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Introduction
Change is a process that impacts all organizations. As observed by management expert, Kurt Lewin, “group life is never without change, merely differences in the amount and type of change exist” (Burnes, 2004, p. 981). Most change initiatives, however, fails because of the tendency of people to resist change. People, according to management experts, fear change and so they tend to revert back to old ideas and practices even if the change is for the better. This tendency of the individuals to resist change affects the organization as a whole. Also, the longer the organization exists, the more resistant it is to change. Resistance to change, for instance, can be observed among old corporations, which resulted in failed change strategies. The Coca-Cola Company is an example of this type of organization. As one of the pioneers in the non-alcoholic beverage industry, the Coca-Cola Company has been selling drinks since the late 19th century. Over the years, the company has developed its own unique image, which has been shaped by centuries of operation. Moreover, its flagship product, Coca-Cola, is known for its distinctive taste. This paper will focus on a failed change initiative, which was implemented by Coca-Cola sometime in the middle of the 1980s wherein it changed the legendary recipe of its flagship product into a new Coke with a different formulation. Apparently, the purpose of such change initiative is to improve Coke’s taste in order to address the perceived threat posed by PepsiCo in its taste challenge. This failed change initiative was unprecedented, especially for a company that has enjoyed phenomenal growth and market dominance. Nevertheless, it provided many insights as to the underlying factors that impacts change. The case of Coke’s failed change strategy will go down in the history as one of the most interesting cases in change management.
Company History
The Coca-Cola story began when it was first formulated by the American pharmacist, John Pemberton in Atlanta, Georgia in 1886 (Ford, Stephens, & Cooper, 2007, p. 127). Pemberton created the drink from carbonated water combined with other ingredients; mainly, sugar cane syrup, caffeine, cola nuts and coca leaves. The name, Coca-Cola, including its trademark ‘Spencerian script logo’ was conceptualized by the company’s accountant, Frank Robinson (The Coca-Cola Company, 2011). The name of the company was apparently derived from two of the beverage’s ingredients, the coca leaves and the cola nuts. The first coca-cola’s were initially served at Jacob’s Pharmacy that are sold in a glass and dispensed from soda fountains (Ford et al., 2007, p. 2). In 1888, Asa Candler started to initiate the acquisition of the company, which was finalized in 1892 when he finally purchased the company, including the formula for making the beverage, from Pemberton and his partners for $2,300 (Ford et al., 2007, p. 2). Under Candler’s management, Coca-Cola rapidly became a famous brand. Using his talent for marketing strategies, Candler was able to enormously increase the company’s sales. Candler employed celebrities and embarked on an extensive advertising campaign, which boosted the beverage’s popularity among the American population. Under the helm of Candler until his retirement in 1916, the company significantly significantly grew. By the time the company was purchased by Earnest Woodruff in 1919 for $25 million, Coca-Cola was already an established international brand (The Coca-Cola Company, 2011). By 1923, Woodruff passed over the company to his son, Robert, who served as the company’s president until 1939. In 1955, the company introduced its first king-sized bottle. It also introduced Fanta orange in Italy in the 1960s, which initiated the flavored varieties of its beverages. By 1959, the company is already distributing it products in 100 countries around the globe. In 1978, the company introduced its products in pet bottles. It also began bottling operations in Russia in 1985. Since then, a lot of milestones have been achieved by the company; aggressively expanding its bottling operations and distribution channels all over the world. The company has also diversified its business and has engaged in products other than carbonated beverages. According to researchers, the Coca-Cola company currently “owns or licenses more than 500 non-alcoholic beverage brands” (Hnatko, Sidhu, & Zhang, 2014, p. 2). Among its many beverage brands includes Coca-Cola, Diet Coke, Sprite, Fanta, Fresca and Minute Maid. Today, products of the Coca-Cola Company are present in 200 countries and is the leading company in terms of market share in the non-alcoholic beverages segment (Hnatko et al., 2014, p. 2).
