Business Strategy

Assignment 1
1. What are the salient changes in the external environment of GCMMF? What constraints
are they posing to GCMMF?
GCMMF was established in the year 1973 with a view to streamline the milk production and
supply process in Gujrat. Its main aim was not to maximize profits but to give the dairy
farmers a fair deal, who until then were being exploited by the private milk contractors.
GCMMF was a great success since its inception. By providing on-time payments to the dairy
farmers, veterinary services, cattle feed of good quality, education on better feeding of cattle
and facilities for artificial insemination of cattle at cost or below cost gave dairy farmers an
incentive to be a member of the cooperative.
In addition to producing and supplying milk of three varieties and dairy products from the
surplus milk supply, GCMMF had diversified its business to related areas like edible oilsDhara and fruit & vegetable based foods-Safal. In the year 2000, GCMMF was faced with a
dilemma of whether to stick to its existing product line or to venture into the processed foods
market with jams, sauces and fruit juices.
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 QualityWalls 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.
Supply Challenges:
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.
Middle men and 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.
Fragmentation and Taxes:
The food processing industry was extremely fragmented. Cooperatives operated under
archaic, colonial co-operative legislation in which even though they formed a part of the
same 3-tier co-operative structure, they had to pay 4 percent central tax while transferring the
products to any of their own branches that lie outside Gujarat. Local sales taxes applied to
products sold within the state. A private company on the other hand did not apply while
transferring the products to their own branches. This gave the private players an edge over
the co-operative societies.
The tax structure under which GCMMF fell was different from the tax structure under which
the competitors and MNCs were. This again was not favouring GCMMF for procuring and
reselling to other cooperatives from different states within India
Salaries:
Salaries paid by GCMMF were lower than those paid by private players and hence found it
more difficult to attract managers from premier management institutes. The management
graduates were more inclined towards taking up jobs with MNCs and other sectors. This
however, was not a major concern as employees had immense growth opportunities and job
satisfaction.
Change in consumer taste:
With more disposable income, consumers were moving from basic need products (Milk)
towards more premium products like ice cream where GCMMF did not have a good market
share and difficult to penetrate where the market is dominated by HLL and regional players
like Vadilal.

2. Explain the reasons why GCMMF is considering the diversification into proposed food
products business, instead staying and strengthening its core business of milk.
Even at the time of its formation, GCMMF had three major products in its portfolio:
liquid milk, butter and milk powder. Gradually, many new products were added to tits range,
largely milk derivatives. In milk alone, it sold full-cream milk, semi-toned milk and fullytoned milk, all with different names and in readily identifiable pouches. By reducing the fat,
it could not only sell the fat derivatives such as cream and butter, but also make the resultant
milk available at cheaper prices, so that poorer people could also afford it. In 1970s,
GCMMF introduced its cheddar cheese and in 1983, a cheese spread. In the same year, it
entered the milk-based sweet market with the introduction of Amul Shrikhand (a form of
yogurt). Thereafter, Amulya, a dairy whitener was introduced and was priced below the
prevailing brands.
After 1996, it went on to introduce a still greater variety of products: pizza cheese, cheese
slice, cheese powder, malai paneer, gulab jamun mix primer to be processed by deep frying
to make a sweet, buttermilk, a chocolate based beverage called nutramul and chocolates. In
1996, GCMMF launched its Amul brand of ice cream. Indias ice cream market was
estimated to be around 8 billion rupees in 200. GCMMF launched its ice creams in 14 flavors
in the city of Mumbai and the state of Gujrat. It was priced at about 3o percent less than the
prevailing prices, and it also emphasized that it did not contain any gelatin. In less than a
year, Amul ice cream commanded a share of about 55 percent in Gujrat and 3o percent in
Mumbai.
In addition, it also diversified into non-milk products. The most important of this
diversification was into edible oils in 1988. At that time, the prices of edible oils were being
manipulated by oil traders with the result that at the prices were shooting up to unacceptable
levels. Even though oils seed growers co-operatives existed, most of them were run badly
and losing money. Edible oils have always been a very sensitive subject in India.
In the late 1990s, GCMMF under tools distribution of fruit based products on behalf of
NDDB. This was done under yet another brand name introduced by GCMMF: Safal (literally
meaning fuirtful, having achieved). Under this name were launched a mango drink sol in
tetra packs, tomato ketchup and mixed fruit jam. In fact the launches of all these were
completed in a single year, 1998-99.
Except in ice creams, chocolates and chocolate based beverages, Amul brand was the
market leader in each and every one of its products. Its main sources of competitive
advantage were seen by its executives as i) low costs due to the elimination of middlemen, a
lean organization and relatively lower pay scales as compared to MNCs ii) its scale and
scope of operation and iii) its strong brand name which stood for purity and quality.
The profit margin in milk was generally low. NDDB and GCMMG had as one of their
important objectives, promotion of milk consumption, especially by the poor people. To
achieve the its objective, GCMMF tried to keep the price of liquid milk as low as it could.
Edible oils were also low margin item, their sales prices being controlled rigidly by the
government tend input prices, being essentially set by the oils traders. In the words of Mr.

