Positive effect of technology on business

Introduction

This study’s objective is to analyse the positive effect of technology on businesses and organisations. In order to accomplish this objective, an industry as well as an organisation within the industry was selected for focus. Additionally, the technologies that were incorporated into organisation were observed as well as the benefits received by the organisation.

The selected industries for the purposes of this study are the global confectionary industry. Additionally, the selected organisation selected for this study is Cadbury, which is a well-known global confectionary organisation, which leads the market in candy. Initially, an analysis of the confectionary industry is performed by the PESTEL and Porter’s Five Forces models. Additionally, the study the organisation is analysed in detail and the organisations application of technology is also analysed.

Global Confectionary Industry

The global confectionary market consists of products such as gum, chocolate, cereal bars and sugar cadies. Datamonitor (2009a) reports that in 2008, the global confectionary market created a total revenue of more than $127 billion, which represents 3 percent-per-year growth over than past 4 years. The information below shows the market value since 2004.

Source: Datamonitor (2009a)

The global confectionary industry is forecasted grow at a rate of 2.7 percent per year and to represent over $135 billion by 2012 (Weston, 2009).

The 2008 global confectionary market is segmented into the following product groups as listed below.

Global Confectionery Market Segmentation by Product Category

Source: Datamonitor (2009a)

The information above shows that chocolate represents 48.6 percent of the total market, whereas the sugar confectionary segment represents 35.2 percent. Additionally, the segment of gum is seen as 11.9 percent, followed by cereal bars which represent 4.3 percent of the total market (Datamonitor, 2009a).

In terms of geographical segmentation, the largest market share belongs to Europe, which represents 48.4 percent of the total market. America follows Europe with 36.1 percent and 15.1 percent belongs to the Asia-Pacific region (Datamonitor, 2009a).

The global confectionary sector consists of several major companies, which represent 35.5 percent of the market. These companies include Cadbury Plc, Mars Inc., and Nestle S. A. The information below shows the total market share of the industry and related companies.

Source: Datamonitor (2009a)

After briefly examining the industry of global confectionary, the external forces and factors which affect the industry as a whole will be examined.

Analysis Of External Forces

The PESTEL model of analysis will be used to observe the external factors and their impacts on the global confectionary industry. PESTEL represents a total of six factors, namely Political, Economical, Social, Technological, Ecological and Legal (Kotler and Keller, 2006).

• Political Factors: The policies of restrictions imposed on trade as well as protectionist policies for sugar producers created by developed countries caused an increase of sugar prices resulting from the decrease in supply (Bandow, 2009). This has been seen as a threat towards confectionary companies, due to their dependence on sugar for their products.
• Economic Factors: The recent global economic crisis has affected the cost of operations for companies as well as consumption by customers (Koksal and Ozgul, 2007). Consumers tend to spend very conservatively and purchase only times of necessity during recessionary periods. This can have a negative effect on sales of luxurious or premium products in the market, in which the confectionary industry belongs. Adding to this burden, the increased price of cocoa, which is typically a main ingredient of some confectionary products, has had a significant impact on the confectionary industry (globalbusinessinsights, 2009).
• Social Factors: The overall population of Europe is aging compared to other markets (Travis, 2008). This is important for the confectionary industry, because the market relies on purchases from younger consumers. Additionally, health consciousness plays a role in the sales of the confectionary market’s growth (globalbusinessinsights, 2009).
• Technological Factors: The technological factors that have affected the confectionary market can be seen in the development of artificial sweeteners including xylitol, isomalt, and stevia. The developments of these ingredients resulted in producers of confectionary products to promote non-sugar products to support the growing segment of consumers who are health conscious and provide healthier products (Business Insight, 2009).
• Ecological Factors: Environmentally friendliness has become a growing concern for many consumers recently. This trend represents nearly 30 percent of the market of consumers (News System, 2009). This has resulted in the confectionary market’s development of new packaging and materials which are environmentally friendly.
• Legal Factors: Obesity is becoming a growing concern for most people in developed countries. Laws have been created which deal with these potential health problems, in particular obesity in children is addressed through these laws. The development of these laws has increased restrictions to promotional efforts towards children of companies such as confectionary producers (Swinburn, 2008).

