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we will continue working on gathering information in the Hershey case study by implementing matrices. After defining Hersheys SWOT components, financial analysis, and competitive analysis in Week 4: Analyze Hersheys SWOT matrix. Read the example given in the Strategic Framework material and the explanation given by the instructor during the recorded Week 6 Virtual/live session. Define specific strategies for Hershey from the SWOT analysis outcomes. Perform all the matrices given by the Strategic Framework material. Use the excel template. Elaborate from the graphs generated by the matrices and provide potential strategies. Hershey Company Kate Anderson Jackie Hernandez Vincent LaPlante Jennifer Lewin Michael Sanzari Thomas Tremblay Management 480 Dr. Gene Baten December 5, 2011 Table of Contents Introduction .................................................................................................................................... 3 Mission Statement .......................................................................................................................... 4 Revised Mission Statement ................................................................................................................... 5 Input Stage ...................................................................................................................................... 6 External Factor Evaluation (EFE) Matrix ................................................................................................... 6 Internal Factor Evaluation (IFE) Matrix ..................................................................................................... 7 Competitive Profile Matrix (CPM) ............................................................................................................. 8 Matching Stage ............................................................................................................................... 9 Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix ................................................................ 9 Strategic Position and Action Evaluation (SPACE) Matrix ....................................................................... 12 Boston Consulting Group (BCG) Matrix .................................................................................................. 14 Internal-External (IE) Matrix ................................................................................................................... 15 Grand Strategy Matrix (GSM) ................................................................................................................. 16 Data Collection Matrix ............................................................................................................................ 17 Decision Stage ............................................................................................................................... 18 Quantitative Strategic Planning Matrix (QSPM) ..................................................................................... 18 Recommendations ........................................................................................................................ 20 Epilogue ......................................................................................................................................... 22 3 Introduction It all started with a decision by a man named Hershey, which ended up becoming one of the world’s best known chocolate brand and well-known theme park. Milton S. Hershey, the founder and creator of the Hershey chocolate bar, started his journey in 1876 with his first candy bar. Hershey started the Lancaster Caramel Company which produced not chocolate, but a caramel candy. By the 1900s, after the great success of his caramel recipe, Mr. Hershey experimented with chocolate and finally the Hershey Milk Chocolate bar America knows and loves was born. The Hershey Chocolate Company, a subsidiary of Milton’s Lancaster Caramel Company, became a worldwide brand and company. It was in the year of 1894 that Milton Hershey made the decision to try adding chocolate coating to his caramel candy. This created the enterprise of the Hershey Chocolate Company, located near his hometown, Derry Township, Pennsylvania. By 1905, with milk from the nearby dairy farms and local workers, his new factory was born along with the delicious milk chocolate bars. He later went on to produce more types of chocolates and products. Hersey did not stop at just chocolate and candy bars, though. Many are familiar with great theme park called Hershey Park located in Pennsylvania. Hershey Park was opened on April 24, 1907; it was created to be a leisure park for the