves a whopping 4.8 billion people around the world through this network.

Similarly, Nestle and Unilever serve over a billion people around the world. This level of strength in geographic outreach and the power to successfully meet the demands of so many different cultures is astounding. To analyse trends at such a macro level requires these organizations to have thinkers and visionaries who are constantly analyzing just the environment. 

The Second
And it's not just the products we buy and consume, either. In recent decades, the very news and information that we get has bundled together: 90% of the media is now controlled by just six companies, down from 50 in 1983, according to a Frugal Dad infographic from last year.

The Third
It gets even more macro, too: 37 banks have merged to become just four — JPMorgan Chase, Bank of America, Wells Fargo and CitiGroup in a little over two decades, according to this Federal Reserve map. 

The nation's 10 largest financial institutions hold 54% of our total financial assets; in 1990, they held 20%. As MotherJones reports, the number of banks has dropped from more than 12,500 to about 8,000. 

These maps and their complexity reflect the constant thought and evolution that an organization undertakes with changing geographic and demographic markets.

My understanding of this week's readings is that for a company to survive, constant reflection and understanding of industry dynamics is very important to maintain one's position. And after understanding these dynamics the decisions that differentiate a good CEO from a brilliant one - is how he reacts to these industry dynamics. Doing what you do well is not enough to be successful in the game, competition needs to be constantly evaluated, monitored and sometimes even killed.


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