Exam case study: Divine Chocolate and Kuapa Kokoo (Case Date 2008)

Order Description

Module: Operations and Strategy.

Operations and Strategy

PGBS0123

Part A – Operations
Part B – Strategy

Module Introduction
The purpose of this module is to develop an understanding of the role of operations and strategic management in facilitating enterprise development.  It provides a

comprehensive understanding of Operations Management at strategic, tactical and operational level within the Service and Non-service sectors of industry. It deals with

the major themes within the Operations Management arena and equips participants with the ability to evaluate and recommend appropriate organisational responses to

operations issues. The module also introduces key strategic issues and frameworks and develops students’ abilities in applying appropriate analytical techniques used

in strategic decision-making. The module will use case studies to provide an integrative perspective on business development.

Module Aims
To develop an understanding of Operations Management and the concepts of enterprise and strategy. To apply appropriate methodologies and techniques to the analysis of

operational and strategic issues and problems. To develop an understanding of the cross-disciplinary integrative nature of the subject material. To use the principles

covered in the course to analyse issues in a variety of markets and contexts. To introduce the case study method.

Learning Outcomes

ASSESSED LEARNING OUTCOMES:  At the end of a module the learner will be expected to be able to:
•    Appraise and evaluate theoretical approaches to Operations and the relevance of such approaches in the work environment.
•    Develop an understanding of Quality Management, Performance Measurement, Resource and Project Planning as applicable to operations in the service and non-

service environment.
•    Demonstrate an ability to synthesise and to critically assess different perspectives on enterprise strategy.
•    Appreciate the strategic significance of value creation and competitive advantage.
•    Select and apply appropriate techniques of strategy analysis to obtain useful strategic insights.
•    Convert strategic analysis and vision into strategies appropriate to the operational context of the enterprise
•    Understand and critically assess alternative approaches to entrepreneurial behaviour and innovation.
•    Effectively communicate and present the results of analysis.

Module Assessment Criteria
•    Display evidence of understanding of relevant operations and/or strategy concepts, theories and issues
•    Demonstrate critical application of the above
•    Demonstrate collection and sound use of relevant information (e.g. objective rather than descriptive analysis which illuminates issues)
•    Provide a coherent and structured argument
•    Conclusions/recommendations should be well supported and substantiated
•    Demonstrate, professional quality submission and presentation
•    Provide evidence of general reading

Part A – Operations

Reading

Core text:
Slack et al (2013) Operations Management (7th Edition) FT Prentice Hall, London

Supplementary Text:
Jones, P and Robinson, P. (2012) Operations Management, Oxford University Press

Further Reading:
•    Johnston & Clark (2012) Service Operations Management (4th Edition), Pearson Education.
•    Stevenson, W (2008) Operations Management (10th Edition), McGraw Hill.
•    Van Looy et al (2003) Services Management (2nd Edition), Pitman Publishing.
•    Hill, T. (2005) Operations Management (2nd Edition), Palgrave Macmillan.
•    Jick & Peiperl (2002) Managing Change, Text & Cases (2nd Edition), McGraw Hill.

Journals:
•    International Journal of Operations and Production Management
•    Journal of Operations Management.
•    Harvard Business Review
•    Production Planning & Control
•    Management Decision

Operations Teaching Outline
To maximise the value of the lecture sessions, you need to undertake the specified preparation / reading in advance.
Week    Date:    Lecture    Preparation / Reading
25    13th Jan        Intro to Operations and the module    N/A
26    20th Jan    Operations Strategy
Slack Chapters 1-3 / Ferdows,K. & De Meyer, A. (1990) “Lasting Improvements in Manufacturing Performance: In Search of a New Theory,” Journal of Operations

Management, Vol 9, No 2, pp168-184.
27    27th Jan    Customer Focused Operations    Slack Chapters 4+5
28    3rd Feb    Capacity Planning    Slack Chapter 11 / Schmenner, R. & Swink, M. (1998). On theory in operations management,” Journal of Operations Management, Vol

17, No 1, pp97–113.
29    Reading week (no Lecture)
30    17th Feb    Managing Change    Slack Chapter 20
31    24th Feb    Supply chain management    Slack Chapters 6 +13
32    3rd Mar    Lean and Just-In-Time    Slack Chapters 12+15 / McDermott, C. Greis, G. & Fischer, W. (1997) “The Diminishing Utility of the Product/Process Matrix,

