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MBA 691 - Business Ethics - Coca-Cola Water Sustainability


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This case was presented in Spring 2010 and revolves around Coca-Cola's questionable water and waste management practices in developing countries leading up to 2007.

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MBA 691 - Business Ethics - Coca-Cola Water Sustainability

  1. 1. Commit to the Environment<br />EnviroCordia Consultants<br />Mark Bundang<br />Sarah Dupuis<br />Thomas Elipulikattu<br />Johnny Legakis<br />
  2. 2. Agenda<br /><ul><li> Introduction
  3. 3. Strategic Challenge
  4. 4. Analysis
  5. 5. Alternative Strategic Directions
  6. 6. Recommendation
  7. 7. Implementation Plan</li></li></ul><li>Strategic challenge<br />
  8. 8. Coca-Cola must determine how to maintain growth and leadership in the beverage industry, in light of emerging water scarcity, public criticism and intense competition for superior brand image.<br />Strategic Challenge<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Recommendation<br />Implementation<br />
  9. 9. Industry-wide ethical factors<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Recommendation<br />Implementation<br />Systemic<br />Systemic<br />Organizational<br />Given the importance of water in the production of beverages, the emerging issue of water scarcity may hinder the firm’s ability to achieve objectives<br />
  10. 10. Recommendation<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Recommendation<br />Implementation<br />Increase corporate commitment to the environment<br />
  11. 11. CURRENT SITUATION<br />
  12. 12. Competition is of high intensity given the duopolistic nature of the beverage industry<br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br />VS..<br />Both firms carry leadership responsibility with respect to global water sustainability<br />
  13. 13. Vertically integrated firms impact stakeholders at every link of the value chain<br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br />Raw Materials<br />Processing<br />Distribution<br />Retail<br />End Consumer<br /><ul><li> Transport from Factories to points of distribution
  14. 14. Vending Machines
  15. 15. Key Ingredients
  16. 16. Water Sources
  17. 17. Bottles, Cans
  18. 18. Mixing of Ingredients
  19. 19. Manufacture of Syrup
  20. 20. Bottling or other packaging</li></li></ul><li>Given the emerging issue of water scarcity, there is pressure to adopt superior water usage practices<br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br />Raw Materials<br />Processing<br />Distribution<br />Retail<br />End Consumer<br /><ul><li> Key Ingredients
  21. 21. Water Sources
  22. 22. Bottles, Cans
  23. 23. Mixing of Ingredients
  24. 24. Manufacture of Syrup
  25. 25. Bottling or other packaging</li></ul>Governments<br />Environmental Advocates<br />Local Communities<br />A major challenge in addressing criticism is the lack of industry-wide standards on water utilization<br />
  26. 26. Intense competition results in pressure to produce volume, a water-intensive process <br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br />Pressure to produce volume<br />Pressure to sell volume<br />
  27. 27. Firms are depleted water at a considerable pace<br />It is in the industry’s long term interest to absorb the short term costs involved in adopting water sustainable production processes<br />The industry faces a foreseeable long term economic constraint in water scarcity<br />
  29. 29. Coca-Cola maintains a strong leadership in the beverage industry<br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br />4 of the top 5 soft drink brands in the world<br />Diverse product line<br />Market dominance implies that CC is in a position to lead the industry in whichever strategic direction it chooses.<br />
  30. 30. Core competencies provide competitive advantages, generating volume sales<br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br />
  31. 31. Coca-Cola engaged in several environmental initiatives to address public criticism<br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br />GOALS: Improve water efficiency in its operations by 20% by 2012<br /> Achieve water-neutrality by 2010<br />
  32. 32. Water utilization increased by 21% since 2002<br />in large part due to diversification into water-intensive products.<br />Water efficiency initiatives reduced water waste by 4%<br />Given that production water waste averages 40% in India, 4% seems like a mere drop in the bucket<br />Water usage and efficiency goals are unlikely to be attained<br />
  33. 33. The EWRD could be more influential in ensuring that the environment is considered in decision-making<br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br />Addressing Issue<br />Taking Action<br />DECISION-MAKING<br />EWRD developing ineffective benchmarks?<br />EWRD not heavily involved in decision making?<br />CC not adhering to benchmarks set out by EWRD<br />
  34. 34. Actual impact of water initiatives on the environment and communities remains ambiguous<br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br />Participation in initiatives is done with great intention<br />Objectives are unclear<br />Metrics are unclear<br />Reports on CC’s engagement in community initiatives are developing internally, resulting in bias<br />Critics continue to claim that initiatives are ineffective<br />Greater transparency on impact of initiatives is required<br />
  35. 35. Environmental advocates are unappeasable<br />
  36. 36. FINANCIAL ANALYSIS<br />
