Coca Cola Organizational Management

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On Tuesday, April 23, 1985 The Coca Cola Company announced that it would change the formula of its flagship soft drink; a formula that had been America’s favorite for 100 years. Kansas newspaper editor William Allen White said, “Coca Cola is the sublimated essence of all that America stands for. A decent thing honestly made [and] universally distributed.” (As cited in Oliver, 1986, p.4) How could Coca Cola have tampered with the taste of a drink that was distributed to 155 countries and consumed more than 303 million times a day? Years of planning preceded the arrival of New Coke and years of internal problems contributed to the demise of the old one. Some of the seeds to those problems were planted in the original formulation of the Coca Cola Company, but would go unnoticed during the company’s boom years.

In 1885 John Pemberton, an Atlanta pharmacist registered a trademark for “French Wine Cola-Ideal Nerve Tonic Stimulant”. He eventually changed the formula by taking out the wine and adding caffeine and Kola nut. Thus, Coca Cola was born. Pemberton sold the rights to Coca Cola in 1889 to Georgia business man Asa Candler. Candler sold the syrup to wholesalers who mixed the syrup with carbonated water, and sold it to soda fountain proprietors. Also in 1899 Benjamin Thomas and Joseph Whitehead approached Candler with a proposition to bottle Coke. Candler thought it was too expensive a venture and wanted no part of it. Candler sold the bottling rights to Thomas and Whitehead for $1.00! (Oliver, 1986.)

Each bottler had an exclusive right in perpetuity to bottle Coke in his area and no one else except soda fountains could sell Coke in that market. The bottlers actually owned the Coca-Cola trademark in their territories and the company could not refuse to sell them the syrup. (This set up, which formed the heart and soul of the Coca Cola system, would come under attack nearly 100 years later when the Federal Trade Commission charged the company with violating anti-trust laws by restricting competition.)

Candler contracted with the bottlers to sell them the syrup at a fixed price and by the 1920’s that contract was still binding. In Candler’s day sugar was 7 cents a pound, but post WWI inflation brought the price up to 28 cents a pound. When Coca cola tried to pass the increase on to the bottlers, they sued. They agreed to pay for the syrup according to the price of sugar based on the 1921 price with quarterly adjustments for the fluctuating price of sugar. However, the rest of the syrup ingredients prices were locked at the 1921 level. This pricing strategy worked for 50 years, but then the 1970’s came with its soaring inflation and the company barely made a profit on Coke.

In 1923 Robert Woodruff , son of Earnest Woodruff who, as one of several businessmen bought the Coca Cola company from Asa Candler in 1919, became president of Coca Cola. Woodruff, acting as a structural change agent, launched radical new programs insisting on quality control, and firing up the bottling industry to make his product ubiquitous. These strategies signaled singular foresight because up until now, most people got their Coke at a soda fountain. Woodruff, in an effectual mix of theories E and O, fired his sales force and rehired them renaming them servicemen instead of salesmen. Part of their “new job” was to train retailers to properly dispense the syrup and find better methods for mixing the drink. At bottling plants, servicemen would increase productivity and efficiency by advising on all aspects of the operation. With Woodruff’s sweeping quality control programs, Coke lovers could expect to find one, and only one unmistakable taste in the North and South and from coast to coast. (Pendergrast, 2000) Woodruff wanted to place Coke “within arm’s reach of desire” anywhere and everywhere in the country. Wherever there are people who get thirsty, make Coke an option. Woodruff realized the enormous potential of the...
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