International Journal of Operations and Production Management, Vol 17, No 1, pp65-84.
33    10th Mar    Total Quality Management    Slack Chapters 17+18 / Zu, X. Fredendall, L. & Douglas, T. (2008) “The evolving theory of quality management:

The role of Six Sigma” Journal of Operations Management, Vol 26, No 5,  pp630-650.
34    17th Mar    Revision Session    N/A
35    25th Mar    End of Module Test (Ops & Strat)    N/A

Part B – Strategy

Reading

The core texts for this part of the module are Johnson, G. Whittington, R., and Scholes, K., Angwin D., and Regner, P (2014), Exploring Strategy: Text and

Cases, (10th Edition). Prentice Hall, (Please note the order of the authors may be different on the website) Or Grant, R., (2013) Contemporary Strategy Analysis, 8th

Edition, Blackwell.

The texts examine the relevant concepts and provide practical examples and relevant exercises. It is strongly recommended that all participants purchase a copy

of one of these books from The University Bookseller.

In addition, it is suggested that you make use of the University Library to read more widely around the subject.  Some useful titles available include:

•    Barney, J.B. and Hesterly, W.S., (2012) Competitive Management and Competitive Advantage, (4th Edition), Pearson.
•    Clegg, SR,  Carter, C,  Kornberger, M and Schweitzer J, (2011), Strategy
Theory and Practice, Sage.
•    Hamel, G. and Prahalad, C.K., (1994) Competing for the Future, Harvard Business Press.
•    Jarazabkowski, P, (2005) Strategy as Practice, Sage.
•    Kay, J. A., (1993) Foundations of Corporate Success: How Business Strategies Add Value, Oxford University Press.
•    Lynch, R., (2012) Strategic Management, (6th Edition), Pearson.
•    Mintzberg, H., Quinn, J.B., and Ghoshal, S.,(2003) The Strategy Process: Concepts, Contexts, Cases, Prentice Hall.
•    Mintzberg, H., Lampel, J. and Ahlstrand, W., (1998) Strategy Safari: A Guided Tour Through the Wilds Of Strategic Management, Prentice Hall.
•    Porter, M., (2004) Competitive Advantage: techniques for analyzing industries and competitors, New York: Free Press.
Journals
Articles on strategic management are found in both specialist journals and in general management journals. For example:

•    Academy of Management Review
•    Journal of Management Studies
•    Strategic Management Journal
•    Long Range Planning
•    Sloan Management Review
•    British Journal of Management
News papers
Business news often has a strategic angle.  You should be reading the business section of a quality UK paper i.e. Guardian, Independent, Telegraph or Times.

More detail is usually available in the Financial Times.  Or an overseas publication eg Wall Street Journal.

Strategy Teaching Programme
Week    W/C    Lectures    Core Text(s) Reading    Seminar Activities
25    13th Jan    Introduction and Business Environment    Grant Ch1 and p. 64-5.
J et al Ch1 and pp.49-54    Module booklet and short case
26    19th Jan    Market and Competitor Analysis     Grant Ch3 and 4
J et al pp.54-76    Produce a PEST and key external drivers for Apple
27    26th Jan    Internal Analysis    Grant Ch 5 and 6
J et al Ch 3     Using Five forces review an industry you are familiar with. You shoud also gather data in the profitability of firms in that industry. This works best

if students work in groups of about 4.
28    2nd Feb    Expectations, Stakeholders, and SWOT    Grant Ch 6, pp.12-13 and 35-37.
J et al pp.
106-8, 123- 148 & Ch 5    Tower Game – no preparation required
29    9rd Feb    Reading Week    –    –
30    16th Feb    Competitive Advantage, Vision, which market and where within it?    Grant pp. 20-21 and Ch 8, 9 and 10.
J et al pp. 120-123, Chapter 6
J et al cases p.116 (News Corporation) and p.149 (Project management: UK and Chinese perspectives)