Analysis Of Industry Specific Factors

Porter’s Five Forces model identifies the factors within the industry that affect the organisation’s profits (Boddy, 2005). Porter (1985), explains that the competitive environment of an industry consists of five general forces. These forces are described as threats of entry, threats of substitutes, buyer’s bargaining powers, supplier’s power and level of rivalry in the market. Using the Five Forces model of Porter, the confectionary industry can be examined.

Threat of Entry

• As previously mentioned, three main companies exists in the confectionary industry which include Nestle S.A., Mars Inc., and Cadbury PLC. These companies combined represent 35.5 percent of the total market.
• This market contains well-established, strong brands and the new introduction of new brands usually comes through brand-extension of existing brands such as KitKat ‘Chunky’ and KitKat ‘Cubes’.
• Bargaining Power of Buyers
• Organisations within this industry offer a variety of products and the elements of price, quality and brands create a highly differentiated market for products.
• The negotiation power of food retailers, especially in Western countries, over confectionary producers affects the price of products in this industry (Datamonitor, 2009a).

Bargaining Power of Suppliers

• The primary suppliers in this market include raw material producers and cocoa farmers. These cocoa farming activities are dependent on tropical climates and exist in places such as Ghana, Indonesia, Brazil and Côte d’Ivoire (Datamonitor, 2009a).
• The primary ingredients in confectionary products such as cocoa and sugar are sold on the commodities market, which limits the manufacturing company’s control over suppliers. In 2007 an increase of between 5 and 6 percent on main ingredients of confectionary products were seen, and resulted in higher confectionary product prices (Wearden, 2007).

Threat of Substitutes

• Typically, confectionary products are purchase as snack foods. The substitutes for these products are fruits.
• The increase of health consciousness has also threatened the confectionary market due to the high substitution of healthier fruits (Datamonitor, 2009a).
• Lower switching costs results from the substitution products.

Degree of Rivalry

• Large companies dominate the confectionary market.
• Various products exist in these companies.
• High brand loyalty exists in the market (Datamonitor, 2009a).

Cadbury

Cadbury PLC, or simply known as Cadbury represents a global leader in the market of candy, chocolate and gum. Cadbury has operations located in America, Europe, Africa and Asia. The headquarters of Cadbury is located in London, UK where 46,517 people are employed total (Datamonitor, 2009b).

As a worldwide confectionary producer, distributor and marketer, Cadbury divides the business into different categories which are gum, chocolate and sugar. The primary area of operation is within the Eurozone, South and Central America, the US, Australia and the Asia Pacific region (Datamonitor, 2009b).

The largest segment of the company is represented through its chocolate business which generates approximately 46 percent of the 2008 total revenues. This segment is operated by regions and caters to the preferences and tastes of each market (Datamonitor, 2009b).

Cadbury’s gum segment offers gums of a variety of flavours including mint, strawberry, watermelon and peppermint. The gum segment produced approximately one-third of the 2008 revenues for Cadbury (Datamonitor, 2009b). Additionally, Cadbury offers several types of candies which include toffees and cough drops (Datamonitor, 2009b).

Cadbury functions through four different areas which include Britain, Ireland, the Middle East, Africa (BIMA region), as well as the Americas, Asia Pacific and Europe. The B&I (Britain and Ireland) segment represents the largest business unit overall. In terms of market share, the UK region held 30 percent while Ireland held 42 percent for Cadbury (Datamonitor, 2009b).

SWOT Analysis

A worldwide confectionary producer, distributor and marketer, Cadbury maintains a strong presence in each area of operation. Cadbury leads the global confectionary market with 10.5 percent of the market share. This strength in the market contributes to the profitability of the firm, but certain market shares are affected do to the increased price of raw materials and heavy competition.

Strengths

• Strength in the market position
• Expansive geographical presence
• Highly active in new markets

Weaknesses

• productivity of the employees
• liquidity status of the firm

Opportunities

• Markets increasing in premium chocolates
• US and Europe markets are forecasted to increase

Threats

• Increase in raw material prices
• Highly competitive markets
• Increase in US labour costs

Performance Of The Company

£5,384 million in revenues were seen by Cadbury for the year of 2008, which represents an increase of 14.6 percent compared to the previous year. Cadbury also generated a profit of £388 million during 2008, which represents a 39.6 percent increase over the previous year. Net profits for Cadbury were £364 million during 2008, which represent a 10.1 percent decrease from the previous year (Datamonitor, 2009b).