Marketing Strategy
The company’s success can be largely attributed to its marketing strategies. Since its early years as a corporation, Coca-Cola has placed greater emphasis on marketing, particularly in advertising in order to promote its growth. As early as 1892, the company has given emphasis on the advertisement by allotting a sizable amount of its advertising budget. By 1900s, the company is one of the first companies in the United States to use celebrity models in promoting its products. The use of catchy slogans along with varied marketing campaigns has also been a trademark of the company. According to researchers, since the company was founded, it has made 46 marketing slogans (Mayes, 2011, p. 20). One of the first slogans used by the company in the early 1900s is the slogan, ‘the most refreshing drink in the world,’ which suggests the company’s global presence. In 1921, the company created the slogan, ‘Thirst Knows No Time Nor Season,’ which helped transition the company’s product from being a seasonal beverage to one that is desirable for consumption the whole year round (The Coca-Cola Company, 2011). Even after Candler, Coca-Cola has remained one of the biggest spenders in company advertising and is one of the most innovative in its marketing strategies. Its distinctive contour bottle, for example, was a result of the company’s attempt to differentiate itself from the many competitors that capitalizes on its popularity. Over many years of its operations, the company has made an enormous impact to the international community through its marketing and advertising campaign. The company’s Christmas advertisement that featured Santa Claus in the 1930s, for instance, made an enormous impact not only to the company’s sales, but also to the modern interpretation of the Santa Claus character. Coca-Cola’s marketing success is remarkable that it came to represent a distinctive American character, particularly during the war. One of the company’s promotion during the time is to see to it that “every man uniform gets a bottle of Coca-Cola for five cents, wherever he is and whatever it costs the company” (Fournier, 2001, p. 3). This strategy made a huge impact, especially to soldiers who were stationed abroad. In a letter, one soldier expressed his sentiments towards the company’s product saying: “If anyone were to ask us what we are fighting for, we think half of us would answer, the right to buy Coca-Cola again”(Fournier, 2001, p. 3). Coca-Cola’s involvement in the war also made a big impact to the company as it initiated an aggressive overseas expansion.
Environmental and Social Responsibility
According to business scholars, a company’s success is not only measured on its financial success, but also on its environmental and social contribution (Norman & MacDonald, 2003). This concept is often referred to as ‘the triple-bottom line’ in which the social and environmental performance of the company is considered equally important as its financial performance (Norman and MacDonald, 2003). Contemporary business leaders consider the triple bottom line as the only acceptable way of doing business. Most modern business experts, for instance, believe that engaging in environmental and social responsible initiatives is key to the organization’s sustainability. According to research studies, a growing number of consumers are becoming ethically aware of the products that they buy. The case of the chocolate industry is an example of the manifestation of this ethical consumer behavior. Chocolate companies in Europe, for instance, were criticized for their trade practices when it was found by independent researchers that their source of cacao beans in Africa hires children as laborers. These children, according to researchers, are being paid very little while others are forced to work without any compensation except for the food they eat and a place to stay (Food Empowerment Project, 2016). Most of these traditional business practices, however, have already been abandoned for sustainable practices that promotes environmental and social responsibility.
Since its early years in Atlanta, the Coca-Cola company has been observed to pursue environmental and social initiatives. Coca-Cola Company has engaged in many philanthropic activities, which includes monetary and other valuable donation to universities and government agencies. The company’s generosity can be traced back to the time of Asa Chandler when Chandler donated $1 million to Emory University of Atlanta in 1914, which began the company’s support of philanthropic activities (The Coca-Cola Company, 2011). The company has also donated a substantial amount of money for the purchase of the headquarters of the Centers for Disease Control (CDC) in Atlanta and is a major donor of social institutions that includes “the Robert Woodruff Health Science Center, the Medical College of Georgia, the American Cancer Society, the CDC foundation and the Children’s Healthcare of Atlanta” ((Ford et al., 2007, p. 3). The company has also contributed to environmental institutions. Among the recipients of its assistance are “the Ossabaw Island wildlife preserve, the Atlanta Botanical Garden, the Piedmont Park Conservancy, Callaway Gardens, the Georgia Department of Natural Resources, the Nature Conservancy, and the Trust for Public Land” (Ford et al., 2007, p. 3).