31    23th Feb    Products, Geographical & Value Chain Scope and
Tools for pursuing Strategy    Grant Ch 13,14 and 15
J et al Ch 6, 7 & 10    Alpha Motors Ltd.
Case available from the Portal. Produce an Internal and External Analysis for Alpha.
32    2nd March    Evaluation and Implementation    Grant Ch 7
J et al Ch 11 and 14    RyanAir Case Part One J, W and S 612-624.
External and Internal Analysis.
33    9th  March    Strategic Planning Society Guest Speaker         RyanAir Case Part Two SWOT, Competitive Advantage and Mission
34    16th March    Revision session
–    RyanAir Case Part Three, choosen market, position within, product geographical and vaule chain scope, innovation, evaluation (option choice and

implementation).
35    23rd  March    Test Wednesday 25th March 15:15 – 16:45. in the Main Hall.    –    –
J et al = Johnson, G. Whittington, R., and Scholes, K., Angwin D., and Regner, P (2014), Exploring Strategy: Text and Cases, (10th Edition). .

INSTRUCTIONS TO CANDIDATES
Answer TWO Questions:
ONE from Section A and ONE from Section B
Case Study: Divine Chocolate and Kuapa Kokoo distributed to students via Module
Moodle page on 6th March 2015. NB you should not carry out any further research
on Kuapa Kokoo or Divine Chocolate; the material in the case is all you need.
However, it is understood that students already have knowledge of the general
business environment which they bring to their work and will, when relevant, form
part of their work.
Candidates should answer questions in a report writing style and address issues
raised in the context of the period of the case. Please answer each question in a
different answer booklet.
Candidates are permitted to bring in an annotated PAPER copy of the previously
distributed case study. NO other material, paper based or electronic, is allowed.
Candidates must not alter the format of the uploaded case.
The case study must be left in the examination room with the candidate’s completed
script.
Please note all mobile phones and other electronic communications devices should
be switched off and not be placed on your desk. Students are required to bring their
University identity card to the test and place it on their desk.
2
Divine Chocolate and Kuapa Kokoo (Case Date 2008)
Cocoa has been grown in Ghana since the mid 19th Century. It was first
exported at the end of the 19th century, and between 1911 – 1976 Ghana was
the world’s leading producer, contributing between 30-40% of the world’ s total
output. There are currently around 1.6 million people involved in growing
cocoa and many more in associated industries.
Ghana and Cocoa
Due to the importance of cocoa in Ghana, both in terms of its effect over the lives of
these cocoa farmers and to the Ghanaian economy, the government of the 1930s
took over control of the industry. They set up a buying monopoly for all the cocoa
produced in Ghana. This body, first under colonial control and then the independent
Ghanaian government, was intended to protect the farmers from price fluctuations.
Whilst it failed to really ensure a better price to the farmers, they did receive
additional help from the other bodies set up by the government body (now known as
Cocobod) such as a Research Institute, subsidised inputs such as fertilisers and a
Quality Control Division. It is these services that, in part, have preserved Ghana’s
reputation for high quality cocoa.
In the late 1970s the world market price for cocoa plummeted by two thirds.
Ghanaian cocoa farmers were getting less than 40% of the world market price from
Cocobod and so many stopped producing cocoa altogether. The situation worsened
after the droughts and accompanying bush fires of the early 1980s and production in
Ghana fell from a third of the world’s total in 1972 to just 12% of total world
production. At this stage the World Bank and International Monetary Fund intervened
with a Structural Adjustment Programme to “rescue” the economy. Although this
programme has had quite a negative effect on the lives of the farmers, through the
increase in the cost of living and farming inputs, it did include a partial reform of the
internal cocoa market. The liberalisation process included granting private
companies licenses allowing them to trade cocoa.
Getting it Together
In order to combat the threat of the farmers losing out during the liberalisation of the
cocoa market in 1993, a number of leading farmers, came to realise that they had
the opportunity to organize themselves to take on the internal marketing function.
This would mean that they could set up a company to sell their own cocoa to the
Cocoa Marketing Company (CMC), the state-owned company that would continue to
be the single exporter of Ghana cocoa.
These farmers pooled resources to set up Kuapa Kokoo, a farmers’ co-op, which
would trade its own cocoa, and thus manage the selling process more efficiently than
the government cocoa agents. Kuapa Kokoo – which means good cocoa growers –
has a mission to:
• increase power and representation within the market for the farmers
