British American Tobacco: Evolution in a challenging new world

The British American Tobacco (BAT) story is a long and arduous one, with a myriad of enormous challenges since the company was first launched back in 1902. But the two elements that have helped to keep the business so hugely successful have been innovation and adaptability.

Despite the global health backlash and an illegal tobacco industry to confront, in February of 2015 BAT’s share price on the JSE rose to a record high.

The company remains at the forefront of pioneering production technology and is still one of the world’s leading tobacco groups, with more than 200 brands sold in over 180 markets, utilising 44 cigarette factories in 39 countries, and a global workforce exceding 55,000 people as of early February 2014.

british-american-tobacco-plantBack at that point in time, Bernd Meyer, Group Head of Supply Chain, spoke to Business Excellence Magazine about the importance of adapting to a changing environment. He was well placed to do so, having successfully transformed South Africa’s Heidelberg cigarette factory from an underperforming operation based on manual labour to a highly automated and high performing state-of-the-art factory.

“As you can imagine, taking on what was my first global role in 2011 as Global Head of Plan, Logistics and Service involved quite a significant culture change for me, as before my focus was centred on a particular region and area, Southern Africa. What you appreciate first and foremost is the sheer scope of the work at hand. This inevitably means that instead of having a hand in every little detail on an area level, the scale of the global task now requires the need to adopt a matrix management structure of working. This remains the case when it comes to my role as Group Head of Supply Chain.”

Given the sheer size of BAT, delivering change is anything but a straight forward process, but it was a challenge that Meyer took on with relish as he explained:

“We have a situation within the organisation where we have different regions undertaking certain processes in different ways. While this can be the right thing to do in some isolated instances, in most cases it proves more efficient to apply the same standards globally, thus creating synergies for the business. One significant example would be having one shared methodology behind how we calculate and determine inventory levels, or on a bigger scale how we apply manufacturing, logistics and procurement processes in our factories and supply chains. This is just two instances among many where I believe bringing agreed processes and solutions into British American Tobacco’s global supply chain can benefit the business both in the short and long term.”

But whilst an efficient supply chain is a key component to a successful business, at BAT, innovation has remained another imperative, as Meyer explained in his 2014 interview:

“We are trying to focus more and more on big ticket items, rolling out big innovations faster at a larger pace. Instead of trying to invent something in a single end market, what we are doing now involves developing innovations and creating products that we can roll out with speed, while making full use of our global presence. Such an approach didn’t exist in the past, but what it shows is how we are increasingly thinking globally about what is right for the Group.”

Just a month later BAT launched its 2013 Sustainability Report, in which the CEO Nicandro Durante discussed the challenges that the business faces – and the way forward for a long and profitable future.

“It’s about making sure we continue to get the basics right, such as providing consumers with the products they want, marketing them responsibly, and supporting the farmers and communities where we work.

cigarette-factory“It’s about creating shared value and making sure that what we do as a business doesn’t just benefit our shareholders, but can also have a much wider, positive impact for society.”

Durante also tackled the issue of e-cigarettes full-on:

“It’s been shown that tobacco smoke, not nicotine, causes most smoking-related diseases. So if you cut out the smoke, you can

make a huge difference to public health. Lots of smokers want alternatives to conventional cigarettes. They still enjoy nicotine and want an experience that’s close to the ‘real thing’. We’re meeting that demand and urging regulators and public health experts to look at e-cigarettes and other less risky, alternative products with an open mind. I’m convinced that if we work together, we will all see that promoting harm reduction as a key public health policy objective makes good sense.

“Of course, emphasising harm reduction is the responsible thing to do, but if it helps us to meet genuine consumer demand, it also makes commercial sense. It’s what any sustainable business would do.”

Of course the emergence of the e-cigarette has implications for BAT’s traditional tobacco business, but Durante reassures that this will not have an adverse effect:

“First and foremost, we are a tobacco company, with more than 100 years’ experience of producing and selling high-quality tobacco products. That’s not going to change. But we can bring our specialist knowledge and scientific expertise into next-generation products, too.

“Some consumers will continue to choose to smoke so we are committed to providing a quality product they will enjoy, while continuing our research into areas such as reduced toxicant cigarettes. That means tobacco leaf has a huge part to play, both in our traditional products and in some new, innovative ones. The farmers who supply our tobacco leaf are still the most important part of our supply chain. We want them to be successful, which is why supporting them and their communities remains a clear focus.”

Durante sees his company operating in a changeable market but in his statement remains very optimistic for the future of BAT: “While we’ll continue to explore the opportunities that innovative tobacco and nicotine products can bring to improve public health, we won’t stop making sure we get the basics right, like being transparent and acting with integrity wherever we operate.

“I believe we’re making real progress in delivering on our commitments to society. I hope you’ll agree.”