The a2 Milk Company Case Solution

2. Introduction

The A2 Milk Company was founded in 2002 in New Zealand and has now grown to be dairy provider offering various products in Australia, China, New Zealand, UK and USA (The A2 Milk Company, 2019a). It has had a significant market share in Australia, with it having a 32% share. It is also ranked as the number 1 infant nutrition brand in the market. The brand is known for selling milk that is rich in A2 protein and free from A1 protein that leads to greater health benefits for consumers (The A2 Milk Company, 2018). The company faces numerous issues at the strategic level, both internally and externally. The external analysis was carried out in the previous assignment report (Assignment 1). This report will carry out an internal analysis to help come up with strategic options for the company in the next three years. 

This report will first mention the mission and vision followed by an analysis of its internal resources and capabilities. The current business strategy using Porter’s generic strategies and a value chain analysis will be evaluated. New strategies are formulated using a TOWS Matrix, and one is proposed for the company. The proposed strategy will be evaluated using the Suitability, Acceptability and Feasibility (SAF) criteria. An implementation plan for the proposed strategy and measurement criteria for the proposed strategy is also presented.

3. Mission and Vision

Vision

The vision of a company articulates where the company wants to be in the future as compared to its current state (Mirvis, Googins, & Kinnicutt, 2010). The vision for the a2 Milk Company is “To be the innovative and smart choice for dairy nutrition (The A2 Milk Company, 2018, p.5)”. This vision implies two things; to innovate and the smart choice. Innovativeness needs to be taken into consideration for any strategy that is formulated for the A2 Milk Company. It also needs to be the smart choice for customers, which implies that these customers when choosing the A2 Milk company, need to know that they are choosing what is beneficial for them.

Mission

The mission of a company is its purpose behind its operations. It also includes the social responsibility element within it (Brătianu, & Bălănescu, 2008; Mirvis, Googins, & Kinnicutt, 2010). The A2 Milk company does not state a vision in its annual reports but calls it its purpose. This is “Helping people enjoy a better life (The A2 Milk Company, 2018, p.5)”. This mission of the A2 Milk Company has a rather customer-oriented focus where it aims to make the lives of its customers better. This needs to be considered in any strategy formulated that consumers not only benefit through the use of the product but also have a larger benefit attached to continuous consumption.

4. Resources and Competence Analysis

This report with now having analysed the company's vision and the mission will move towards an internal analysis of the company's resource and competences. 

Resources and Competencies

The resources and competencies of an organisation help determine its competitive advantage within the marketplace. Resources are those internal assets that the company possesses, which help it in achieving a competitive advantage. These could be tangible and intangible. Competencies are the differentiated skills and methods through which an organisation can achieve a competitive advantage. It is how an organisation makes use of its resources (Collis, 1991). A detailed description of each of A2 Milk Company's resources and competencies are given below.

• Herd of Cows: The herd of cows at The A2 Milk Company are not genetically engineered as compared to cows at other milk companies. These cows can produce milk that has A2 protein within it and no A1 protein (The A2 Milk Company, 2018). The ability to produce milk with A2 proteins gives the company a competitive advantage as the milk is healthier and doesn't cause trouble in the stomachs of customers (The A2 Milk Company, 2019b). This milk helps in the digestion of people who are lactose intolerant and is also linked with fewer risks of heart disease (Arnarson, 2019). The ability to test whether a cow produces A2 milk or not is a scientific process that is patented by The A2 Milk company (The A2 Milk Company, 2019b). 

• Supplier partnerships: Farms are carefully selected by The A2 Milk Company and the company works in partnership with these to provide good quality milk supply. There are 28 certified farms across Australia that use advanced technology along with quality control measures to ensure a quality supply of milk (The A2 Milk Company, 2019c). These farms are located in close proximity to the company's processing facilities allowing for fresh milk to be delivered. The company has developed partnerships with these suppliers over time working together with them to improve milk supply (The A2 Milk Company, 2018).