• enable social, economic and political empowerment
• enhance women’s participation in all its affairs
• operate environmentally sustainable production processes
3
The farmers who set up Kuapa Kokoo, were supported by Twin Trading, the fair
trade company that puts the coffee into Cafédirect, and SNV, a Dutch NGO.
Pa Pa Paa – The Best of the Best
Cocoa from Ghana is of a high quality and trades at a premium on the world market.
Kuapa Kokoo’s motto is pa pa paa – which means the best of the best in the local Twi
language. Kuapa’s premium quality cocoa is now sold to chocolate companies
around the world.
Doing the Decent Thing
Kuapa Kokoo weighs, bags and transports the cocoa to market and carries out all
the necessary legal paperwork for its members. It strives to ensure that all its
activities are transparent, accountable and democratic. Member farmers are no
longer cheated as they were by other cocoa buying companies. For example Kuapa
Kokoo has a strong reputation for using accurate weighing scales and using scales
that are understood by illiterate farmers. The farmers are encouraged to check the
scales against things of a known weight. Kuapa has commissioned the production of
“weight stone”, equivalent to a full, single sack of cocoa which are carried in Kuapa
Kokoo vehicles and operations staff carry out official random checks to ensure the
village recorder is using accurate scales.
Kuapa prides itself on its democratic nature and all decisions affecting the farmers
are taken by elected representatives.
Efficient operating practices
Kuapa has created operating methods which are extremely cost efficient, for
example it trains its own members to carry out processes such as the weighing and
bagging of the cocoa. Not only does this mean that the farmers benefit by learning
additional skills but these internal efficiencies means that Kuapa can pay the farmers
more per sack than other buying agents.
At the end of each year, the farmers are paid a cash bonus on a per sack basis. This
comes from money gained from their efficient practices and the fact that all the
profits are returned to the farmers themselves.
In 1996 it was decided that credit sales should be publicly recognised and promoted
given their significant contribution to Kuapa Kokoo’s financial performance. When
Kuapa takes delivery of a farmer’s cocoa, traditionally the farmer was paid
immediately. This meant Kuapa had to borrow money, often with rates as high as
30%, to finance this until it received its own payment from the government monopoly
buyer, Cocobod. Under the deferred payment system, if the farmer agrees to wait for
payment until Kuapa is credited for the sale, Kuapa will pass on some of the money
saved from the interest which would have been payable on the loan. Often whole
villages will agree to defer payment, and so the entire community can benefit from
this extra income.
Kuapa also buys items such as agricultural tools at bulk purchasing rates, again
4
passing these savings onto the farmers. Village societies that have performed
particularly well, either on the basis of their operating practices or good
management, are rewarded at the AGM with items such as machetes or gum boots
for use by the whole village. After seeing the benefits Kuapa gains for its members,
more and more farmers have joined and the association now has upwards of 40,000
members organised in approximately 1300 village societies.
The Fairtrade market
Kuapa Kokoo sell a proportion of their yearly output to the European Fairtrade
market. This means that, providing their production methods meet internationally
audited conditions regarding, for example, minimum health and safety conditions and
that the organisation is democratically run, the producers receive a guaranteed price
for their goods and the security of long-term trading contracts. In the case of cocoa,
recent prices on the world market price have fallen as low as $1000. In comparison,
on the fair trade market they receive $1600 per tonne, plus an extra $150. Even if
the world market price reached $1600, the Fairtrade price would still include the
extra $150 on top of the world market price.
The Body Shop buys cocoa butter made from Kuapa’s cocoa and includes it in 26
products including its Africa Spa range and Traidcraft also use cocoa from Kuapa in
some of their products. In total, Kuapa sold 1800 tonnes of its produce to the Fair
Trade market last year. That represents just over 3% of last year’s produce.
The Day Chocolate Company
The cocoa farmers, who were already getting a Fairtrade price from some
international customers, voted at their 1997 AGM to invest in a chocolate bar of their
own. They decided that rather than aiming for the niche market where most Fairtrade
products were placed, they would aim to produce a mainstream chocolate bar to
compete with other major brands in UK.
In October 1998 Twin Trading and Kuapa Kokoo came together, along with The
Body Shop and, supported by Christian Aid and Comic Relief, founded The Day
