The implications of Kraft-Cadbury takeover: Cultural Change

The implications of Kraft-Cadbury takeover: Cultural Change By: Alex Osborne, Vivian Songonuga & Mphasto Chibwana 20 th April 2010

Agenda
Introduction
Group Approach
Organisational culture
Comparison of Kraft’s and Cadbury’s culture
Implications of the cultural change on Kraft and Cadbury
The impact of cultural change on Cadbury
The factors needed to implement and sustain cultural change
Strategy and plan for implementing change
Conclusions
Recommendations
References

Introduction
Kraft foods
World’s second largest food company, with sales in approximately 160 countries.
Some of the brands include Philadelphia cheese, Oreo biscuits and Trident gum bringing in $50 billion in revenues (Kraft, 2010).
Takeover
Kraft acquired Cadbury on the 2 nd February 2010. It acquired Cadbury with an aim of increasing its global presence and revenue
Reasons behind the takeover (Planned or emergent)
Its ‘planned strategy’ was to acquire Cadbury Plc (one of its top competitors) to increase market share and gain access to emerging markets.
“ Cadbury has been in Kraft's sights for a while, but the merger took on new urgency after last year's $23-billion purchase of Wm. Wrigley Jr. Co. by Mars Inc.” (Waldie, 2009)

Group Approach
Perspective: Cadbury
Key areas impacted by the takeover
People, Organisation Structure, Brand, Culture , Governance, Finance, Market and Supply-Chain.
Culture
“… .key factor for make or break in M&A deal: Culture clash” ( Accenture, 2000)
“ Cultural fit between an acquirer and a target is one of the most neglected areas of analysis prior to the closing of a deal……Without it, the chances are great that Mergers & Acquisitions (M&A) will quickly amount to misunderstanding, confusion and conflict” (Virani, 2007).
Geographical differentiation of the companies.

Organisational Culture
Definition
“ Organisational culture is commonly defined as the attitudes, values, beliefs, norms and customs which distinguish an organisation from others” – (Carnall, 2007).
How is culture formed?
Organisations history (the life cycle of the company)
Organisation characteristics, e.g. size, complexity, formalization (rules, politics and norms)
The founders and owners (exerting influence)
The environment (Juridical, economic, cultural and technological)
Doina et al (2008)
Types of culture
Networked, Mercenary, Fragmented and Communal (Goffee, 1998)

Comparison of Kraft’s and Cadbury’s culture *Adapted from Goffee & Jones (1998) This assessment of the company’s culture has been derived from various sources, including their website Types of Culture Characteristic Traits Cadbury Kraft Networked
Participation
Friendship & Networking
Networking throughout the organization
Helping others
    Mercenary
Performance and effectiveness
Hard work
Material reward
Destroying competition
      Fragmented
People working alone
Few links with colleagues
Aiming for goals outside organization
Communal
Deep friendships
Shared values of sociability
Family atmosphere
A passion for the business
Sense of value in work
      

Implications of cultural change on Kraft and Cadbury Implications on Kraft Implications on Cadbury Strengthened Brand Damaged Heritage Drives higher performance leading to higher revenue Lower moral and performance Better control of the organisation Staff burn-out Better reputation Risk of losing benefits schemes to American procedures Efficiencies through alignment of procedures and processes Trust Issues Alignment of goals Weakened Brand

The impact of cultural change on Cadbury
Staff would be de-motivated leading to low morale, reduced of productivity and loss of revenue
Risk of resignation resulting from change of process, e.g. technology
Lack of trust leads to weak loyalty, and reduced open communication
Conflict leading to stress and increased emotion
Feelings of insecurity and uncertainty of the future
Risk of diminishing Cadbury’s brand

The factors needed to implement and sustain cultural change Cultural Change Drivers for change Drivers against Change Government Interventions Brand Loyalty, e.g. Consumer boycotting brand Strong leadership Good communication of change Good strategy and plan Good support from team Resources e.g. human and financial Employee resistance: Unions Bad press by the media Empathy and respect for acquired company *Adapted from Kurt Lewin (1943) Force Field Analysis

Strategy and Plan for implementing change *Adapted from Kotter’s (1996) 8-step Change Model in Burnes (2004) Kotter’s 8-Steps Plan Establish a sense of urgency
Examine the limitations of the existing culture and its impact on performance.
Communicate to Senior Management the need for the change.
Forming a powerful guiding coalition
Assemble a group from senior management and Union members to champion the change.
Use press coverage to maintain momentum
Seek internal and external support, e.g. Government to aid the transition
Creating a vision
Senior management to develop a new mission statement which incorporates the new culture and develop effective strategies to execute the vision.
Communicating the vision
Communicated new vision throughout the organisation and to consumers using different channels such as TV, emails, documentation, bulletins etc.
Provide constant two feedback during transition
Empowering others to act on the vision
Create the right environment to empower staff to act on the change
Identify any constraints and resource issues for the change to be implemented and removed obstacles
Ensure staff have the time to commit to the change

Strategy for implementing change Cont… Kotter’s 8-Steps Plan Plan for and create short term wins
Plan a corporate away day for Cadbury and Kraft staff to bond, whilst driving the message of change and the benefits
Inter-company positions changes to help merge culture
Motivate employees involved in the improvement through rewards
Negotiate new realistic terms and conditions, e.g. wages and pension
Consolidating gains and producing more change
Use the new synergies derived from the short term wins to ‘spring board’ long term changes, i.e. those yet to be confronted, such as tackling Union resistance and consumer loyalty.
Institutionalize new approaches
Articulate to the organisation the connection between new norms, behaviours and the organisation performance.
Document the new culture and organisations policies
Make sure new leaders that come on board adopt the new culture straight away.