• Brand Awareness and Market Share: The customers in the market are already aware of the brand. It is the number 1 brand among millennials in Australia and has a 32% market share. The A2 Milk Company spends heavily on marketing to build its brand. Its investment in marketing for 2018 across all countries was $73.6 million (The A2 Milk Company, 2018). It has focused on advertising and editorial media coverage to promote the image of its brand (The A2 Milk Company, 2019d).

• Financial Capabilities: The company has been reporting positive performance in the past few years. Its profit after taxes for the year 2018 were $195.7 million with earnings per share of $0.27. The company had an operating cash flow of $231.1 million in 2018 showing a good cash position for the company. Its ability to earn profits for a prolonged period has allowed the company to accumulate reserves and financial assets as seen from its balance sheet (The A2 Milk Company, 2018). The financial capabilities are an advantage for the company if it wishes to expand as internal financing options are available for it.

• Distribution Network: The company has an established distribution system with distribution partners to ensure availability at stores. The distribution increased by 16,000 stores in 2018. Its products are available on the key grocery stores in Australia. This distribution has been responsible for the increased volume of sales for the year 2018 (The A2 Milk Company, 2018).

• Research and Development: The company has had a significant investment in research and development. Investment in this increased by $32.3 million in 2018. This has resulted in numerous patents for the company, which along with other intangible assets were valued over $16 million in 2018 (The A2 Milk Company, 2018). A few of its early patents concerning the testing of A1 protein have expired, but the company has come up with advanced process and patented them. This still makes it difficult for competitors to copy its milk production (Food and Drink Business, 2015).        

VRIO Analysis

The VRIO framework assesses the value, rarity, imitability and organisation of each resource or competence to determine whether this provides the organisation with a source of sustained competitive advantage or not (Knott, 2015). Each of the resources is now evaluated using the VRIO framework below:

1. Herd of Cows

• Valuable: The herd of cows is a valuable resource as it allows the company to take advantage of the opportunity of people being more health conscious. It also helps differentiate the milk provided by the A2 Milk Company from that of competition.

• Rare: This resource is rare as it is only possessed by the A2 Milk Company. According to The A2 Milk Company (2018), approximately 30% cows produce A2 milk, and this company possesses a herd of these type of cows.   

• Imitability: The processes to identify breeds of cows that have the A2 milk is not imitable as it is patented. This provides legal protection against imitability.

• Organisational Support: The organisation makes complete use of its capability to produce A2 protein milk. The organisation is named after, and its products are marketed as containing A2 protein as well.  

The herd of cows possessed by the A2 Milk Company provide it with a source of sustained competitive advantage as this resource is valuable, rare, costly to imitate and organised.

2. Supplier Partnerships

• Valuable: The supplier partnerships are a valuable resource as they ensure good quality supply of milk for the company. It also adds to the reliability of supply ensuring the company meets the demand of its products.

• Rare: The supplier partnerships are a rare resource as very few dairy companies can establish reliable supply chains with relationships to increase the value of output.

• Imitability: The resource can be imitated by competition over a long period of time if they work closely with farmers in a mutually beneficial relationship. 

• Organisational Support: The company is established to take advantage of the well-established supply chain and its partners. It was one of the reasons why the company was able to grow in terms of distribution and volume sales in 2018. 

The partnerships with suppliers can provide The A2 Milk Company with a temporary competitive advantage as it is valuable, rare, organised but not costly to imitate. 

3. Brand Awareness and Market Share

• Valuable: This is a valuable resource for the company as it helps drive sales for the company. People are aware of the benefits of using A2 Milk Company's products. They also emotionally resonate with the brand and perceive it as beneficial. This will help the company if it has to pursue an opportunity, for example, through the introduction of a new product. 

• Rare: Establishing brand awareness and a significant market share is no easy task and is only possessed by the leaders in the market. Therefore, this is a rare resource for The A2 Milk Company that has been established through increased marketing expenditure over the past years. 

• Imitability: This is costly to imitate as marketing costs are involved just as The A2 Milk Company has been spending in huge amounts. 