Chocolate Company. The company was named in memory of Richard Day, a key
member of the Twin team that worked closely with Kuapa Kokoo and who sadly died
before seeing the chocolate company coming to fruition. The Department for
International Development pulled out all the stops to guarantee Day’s business loan,
and NatWest offered sympathetic banking facilities.
Business Strategy
The overall strategic aim of The Day Chocolate Company was to improve the
livelihood of smallholder cocoa producers in West Africa by establishing their own
dynamic branded proposition in the UK chocolate market, thus putting them higher
up the value chain, and to be the leading Fairtrade Chocolate Company.
5
The Divine Chocolate mission
To achieve this mission a range of clear intermediate objectives were set out:
• To take a quality and affordable range of Fairtrade chocolate into the UK
mainstream market.
• To pay a Fairtrade price for all the cocoa used in the chocolate sold.
• To raise awareness of fair trade issues among UK retailers and consumers of
all age groups.
• To be highly visible and vocal in the chocolate sector and thereby act as a
catalyst for change.
Simply Divine
Divine Fairtrade milk chocolate, made from Kuapa’s best of the best fairly traded
cocoa beans was launched in October 1998 and by Christmas 1998, had made it
onto the supermarket shelves .
A first for Fairtrade
The farmers’ ownership stake in The Day Chocolate Company, a first in the fair trade
world, means that Kuapa Kokoo has a meaningful input into decisions about how
Divine is produced and sold. As shareholders, the farmers also receive a share of
the profits from the sale of Divine. Two elected farmer representatives sit on the
company board and a board meeting is held in Ghana every year. This innovative
company structure was recognised when it was awarded Millennium Product status.
In July 2006 The Body Shop handed their shares to Kuapa Kokoo, so the
cooperative now owns nearly half of the company. Then, in January 2007, the Board
made the decision to change the company name to Divine Chocolate Ltd, to more
closely align the company with the flagship brand, and the brand itself experienced a
major redesign. On February 14th 2007 the launch of Divine Chocolate Inc in the
USA was announced.
Beans mean Business
In a ferociously competitive chocolate market worth
almost £4 billion in the UK alone, being the new bar on
the block was a daunting prospect. But as so many
people adore chocolate, the potential for Divine’s
success was huge. There are hundreds of chocolate
brands available in the UK, and the biggest companies
spend up to 10% of their profit margins – tens of millions of pounds – in their fight to
retain their brands’ positions in the Chocolate Top Ten.
Divine has been developed to appeal to the British public’s palate, and it tests
favourably against all the market leaders. The UK has one of the highest per capita
levels of consumption of chocolate in the world and, therefore, even capturing a
small proportion of this market translates into real benefits for cocoa farmers.
6
Growing the cocoa
The cocoa for Divine chocolate is grown in the southern regions of Ghana by Kuapa
Kokoo. Cocoa is usually grown on small plots of land although there are some
plantations being established in Asia. In Ghana plantations did not take hold and
account for only 1% of cocoa production there. Most
Ghanaian cocoa is grown on small family farms,
typically of between 2-3 hectares. It is usually
intercropped with other plants and trees, such as
plantains (part of the banana family), maize and
spices. These not only provide shade whilst the young
cocoa is growing but can also provide up to 65% of the
family’s own food supply, as well as additional income.
Cocoa trees grow to between 12 to 15 metres high,
and it is about 3-4 years before the flowers first
appear. The tiny blossoms are so intricate that insects have difficulty finding their
way inside to fertilise the pollen. Because this vital journey to reach the flowers’
stamen is so difficult, out of the 10,000 blossoms produced by each tree, only about
20 – 30 are pollinated and become cocoa pods. Each pod contains about 40 seeds
which become cocoa beans. It takes one tree’s whole crop for the year to make three
big bars of Divine.
Most species of cocoa tree produce two crops per year. The cocoa pods ripen and
are ready for harvesting around 5 to 6 months after pollination. In Ghana, the main
harvest (70 % of the year’s crop) is between October and January, with a smaller,
secondary crop ready in June. The giant pods, which look like yellow rugby balls,
grow straight out of the trunk and branches of the tree.
Harvesting, fermenting and drying the beans
The harvest time is crucial if good quality beans are to be produced. If the pods are
too ripe they are vulnerable to disease, or the beans might start to germinate.
However, if the pods are too green the cocoa beans will be of very poor quality,
because not enough of the ‘aromatics’ which produce the familiar cocoa flavour are