Initial Situation Prior to Change
One of the major issues that the company faces is the increasing health consciousness of the beverage consumers. Health issues, particularly diabetes and obesity, are commonly attributed to sugar concentrated drinks, such as the ones produced by the Coca-Cola company. This increasing health awareness among the company’s consumers poses a significant threat to the company’s future as it could result in loss of market share. According to observers, Coca-Cola may eventually lose its market share as consumers shift from drinking carbonated beverages to healthier alternatives. Aside from the shifting consumer preference due to health reasons, the company’s competitors also threatens to unseat its dominant position in the market. Recent studies have shown that Coca-Cola still dominates the non-alcoholic beverage market with a market share of 50% (Deichert, Ellenbecker, Klehr, Pesarchick, & Ziegler, 2006, p. 3). PepsiCo and Cadbury Schweppes, on the other hand, trails behind at 21 % and 7%, respectively (Deichert et al., 2006, p. 3). The rest of the market is shared by small players who operates in the national and local levels. Softdrinks are the main products of Coca-Cola. Its major softdrink brands include the flagship Coca-Cola. It also makes Diet Coke, Sprite and Fanta. The development of Diet Coke and Coke-Zero are obvious attempts of the company to address the shift of preference among consumers. But the company’s major strategy in addressing the threat of the growing health consciousness trend in the beverage market is diversifying its products to include healthier drinks such as bottled water, tea and juices. Diversifying the company’s product line to include healthy beverages has become a major opportunity of expansion for the company.
Although Coca-Cola looks successful on the outside, some observers noticed major drawbacks on the inside. Accordingly, instead of focusing on Coca-Cola’s product marketing and management, the company’s executives seemed to have lost focus “bickering among themselves, distracted by tangential issues, and losing sight of the heart of the matter,” which is the product, itself (Fournier, 2001, p. 6). Legal issues stemming from government regulations, franchises, patents and copyright issues preoccupied top executives of the company in the 1970s, while they give less attention to marketing and sales. The company’s president, Donald Keough, in fact, admitted his mistake after realizing that he spent crucial meetings discussing the company’s legal battles instead of focusing on the company’s business. According to Keough, “I should have hired a roomful of lawyers and told them to deal with it and we could have gotten on with the business” (Fournier, 2001, p. 6). Meanwhile, as the Coca-Cola company is struggling with its side issues, its competitors, particularly PepsiCo, is making significant progress in competing with the beverage giant. PepsiCo’s sales and marketing strategies are gaining grounds; slowly, but steadily taking away some of Coca-Cola’s consumers.
One of the most remarkable development prior to the proposed change in Coke’s formulation was the taste challenge posed by PepsiCo, which became popularly known as the ‘The Pepsi Challenge.’ In a taste test conducted by PepsiCo., the company found out that most people choose Pepsi instead of Coke by a margin of 52% versus 48% if the two beverages are placed in an unmarked bottle (Fournier, 2001, p. 7). PepsiCo’s taste challenge were used in the company’s commercials, which is observed to significantly increase the company’s market share to almost triple its previous number. PepsiCo conducted the ‘Pepsi Challenge’ one state after another and each time, a similar result emerged. This finding alarmed Coca-Cola, who also conducted their own taste test only to confirm PepsiCo’s findings. Being on top of the market, it never occurred to Coca-Cola company executives to test how the quality of their product compares to the competition. The ‘Pepsi Challenge’ placed enormous pressure to the company’s top executives, which initiated the call for a revision of the company’s ‘secret formula,’ which was kept unchallenged until that time.
Result of the Company’s Change Initiative
Changing the flagship Coca-Cola’s century-old formulation was seriously considered when Robert Goizueta took the helm as the company’s chairman in 1981. With Goizueta’s backing and a steadily eroding market share, the decision to change Coke’s century old formulation was almost unanimous. In his message towards company executives, Goizueta emphasized the need for change, particularly the need to change Coke’s formula for the purpose of improving its taste. Together with the company’s top executives, Goizueta is bent on making Coke taste better, way better than Pepsi, its closest competition. Goizueta, criticized the company’s culture, which he described as is more concerned about the company’s image than the product quality (Fournier, 2001, p. 9). Goizueta urged the company leaders to prepare and embrace change; adding that those who do not change will be left behind or cut out no matter what level they are on the corporate ladder (Fournier, 2001, p. 9). Goizueta and the company’s top executives found little resistance within the company. In fact, major changes occurred as the company diversified into producing products other than Coca-Cola. However, the most significant of the company’s change initiatives during the time is when it pushed through with the planned change of Coke’s formulation. Company chemists were instructed to improve Coke’s taste. The resulting product, as described by observers, is “sweeter, smoother, less fizzy, and with a soft sticky taste” kind of Coke (Fournier, 2001, p. 12). Extensive taste tests were also conducted to determine how the new Coke would fare compared to the old Coke and Pepsi. Accordingly, the new formula won in a blind taste test as many favored the new Coke. After the change was announced in public, negative feedbacks were encountered, which the management also expects. The protests, however, kept coming beyond the company’s expected threshold. Sales of the new Coke also dropped significantly after several months that it was released. As sales steadily declined, the company executives were forced to reassess their change initiative. A By July of 1985, approximately three months after announcing the launch of the new Coke, Goizueta called for a press conference and issued an apology to the public; subsequently announcing that the company would again produce the original Coke.
