Amy Thompson

Hershey Audit and Creating Shared Value Article

Strategic Audit Form

Analysis Hershey Comments

+plus -minus
I.Current Situation
a. Past Corporate - market leader in - not taking full - most widely
Performance candy and gum in advantage of recognized brand of
the US (30% developing markets confections in the US
market share) internationally (int’l
- annualized sales: 10% of total
returns on stock: revenue)
17.4% - lagging in new growth
(outperformed due to fewer new
S&P by ~6.8% per product innovations
year) than competitors
(Wrigley)
b. Strategic Posture - Hershey Trust’s - Hershey Trust’s - history of operating at
Current Mission primary responsibilities are not a financial loss by
Current Objectives responsibility is to to the corp’s other putting
Current Strategies the School (and shareholders employees/Hershey,
Current Policies using money for - not taking full PA’s residents over
the enduring good advantage of lower cost profits
of society) of int’l operations - Hershey School spends
- Hershey Corp’s (because local ~$96k on each student
responsibility to employment is a major annually (room, board,
other concern) etc)
shareholders and
dedication to
Hershey
community in PA
and Hershey
employees
SWOT Analysis Begins
II. Corporate Governance
a. Board of Directors - Hershey Trust - all members of - number of board
Board: 17 people Hershey Trust Board are members of Corp has
- Hershey Corp also Hershey School decreased from 12
Board: 9 members managers members in 1990 (no
(some internal, - Hershey Trust has decreased in Trust’s
some external) controlling interest in Board)
all Hershey Corp
entities
- 1 member of Hershey
Corp Board is also on
Hershey Trust Board
Amy Thompson
Hershey Audit and Creating Shared Value Article

b. Top Management - Major - Hershey Trust owning - 59% of Trust’s assets

shareholder of majority of the voting are in the form of
Hershey Corp is stock is a positive Corp’s stock (~$3.2B)
Hershey Trust (because Corp cannot
(owns 36% of be sold and closed by a
stock and 77% of corporate raider) but
voting stock) also a negative (Corp
cannot do anything
against the interests of
the Trust)
III. External Environment
a. Societal Environment - chocolate (the - chocolate is seen as
major category of “unhealthy” so
Hershey products) consumer consumption
is 55% of the US is stagnating/declining
market)
b. Task Environment - Low threat of - High levels of rivalry - drivers of new growth
new entrants to among competing firms are: developing
the industry leading to increased innovative products
- relatively low acquisitions and with wide consumer
threat of mergers to increase appeal and high selling
bargaining power buying power and lower price; expansion
of buyers and costs of operations through acquisitions;
suppliers due to - High threat from state developing
economy of scale government of PA, local international operations
of Hershey Corp government of the and/or distribution
town of Hershey, and systems
residents of the town to
block sale of stock
- High level of threat of
substitute products in
the market as new
growth is largely from
introduction of
innovative products
(with Wrigley leading
the pack)
IV. Internal Environment
(IFAS)
a. Corporate Structure - Structure (Trust - Hershey Trust controls
controlling 77% of voting rights (so
interests of the decision-making
Corp) is in-line authority on what
with the mission happens to the Corp lies
of Milton Hershey completely in the Trust)
to put the
interests of
Amy Thompson
Hershey Audit and Creating Shared Value Article

society above the

interests of
making money
b. Corporate Culture Disconnect between the
desires of the Trust (to
protect the best
interests of the School)
and the Corp (to make
profits and retain
employees in Hershey,
PA)
c. Corporate Resources
1. Marketing Not enough info to
assess
2. Finance - financial objectives
split between Trust (to
School) and Corp
(mainly to other
shareholders and PA
employees/community)
3. R&D Fewer innovative
products slowed growth
recently as consumers’
tastes shifted to
healthier products
4. Operations & Most operations and
Logistics distribution are in the
US; large local
workforce in Hershey,
PA
5. Human Not enough info to
Resources assess
6. Information Not enough info to
Systems assess
V. Analysis of Strategic
Factors (most important
factors)
a. Key internal and - Performance of Corp
external factors and Trust’s ability to
fund their mission to
the School are
inexorably combined
when >50% of the
Trust’s assets are the
stock in the Corp
Amy Thompson
Hershey Audit and Creating Shared Value Article

