In This Issue:
Reacting to a Downturn vs. Driving Business Success
Business downturns can bring pressure for corrective action. As a result, companies can be tempted to make moves intended to be corrective, but that end up doing more harm than good. Executives often do recognize that continuing what they’ve always done will merely bring more of the same and, of course, won’t reverse the downturn. So, they may push for corrective action. This can somehow mistakenly get them thinking they need to do many things very differently and take bigger risks. But, this leaves the business quite vulnerable to making ill-suited moves.
One common major misstep during stagnation or downturn is what I call the new products/new ventures phase. During a new products/new ventures phase, a company diversifies into many new areas expecting to correct its dire circumstances of stagnation or downturn. The intent is to pursue attractive new areas, ideally with higher growth than the company’s existing sluggish business. These new areas the business pursues fail to use the company’s strengths well, and end up losing a great deal of money. Eventually, the financial strain becomes obvious, and the company shuts down its forays into the new areas—hopefully before too much financial damage.
Nonetheless, it is fine to make much needed change during troubling times, provided the right kinds of changes are made. Damage comes when the company tries to change everything and take bigger risks, according to my 25+ years researching business success and failure patterns. Yet, businesspeople often see massive change and more risk as the answer to their company’s sluggish performance. It isn’t, and it can make matters far worse.
Coca-Cola is a recent example of a company facing challenges as its industry encounters difficult times. Trends away from sugar and soda have slowed the company’s primary business. Thus, the company is at a point where it is quite vulnerable to the kinds of missteps that are so common when business is sluggish. How well these challenging times are handled can make all the difference in the world in terms of the company’s success.
But, based on what the media reported not long ago, Coca Cola may need to give more thought to how it deals with the soda downturn. CNN Money ran an article August 31, 2018, titled “Why Coke is getting into the restaurant business” by Danielle Wieiner-Bronner. Along with the article, CNN featured a video interviewing a Coke executive who said they wanted to be more than a soda company, they need to take bigger risks, and they want to do what it takes to succeed.
As someone who researches business success, I see nothing wrong with Coke striving to be more than a soda company. In fact, Coke has already owned non-soda brands, such as Minute Maid orange juice and Dasani water. Furthermore, according to the CNN article, Coke has a “goal of being a total beverage company”. Again, reflecting my research, this can be a doable goal for Coke, as long as it is done effectively and is not clouded by the kinds of missteps companies can easily make during challenging times.
Yet, Coke needs to exercise caution. There is potential for problems with taking bigger risks and with Coke getting into the restaurant business. And, both of these areas--too much risk as well as being in the restaurant business--have been a problem for Coke or its industry in the past.
Excessive risk was a major factor in new Coke’s failure back in the 1980s, according to my analysis of published material about the new Coke introduction. Granted, most sources attribute new Coke’s failure to how consumers’ emotional attachment to the brand was far more powerful than taste tests favoring Pepsi over Coke. But, when the new Coke introduction is evaluated from a risk versus reward perspective, the risk of throwing away a successful product like Coke was quite high, and the potential for gain was low relative to the risk. New Coke is just one example of how high risk does not bring high reward". And, Coke should not forget this if it considers taking bigger risks in response to its brand’s recent difficulties.
Additionally, getting into the restaurant business is a potential problem for Coke. In the Coke versus Pepsi competition, Coke had been the clear leader in the restaurant/fountain market, while Pepsi had some real strengths with consumers shopping in stores. Pepsi’s ability to penetrate the restaurant market is said to have been impaired when its parent company owned restaurant chains such as Taco Bell, Pizza Hut and KFC. This was due to restaurants not wanting to buy soda from a supplier that is also a competitor. Pepsi’s restaurant unit has since been divested. Yet, this kind of reluctance to buy from a supplier who is a competitor has also occurred in other industries. And, it could potentially weaken Coke’s position with restaurants.
So, in conclusion, Coke has to be careful. The company faces circumstances that can easily tempt it to make missteps intended to be corrective measures. Its success will depend upon how well it navigates these kinds of challenges.
La Grange Park, IL