XLRI BUSINESS MANGEMENT 2011-13

STRATEGIC

MANAGEMENT PROJECT REPORT ON KRAFT FOODS

SUBMITTED BY:-

GROUP 13 BM-B

BHANU PRAKASH REDDY B11074

KUNAL SINGH B11089

ROHIT SURI B11104

VRAJESH SHAH B11121

Contents Introduction .................................................................................................................................................. 2

SWOT Analysis........................................................................................................................................... 3

External Environment ................................................................................................................................ 4

The Macro Environment ........................................................................................................................ 4

The Micro Environment ......................................................................................................................... 5

Industry trends ........................................................................................................................................ 6

Porter’s National Diamond for Kraft .................................................................................................. 7

Vision and Values....................................................................................................................................... 8

Customers ................................................................................................................................................... 9

Kraft’s Corporate Strategies ................................................................................................................ 10

Business level Strategy ....................................................................................................................... 11

Value Chain ........................................................................................................................................... 11

Managing Growth at Kraft Foods ............................................................................................................... 12

Acquisitions ................................................................................................................................................ 13

Kraft-Cadbury ......................................................................................................................................... 14

International Strategy .................................................................................................................................. 15

Organization structure and Integration ....................................................................................................... 17

The post-merger Culture ............................................................................................................................. 17

Integration and success: .............................................................................................................................. 18

Kraft View .............................................................................................................................................. 19

Cadbury View ......................................................................................................................................... 19

Success so far .......................................................................................................................................... 20

Oreo ........................................................................................................................................................ 20

Core Chocolate business ......................................................................................................................... 20

The Expensive Kraft Split ........................................................................................................................... 20

The Way Ahead ........................................................................................................................................ 21

Brands and positioning ........................................................................................................................... 21

Understanding the Emerging markets ..................................................................................................... 21

The inevitable-revenues focus ................................................................................................................ 21

Kraft's -Leadership .................................................................................................................................. 21

Cadbury's-Leadership ............................................................................................................................. 21

Introduction

The firm Kraft Foods was formed in 1923 with a view to consolidate the ice cream industry in the

United States which was pretty fragmented at that time. However, through a number of

acquisitions, it expanded and its product portfolio included a wide range of dairy products. In this

manner, it became the world’s and United States’ largest dairy company only within a matter of

8 years (that is by 1930).

It was in 1909 that James L. Kraft started a cheese business under the name of J.L. Kraft and

Bros. Company in Chicago. Their strategies included extensive product development and

marketing through which they started selling 31 varieties of cheese in the U.S.

The National Dairy Products Corporation, which was how Kraft Foods was known then, was

formed as a result of a merger Rieck McJunkin Dairy of Pittsburgh, Pennsylvania with

McInnerney's Hydrox. It was listed on the New York Stock Exchange and its acquisitions were

done through stock instead of cash. In the 1950s, the company started diversifying into the

confectionary businesses like candies, macaroni and margarines as commodity dairy products

started becoming low value added. The extent of diversification is signified by the fact that it

also ventured into the business of glass-packaging with the Metro Glass acquisition. This

continued even into the 1960s as the company forayed into markets worldwide through

acquisitions. The name of the company was changed to Kraft in 1969 which was followed by

reorganization in the structure. Marketing and advertising of the products has always remained

one of the focus points at Kraft Foods. This is what the organization has heavily relied on for the

sale of their products across the world.

The company has several product offerings in cheese, confectionery, snack foods, dairy foods,

convenience foods and beverage segments with its products being marketed in over 170

countries. Kraft’s brand portfolio has 12 brands with revenues of over $1bilion with 50 other

brands providing revenues exceeding $100 million. Around 80% of these revenues come from

brands which are leaders in terms of market share. Kraft has expanded into various product

domains and also into different markets worldwide primarily with the help of acquisitions and

mergers only. This seems to be the organization’s most adopted way of expanding their

operations and introducing different products from their portfolio into the local markets. As of

2010 the company, headquartered in Northfield Illinois, had revenues of US $ 49.2 billion with

127000 employees worldwide.