• Organisational Support: The A2 Milk Company ensures presence at retail along with brand awareness to generate sales for the company. It is, therefore, organised to use brand awareness to its advantage.

The Brand Awareness and market share of The A2 Milk Company provides it with a sustained competitive advantage as it is valuable, rare, costly to imitate and organised.  

4. Financial Capabilities

• Valuable: The financial capabilities of the A2 Milk Company are a valuable resource as it allows the company to expand or pursue projects without the need for external financing.  

• Rare: The financial capabilities are also rare as a lot of companies do not earn enough profits to accumulate reserves and financial assets as The A2 Milk Company has.

• Imitability: Though it is costly to imitate, it is not impossible. If companies can achieve external financing at affordable costs, then it will serve the same purpose. Moreover, acquiring reserves and financial assets is not a tedious task for any organisation as long as it is profitable. 

• Organisational Support: The company has used its funds to its advantage through research and development, marketing, and expansion into new territories. 

The financial capabilities of The A2 Milk Company provide it with a temporary competitive advantage as these are valuable, rare, organised but not costly to imitate.

5. Distribution Network

• Valuable: The distribution network of the A2 Milk Company is a valuable resource as it is responsible for the increase in volume sales of the company.

• Rare: The distribution network of the A2 Milk Company is not rare as competitors; Dairy Farmers, Pauls, Devondale, Oak are also present on retailers’ shelves (Euromonitor International, 2019).

• Imitability: The distribution network is imitable as an investment in logistics, or good distributors can help achieve it as long as there is an effective sales force. 

• Organisational Support: The distribution network is organised to take advantage of it. Increased promotion along with proper distribution ensures sales for the company.

The distribution network of The A2 Milk company is a competitive parity as it is only valuable and organised.

6. Research and Development

• Valuable: The research and development is a valuable resource for The A2 Milk Company as it has resulted in $18 million worth of patents for the company (The A2 Milk Company, 2018). 

• Rare: The research and development are rare as very few competitors can achieve a competitive edge through innovation. 

• Imitability: Although imitable, research and development are costly and a long-term process that requires knowledge. It would be very difficult for competitors to imitate the level of innovation equivalent to that of The A2 Milk Company.

• Organisational Support: The research and development are organised to come up with new processes to ensure a better quality of milk. These also ensure that the company keeps coming up with new patents. 

The research and development at The A2 Milk Company provide sustained competitive advantage as it is valuable, rare, costly to imitate and organised. 

5. Current Business Strategies

According to Porter (1985), the competitive strategy of any business can fall under four different generic strategies. These are differentiation, cost leadership, cost focus and differentiation focus. In cost leadership, the company focuses on keeping its costs to a minimum and selling at a low price to attain a competitive edge. It keeps pushing on attaining a low-cost structure. In differentiation, the company focuses on distinctive attributes or features in its products that are valued by customers. These are seen as unique in the market.  In focus strategies, the company sets out to target a smaller market segment within the larger market. It could either attain a cost advantage in that segment; cost-focus. It could also attain a differentiation advantage in that segment; differentiation focus (Porter, 1985).

The A2 Milk company does not follow a cost leadership strategy. This is because it does not focus on low costs, instead spends heavily on, marketing, research and development, and quality control (The A2 Milk Company, 2018). It also is priced more than that of competition in the market (Woolworths, 2019). The A2 milk company has a differentiation strategy as it its fundamental attribute of having A2 protein in its milk is unique. A2 protein that is healthy for customers is valued by them and makes it distinctive from competitive offerings. The A2 Milk Company does not target a specific smaller segment and does not follow a focus strategy. Therefore, the strategy followed by The A2 Milk Company is differentiation. The vision of the company is to be an innovative and smart choice for customers, which further supports it following a differentiation strategy. This is further confirmed through a value chain analysis of the company. 

Value Chain Analysis

The Value Chain analysis will help identify how value is created at different stages in the primary and support functions (Porter, 1985).

