Strategic Implementation Case
Executive Summary
With the growing pressure of competition, many companies realize that their resources and culture no longer meet the demands of the global marketplace. The example of Kraft Foods Inc. shows that the company’s low-cost leadership strategy should be supported by major and minor organizational changes. At present, Kraft Foods has already managed to transform itself into a borderless horizontal organization with decentralized decision making roles and responsibility lines. Therefore, the planning process at Kraft Foods incorporates diverse budgeting approaches and the principles of shared understanding and consensus. The company invests heavy resources in hiring and motivating its professional staff. It is important to mention that the organizational culture at Kraft Foods is customer-centered and agility-oriented. Nevertheless, the company’s reward systems are yet to be developed, and it will take time to get rid of Kraft Foods’ bureaucratic legacy.
Strategy: Implementing the Dream
Kraft Foods Inc. seeks to become No.1 company in the North American food industry. In order to achieve this goal, the company has focused on low-cost leadership, as it is the only way to capture a greater share of the mature and oversaturated North American food industry. The low-cost strategy does not reject the importance of differentiation. Rather, a low-cost leader is that which “aims for a sufficient level of differentiation obtainable at low cost” (Hill & Jones, 2011, p.156). At the same time, a company that wants to become a cost leader in a competitive industry should focus on fewer products and target an average consumers, instead of spending considerable costs on different products that are sold in all or almost all market segments (Hill & Jones, 2011). At present, Kraft Foods has already passed a long way to become a low-cost leader, but it still needs to get rid of its centralized bureaucratic legacy, and develop better systems of motivation for employees, in order to raise their productivity and, as a consequence, reduce expenses and losses.
Structure
In 2012, the Kraft Foods Group presented its new strategy to the U.S. Securities and Exchange Commission. One of the chief goals of the discussed strategy is to develop a lean, horizontal organization that will become non-hierarchical and nimble (Kraft Foods, 2012). This goal entails a dramatic transformation of the company’s headquarters, while also pushing accountability to the appropriate levels (Kraft Foods, Inc.). Since 2004, Kraft Foods Inc. has been trying to avoid traditional bureaucracy and reduce the burden of centralization on its headquarters. In 2004, the company announced the implementation of a new global organizational structure that would be more responsive to the demands of the global marketplace (Business Wire, 2004). The furtherance structure had to be centered on three organizational dimensions, namely: global marketing and category development, geographic-based commercial and trade units, and worldwide functions (Business Wire, 2004). As a result, the organizational structure became more horizontal, thus opening new venues for implementing the principles of borderless organizational design.
The proposed organizational structure initiatives fit perfectly well in Kraft Foods’ cost-leadership intentions, as they held a promise to drive business effectiveness and lower the costs across the entire business system (Business Wire, 2004). Today, the company’s horizontal structure enables Kraft Foods to identify and quickly respond to the emerging customer needs, while also building its processes around the core work flows (Magwood, 2011). Still, the company is being led by one Chief Executive Officer, who holds most decision making levers in his hands. Kraft Foods Inc. has been rather fast and decisive in replacing its former executives, thus creating a sense of instability and uncertainty at a global scale. Kraft Foods does have the potential to achieve an ideal strategy-structure fit, if it keeps pursuing the horizontal restructuring line, while empowering its employees and executives to participate in strategic decision making on equal terms.
Systems
Budget
Even the most effective strategy cannot be implemented without having relevant organizational systems in place. Kraft Foods has a well-developed system of budgeting and accounting, which seems to be particularly responsive to the needs of low-cost leadership. According to Kraft Foods (n.d.), the company’s typical budget is designed for a defined period of time (calendar year). It shows expected expenditures and incomes and stipulates the ways, in which these incomes and expenses will be used to implement the company's strategic objectives. Kraft Foods uses the so-called “cost centers” to control, monitor, and analyze its expenses. As a low-cost leader, Kraft Foods assigns managers with different cost responsibilities, which means that they are responsible for governing one or several costs that are later allocated to the cost center (Kraft Foods, n.d.). The discussed budgeting mechanism is a perfect solution to the company’s cost-effectiveness problems, as cost centers and clear responsibility lines enable managers and the company, in general, to review and monitor budget deviations on an ongoing basis. Moreover, the planning and budgeting process at Kraft Foods Inc. incorporates the elements of zero based budgeting, rolling, strategic, and activity based budgeting (Kraft Foods, n.d.). As a result, the final result is delivered through shared understanding and corporate consensus, which helps optimize the company's strategic resources for the sake of greater product differentiation and lower product costs.
Information Systems
Information systems exemplify the core aspect of the company’s long-term agility model. The latter have become a cornerstone in Kraft Foods’ transformation from an outdated food manufacturer into a global consumer-centric company. To update its resources and capabilities, the company came into partnership with the Northeast Tier Ben Franklin Technology Center. The latter was entitled to lead the company's three-year transformation program (Magwood, 2011). Agility has become a foundational principle in Kraft Foods’ movement to low-cost leadership.