Kraft has also faced various fallouts in the numerous acquisition deals it has taken up in the

past. A similar kind of fallout was also experienced after it acquired Cadbury also. Typically

mergers and acquisitions result in a high amount of implementation and integration costs which

are expected to be offset by the gain from synergies. However, estimation errors are

unavoidable as it is very difficult to predict he exact roadmap of how the deal would turn out.

Empirical data suggests that value added through an acquisition is always less than what is

expected at the time of the deal.

Following the poor performance of the company’s shares and criticism from its stakeholders, the

company has announced a split in 2011in to two separate entities. Kraft Foods will continue to

run the North American foods business while the new entity tentatively named as Mondelez

International will focus on the Global snacks brands including Cadbury.

SWOT Analysis

Here is a SWOT Analysis of Kraft Foods.

STRENGTHS

World’s second largest food

company; Global Presence

Powerful and iconic brands

Innovation

Robust distribution network

Strong R&D capability

WEAKNESSES

Market Share

Competition

Debt requirements

Geographic Concentration

Cost Control

Decline in Profitability

OPPORTUNITIES

Expansion in developing markets

Explore Cadbury Markets

Repositioning

Strategic Agreement and

Partnerships

Offer Organic Products

THREATS

Weak GDP rebound

Aggressive competitor, retailer

brand promotion tactics

Fluctuating prices of raw

materials

Low consumer confidence

External Environment

The Macro Environment

For a firm involved in catering directly to the consumers, the external environment plays a very

significant role in its operations and planning. It is imperative for the firm’s strategy makers to

factor in the uncertainty caused as a result of this dynamic nature of the external environment.

Let’s take a look at the macro environmental factors affecting Kraft Foods through the PESTEL

framework.

Political: From a US perspective, the political environment is favorable for Kraft Foods. For

several decades the company has been participating in initiatives of political and social

relevance. They support political candidates who are involved in drafting government policies

relating to the company’s business and brands. Kraftpac, a political action committee started by

the company provides corporate contributions to political parties and candidates in the federal

and state government within the legal ambit. 1However, as was seen with Cadbury, acquisition

attempts of foreign companies may bring about strong opposition from the local governments.

Economic: Food and Beverages industry is non-cyclical in nature and hence is not impacted by

broader economic conditions to a high degree. Still, Kraft Foods may feel the strain of tough

economic conditions as some of its brands are targeted towards the premium segment. Tough

economic conditions notwithstanding, the company has been able to deliver impressive financial

results by investing in their heritage and ‘power’ brands across both grocery and snacks

markets in order to deliver a winning product mix. The acquisition of Cadbury has opened up

opportunities to expand in to the developing markets like India and Brazil which makes the

company ideally placed to sustain its impressive economic performance. However, things like

exchange rate fluctuations would have an impact as the company is involved in operations

across multiple geographies.

Social & Environmental: Kraft Foods committed itself to focus on products, policies and

partnerships to bring about a real difference in challenging areas of social concern like health

and well-being of its consumers. The company has helped found Healthy Weight Commitment

Foundation in 2009 in order to help reduce obesity in the US. They have actively introduced

healthier product offerings which have whole grains, fiber and micronutrients while cutting down

on harmful sodium, fat, salts and calories. They have implemented policies on responsible

1 http://www.kraftfoodscompany.com/investor/corporate-governance/politicalcontributions.aspx

marketing, nutritional awareness and education which are critical to help consumers make

better choices about health and wellbeing2. “The company took initiative to improve the living

standards of more than 1 million farmers with effective partnerships with them. They removed

nearly 6.5 million pounds (3 million kg) of salt from products in 2010 and helped to provide more

than 1 billion servings of food since 1999 in the United States alone” (Ref. CSR wire, 2011).

