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BS Assignment 1

Assignment 1: Case of Gujarat Co-Operative Milk Marketing Federation


Ltd. (GCMMF)
Submitted ByAmbika Sharma
1)List down the various changes in the external environment of GCMMF? What
constraints each of them, is posing to GCMMF.
Answer-> The prices of raw materials in the dairy industry are sensitive to changes in
government policies and environmental conditions. The manufacturers are also exposed to risks
related to failure in milk production because of external factors, such as cattle diseases. Although
GCMMFs sales have not been adversely affected by these factors, the federation remains
exposed to the risk, more so because it sources most of its milk from a single state, Gujarat.
GCMMF also has the flexibility to source supplies from other states, which could help mitigate
the impact of a supply shortage, if any.
The

below,

are

the

changes

in

the

external

environment

of

GCMMF:

Competitors:
GCMMF faced a number of competitors in each of the segments they operated in. Some of these
were local player whereas other international competitors had better resources to penetrate the
market.
Milk and dairy products business: In this segment, the other state owned cooperatives
marketed their products under different brand names and led to healthy competition. Competition
was growing in the dairy products market with big corporate houses like HLL and Britannia
entering the dairy products market in India backed by big investments in advertising
Ice cream business: There were other brands from private players like Vadilal and Quality-Walls
who
had
more
resources
to
spend
than
GCMMF
in
advertising.
Edible

oils

business:

There

was

again

competition

from

private

brands.

Processed foods business: There were major players like Britannia-Maggie and Heinz.
SupplyChallenges: The market was getting saturated from the supply side. The rate of growth of
milk production was around 6 percent per annum. The demand, however, could be expected to
grow at 8 to 10 percent per annum, according to industry experts. With having constraints on the
supply side GCMMF was faced with the challenge of meeting the increasing demand.
Technology:
Even though GCMMF had the ability to process more, the supply of its raw materials was
limited. Milk supply was getting saturated from its supply side. In the processed food sector,

there was immense scope for improvement. Indian produce was 30 percent lesser than other
countries even though arable land was 40 percent more than the others. Subsistence farmers did
not have an incentive to produce fruits and vegetable. With the lack of proper storage and
transportation
facilities,
35
percent
of
the
produce
was
wasted.
Middlemen & costs
In the processed foods sector, the presence of about seven layers of middlemen, each with
incremental commission charges and en route wastage of produce led to the consumers paying
six to seven times of the price received by farmers. There were opportunities to cut the
middlemen and improve the supply chain.
Media
Positive or adverse media attention on an organizations product or service can in some cases
make or break an organization. Consumer programs with a wider and more direct audience can
also have a very powerful and positive impact, forcing organizations to change their tactics
Economic Factors
Economic factors affect the purchasing power of potential customers and the firm's cost of
capital. The following are examples of factors in the macro economy:
Economic growth
Interest rates
Exchange rates
Inflation rate
Social Factors
Social factors include the demographic and cultural aspects of the external macro
environment. These factors affect customer needs and the size of potential markets. Some
Social factors include:
Health consciousness
Population growth rate
Age distribution
Career attitudes
Emphasis on safety
2) Explain the reasons why GCMMF is now considering some new diversification into
proposed food products business, instead staying and strengthening its current core
businesses.
Answer-> Diversification is a corporate strategy to increase sales volume from new products and
new markets. Diversification can be expanding into a new segment of an industry that the
business is already in, or investing in a promising business outside of the scope of the existing

business. Diversification is part of the four main growth strategies defined by the Product/Market
Ansoff matrix.
According to Peter Drucker, Every business needs a core an area where it leads. Every
business must therefore specialize. But every business must also try to obtain the most from its
specialization. It must diversify. Drucker argues that while the central core of a business should
decide which businesses it enters, diversification is a must in this era of fast changing markets
and technologies. AMULs business strategy is driven by its twin objectives of (i) long-term,
sustainable growth to its member farmers, and (ii) value proposition to a large customer base by
providing milk and other dairy products a low price.
A part of AMULs growth has come from diversification into other agri-products such as
vegetable oils, instant foods etc. In some of these initiatives AMUL adapted its successful
cooperative organization structure. The network is exploring conventional joint venture
arrangements with suitable partners for diversification into areas such as fast food and speciality
chocolates. It is too early to assess the success of these ventures, challenges involved are
becoming quite visible. For example, diversification has resulted in expansion of the network
with disparate elements, each motivated by their own objectives. This in turn has led to a lack of
focus within the network and dilution in the commonality of purpose. These developments are
likely to have serious implications for coordination and control in the network. Below are the
possible reasons->
Firstly, companies might wish to create and exploit economics of scope, in which the company
tries to utilize its exciting resources and capabilities in other markets. This can oftentimes be the
case if companies have under-utilized resources or capabilities that cannot be easily disposed or
closed. Using a diversification strategy, companies may therefore be able to utilize all its
capabilities or resources, and above to attract new business from market segments not catered to
earlier.
Secondly, managerial skills found within the company may be successfully used in other
markets, where the dominant logic and managerial procedures of management can be
successfully transferred to other markets.
Thirdly, companies pursuing a diversification strategy may be able to cross-subsidize one
product with the surplus of another. This way, companies with a very diverse portfolio of
products catering to different markets may potentially, grow in power, and be able to withstand a
prolonged period of price competition etc. when have subsidized one product for a substantial
period of time, the company might possibly be able to win a monopoly, making it the only
supplier in the respective market.
Fourthly, companies may also want to use a diversification strategy to spread financial risk over
different markets and products, so that the entire success of the company is not reliant on one
market or product only.
There may however be other reasons for companies to use a diversification strategy than the four
listed above, and companies may very well benefit from a diversification strategy for other
reasons. However, it is important for companies to realize the possible danger of diversifying its
scope of operations too much. Companies might risk neglecting its core capabilities and become
too diversified, where too many different products supplied to different markets might have