  37. 37. Coca-Cola has the ability to attain additional debt to fund initiatives, as needed<br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br />Sales: $29B<br />Operating Income $7.58B (17.74% increase)<br />Net cash due to operating activities: growth of 20.03%<br />
  38. 38. Shareholders expect to see continued growth<br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br />Costs associated addressing ethical issues may significantly impact the bottom line in the short term, thus affect stock prices<br />Reduces long term risk <br />
  39. 39. ALTERNATIVE Strategic directions<br />
  40. 40. Alternative solutions were evaluated against the following decision criteria<br />Alternative Strategies<br />Strategic Challenge<br />Analysis<br />Recommendation<br />Implementation<br />
  41. 41. Proposed Strategic Directions<br />Alternative Strategies<br />Strategic Challenge<br />Analysis<br />Recommendation<br />Implementation<br />
  42. 42. PROS<br />Least costly<br />Has some impact on environment and community (awards)<br />Advertising re: initiatives has helped maintain current brand image<br />CONS<br />Inadequate in helping CC achieve goals (>20% efficiency by 2012, water-neutrality by 2010).<br />Negative impact on brand image in long-term<br />May lose opportunity for first mover advantage (ie. for greater cost advantage and brand image). May impact leadership position.<br />Strategic Direction 1: Status Quo<br />Alternative Strategies<br />Strategic Challenge<br />Analysis<br />Recommendation<br />Implementation<br />
  43. 43. Strategic Direction 2: Commitment to Environment<br />Alternative Strategies<br />Strategic Challenge<br />Analysis<br />Recommendation<br />Implementation<br />PROS<br />CONS<br />Opportunity for first mover advantage<br />Clear and strong environmental standards<br />Positive impact on the environment <br />Will further address public criticism<br />Reduces threat of potential litigation <br />Timely implementation<br />Pepsi expected to follow<br />Costly to implement<br />Does not force competitors to comply with standards (directly or immediately)<br />
  44. 44. Strategic Direction 3: Coalition for Industry-wide Standards<br />Alternative Strategies<br />Strategic Challenge<br />Analysis<br />Recommendation<br />Implementation<br />PROS<br />CONS<br />Greater scope of change<br />Shared costs would minimize financial impact<br />Will further address public criticism<br />Standards will be minimal<br />Regulations would not be enforced<br />First mover advantage is foregone<br />Untimely to implement given likely disagreements between CC and Pepsi<br />
  45. 45. recommendation<br />
  46. 46. Evaluation of strategic directions<br />Recommendation<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Implementation<br />
  47. 47. Requires internal motivation to behave at a higher ethical standard<br />Despite cost of implementation, long-term financial, environment and legal benefit will be worthwhile<br />First Mover Advantage<br />Leverage the implementation<br />Global Application<br />Water cost benefits in other regions<br />Sets the bar the highest<br />Overall impact on the environment and community is best. <br />Most timely as there are few barriers<br />This alternative provides several benefits and has the most impact on water resource management.<br />Recommendation<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Implementation<br />
  48. 48. Civil Learning Tool<br />Recommendation<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Implementation<br />OrganizationalLearning<br />Civil<br />Strategic<br />Managerial<br />Compliance<br />Defensive<br />Higher op. Green Zone<br />Risky Red Zone<br />Latent Emerging Consolidating Institutionalized <br />Issue Maturity<br />
  49. 49. Implementation plan<br />
  50. 50. Overview of Implementation<br />Marketing<br />Implementation<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Recommendation<br />Human Resources<br />Operations<br />Research and Development<br />
  51. 51. Operations<br />Implementation<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Recommendation<br />1. Redefine scope of the Environmental and Water Resource Department (EWRD)<br />Assess how EWRD can be used effectively in decision-making and execution of initiatives at CC<br />Increase communication between EWRD and rest of company<br />$0M<br />
  52. 52. Operations<br />Implementation<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Recommendation<br />2. Assess effectiveness of EWRD initiatives<br />External initiatives<br />Consult with environmental advocates to assess targets, metrics and impact<br />Continue and increase investment in community water initiatives <br />Find new areas of local community development<br />Production<br />Consult with team of external specialists to review and assess current productive<br />Water utilization<br />Waste management<br />Water toxicity<br />Regulatory/Government<br />Create standards<br />Train staff on new standards<br />$500K<br />$4M<br />$1.5M<br />
  53. 53. Operations<br />Implementation<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Recommendation<br />Internal standards:<br />Water usage <br />E.g. Use less than 2.7L per bottle<br />Water efficiency<br />E.g. Waste less than 1.7L per bottle<br />Waste management<br />Reduce amount of by-products <br />Eliminate improper disposal of by-products<br />Toxicity <br />Comply and surpass high accepted standard (eg. CSE)<br />