Technological: Being a capital intensive industry, technology does play a part in making the

company competitive and profitable. Kraft employs the best of technologies in its manufacturing

and distribution systems and exploits the cost advantage with the use of economies of scale

and scope. This gives an edge in terms of quality as well as cost. The company has employed

SAP Netweaver technology platform to ensure effective information and business

transformation strategy within all the business units (FBR, 2008). The company won the ‘Most

Innovative Company’ award in 2008 at the Growth and Innovation Forum held by the Consumer

Goods Technology magazine.

Legal: The Company ensures compliance to all local and international regulatory provisions

governing the food industry like those relating to nutritional information labels, food content,

advertising, packaging, etc. Further, a company like Kraft Foods has to have various

manufacturing locations in various parts of the globe. It employs a large work force which brings

in the angle of labor laws and legalities involved with operating in multiple countries. The

political stability of the countries of its primary focus has a great impact on the business. Along

with the advantages of globalization, the organization also has to face the impact of trade

restrictions.

The Micro Environment

The micro or industry environment is the set of variables which influence a firm’s competitive

actions and responses directly. We shall use Porter’s five forces analysis to determine the

intensity of competition in the industry in which Kraft operates.

Bargaining power of Suppliers: Due to the presence of several local and international players,

the competition in the food and beverage industry is very high. Companies can choose from a

wide variety of suppliers to source its raw materials. Raw materials are often imported from

international suppliers in order to get the best price. As a result, the suppliers do not hold much

power in this industry and they offer competitive prices to stay in business.

2 http://www.kraftfoodscompany.com/SiteCollectionDocuments/pdf/kraftfoods_deliciousworld.pdf

Bargaining power of Buyers: Due to the competitive nature of the market the buyers have the

freedom to switch to sellers who offer acceptable quality product at the lowest prices. Big retail

chains like Wal-Mart utilize their process and distribution efficiencies to achieve economies of

scale and scope to attract the attention of buyers. As a result buyers have high bargaining

power and they extract consumer’s surplus.

Threat of new Entrants: The state of industry is already very competitive with presence of a

large number of players. In this scenario it is very difficult for a new entrant to match the existing

player’s expenditure on branding, R&D, partnerships and scale of production. Without these

internal resources and capabilities it is difficult to cause consumer to switch to a new brand.

Intensity of Rivalry: As mentioned earlier there is high competition on the industry. Companies

establish their market share by inducing brand loyalty among consumers and by ensuring

presence across multiple market segments. In general it is difficult to preserve loyalty from

consumers as they continuously weigh the tradeoff between price and quality. Thus there are

minimal switching costs for the consumer and the products are generally price elastic in nature.

Thus most players in the industry aim to provide good quality at affordable prices. The

importance of brands is supplemented by huge spends on advertising and promotions in order

to counter private label products. Kraft and the other major players undergo frequent

restructuring to stay agile and responsive to consumer needs so that they can develop better

product mix than the competition.

Threat of Substitutes: As the consumer weighs the tradeoff between quality and price of

products there is a medium threat of substitutes. As big retail marts are the primary sales

channel in developed countries the primary threat of substitutes is posed by private label

products. To counter this threat all major players perform major branding exercises to establish

the image of quality in the consumer’s mind.

Industry trends

The current trends in the foods and beverages industry in the US provides good growth

opportunities to established players.

Increased focus on product innovations and offerings in wellness and on-the-move

segments

Shift in consumption pattern in favor of quality products offering value and convenience

High level of interest in healthy and nutritious food

Growing opportunities in the developing markets like Brazil, India and China

Focus on sustainability initiatives like water usage, recycling and power efficiency

Kraft Foods has the resources and internal competencies to exploit these trends in the Foods

and Beverage industry and convert them into profitable business opportunity. The company is

continuously innovating on its product portfolio to come up with product offerings which provide

value to the consumer at affordable prices. Its strong R&D capabilities and decades of

experience in product development enable it to provide a strong line of healthy snacking options

for the health conscious consumer. Its various policy measures and social partnerships

promoting health and wellbeing and environmental consciousness also differentiate it from its

competitors in the mind of the consumer. Finally, with its string of acquisitions, most notably

Cadbury, the company has managed to get a foothold in the developing markets. Here the

company can ride on Cadbury’s brand equity to introduce its powerful brands in other product

categories. For example, in India and Mexico, the strategy is to push Kraft’s marquee brands

Oreos and Lacta chocolate through Cadbury’s established network of mom-and-pop stores.