Discussion
In order to successfully initiate change, management expert and Harvard professor, John Kotter suggest a theoretical framework, which he calls as ‘Kotter’s 8-Step Change Model.’ Kotter’s change model is based on the idea that change is possible if the necessary conditions for its successful implementation is met. The first of Kotter’s change model is ‘creating a vision’ (Kotter, 1995, p. 61). Kotter believes that in order to successfully initiate change, the people must first have a clear vision of why change is necessary. Second on Kotter’s change model is establishing a sense of urgency (Kotter, 1995, p. 61). Apparently, people will be forced to change if they feel that they are pressured to change. Third, Kotter believes that a team that is committed to change, which would serve as a guide, is necessary to initiate change. Fourth, Kotter suggests that the change vision should be constantly communicated so that the people who are the subject of change does not lose sight of the change initiative (Kotter, 1995, p. 61). Fifth, Kotter suggest that individuals who are subject to change should be empowered (Kotter, 1995, p. 61). The point is to make the individual feel that it is not only the company leaders’ decision to change, but it is also his personal decision. Sixth, Kotter suggests the setting up of short-term goals (Kotter, 1995, p. 61). These goals aim to provide the necessary motivation and assurance that the change initiative is on the right track and that progress is being made. Seventh, Kotter believe that an important factor to successful change is to consolidate the accomplishments associated with change in order encourage support. Lastly, the change should be institutionalized or established as the norm of the organization.
Most of Kotter’s change initiatives can be observed in Coca-Cola’s case. However, what the executives fail to see is that change also needs proper timing and conditioning. What Coca-Cola experienced was resistance, which is a normal reaction of most people when subjected to change. Resistance to change, especially in age-old organizations such as the Coca-Cola is not uncommon. In fact, such reaction is expected and is one of the initial reaction to change. Management change expert, Kurt Lewin, describe this resistance as a result of being under a frozen-like state (Burnes, 2004). According to Lewin, the tendency of organizations, especially old ones, is to move towards a state of inertia wherein it remains at rest with its traditional practices (Burnes, 2004). In order to successfully initiate change, it is first necessary to shake things up or unfreeze the organization’s traditions and culture. Change management experts for instance, observed that the tendency of the majority is to operate within familiar grounds or settings (Baker, 1989, p. 53). Most individuals are afraid to try new things or go beyond their comfort zones. As observed by one expert, people tend to resist change, even if the change that is being initiated will result in growth and development, primarily because “they fear the unknown” (Baker, 1989, p. 53).
Conclusion
A lot of changes may occur within an organization’s lifetime, which could impact the landscape in which it operates. Among the most significant changes the organization may experience are technological advances and innovations, political and social changes, the rise and fall of competition and suppliers and many other changes that could directly or indirectly impact the organization. For the same reason, regardless of whether the organization is ready or not, change will eventually come. These changes, on the other hand, may create challenges or opportunities, which also forces the organization to change or adapt to the changes it encounters. The change process in an organizational setting, however, is a complex phenomenon and is often difficult to achieve, primarily because individuals and their organizations, as a whole, have a tendency to resist change. Coca-Cola experienced this resistance when it tried to change its original formulation. Many people are already used to the taste of their old softdrinks that they have already developed a loyalty to the brand. Moreover, as part of the American culture and identity, many people resisted the change initiated by the company. Coca-Cola, on their part, was quick to acknowledge that their change initiative will not work as people are not yet ready for the change.
References
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