  54. 54. Operations<br />Implementation<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Recommendation<br />3. Increase Transparency<br />Assessments are provided in the form of an annual report, which is communicated both internally and externally.<br />$0M<br />Evaluating the impact of initiatives, establishing stricter standards, and considering the environment in decision making will result in a fundamental change in Coca-Colas perspective towards the importance of environmental issues<br />
  55. 55. Research and Development<br />Implementation<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Recommendation<br />Investment into research <br />Water usage<br />Water efficiency <br />Waste management<br />Toxicity<br />Eg. Water purification methods<br />$5M<br />Taking the time to investigate new, and more efficient processes will result in less waste and may lead to production costs savings. <br />
  56. 56. 1. Refresh human capital<br /><ul><li>Evaluate employees in selected facilities
  57. 57. Consider changing Leader of CC India
  58. 58. Appoint environmental expert on Board of Directors</li></ul>2. Employee Engagement<br /><ul><li>Encourage volunteerism in environmental initiatives
  59. 59. Incentive plans
  60. 60. Meet production standards
  61. 61. Reward for ideas for environmental initiatives</li></ul>Human Resources<br />Implementation<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Recommendation<br />$5M<br />$3M<br />New people need to be brought in to facilitate integration of this new outlook. Existing employees need to be educated and share this outlook.  <br />
  62. 62. 1. Internal Communication<br />Communication on progress re: water initiatives: <br />Objectives:<br />update<br />learning<br />transparency<br />Receive feedback<br />Marketing<br />Implementation<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Recommendation<br />$1M<br />
  63. 63. 2. External Communication<br />Ad campaigns : Increase advertising of CC’s new green outlook .<br />Online communication:<br />Coca-Cola Website <br />Disseminate updates on CC initiatives<br />Engage consumers: educate and take suggestion<br />Social media: <br />Interactive participation<br />Surveys<br />Learning on water initiative<br />Marketing<br />Implementation<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Recommendation<br />$0M<br />Transparency to both the public and employees is key in the success of these new ideas. <br />
  64. 64. Budget and Timelines<br />Implementation<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Recommendation<br />
  65. 65. So what is the value of this implementation value?<br />Implementation<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Recommendation<br />
  66. 66. Thank you!<br />
  67. 67. APPENDIX<br />
  68. 68. Regulation by government<br />Medium to Long term<br />Enough time to put into place standards<br />above and beyond what regulation would require<br />already changing corporate structure<br />Advantage to Coca Cola over competition<br />Risks and Contingencies<br />Implementation<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Recommendation<br />
  69. 69. Pepsi starts standards & shifts corporate culture <br />Expected in the long run<br />Emerging issues, all companies will be forced to deal with this<br />CC will be ahead of Pepsi in their efforts<br />Recognized by the public as the first mover<br />Risks and Contingencies<br />Implementation<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Recommendation<br />
  70. 70. Continued criticism from critics<br />Disregard this when considering its environmental policies. <br />Critics will eventually see this and back off<br />Risks and Contingencies<br />Implementation<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Recommendation<br />
  71. 71. Water intensive beverages (Tea & Coffee) increase in popularity<br />Concentrate the R+D efforts towards these beverages <br />Reduce the water necessary. <br />Consider the environmental cost vs. the economic benefits before making the decision<br />Risks and Contingencies<br />Implementation<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Recommendation<br />
  72. 72. Issues relating to water and waste management come to forefront of public awareness<br />Come under intense immediate scrutiny<br />Invest more into the implementation we have recommended in order to accelerate the effects to prevent possible backlash.<br />Risks and Contingencies<br />Implementation<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Recommendation<br />
  73. 73. Several stakeholders are impacted by the issue of water scarcity in the beverage industry.<br />Strategic Challenge<br />Analysis<br />Alternative Strategies<br />Recommendation<br />Implementation<br />Economic profit (shareholder) <br /><ul><li> long term viability due to threat posed by water scarcity
  74. 74. Intense pressure to spend on promotion in order to bolster brand image in light of intense competition</li></ul>In developing countries:<br /><ul><li>Depletion of ground water
  75. 75. Pesticide levels in drinks
  76. 76. Releasing chemical waste
  77. 77. Selling of sludge
  78. 78. customer advocacy groups are pushing CC to become more transparent about how it measures the progress of its water initiatives
  79. 79. lack of industry-wide standards on water consumption and utilization</li></ul>Stakeholders (ethics)<br />Legal<br />
  80. 80. Large scale production in developing countries like India have been associated with poor water resource management, impacting the communities within the affected region.<br />Analysis<br />Strategic Challenge<br />Alternative Strategies<br />Recommendation<br />Implementation<br />