Porter’s National Diamond for Kraft

We will now analyze the company’s task environment, in the US perspective. The four basic

forces according to the Michael Porter’s National Diamond model are3,

Factor Conditioning: The recent technological advancement in the United States plays

a major role in production of agricultural products, also there are huge skilled labors

available to operate in modern equipment and the capital required for excess production

is easily available.

Intensity of the rivalry: The United States Food Industry is highly competitive, there

are many big players like the Unilever, Frito-Lay, Cargill, Tyson Foods, ConAgra Foods

and Smithfield Foods etc.

Local demand condition: The urban population of United States is high and its always

increasing which is potential market for food industry, also the partnership with firms like

Safeway Store provides additional demand for products of Kraft Foods.

3

http://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CC8QFjAA&url=http%3A%2F%

2Fclassof1.com%2Fhomework-help%2Fsample-

solutions%2FStrategic_analysis_of_Kraft_Foods.docx&ei=1n50T72IDcO8rAfWlM3PDQ&usg=AFQjCNFHruLKh

7H5emZBu6O25Rwy5hJ9kw

Competitiveness of related and supporting industries: The partnership agreements

with firms like Rainforest alliance, Metro group, AOL Time Warner, Bally Total Fitness,

Stewart-Hass racing, and Allreceipts.com etc. provides good opportunities for Kraft

Foods.

Vision and Values

The organization identifies its capabilities, resources and core competencies based on its

analysis of the external and internal environment. These internal resources are the sources of

its “strategic inputs” using which the firm defines its vision, mission and formulates its business

level strategy.

The Vision, mission and values guiding the business strategy of Kraft Foods are:

Vision: Make Today Delicious

Kraft Foods’ corporate vision promotes an optimistic view of life amongst its consumers and

encourages them to share their experience of delicious food. The company is dedicated to

creating delicious experiences and through its corporate vision it encourages consumers spend

memorable moments with their loved ones and enjoy life to the maximum.

Values: Kraft Foods adheres to seven core values4:

We inspire trust.

We act like owner.

4 http://www.kraftfoodscompany.com/cn/en/About/values.aspx

We keep it simple.

We are open and inclusive.

We tell like it is.

We lead from head and the heart.

We discuss. We decide. We deliver.

Customers Before deciding on a generic business level strategy the company must look at its customers.

Essentially it must determine

a) Who will be served

b) What needs those target customers have that it will satisfy

c) How these needs will be satisfied

The product portfolio of Kraft can be classified in to five product categories like Snacks,

Convenient meals, Cheese, Grocery and Beverages. The following are the categories in which

Kraft Foods segments its customers based on the needs which must be met by designing an

appropriate product offering.

Health and Wellness: This is the health and nutrition conscious customer segment.

They want to consume healthy food and they choose their products based on its

nutritional content. They have various needs like managing their weight, consuming

essential vitamins and minerals etc. Kraft Foods provides various products which meet

all their demands.

Quick Meals: These are customers having a fast and busy life, but they don’t want to

miss the delicious foods. Kraft Foods have various ready to eat and ready to heat

products to satisfy their needs.

Snacking: Kraft provides a huge variety of snack products to customers who seek for

on the go foods. Oreo wafer sticks, Crystal light ready to drink are few of the largely

sold snacking products of Kraft Foods all around the world.

Premium: These are customers who wants high quality restaurant like food in their

home. Kraft Foods satisfies their needs with premium foods like DiGiorno Ultimate

Pizza, Cote d’Or Chocolates etc.

Kraft’s Corporate Strategies

In its annual Consumer Analyst Group conference held in New York in February 2011, Kraft unveiled the following corporate strategies to drive growth in near future5.