Information Technology

Information systems are defined as systems that process, collect, interpret or transmit information from users through manual or automated means which include people, machines or different methods of collection. Additionally, this is defined as any type of telecommunications or equipment utilising computers which interact through a systematic network, which functions to gain, store, alter, manage, move, present, control, transmit, or receive data. A few examples of these include hardware, software and firmware. Information Technology on the other hand consists of a host of applications or technologies that allow storing, transferring and processing data to a user or users. Information communication technologies are a generic term that explains a wide variety of elements including fax, telephones, internet, applications, televisions and mobile devices (Daniels, 1998).

The fundamental strategy in a firm is based on competition, which can be demonstrated through the idea of survival in the short term, market entry, dealing with legislation and creating quality customer service (Daniels, 1998). Strategic advantage is gained by these different activities and must be upheld by information services and technology. Therefore, information services strategies explain the applications and review the needs of information and implement the appropriate service to meet the needs of the organisation. These information technologies vary from large database systems or processing systems to specialised local systems. The quality of a customer’s relationship with the firm for example, can depend heavily on the point of contact within a marketing and sales division of a firm (Daniels, 1998).

Competitive advantages are sought by companies within their respective markets through a variety of methods, which involve service, products, pricing strategy and differentiation strategies. To have a clear understanding of consumer behaviour and the business environment, a well established system and flow of information is needed. Therefore to align the business strategies with the market, the firm needs to manage the various processes and functions of the firm to encourage efficiency in the organisation. This is where the implementation of the appropriate information systems becomes important. Information systems allow effective communication throughout the organisation and among suppliers and distributors contributing to the supply chain of the organisation (Daniels, 1998).

Technology In Cadbury

A contract exists between Cadbury and ARINSO which will establish the euHReka system, which will combine the HR functions of the organisation globally. This system will be implemented in 2010 by Cadbury and will allow the employees of the organisation to access various services online. Additionally, information sharing will be created between the HR departments, which will allow better decision making abilities for the organisation. ARINSO has also given Cadbury the option to access services from them in the future (Business Source Complete, 2007).

Although this, several problems do arise from IT as well, and Cadbury has witnessed over £12million reduction in profits due to complications at the UK facilities (Saran, 2006). Due to this, additional IT solutions were integrated. This resulted in £200 million being spent over a course of four years to assist with the ERP system known as SAP (Saran, 2006).

In fact, in 2006, Cadbury began the year with higher than anticipated inventory and stock. Measures were taken to reduce the stock and inventory of the company by discounts in the spring of 2006 (Saran, 2006). Probe was implemented and it was suggested that this implementation resulted in various issues related to the functioning of the supply chain and manufacturing capabilities. These issues were resolved through the use of Probe, which developed a system for purchasing, marketing, distribution, finance, planning, and sales.

Conclusion

The global confectionary industry is analysed in this study to demonstrate the technology used in the industry. In this analysis, a small growth is demonstrated in within the industry despite the economic situation, although profits in 2008 decreased by 10 percent as compared to 2007 profits. The macro-environmental examination indicate that despite threats resulting from social, legal, and political factors the confectionary market maintains opportunities in new markets, young population of consumers, and the development of alternative raw materials such as artificial sweeteners. These opportunities not only benefit the market, but also specifically benefit Cadbury. New entry barriers however are presented by Porter’s Five Forces model as being high risk for new entrants. Additionally, buyers retain moderate power, suppliers retain significant power and rivalry is relatively low, while substitutes are high. Therefore, this suggests that profitability for companies can be increased by following trends in the market.

In technological terms, the company will establish a new type of technology in 2010, which will provide improved decision-making capabilities in the future. The organisation in the past had implemented Probe, which is a system designed to improve functionality of manufacturing and the supply chain.

Bibliography

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Kotler, P. and Keller, K. L. (2006) Marketing Management (12th Ed.), New Jersey: Prentice Hall

References

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