Conclusions
The primary driver for mergers and acquisitions is revenue gain, however this approach rarely takes account of cultural differences which may inhibit successful adaption.
The analysis shows that Kraft needs to change the culture of Cadbury to take better control of the organisation and strengthen its brand. However, to achieve this it will require strong leadership, good communication and a well thought out strategy and plan .
One of the most complex and difficult hurdles to overcome will be ‘staff resistance’ , however a long term impact of the change could be more profound to consumer brand loyalty.

Recommendations
Early identification and involvement of stakeholders is pivotal
It would be advisable to do a culture assessment of the organisation prior to purchase
Cultivate cultural change, do not forcefully exert a new culture, rather allow it grow organically over time
Constant communication and feedback is key, this cannot be over emphasised!

References
Anand, N. & Nicholson, N. (2004) Change: How to adapt and transform the business. Norwich: Format Publishing
Barney, J.B & Hesterley, W.S. (2008) Strategic Management and Competitive Advantage: Concepts and Cases. New Jersey: Prentice Hall
Bowers, S.(2009) ‘Cadbury warns of culture clash under Kraft’. The guardian . 21 October, 2009 [Online] Available at: http://www.guardian.co.uk/business/2009/oct/21/cadbury-kraft-sales-profits-job-losses [Accessed 13 April 2010]
Carnall, C (2007) Managing Change in organisations 5 th Edition Harlow: Pearsons
Doina, R., Mirela, S., Constantin, R., (2008) The organisational Culture and the Factors of its Formation [Online] Available at: http://steconomice.uoradea.ro/anale/volume/2008/v4-management-marketing/099.pdf [Accessed 19th April 2010]
Goffee, R., Jones G. (1998), The Character of a Corporation: How Your Company’s Culture Can Make or Break Your Business, London: Harper Business
Johnson, G., Scholes, K. & Whittington, R. (2005) Exploring Corporate Strategy 7 th Edition. Harlow: Prentice Hall
Kraft Foods (2010) Fact Sheet: Building A Global Powerhouse. [Online] Kraft foods Inc. Available at: http://www.kraftfoodscompany.com/assets/pdf/kraft_foods_fact_sheet.pdf [Accessed 12 April 2010].
Kraft foods (2010) Our Culture: Work Life. [Online]Kraft foods Inc. Available at: http://brands.kraftfoods.com/careers/ourCulture/worklife.htm [Accessed 12 April 2010]
Kotter, J (1995) Leading Change: Why Transformation Efforts Fail. Harvard Business Review [Online] Available at: http://www.power-projects.com/LeadingChange.pdf [Accessed 17th April 2010]

References
Power, H. (2010) ‘Comment: bitter taste for Cadbury staff’. TIMESONLINE . 19 January, 2010 [Online] Available at: http://business.timesonline.co.uk/tol/business/industry_sectors/consumer_goods/article6993652.ece [Accessed 13 April 2010]
Reuters (2009) ‘Cash not culture to decide Cadbury fate’. [Online] Available at: http://blogs.reuters.com/columns/2009/11/30/cash-not-culture-to-decide-cadbury-fate/ [Accessed 13 April 2010].
Reuters (2009) Can Kraft CEO pass on Cadbury chocolate? [Online] Available at: http://www.reuters.com/article/idUSTRE5A54O020091106 [Accessed 13 April 2010].
Rigby, E., & Cohen, N. (2010) ‘Cadbury staff issues with pension ultimatum’. Financial Times . 2 April, 2010 [Online] Available at: http://www.ft.com/cms/s/0/67512e72-3e87-11df-a706-00144feabdc0.html?catid=2&SID=google [Accessed 13 April 2010].
Thomas, R. (2000) Mergers & Acquisitions: Irreconcilable Differences. Accenture [Online]. Available at: http://www.accenture.com/Global/Research_and_Insights/Outlook/By_Alphabet/DespiteClash.htm [Accessed 13 April 2010]
Virani, V. (2007) Mergers and Acquisitions - A Case of System Failure.[Online] Available at: http://www.indianmba.com/Faculty_Column/FC632/fc632.html [Accessed 12 April 2010]
Waldie, P (2009) ‘Candy wars: Why Kraft wants Cadbury's secrets . The Globe and Mail News. 9 November , 2009 [Online] Available at: http://www.theglobeandmail.com/globe-investor/why-kraft-wants-cadburys-secrets/article1279793/ [Accessed 12 April 2009].

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The implications of Kraft-Cadbury takeover: Cultural Change

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