The management viewed the company in a good position to gain grow owing to a virtuous cycle

as shown below. The following are the key features of the virtuous cycle visualized to grow

faster than key competitors and categories

Revitalize the Power Brands

o Invest in advertising of the power brands and Drive Innovation

o Use entrepreneurial management policies to grow local brands

Increase sales and marketing excellence

Implement end-to-end cost management to achieve record savings

o Supply chain savings

o Attempt negative overhead growth

5 http://phx.corporate-ir.net/phoenix.zhtml?c=129070&p=irol-news2011

Focus on Power brands,

categories, markets

Drive Top-Tier Growth

Reduce Costs Leverage

Overheads

Reinvest in growth

Delight Global Snacks Consumers

Unleash the power of our Iconic Brands

Create a performance-driven, values-led organization

Organic Revenue

Growth > 5%

Mid-High teens

margins

EPS Growth 9-11 %

Thus the overall focus of the corporate strategy seems to be divided in two parts

Brand Building: Associate quality and uniqueness with the power brands in the minds

of the consumer by aggressive push through advertising, sales and marketing efforts.

Cost reduction: Achieve cost saving measures end-to-end in order to improve

profitability.

Business level Strategy

For businesses like Kraft Foods which have broad product lines across several product

categories, specific business level strategies may vary from one line to another. For example,

the Maxwell House Division coffee brand marketed by Kraft Foods pursues cost leadership with

its regular ground coffee, but a strategy of differentiation with a few of its other offerings like

Colombian Supreme and Rich French Roast (Nayyar, 1993). Although the combination of

multiple product lines along with cost leadership is not easy to achieve, Kraft is able to do it due

to the impressive distribution efficiencies associated with its size and scale together with its rich

experience in the foods and beverage industry.

Thus while business level strategy may vary from product line to product line, the broad

corporate level strategy indicates that Kraft Foods follows an Integrated cost

leadership/differentiation strategy.

Value Chain

The value chain of Kraft Foods’ operations is represented below6. It details the primary activities

and support activities which are carried out by the company in order to implement its chosen

business level strategy.

6 Same as footnote 3

Managing Growth at Kraft Foods

The diagram shows a model being used at Kraft foods to formulate future strategies and for

looking after day-to-day business.

Whole of the Kraft foods is divided into 3 main teams comprising of the corporate core, business

units and shared services. Each of the units has separate functions assigned to them.

As we can see in the figure corporate core is the team which decides on the overall strategy of

the company. It is the one deciding about the composition of the business portfolios. Setting

standards and managing talent is also being done by this team itself.

Business units are the separate entities looking after their separate business but works in

coordination with the other two teams. Business units are basically units manufacturing biscuits,

cheese, beverages, confectionery and grocery. It is responsible for running the business and

measuring the performance standards of the corporate core function.

Shared services provide the company with business units with market information and scale

sensitive expertise for efficiency for business. They help in making tradeoffs among priorities

and expenses following guidelines from business nits and corporate core.

Acquisitions

Kraft foods over the years have maintained their growth using mostly the inorganic route.

Acquisitions have been their main way of maintaining growth over the years. It has been

acquiring companies since the year 1916 and most recent was the acquisition of the British firm

Cadbury. The following table gives the list of all the acquisitions:-

Year Acquisitions

1916 Canadian Cheese company

1927 A.E. Wright

1928 Phenix Cheese

1928 Southern Dairies

1928 10 "cheese dealers"

1928 Henard Mayonnaise Co

1929 D.J. Easton

1929 2 mayonnaise companies

1929 10 cheese companies

1929 International Wood Products

1929 Gelfand Manufacturing

1930 Kraft is acquired by National Dairy Products (acquired)

1953 General Foods (which later merged with Kraft) acquires Perkins Products

1980 Kraft merges with Dart Industries

1981 General Foods acquires Oscar Mayer & Co.

1985 Philip Morris Companies Inc. acquires General Foods

1988 Kraft is acquired by Phillip Morris

1989 Phillip Morris combined Kraft with General Foods to form Kraft General Foods, Inc.

2006 United Biscuits Iberia

2007 Kraft acquires global biscuit business of Group Danone

2010 Acquires Cadbury

We see that over the years the company has acquired various companies across geographies

and products. In this report we would try and explore the Kraft-Cadbury acquisition using

various frameworks and models.

