Sara Lee introduced a multi year strategy to become a focused organization in three key businesses, food, beverage and household products. The objective of modifying its strategy to a more focused approach was to concentrate efforts on smaller business segments where the company felt better positioned. In addition, the company divested weak performing business units that were also considered non-strategic. The purpose of the retrenchment strategy was to drive efforts into the key brands that had the most sales, market share and profitability potential.
The strategy for Sara Lee was to focus on consumer products and have a six-division organizational structure with product similarities, customer types and geographic regions. The six division were North American Retail division, North American Fresh Bakery division, North American Foodservice, International Beverage division, International Bakery Division, and the International Household and Body Care division. The long term attractiveness of the industries represented by Sara Lee’s business portfolio is minimally diversified, all the industries represented fall into the consumer products market. Although the portfolio is not widely diversified, the benefits of cross-business strategic fit allows for Sara Lee to have efficiencies in the transfer of expertise and capabilities from one business to another. The businesses will also have the opportunity to collaborate in shared resources to reduce operating costs. In addition, they will be able to leverage the common brand name.
The basis of competitive strength of a business unit is understanding the relative market share of each business unit, the ability to compare costs to the competitor’s costs on comparable products with similar features. The business units must also be assessed on their ability to match or beat rivals on key product attributes. Understanding the caliber of alliances with suppliers and buyers is key to develop competitive strength measures. In Sara Lee’s case the business units are all very similar in industry type and if an industry is hurt, the likelihood that all industries will be hurt is high.
A nine cell industry attractiveness matrix will show that Sara Lee’s business units are comparable in strength because they are all in the same industry. The goal for Sara Lee would be to focus its resources and bring attention to the business units having the greatest competitive strength based on various points of the value chain.
Sara Lee’s portfolio exhibits various opportunities to combine purchasing activities and leverage with their suppliers in order gain on economies of scale. The company also has opportunities of business units to transfer knowledge and skills across business units since they are so similar. The combined sales and marketing activities allows for collaboration and opportunities to be highly competitive. Having a cross-business strategically will allow Sara Lee to use its capabilities to share and transfer to its component businesses.
The total combined operating segment income increased after Sara Lee implemented divestitures of it’s non-performing businesses. The business segments themselves were steadily well performing, however there were major losses in the International Bakery segment that improved with each year. The international baker business unit was greatly affected with the economic recession in Spain which attributed to most of the sales for the baker products. IN addition, selling baked products outside of Spain was unsuccessful because consumers preferred fresh baked goods instead. The total sales didn’t necessarily improve on the International Bakery business unit, the total losses were reduced by closing down non-performing facilities.
My overall evaluation of Sara Lee’s entrenchment plan helped the company focus its efforts in a strategy that would allow them to deliver strong increases in shareholder value. The benefits the company gained from major cost improvements helped the strategy, but the business units themselves still saw major loses. The International Bakery and Beverage business was reduced. The company eliminated close to 400 positions to reduce overhead.
My recommendations to Sara Lee are to divest the International brands, the company doesn’t seem to understand the international consumer market well enough to perform successfully in it. My recommendation is also to consolidate the various products in the North American business units. Focus on three main types of product lines, food, beverage and beauty products. These are three areas that Sarah Lee is well known for and can do well in these markets.