Support Activities	Firm Infrastructure	Human Resource Management	Technology Development	Procurement
	-Research and Development centres for innovation, which leads to differentiation.	-Hiring skilled employees and training them over time to maintain differentiation in product offerings.	-The use of advanced technology in milk preparation to ensure improved quality of milk.	-Working together with farms to ensure good quality of milk. Procuring from these farms with whom the company has an established relationship.
Primary Activities	Inbound Logistics	Operations	Outbound Logistics	Marketing and Sales	Services
	-28 milk farms are located in close proximity to processing facilities.   -Use of technology to ensure the freshness of milk in transport.	-Milk is processed and packaged with quality and protein tests to ensure quality.	-Milk is transported in refrigerated transportation to retail shops to ensure availability.	-The marketing of The A2 Milk ensures availability on as many stores as possible.   -The communications of The A2 Milk company focus on the distinctiveness of its milk; having A2 proteins.	-After Sales feedback.   -Customer Services to handle complaints.

The value chain analysis further supports that at every stage, the focus is on differentiating the company’s product from that of competition. Therefore, it can be concluded that the company follows a differentiation strategy.

6. New Strategy Initiative

TOWS Matrix    

The TOWS Matrix is an advanced version of the SWOT matrix, and it helps to analyse the internal and external factors of an organisation, it also helps in coming up with new possible strategic options that make use of strengths, weaknesses, opportunities and threats of an organisation (Weihrich, 1982). The TOWS Matrix for The A2 Milk Company is shown below:

	Strengths The herd of cows with the company, which provide it with a sustained competitive advantage. A strong partnership with suppliers that provide the company with a temporary competitive advantage. High brand awareness and market share, which provide the company with a sustained competitive advantage. The financial capabilities of the company that provide it with a temporary competitive advantage. The distribution of the company, which is a competitive parity. The research and development that leads to innovation, which provides the company with a sustained competitive advantage.	Weaknesses The costs of the business are higher than those of competition, with increased marketing costs (The A2 Milk Company, 2018). This results in a higher prices product than that of competition (Woolworths, 2019). Limited Product Portfolio for a dairy company with only selling fresh milk, milk powder, and A2 platinum milk (The A2 Milk Company, 2019).
Opportunities There is a trend among consumers to consume for healthy products, with retailers allocating more space for these on their shelves (Wilkinson, 2016). Social media penetration is increasing in Australia with people using this more than ever before. Among social media, Facebook and YouTube are the most popular (Despinola, 2018). This provides an opportunity for businesses to use social media for their marketing. Consumers in Australia are becoming environmentally conscious as well where they are more likely to buy products that have less consumption of plastic (Mintel, 2018).	SO Strategies Marketing the health benefits of using The A2 Company’s milk products that have A2 protein in them. Introducing environmentally friendly packaging for all of its products. This will help attract consumers as they are now more worried about the environment. It will also fulfil the company’s responsibility towards the planet. Research and development along with financial resources can be used to come up with such packaging.	WO Strategies Introduction of new healthy product lines that cater to health-conscious consumers. This could include product lines as Soy milk, almond milk, coconut milk, calcium reinforced milk etc. This would help improve on its weakness of limited product lines.
Threats The recent changes in government have been quite frequent leading to a volatile political environment for business (Smyth, 2018). A slowdown in economic growth in the last quarter from 3.4% to 2.8% (Hutchens, 2018). There have been new employment laws introduced that have caused an increase in the minimum wages of employees (Knaus, 2018).	ST Strategies Use of research and development to come up with new methods of production that are less labour intensive. This will help cater to the threat of increased wage costs for the company. Using financial resources to undergo expansion projects for the company. These could include setting up processing plants and farms in untapped areas. This would help increase investment and improve the economy, which has recently slowed down. Further, strengthen relationships with supply chain partners in case political conditions change against the favour of the business.	WT Strategies The costs of the business will further rise through an increase in wages. The company can focus on cost reduction mechanisms that counter the threat of increasing wages. This will also help improve its weakness of high cost structure. The slowdown in the economy is likely to result in inflation that will further raise costs for the business. One method to reduce costs is to switch marketing from traditional to more digital platforms.