Kraft-Cadbury

Kraft acquired Cadbury in the year 2010 for 19$ billion. In order to broaden its position in the

developing market, Kraft made bids to acquire Cadbury. Initially the offer was rejected but later

the revised offer for 19$ billion was approved by Cadbury. The acquisition provided Kraft with

the following advantages:-

1. Increased Market Power: - A primary reason for the acquisition is to achieve greater

market power. Acquisition has allowed the company to achieve economies of scale

because of increase in their size and economies of scope because of various products.

In case of Cadbury the company would be able to offer new products along with the

existing products of Cadbury. Cadbury being a 186 year old brand has a very strong and

long global presence.

Adding to it sales of Cadbury has been growing at a rate of 20% and profits at

30% in most of the markets where it operates. This helped Kraft in increasing its

revenues to about 52$ billion out of which 25% comes from the sales of Cadbury in

emerging markets.

2. Overcoming Entry Barriers: - Cadbury has a well-established market in India, Brazil

and Mexico. Entering these markets would have required Kraft to spend significantly on

capex, advertisements and supply chains. Because of the acquisition Kraft was able to

not only negotiate with these factors but was also able to use the existing supply chains

to supply many of its own brands. We have the example to OREO which has been

launched in India and has been very successful. Few of the reasons which are behind

the success of Oreo are the supply chain and brand name of Cadbury.

3. Increased diversification: - By acquiring Cadbury, Kraft was able to widen its portfolio.

Apart from selling its own products now Kraft would be able to sell Cadbury’s products in

various markets and achieve more profits. In addition Kraft would also be able to use the

existing networks of Cadbury to make its own products available in the markets.

4. Leadership in Markets: - Although Kraft is second largest food and beverage

manufacturer of the world and is a leader in various markets, but acquiring Cadbury

further helped it to become leader in new developing markets. Ex. Cadbury was the

leader in India and Mexico, two of the fastest growing markets.

5. Cost optimization: - Cadbury being located in India also offers a cost advantage for

Kraft foods. Kraft can use Cadbury’s existing plants and distribution channels in India to

gain cost advantage.

International Strategy

Kraft has segmented its market geographically into 3 sections:-

The following pie chart shows the 3 main

markets Kraft caters to. Here we can see

that American market still holds the

highest share of Kraft sales. But right now

it’s the developing markets on which Kraft

will be focusing on. Developing markets

are growing at 20% on a yearly basis and

holds huge potential for the future.

AmericanMarket

Europeanmarket

DevelopingMarket

60%

24%

16%

To cater to the growing needs of the

developing markets Kraft foods have

devised a new strategy known as 5-10-

10 strategy. Kraft foods’ using this

strategy wants to target the main

developing markets. It has identified 10

priority markets and 10 power brands

across 5 categories of its products to be

launched the near future. It will

selectively launch products looking at the

demographics and infrastructure of the

country. For ex after acquiring Cadbury

recently it has only launched Oreo and

tang. But since the processed food still

not being preferred in Indian homes it is

yet to launch processed cheese and

other milk products.

Re-Defining Focus

Kraft foods have decided to split its business into two units viz. North American grocery

business and global snacks business. The company over the years has built two strong but

distinct businesses. The company is now trying to focus on the different growth markets for

different businesses. The below table gives the distinction of the two businesses:-

Grocery Business

Snacks Business

1 Annual Business of 16$ billion Annual Business of 32$ billion

2 This Business is more focused towards mature

markets

Business focused towards Developing

markets.

3 With the break-ups of Sara lee and Ralcorp

holding the company sees new business

opportunity for it.

Company will combine business units in

Europe, American markets and developing

economies

4 Cheese, beverages and meals would be the

main sources of revenues.