employees of the Hershey Company, but later was opened to the public. Today the park covers over 110 acres of land including over 60 rides and attractions. Another great success of the Hershey Company was as early as the 1909, when Mr. Hershey and his wife Catherine established the Hershey Industrial School, a school for orphan boys which is now known as the Milton Hershey School. Now it is open to both boys and girls of all diversity. The school provides free education and residential services including meals and health care to almost 17,000 kids in need. Hershey has come a long way and still has been growing and evolving even after the passing of the man who started with a decision to make candy. Hershey’s product lines have evolved to encompass far more than the original caramel and chocolate. As part of the confectionery industry, their products range from candy to gum to baking products. Some of these products include: • Reese’s • Almond Joy/Mounds • York Peppermint Patty • Kit Kat • Kisses • Mr. Goodbar • Bubble Yum/Ice Breakers/Carefree • Chocolate chips/baking chocolate • Cocoa • Syrup/Dessert topping With Hershey’s vast variety of products, it is easy to see why they are such a popular brand. http://en.wikipedia.org/wiki/Milton_S._Hershey http://en.wikipedia.org/wiki/Lancaster_Caramel_Company http://en.wikipedia.org/wiki/Lancaster_Caramel_Company http://en.wikipedia.org/wiki/Lancaster_Caramel_Company 4 Mission Statement Hershey’s mission statement can be found below; the numbers represent a key of components that should be included in a company’s mission statement. (7)“Bringing sweet moments of Hershey happiness to the world every day.” To our stakeholders, this means: (2)(7)Consumers: Delivering quality customer driven confectionery experiences for all occasions. (6)(9)Employees: Winning with an aligned and empowered organization while having fun. (1)(5)Business Partners: Building collaborative relationships for profitable growth with our customers, suppliers, and partners. (5)Shareholders: Creating sustainable value. (8)Communities: Honoring our heritage through continued commitment to making a positive difference. Key: 1. Customers 2. Products or Services 3. Markets 4. Technology 5. Concern for Survival, Growth, and Profitability 6. Philosophy 7. Self-concept 8. Concern for Public Image 9. Concern for Employees Hershey’s original mission statement is strong and only missing a few key points. In their mission statement, they left out the Markets component, which is where the firm competes geographically, as well as the Technology component, which states whether or not the firm is technologically current. In our revised mission statement, we included these two components to make a strong statement that allows a range of feasible alternative objectives and strategies. Hershey is the largest chocolate product distributor in North America; in order to stay ahead of the competition, the mission statement should remind people that this is where the firm competes. Hershey also has a strong internal Research and Development team as well as an 5 external R&D team. This gives them control over new innovations in the chocolate market because they can decide what to focus on with their internal R&D department. Our additions to Hershey’s mission statement can be seen in red. Revised Mission Statement (7)“Bringing sweet moments of Hershey happiness to the world every day.” To our stakeholders, this means: (2)(7)(3)Consumers: Delivering quality customer driven confectionery experiences for all occasions from the largest chocolate producer in North America. (6)(9)Employees: Winning with an aligned and empowered organization while having fun. (1)(5)Business Partners: Building collaborative relationships for profitable growth with our customers, suppliers, and partners. (5)Shareholders: Creating sustainable value. (8)Communities: Honoring our heritage through continued commitment to making a positive difference. (4) Hershey’s direct research on consumer preferences ensures we satisfy every taste bud. Key: 1. Customers 2. Products or Services 3. Markets 4. Technology 5. Concern for Survival, Growth, and Profitability 6. Philosophy 7. Self-concept 8. Concern for Public Image 9. Concern for Employees By incorporating the Markets and Technology components, Hershey now has a complete mission statement. 