produced.
Harvesting is very labour intensive; first, the farmers cut the pods from the trees,
which has to be done carefully in order to avoid damaging the rest of the tree. The
pods are then split open with huge sharp bladed knives and the slimy pulp containing
the beans is scraped out. Again this needs to be done precisely in order not to
damage the beans. There have been attempts to develop machines to undertake
this work, but mechanised cutting systems often damage the cocoa beans and so
are not widely used.
Once harvested, the beans undergo a two-stage
process to prepare them for sale: fermentation and
drying. These processes begin the transition from bitter
cocoa bean to what eventually ends up as the taste we
all love in chocolate bars.
7
Fermentation is a vital step in developing the cocoa
bean’s ‘aromatics’. They are heaped up on dark green
plantain leaves and then the leaves are wrapped
around them. These “parcels” are left in the heat for 5-
8 days to ferment. The fleshy pulp which holds the
beans inside the pod is crucial to the development of
the cocoa flavour – this pulp holds the sugars, acids
and yeasts which kick-start the fermentation process.
As fermentation progresses, the temperature inside
the heap increases, this removes the germinating power from the bean, the pulp
turns to liquid and drains away and the organic compounds in the bean start to
change to the colour and flavour that we associate with chocolate.
Finally the beans are dried. They are spread out on
large tables in the sun and turned regularly to ensure
they dry evenly and do not stick together. The drying
process takes about 5-12 days and in this time the
moisture content is reduced from 60% to less than 8%.
The beans are hand sorted, graded and packed into
jute bags weighing 62.54 kg. These are stored in
ventilated warehouses prior to being transported for
sale.
The Kuapa Kokoo farmers carry out all the processes described above. Each farmer
will harvest and ferment his or her beans and the drying is done on large tables used
by the whole village. Each Kuapa village society has a local recorder who is
responsible for collecting and weighing the dried
beans and ensuring that their quality is high enough to
sell. He is also responsible for arranging for Kuapa to
send transport to collect the beans; he receives
payment from Kuapa and distributes the payment to
the farmers.
Kuapa then transports the bagged cocoa beans to
warehouses at the port in Tema, near Accra, Ghana’s
capital. At this point Cocobod, the Government agency
with responsibility for the export and international sales of all the cocoa beans from
Ghana, buys the beans from Kuapa. The beans are then shipped by a Dutch
importer to Europe, where the dry, hard cocoa beans are transformed into
scrumptious, luxuriously melting chocolate.
There are no additional charges to the farmers for outsourcing the chocolate
manufacturing process, but additional trade tariffs and investment in machinery and
equipment would have to be made by Kuapa Kokoo, if they were to manufacture the
chocolate themselves. This is why, at present, the processing for Divine chocolate is
carried out in Holland.
8
Primary Manufacturing
The cocoa beans are sorted and cleaned and then
roasted at between 120ºC – 149ºC. The roasting
develops the colour and is the second stage in the
development of the chocolate flavour that began
during fermentation on the cocoa farm. After roasting,
the beans are crushed to release the internal “nib”
from the shells. They are then blown through an air
tunnel. This winnowing process blows the shell
fragments up and away from the cocoa nibs. The nibs are then ground into a thick
brown liquid called cocoa mass. This is made up of rich cocoa butter (55-60%) with
fine cocoa particles suspended in it. The cocoa mass is then heavily pressed until
the cocoa butter is squeezed out, and it is separated into cocoa powder and cocoa
butter. The cocoa powder can then be used in chocolate drinks, confectionary and
cooking.
The equipment in the factory is heavy, large and complex, representing an
investment of millions of pounds. Very close control is maintained in the factory
throughout the production process. Precision instruments regulate temperature,
stabilise the moisture content of the air, and control the time intervals of
manufacturing operations needed to give quality results. The highly mechanised
nature of the chocolate-making process contributes to the industry’s strict hygiene
and sanitation standards. Quality tests are carried out to closely monitor and check
on these standards and show whether the process is being carried out within the
pre-set product and production limits. These tests cover viscosity, cocoa butter
content, acidity, quality of product, purity and taste.
Secondary Manufacturing
Cocoa butter and cocoa mass are combined in varying proportions and the sugar
and milk for milk chocolate is added. This mixture is then stirred continuously over
several days in a process called conching which gives the finished