Revenues to come from Oreo, Cadbury, tang

,trident and Milka

Organization structure and Integration

Project-“Leap”:

Kraft has been working on a new organization structure for Cadbury which aligns it better to

integrate it with the parent company. Kraft has a long term strategy of having a wide portfolio

and hence wants Cadbury to move away from being only a chocolate producer to a wide range

of foods. After the integration Cadbury has been divided into five divisions.

Each division is managed by a director who has to maintain his own profit and loss account,

marketing strategy, expenditure and research and development and reports to the country

managing director.

The post-merger Culture

Soon after its USD 19-billion acquisition of Cadbury in 2010, US food gaint, Kraft set Cadbury's

Indian aggressive targets. Cadbury has been set a target of 500 USD target for the year 2010

which is 25% higher over its previous year targets. Cadbury could overcome the challenge and

responded with a 30% increase in 2010 in revenue. Kraft got in more capital and was excited

over the success. Kraft was not disappointed again which got a 40% growth in revenue in 2011.

This just gives a glimpse of how aggression has been injected into Cadbury by the American

Firm known for its risk taking and growth hungry attitude. Cadbury was known to have a relaxed

work atmosphere which for many years could hold still 70 percent market share. “When working

in Cadbury employees could afford to miss on the growth plans that they have planned. But in

Kraft it is just not possible. “Delivering results is just what matters.” says an employee who had

quit the company after the acquisition.

But this has not come with problems associated with cultural integration. Many employees were

not happy with this aggressive approach of Kraft since Cadbury was very successful yet with its

Cadbury

Chocolates Biscuits Gum and

Candy Malt-Drink Fruit-Drink

relaxed work environment. Four important senior executives left the company in 2010-11,

including the finance, legal services and marketing heads.

One reason widely accepted by employees is that while Cadbury relied greatly on inputs from

the managers of the country of operations to formulate strategies, Kraft imposes a high-level

strategy on its subsidiaries. Kraft has rigid decision making processes in place and stringently

wants them to be followed," says a former executive of Cadbury. Also Cadbury allowed local

employees a high degree of autonomy in decision making, Kraft does not believe in

decentralizing the decision making to its subsidiaries. Cadbury, UK only gave broad guiding

strategy from the UK, and gave us a lot of freedom" says a former manager.

Employees of Cadbury also add that before the takeover the company was very agile, taking

pricing and promotional decisions at the ground zero level without having to wait for approvals

from the top managers. Approvals for marketing and advertising budgets at Cadbury were

cleared without much problems in a few days; After the merger they say ,it takes more than a

month, and not without many plans and charts to convince the top management. "Before, it was

swift decisions, but today the number of layers we have to go through for approvals is too

tedious," says an employee of Cadbury.

Internal strain has developed because of the step-motherly treatment shown to Cadbury brands.

Investments in Oreo and Tang, the two new brands that were introduced in India are more than

revenues generated by these brands. Bubbaloo, the chewing gum brand introduced by Cadbury

has been neglected, and is even expected to be closed down. Employees feel Kraft does not

understand chocolates and confectionery business at all.

Integration and success:

Cultural fit between a takeover company and the acquired is one of the most underplayed areas

of analysis prior to the closing of a deal. The comparative approach of cultures of both the

companies is presented below.

Clearly the table shows the contrast the organizations have in the areas of social relations.

Cadbury is an organization which believes in personal relations and non-material motivation of

its employees, Kraft is more of material rewards and target oriented organization.

Kraft View

While for Kraft the change in culture is for good as it would help Strengthened Brand, gives a

drive higher performance in turn leading to higher revenue, effective control of the organization,

Efficiencies through alignment of procedures and processes and alignment of goals towards the

larger global strategy.

Cadbury View

Cadbury on the other hand has been forced take over after declining Kraft's initial offer. Adding

to the complexity was that the dialogue (which was very hostile at times) between the two

companies was played out in the news for weeks together prior to inking of the deal. The

management at Cadbury felt that they would be dealt with high handedly by Kraft and the

culture and brands that they have developed within Cadbury are no more going to be the same

again.