b. Review Mission and - mission and objectives

Objectives of Trust and Corp
should be more in-line
- Corp should clearly
define their mission to
determine if they
should act in the best
interests of the School
(Milton Hershey’s
original mission) or to
their employees in the
community
SWOT Analysis Ends.
Recommendation Begins
VI. Alternatives and
Recommendations
a. Strategic Alternatives - Wrigley: - Wrigley: offering was - Loss of licensing of Kit-
–Pros and Cons promised to keep only $5B in cash (the Kat and Rolo from
local jobs; higher other $7.5B was in Nestle would occur
offering than stock); loss of licensing when any change in
Nestle ($12.5B) rights to Kit-Kat and ownership occurred
- Nestle-Cadbury: Rolo estimated at $1B (not enough info to
promised to move - Nestle-Cadbury: determine if this $1B
HQ to Hershey; different strategic loss would still occur if
able to have int’l priorities than Hershey the change in
operations but (more int’l sales and ownership was to
cater to local operations, less focus Nestle, the current
markets to on local employment); owner of the Kit Kat and
maximize sales willing to shut down Rolo brands)
local operations causing
loss of jobs
b. Recommended - divestment - While the Trust’s
Strategy reduces risks of Board believes that the
*Trust should sell loss from volatility sale of their stake in
their shares of of a single stock Hershey as a whole
Hershey Foods stock (Hershey Corp has would garner a higher
to Wrigley* historically premium than selling
outperformed piecemeal, there was
S&P but has had no discussion or further
years of significant info in the article to
loss) substantiate that claim
- Wrigley strategic - Loss of licensing of Kit-
objectives seem Kat and Rolo from
more in-line with Nestle would occur
Hershey’s when any change in
- Wrigley ownership occurred,
committed to resulting in $1B loss
Amy Thompson
Hershey Audit and Creating Shared Value Article

keeping local jobs

and remain
dedicated to the
town of Hershey,
PA
- Increase in int’l
brand recognition
of Hershey as
Wrigley planned
to market their
product overseas
VII. Implementation
VIII. Evaluation and Control

Creating Shared Value Article Summary and Reaction

In their HBR article “Creating Shared Value,” Michael Porter and Mark Kramer argue

that corporations have a responsibility not only to maximize profitability but to also contribute

to the surrounding communities where they sell product or operate production facilities. The

“shared value” of this approach occurs when companies with societal needs in mind also have

greater profitability because of it. I tend to believe that the ultimate responsibility of a business

is to its shareholders rather than to improve the world just because they can. However, Porter

and Kramer’s arguments appeal to me because they frame it in a way that even the most

financially-driven CEO can support: creating sustainable and socially responsible business

practices can directly increase profitability!

While capitalism at its core seems to reward cutthroat business practices at the expense

of society, Porter and Kramer retort that the long-term consequences of such actions serve only

to limit growth of corporations. As an example, in the past corporations could decrease

operating costs by polluting the environment (rather than expensively disposing of waste
Amy Thompson
Hershey Audit and Creating Shared Value Article

products in an environmentally-friendly way), so that is what many corporations did. Only when

the costs of polluting became too high (through laws and regulations with hefty fines for

noncompliance) did many businesses change their waste disposal practices. Porter and Kramer

contend that corporations that “do what’s right” for the wider society (rather than solely for

shareholders) increase their profitability as a consequence of improving operational

efficiencies, creating innovative products with high consumer appeal, and creating a

competitive advantage over backward-thinking competitors.

Corporate Social Responsibility is a concept that many corporations now follow, but it

seems to be more of an add-on rather than a strategic intent. Porter and Kramer believe that

social responsibility must be an integral part of how a business operates in order to create

shared value. It is vital that executive leadership keep sustainability and societal/environmental

needs in mind when setting their vision and mission for the company. By improving their local

communities, capabilities of suppliers, and the environment as a whole, businesses can be

economically and socially responsible (and profitable).