6 Input Stage External Factor Evaluation (EFE) Matrix Hershey’s External Factor Evaluation, EFE, consists of opportunities and threats within their industry. These help evaluate the economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive factors that can affect them. By identifying opportunities and threats within the confectionery industry, Hershey can assess how well they are responding to the key factors. Each factor is assigned a weight according to importance, and the entire weights total 1. Each factor is then rated according to how well Hershey is responding to that factor (1=poor response…4=superior response). The weight is multiplied by the rating to give a score, and the scores are totaled. The opportunities and strengths identified combine to give Hershey a weighted EFE score of 2.28. Hershey is just under, but close, to the average weighted score of 2.5 which shows that they can capitalize more on opportunities and do more to avoid external threats. Key External Factors Weight Rating Weighted Score Opportunities 1. Dark chocolate health benefits 0.06 1 0.06 2. Marketing of holidays 0.10 4 0.40 3. Joint ventures outside of U.S. 0.09 3 0.27 4. Organic food market growing 0.05 2 0.10 5. Acquisition of companies outside of U.S. 0.05 3 0.15 6. Technological advancements lower manufacturing costs 0.06 2 0.12 7. Changing tastes=new products (richer products, coffee flavoring) 0.07 3 0.21 Threats 1. Price of cocoa rising 0.07 2 0.14 2. Price of sugar rising 0.07 2 0.14 3. Easily substitutable products 0.09 3 0.27 4. Health conscious consumers/obesity epidemic 0.05 2 0.10 5. Health concerns (peanut allergies) 0.06 1 0.06 6. Unfavorable currency exchange rate 0.08 2 0.16 7. Natural disasters affecting growth of products 0.10 1 0.10 Total 1 2.28 7 Internal Factor Evaluation (IFE) Matrix Hershey’s Internal Factor Evaluation, IFE, consists of several strengths and weaknesses in the functional areas of the business. After identifying strengths and weaknesses specific to Hershey’s company, each factor is weighted according to importance. Each strength must be rated as a 3 (minor strength) or 4 (major strength), and each weakness must be rated as a 1 (major weakness) or 2 (minor weakness). The weight is multiplied by the rating to tally the weighted score, which are then summed to achieve total weighted score. The combined weighted score for Hershey’s IFE is 2.57. This places Hershey slightly above the average position of 2.5. Key Internal Factors Weight Rating Weighted Score Strengths 1. Strong brand name/image recognition 0.11 4 0.44 2. Diverse product offerings 0.05 3 0.15 3. Strong partnerships (Kraft, Nabisco) 0.06 3 0.18 4. Largest chocolate producer in North America 0.08 4 0.32 5. Sales up 5.9\% 0.09 3 0.27 6. Own R&D, as well as external 0.06 3 0.18 7. Strong social responsibility/environmental sustainability 0.06 3 0.18 8. One-of-a-kind amusement park 0.05 4 0.20 Weaknesses 1. Downsizing 0.08 1 0.08 2. High dependence on U.S. market (86\%) 0.06 2 0.12 3. High long-term debt 0.10 1 0.10 4. Tumultuous relationship with shareholders (Milton Hershey Trust) 0.06 2 0.12 5. Heavy reliance on brand loyalty 0.05 2 0.10 6. Outsourcing to reduce costs-->inefficient communication 0.05 1 0.05 7. Large CEO bonus in time of recession/downsizing (40\% bonus) 0.04 2 0.08 Total 1 2.57 8 Competitive Profile Matrix (CPM) The Competitive Profile Matrix (CPM) identifies Hershey’s competitors and its particular strengths and weaknesses in relation to a sample firm’s strategic position. Hershey’s main competitors are Nestlé and Mars. The critical success factors that make up the CPM are advertising, product quality, price competitiveness, management, financial position, customer loyalty, E-commerce, and variety of product line. These factors are weighted according to importance and must total 1, and each company is rated on whether the factor is a strength or weakness (1=major weakness…4=major strength). The weight is multiplied by the rating to tally the score, and scores for each company are totaled. Hershey has significantly higher scores in advertising, product quality, and customer loyalty. However, Nestle dominates in the areas of price competitiveness, global expansion, and variety of product line. Mars is also similarly close in scores to Hershey and has an advantage in the area of E-commerce. Hershey’s weighted score is 2.93, Nestlé is 2.75, and Mars is 3.0. These numbers do not necessarily mean that Hershey is not as good as Mars, but it can be used so that Hershey can focus on what needs to be done to gain competitive advantage in this specific industry. Hershey Nestlé Mars Critical Success Factors Weight Rating Score Rating Score Rating Score Advertising 0.14 4 0.56 2 0.28 3 0.42 Product Quality 0.16 4 0.64 3 0.48 3 0.48 Price Competitiveness 0.05 2 0.10 4 0.20 2 0.10 Management 0.08 3 0.24 2 0.16 3 0.24 Financial Position 0.15 1 0.15 3 0.45 3 0.45 Customer Loyalty 0.20 4 0.80 2 0.40 3 0.60 Global Expansion 0.15 2 0.30 4 0.60 3 0.45 E-commerce 0.05 2 0.10 2 0.10 4 0.20 Variety of Product Line 0.02 2 0.04 4 0.08 3 0.06 Total 1 2.93 2.75 3 9 Matching Stage Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix Strengths Weaknesses 