Cadbury fears damaged heritage, risk of jobs and benefits to their US employees, weakened

brands and the trust deficit which was wide open. This would have high burnout and low moral

performance among the Cadbury managers.

Types of Culture Characteristic Traits Cadbury Kraft

Networking Participation

Friendship & Networking

Networking throughout the organization

Helping others

Mercenary culture Performance and effectiveness

Hard work

Material reward

Destroying competition

Fragmentation People working alone

Few links with colleagues

Aiming for goals outside organization

Communal

relationships

Deep friendships

Shared values of sociability

Family atmosphere

A passion for the business

Sense of value in work

Success so far

One of the crucial advantages for Kraft from the acquisition - is the entry it gave to India's

enormous market. It had made an initial entry a decade ago, but with mispriced products and

without a sales network it failed to establish and made an exit. But now, with Cadbury’s brand

reputation and network, the picture is different. Along with Tang, it has launched its Oreo brand

biscuit in India. It has another 10 top global brands in waiting line to be launched.

Oreo

After its launch in India in March 2010, its share of the Rs 13 thousand-crore biscuit market,

occupied by Britannia ,Parle and Sunfeast, is a mere 0.7 per cent, according to Nielsen, but

given Cadbury’s distribution network and Oreo price which is priced well below the Good Day of

Britannia and Dark Fantasy of Sunfeast, it is very promising.

Core Chocolate business

The rapidly growing Rs 300 million chocolate markets, growing at a CAG of 15 to 20 %, will be

very important for the success of Kraft- Cadbury. However the international competition is set to

heat up the market, with global brands like Ferrero Rocher and others making inroads, while

Indian brand Amul and Nestle, too, remain in the fray.

The Expensive Kraft Split

While though Cadbury argued to stop a takeover by persuading its investors that value comes

from focus, Kraft on the other hand supported its bid by saying value is from scale. However

within nine months of the take over the company has decided to split its business into two

separate entities. But this is seen as an total wastage of money not because of the split alone

but the timing of the split. Many of the top managers who have been part of Cadbury in UK and

elsewhere left the organization due to restructuring. But with the split and new originations,

there is a need to hire some of such top managers back to run the two entities. This could have

been avoided had the decision to split the business had been taken earlier and retained the best

of the talent at Cadbury.

The Way Ahead

Brands and positioning

Cadbury has many heritage brands in all the countries it operates. Some of the Cadbury brands

are very much part of the British culture. Hence, while aligning with Kraft’s global strategy some

of its brands might lose their brand equity and hence a loss of assets.

Understanding the Emerging markets

Kraft purchase of Cadbury was to break into emerging markets, and it will enough time and

effort for Kraft to learn the nuances of working in those markets.

The inevitable-revenues focus

Because Kraft had to take heavy loans to buy Cadbury, it must be focused on revenue and

profits at least in the short term. Some tough decisions could be on the table.

Kraft's -Leadership

Open and honest relationship with Cadbury is essential to keep the trust deficit at bay. This

gives Cadburys managers and employees a realistic understands the needs of the company,

helping them to make informed decisions about future prospects. Defection of talented people

can only be stopped through trust bridging. Kraft will have to face an immediate challenge as

Cadbury's top talent will leave and no one knows the running Cadbury better than those who

had a role in its success. Kraft also has the set in place a road map for integration and strategy

ahead for Cadbury. The plan should provide guidance on the performance of top managers, the

effectiveness of work units and processes, and the management of organizational change

management.

Cadbury's-Leadership

Integration after an acquisition is difficult for any organization, even under the best of

circumstances. After the deal is closed, it's important for the top managers of Cadbury to

publicly embrace the acquisition by focusing on the benefits of the acquisition. Management at

Cadbury has to take steps to demonstrate their openness to the merger. This might be in the

form of meetings, companywide emails, and even positive internal quotes about the acquisition

in the media. Cadbury has to imbibe the pride in its accomplishments that it has achieved over

the years. Cadbury became an acquisition target because it has been the leader in its business.