Leaders took on a comprehensive improvement program that reached all areas of the facility. To support the tactical agility formula, KFI investigated process improvements t reduce downtime relative to product changeover. An assessment of inventory and production runs drove Kraft to incorporate computer applications to determine cost-effective and timely market forecast, production milestones, and inventory capacity without damaging customer delivery systems (Magwood, 2011).
At present, the company’s IS team operates around the world. Kraft Foods has implemented a broad change training initiative, in order to ensure that IS professionals around the globe are aware of the company’s recent changes and priorities (Kraft, n.d.). Today, IS are an essential element of the company’s low-cost leadership strategy, which provides considerable cost-savings and allows forecasting changes in consumer priorities and demand.
Measures and Rewards
Unfortunately, measures and rewards remain one of the most problematic aspects in Kraft Food’s low-cost transformation. This is where the strategy-implementation fit is the lowest. Today’s reward directors at Kraft are still unaware of how they could benefit the reorganized company and its employees (Paterson, 2012). The company spent its entire year 2012 reformulating the reward package for employees (Paterson, 2012). The company’s performance measurement prospects are also confusing: for years, Kraft’s Required Business Performance served as the central measure of business growth and financial success (Kern, 2009). As the company is becoming low-cost and customer-oriented, its performance measurement criteria should be adjusted to the new realities of the food market. These criteria will have to reflect both the global and local needs of the company, while providing essential information on how the company is doing in its low-cost commitments.
People
People have always been part of the organizational culture at Kraft Foods. The company is placing special emphasis on people development, while choosing the best of the best to become its leaders. Since the end of 2012, W. Anthony Vernon has become Kraft Foods’ Chief Executive Officer. Vernon has decades of professional leadership experience in a number of industries, and he used to occupy a variety of leadership positions at Johnson & Johnson, having spent a total of 23 years with that company (Reuters, 2013). Unfortunately, it is not clear what exactly people think about Kraft Foods. Nevertheless, the company devotes a huge amount of time and resources to satisfy its employees’ needs. The company’s recent employee decisions go in line with the overall trend towards decentralization and borderless horizontal structures (Dilger, 2010).
The company recognizes the importance of difference and allows each employee to choose the most appropriate computer device as part of its “Bring Your Own Computer” program (Dilger, 2010). In addition, Kraft Foods constantly reminds of its strong commitment to safety and wellness in the workplace (Kraft Foods Company, 2010). According to Tomlinson (2012), the company used the Olympic Games in London to motivate its people to become well and healthy. 1,800 employees participated in the Race Season (Tomlinson, 2012). Employees raised money to sponsor Paralympics (Tomlinson, 2012). Apparently, by keeping employees healthy and well, the company creates a good foundation for reducing its insurance and illness expenses. However, it is still unclear whether employees understand the role of such changes and accept them (Paterson, 2012). Kraft Foods must develop a set of explicit people priorities to understand what it wants to motivate and how to achieve these goals.
Culture
Several years ago, Bauer and Erdogan (n.d.) described the culture of Kraft Foods, Inc. as stable, rule-oriented, predictable, and bureaucratic. At that time, the company still suffered from a serious culture-environment mismatch and was driven mainly by the principles of centralized decision making (Bauer & Erdogan, n.d.). Today, agility has come to occupy the central place in Kraft Foods’ organizational culture, and it is the best the company could do to achieve an ideal strategy-implementation fit. The company’s agility structure incorporates four essential elements: inputs, outputs, external influences, and internal operations (Magwood, 2011). The culture is customer-centric and designed specifically to address the changing consumer needs. It is based on collaborative relationships with partners, suppliers, and competitors (Magwood, 2011).
Kraft Foods has redesigned its organizational culture to empower its professionals to make quality strategic decisions. Internal operations have been reoriented towards workforce management and information management that develop skilled and knowledgeable employees, who are open to creativity and innovations (Magwood, 2011). Consequently, the organization reduces the scope and time of responding to customer demands and invests resources in making its employees more productive. Employee investment and development is the predominant symbol of organizational culture at Kraft Foods, and such investments are considered as some of the biggest strategic decisions in the entire business (Paterson, 2012). The company’s culture is still carrying the elements of bureaucratic control. Horizontal responsibilities are to become more visible in its organizational structure. At present, Kraft Foods is much closer to implementing its low-cost strategy than it was a few years ago, but it is still at the very beginning of its thorny road to continuous success.
Conclusion
Almost all the elements of Kraft Foods’ structure and culture reflect a strong fit between its strategic goals and implementation. The company has passed a long way to become a horizontally structured and agile consumer-oriented food market player. It invests considerable resources in people development and uses information systems to advance its message, mission, and vision. However, certain elements of bureaucracy and centralized decision making continue to persist. Today, Kraft Foods is much closer to achieving an ideal strategy-implementation fit, but it is still at the very beginning of its road to continuous strategic success.