Kurien, they were in this business due to larger societal considerations than for the sake of
profits.
3. What changes in marketing strategy and organizational structure they should do, to be
successful?
Key elements to be success in Market:
One of the key elements of a successful marketing strategy is the acknowledgement that
youre existing and potential customers will fall into particular groups or segments,
characterised by their "needs". Identifying these groups and their needs through market
research, and then addressing them more successfully than your competitors, should be the
focus of your strategy.
You can then create a marketing strategy that makes the most of your strengths and matches
them to the needs of the customers you want to target. For example, if a particular group of
customers is looking for quality first and foremost, then any marketing activity aimed at them
should draw attention to the high quality service you can provide.
Once this has been completed, decide on the best marketing activity that will ensure your
target market know about the products or services you offer, and why they meet their needs.
This could be achieved through various forms of advertising, exhibitions, public relations
initiatives, Internet activity and by creating an effective "point of sale" strategy if you rely on
others to actually sell your products. Limit your activities to those methods you think will
work best, avoiding spreading your budget too thinly.
A key element often overlooked is that of monitoring and evaluating how effective your
strategy has been. This control element not only helps you see how the strategy is performing
in practice, it can also help inform your future marketing strategy. A simple device is to ask
each new customer how they heard about your business.
Once you have decided on your marketing strategy, draw up a marketing plan to set out how
you plan to execute and evaluate the success of that strategy. The plan should be constantly
reviewed so it can respond quickly to changes in customer needs and attitudes in your
industry, and in the broader economic climate.
Some of the suggestions for better Organizational Structure:
1. Division of labor. The organization's work must be divided into specific jobs.
2. Departmentalization. Unless the organization is very small, the jobs must be grouped
in some way.
3. Span of control. The number of people and jobs that are to be grouped together must
be decided, which is related to the number of people that are to be managed by one
person.
4. Authority. The way decision-making authority is to be distributed must be
determined.
In making each of these design decisions, a range of choices are possible. At one end of the
spectrum, jobs are highly specialized with employees performing a narrow range of

activities; while at the other end of the spectrum employees perform a variety of tasks. In
traditional bureaucratic structures, there is a tendency to increase task specialization as the
organization grows larger. In grouping jobs into departments, the manager must decide the
basis on which to group them. The most common basis, at least until the last few decades,
was by function. For example, all accounting jobs in the organization can be grouped into an
accounting department, all engineers can be grouped into an engineering department, and so
on.
The size of the groupings also can range from small to large depending on the number of
people the managers supervise. The degree to which authority is distributed throughout the
organization can vary as well, but
Traditionally structured organizations typically vest final decision-making authority by those
highest in the vertically structured hierarchy. Even as pressures to include employees in
decision-making increased during the 1950s and 1960s, top management usually made final
decisions. The traditional model of organizational structure is thus characterized by high job
specialization, functional departments, narrow spans of control, and centralized authority.
Such a structure has been referred to as traditional, classical, bureaucratic, formal,
mechanistic, or command and control. A structure formed by choices at the opposite end of
the spectrum for each design decision is called unstructured, informal, or organic.