1. Strong brand name/image recognition 1. Downsizing 2. Diverse product offerings 2. High dependence on U.S. market (86\%) 3. Strong partnerships (Kraft, Nabisco) 3. High long-term debt 4. Largest chocolate producer in North America 4. Tumultuous relationship with shareholders (Milton Hershey Trust) 5. Sales up 5.9\% 5. Heavy reliance on brand loyalty 6. Own R&D, as well as external 6. Outsourcing to reduce costs-->inefficient communication 7. Strong social responsibility/environmental sustainability 7. Large CEO bonus in time of recession/downsizing 8. One-of-a-kind amusement park Opportunities SO Strategies WO Strategies 1. Dark chocolate health benefits 2. Marketing of holidays 1. Joint advertising in commercials (S3, O2) 1. Increase market share in Mexico (W2, O5) 3. Joint ventures outside of U.S. 2. Product development with coffee flavors (S2, 07) 2. Reduce costs due to technological advancements (W6, O6) 4. Organic food market growing 3. Market dark chocolate health benefits (S4, O1) 3. Offer Dagoba Organic line in large retail stores (W5, O4) 5. Acquisition of companies outside U.S. 6. Technological advancements lower manufacturing costs 7. Changing tastes=new products (richer products, coffee flavoring) Threats ST Strategies WT Strategies 1. Price of cocoa rising 2. Price of sugar rising 1. Offer 100-calorie bar (S1, S2, T4) 1. Monitor bonuses to executives until global economy stabilizes (W7, T6) 3. Easily substitutable products 2. Develop peanut-free processing facility (S4, T5) 2. Increase advertising outside U.S. (W2, T4) 4. Health conscious consumers/obesity epidemic 3. Acquire own land to grow resources (S7, T1, T2) 5. Health concerns (peanut allergies) 6. Unfavorable currency exchange rate 7. Natural disasters affecting growth of products 10 The SWOT Matrix is an important matching tool that uses factors from both the Internal Factor Evaluation (IFE) and the External Factor Evaluation (EFE) to develop four types of strategies: SO (strengths-opportunities) Strategies, WO (weakness-opportunities) Strategies, ST (strengths-threats) Strategies, and WT (weakness-threats) Strategies. Strengths and weaknesses are taken from the IFE while opportunities and threats are taken from the EFE. From there, various internal and external factors are matched together to come up with the four different types of strategies mentioned before. SO Strategies are ones that use internal strengths to take advantage of external opportunities. Our group found that it would be beneficial for Hershey to focus mainly on intensive strategies. With such diverse product offerings and changing tastes of consumers, product development can be an attractive SO Strategy. Furthermore, with the recent news of dark chocolate health benefits and Hershey being the largest chocolate producer in North America, they should market the dark chocolate health benefits in which a market penetration would be another attractive SO Strategy. WO Strategies are ones that aim at improving weaknesses by taking advantage of external opportunities. Two out of our three WO Strategies are seen as intensive strategies. With such a high dependence on the U.S. market (86\%), and Hershey’s recent acquisition of Grupo Lorena in Mexico, we think Hershey should increase their market share in Mexico. In this case, market development can be an attractive WO strategy for Hershey. Another WO Strategy that could be beneficial for Hershey involves their Dagoba Organic line. With such a heavy reliance on brand loyalty from consumers (which is not always a good thing), they might get tired of seeing candy as their only option from Hershey. Recently, Hershey’s organic food market has been on the rise. With that opportunity, they should consider offering their Dagoba Organic line in large retail stores. Therefore, product development could be attractive WO Strategy to play out. ST strategies are ones that use strength’s to avoid or reduce the impact of external threats. A big threat to Hershey since they are such a large chocolate producer is the obesity epidemic that faces America. Because of this, we thought it would be advantageous for Hershey to use their strong brand name and diverse product offerings and come out with a 100-calorie bar for the health conscious consumers. With this strategy, product development can be an attractive ST Strategy. Something Hershey’s recognized for is their strong social responsibility and environmental sustainability. They can use this to their advantage and try to acquire their own land to grow resources on. Hershey can greatly benefit from this because they would no longer have to worry about the price of both cocoa and sugar rising. Finally, WT Strategies are directed at reducing internal weaknesses and avoiding external threats. One