negative effects on products and services, where e.g., product quality or uniqueness might suffer
due to the shift in focus on different products and markets.
3) What should be the (i) new marketing strategy and (ii) new organizational structure, to
become successful, with these new diversifications?
Answer-> To become successful, with the new diversifications, one should have the new
marketing strategy and a new organizational structure set for its successful growth.
Functional strategy *MARKETING STRATEGY It is the approach taken by a functional
area to achieve corporate and business unit objectives and strategies by maximizing resource
productivity. It is concerned with developing and nurturing a distinctive competence to provide
the firm with a competitive advantage. For example, Procter and Gamble spends huge amounts
on advertising to create customer demand.
Corporate strategy (ORGANIZATION) Which describes a companys overall direction
towards growth by managing business and product lines? These include stability, growth and
retrenchment. For example, Coco cola, Inc., has followed the growth strategy by acquisition. It
has acquired local bottling units to emerge as the market leader
Operating strategy - These are concerned with how the component parts of an organization
deliver effectively the corporate, business and functional -level strategies in terms of resources,
processes and people. They are at departmental level and set periodic short-term targets for
accomplishment.
Process of establishing organizational direction->
Objective-> An organizations mission gives a framework or direction to a firm. The next step in
planning is focusing on establishing progressively more specific organizational direction by
setting objectives. An organizational objective is a target toward which the organization directs
its efforts.
The process of establishing direction consists of three major steps (1) Reflecting on the results of
an environmental analysis, (2) Establishing an appropriate organizational mission, and (3)
Establishing appropriate organizational objectives.
Types of organization structures->
Two basic kinds of organizational structures exist- Formal and informal. There is the formal
organizational structure which represents the relationships between resources as designed by
management. The formal organizational structure is conveyed in the organization chart. Then
there is the informal organizational structure, which represents the social relationships Divisional
based on friendships or interests shared among various members of an organization. The
informal organizational structure is evidenced in the patterns of communication commonly called
the grapevine. The informal network can be used to encourage rapid execution of strategies.

In formal organization structure there is the question of what management levels and personnel
with the organization will be responsible for various implementation tasks. The five types of
organizational structures that are commonly seen are the simple, functional, divisional,
strategic business unit (SBU), and matrix structures.
Simple Organizational Structure-> A simple organizational structure has only two levels, the
owner-manager and the employees. Small firms with one product or only a few related ones
usually exhibit this structure.
Functional Organizational Structure-> As organizations grow and develop a number of
related products and markets, their structures frequently change to reflect greater specialization
in functional business areas. Such line functions as production and operations, marketing and
research and development (R&D) may be organized in departments.
Divisional Organizational Structure -> As firms acquire or develop new products in different
industries and markets, they may evolve a divisional organizational structure. Each division may
operate autonomously under the direction of a division manager, who reports directly to the
CEO. Divisions may be formed on the basis of product lines (automotive, aircraft), markets
(customer, industrial buyers), geographic areas (north, south, international), or channels of
distribution (retail store, catalog sales).
Strategic Business Unit Structure-> When a divisional structure becomes unwieldy because a
CEO has too many divisions to manage effectively, organizations may reorganize in the form of
strategic business units (SBUs) or strategic groups. This structure groups a number of divisions
together on the basis of such things as the similarity of product lines or markets. Vice presidents
are appointed to oversee the operations of the newly formed strategic business units, and these
executives report directly to the CEO.
Matrix Organizational Structure-> A matrix organizational structure is used to facilitate the
development and execution of various programs or projects. Each of the department vice
presidents listed at the top has functional responsibility for all the projects, whereas each of the
project managers listed down the side has project responsibility for completing and
implementing the strategy. This approach allows project managers to cut across departmental
lines and can promote efficient implementation of strategies.