thing that a lot of Hershey’s shareholders had a problem with was the 11 large bonus that the CEO received. With both the recession and Hershey’s recent downsizing, a lot of people didn’t agree with this. In addition, the exchange rate wasn’t doing well either. We believe that Hershey could monitor their bonuses to executives until the global economy stabilizes. Once it stabilizes, people won’t have as much of a problem with this. Another WT Strategy we thought Hershey should pursue is to increase their advertising outside of the U.S. Something Hershey falls back on is their high dependence on the U.S. market. However, with more and more health conscious consumers in the U.S., the market might not be as favorable in the future as it is now. Therefore, Hershey could be proactive about this and try to increase their advertising in other countries. They should first try to make them aware of their brand name, and eventually introduce their product. Although this SWOT Matrix shows Hershey’s current snapshot in time, it shows them a lot about their company: things they’re good at, things they can fix, what they should look out for, what they can capitalize on, and most importantly, what their current options are as of right now. It is important for this SWOT Matrix to continually be monitored and modified since things are constantly changing. 12 Strategic Position and Action Evaluation (SPACE) Matrix Rating Financial Position Long-term debt is $1,505,900, an increase of 17.6\% from 2007. 1 Earnings per share is $1.41, up .45 from 2007. 4 Net income is $311,405,000, up 45.4\% from 2007. 6 Net sales are $5,132,768, up 3.8\% from 2007. 5 16 Industry Position Prices of sugar, cocoa, milk, gas, and nuts are up. 1 Confectionery industry grew by 3.6\% in 2009. 5 Chocolate accounts for 55.8\% of market value in confectionery industry. 6 Seasonal sales are growing. 4 16 Stability Position Exchange rates are fluctuating. -3 Natural disasters are affecting the growth of resources. -4 Hershey has weathered recession well according to outside critiques. -1 Hershey has easily substitutable products. -4 -12 Competitive Position Hershey has strong brand recognition. -2 Hershey is North Americas largest chocolate producer. -1 Hersheys sales were up 5.9\% in 2007. -1 Hershey offers a one-of-a-kind amusement park. -3 -7 Conclusion SP Average is -12/4 = -3 IP Average is +16/4 = 4 CP Average is -7/4 = -1.75 FP Average is +16/4 = 4 Directional vector coordinates: x-axis: -1.75 + (+4) = 2.25 y-axis: -3 + (+4) = 1 Hershey should pursue Aggressive strategies. 13 The SPACE Matrix is designed to help determine a company’s overall strategic position. The y-axis assesses financial and stability positions, while the x-axis looks at competitive and industry positions. The SPACE Matrix is a useful tool because it looks at both internal (financial, competitive) and external (stability, industry) factors simultaneously. To develop Hershey’s SPACE Matrix, key factors that make up each dimension are selected. The financial and competitive positions should be compared to competitors, while the industry and stability positions should be compared to the industry. The financial and industry variables are rated from 1 (worst) to 7 (best), while the stability and competitive factors are rated from -1 (best) to -7 (worst). Then, average scores for each dimension should be determined. Lastly, the position on the graph is a result of adding the averages of the competitive and financial positions on the x-axis, and the financial and stability positions for the y-axis. Hershey ends up with an x-coordinate of 2.25 and a y-coordinate of 1, which places Hershey in the Aggressive Quadrant. Based on where a company lands in the SPACE Matrix helps the company determine what strategies they should employ. In Hershey’s case, they should consider all types of integration, all intensive strategies, and all diversification strategies. 1. Backward, forward, horizontal integration 2. Market penetration 3. Market development 4. Product development 5. Diversification (related or unrelated) FP +6 +1 +5 +4 +3 +2 -6 -5 -4 -3 -2 -1-6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6 SP CP IP Conservative Aggressive Defensive Competitive (2.25, 1) 14 Boston Consulting Group (BCG) Matrix Stars II Question Marks I Cash Cows III Dogs IV The BCG Matrix is designed to how well different divisions of a company are doing in relation to each other. However, Hershey did not have divisional information available, so the BCG Matrix was constructed looking at Hershey as a whole. The x-axis looks are relative market share, while the y-axis looks at industry sales growth. Hershey is the industry leader in the confectionery industry, so their market share is 1. The latest industry sales growth rate available put the industry growing at 3.6\%. With a coordinate of (1, 3.6), this places Hershey in the Star quadrant. With high market share and a somewhat high industry growth rate, Hershey should pursue integrative and intensive strategies to maintain or strengthen their position. In du st ry S al es G ro w th R at e Low -20 High +20 Relative Market Share High 1.0 Medium .50 Low 0.0 Medium 0 • Backward, forward, horizontal integration • Market penetration • Market development P d t d l t (1, 3.6) 15 Internal-External (IE) Matrix The Internal-External (I/E) Matrix uses both the IFE and EFE total weighted scores. The weighted scores are taken directly from the IFE and EFE. The IFE total weighted score (represented on the x-axis) is 2.57, while the EFE total weighted score (represented on the y- axis) is 2.28. Therefore, the plot on the matrix would be (2.57, 2.28). To interpret this, with 2.57 as their IFE total weighted score, Hershey has an average (a score of 2.0 to 2.99) internal position. In addition, with 2.28 as their EFE total weighted score, Hershey is considered medium (a score of 2.0 to 2.99). After plotting the point (2.57, 2.28), Hershey falls into cell V. Cells III, V, or VII can be managed best with hold and maintain strategies. Typically, market penetration and product development are two common strategies that are used for divisions that fall in these cells. Because we didn’t have the division information available to us, we couldn’t construct an I/E Matrix for the divisions. Quadrant V Strategies: Hold & maintain—market penetration, product development (2.57, 2.28) 16 Grand Strategy Matrix (GSM) The Grand Strategy Matrix (GSM) has become a popular tool for formulating alternative strategies. With this matrix, organizations can fall into one of the four strategy quadrants. The GSM is based on both the competitive position and market (industry) growth. Referring back to our Competitive Profile Matrix (CPM), Hershey’s total competitiveness score was 2.93 compared to our competitors Mars (score of 3) and Nestle (score of 2.75). With these scores, we can say that Hershey is in a relatively strong position in comparison to their competitors. Hershey’s market (industry) growth rate is currently at 3.6\%. Therefore, we are considered to have a slow market growth rate. In the GSM, the competitive position lies on the x-axis while the market growth lies on the y-axis. As mentioned before, our competitive position is 2.93 and the industry growth rate is 3.6\%. However, because the confectioner’s industry growth rate is below 5\%, it is considered to have a slow market growth rate which would make 3.6 negative. Plotting that as a point would be (2.93, -3.6) which would fall into Quadrant IV. This means that Hershey has a relatively strong competitive position, but they are in a slow-growth industry. Firms that fall into Quadrant IV typically have high cash-flow levels and limited internal growth needs. Therefore, Hershey can try to pursue related or unrelated diversification, and joint ventures. 17 Data Collection Matrix SWOT SPACE BCG I/E GSM Total Intensive Market penetration X X X X 4 Market development X X 2 Product development X X X X 4 Integration Forward X X X 3 Backward X X X 3 Horizontal X X 2 Defensive Retrenchment 0 Divestiture 0 Liquidation 0 Diversification Related X X 2 Unrelated X X 2 The Data Collection Matrix looks at each matrix from the Matching Stage and compares the strategies recommended by each matrix to all of the available strategies a company can undertake. The strategies recommended by each matrix are tallied and summed to determine the most common strategies suggested. In Hershey’s case, market penetration and product development are the most common strategies throughout all of the matrices in the Matching Stage. This information is used to determine the alternative strategy options in the QSPM. 18 Decision Stage Quantitative Strategic Planning Matrix (QSPM) Strategic Alternatives Increase joint advertising within the U.S. Increase advertising outside of the U.S. Key Factors Weight AS TAS AS TAS Opportunities 1. Dark chocolate health benefits 0.06 - - - - 2. Marketing of holidays 0.10 4.00 0.40 3.00 0.30 3. Joint ventures outside of U.S. 0.09 1.00 0.09 3.00 0.27 4. Organic food market growing 0.05 2.00 0.10 1.00 0.05 5. Acquisition of companies outside U.S. 0.05 1.00 0.05 3.00 0.15 6. Technological advancements lower manufacturing costs 0.06 - - - 7. Changing tastes=new products (richer products, coffee flavoring) 0.07 3.00 0.21 2.00 0.14 Threats 1. Price of cocoa rising 0.07 - - - - 2. Price of sugar rising 0.07 - - - - 3. Easily substitutable products 0.09 3.00 0.27 1.00 0.09 4. Health conscious consumers/obesity epidemic 0.05 - - - - 5. Health concerns (peanut …