The US Firm Kraft Foods Took Over Cadbury Marketing Essay

The US Firm kraft paper Foods Took Over Cadbury Marketing Essay fit in to the Harvard Business Essential the word strategy originated as a military term, and adopted by patronagepeople when refereeing to plans for controlling and utilizing limited resources human, land and capital. In his classic article, Kenneth Andrews (1971) described strategy as the goal of promoting and securing vital interest, whilst M. Porter (1980) re-defined strategy as a broad formula for how a business is difference to compete. One of the founders of the re presentlyned Boston Consulting Group, Bruce Henderson linked strategy to competitive advantage. However, being varied is not an flagrant guarantee for business success. fit to ORegan Ghobadian (2009) Cadbury is one of the worlds largest confectionary businesses with eyeshade ranking in over 20 of the worlds 50 biggest confectionary grocerys. (See figure 1). It has one of the largest and wide spread markets in emerging countries around the world. kraft paper Foods, Inc. is the largest confectionery, food, and beverage conjunction whose headquarters is in the United States and the second largest in the world after Nestle. It markets many brands in more than 155 countries. (See figure 2). It is listed as a universal accompany, on the NY Stock Exchange. (Wikipedia, Accessed 02/04/10)The former chief executive of Cadbury, Todd Stitzer launched the Vision in Action program in 2007. At it launch, he said the vision was aimed at driving the companys margin s up by mid-teen by 2011. It hoped to achieve this by focusing on 3 key priorities Growth, Efficiency and Capacity. (Company Annual draw 2009) And as of the present cadence, the strong movement continues, edging Cadbury closer to its goal.2.1.2 kraft paper Key Strategy Performance (see Appendix physique. 4)In an article written by boozco for the Strategy + Business, (Issue No 56, autumn 2009), 11 of Krafts top executives were interviewed about their strategy for the 3 year turnaround and campaign for growth. The interview started with the company CEO Irene Rosenfeld who as at 2005 was in blossom of the Frito-Lay division of PepsiCo. Thus when she became the chef executive in 2006, she observed that Kraft concentrated its power to its HQ in the US and this was keep innovation and growth. Thus her first objective was to decentralise Kraft, and re-focus the companys vision to the challenging macro-economic environment.The company went about these changes by introducing what it cal guide Organising for Growth (OFG) which began in 2007. It included review of organisational construction with a 3-year turnaround time, dismantling of existing centralisation of power matrix, clear operational initiatives such as building up sales capabilities etc, and implementing new operate metrics coupled with financial rewards for executive addressrs. (See figure 5)3. Market Driven Analysis of Acquisition3.1 Why Kraft could not resist Cadbury (see Appendix fig.5,8,1 0,1112)According to Andrew Clark of the Guadian, the attraction of Kraft to Cadbury comes down to brands, sheer scale, geography and distribution channles. Though Kraft has some big brand products such as Maxwell hearthstone Coffee and Philadelpha cream cheese, many of these and other products were reported struggled to gain market sector domamnce in spite of the fact that they have been around for many years. (The Guadian, 06/04/10)Predictably, acquiring Cadbury meant addition of brands products such as Cadburys chocolate, confectionary and quid gum products impart increase the comapanys annual revenue from 4% to 5% whilst earnings growth which were lagging surrounded by 7% to 9% will now increase to between 9% to 11%. This predictation is based on Cadburys shrewed distribution strategy. For example, it has strong presence within the instant consumption channels such as corner shops and petrol stations where prices can be marked up, whilst relying on people making impluse buying . In comparison, Kraft products ar mainly seen in traditionalistic outlets such as supermarket and food stores where profit margins are lower. (The Guadian, 06/04/10)However, the acquistion comes at cost, for example, a cost cut of $675m have been highlighted, this will include effiecency savings of $300m. This amount is as a result of stream lining procurement, RD, and logostics. Futher $250m will come from duplicated adminstrative lap up which will now be centralised, and a $125m project synergism saving in making biiger bulk deals when buying media adverts. (The Guadian, 06/04/10)3.2 What next after the takeover? (See Fig. 6,913)The share magnitude of the two companies coming together is enough to give anyone sleepless nights, as there are many strategic risk factors to consider. A winning Kraft/Cadbury strategy that is well enforced might work for a long while, however according to (ref) no strategy is effectual forever.3.2.1 The Stakeholders (see fig. 7)Figure xxx shows an illustrative mind map of the different sort out of people that are arouse in the financial strength of the two companies. It is worth nothing that whilst the government is interested in Corporation assess and no breach of legislation especially e.g. National Minimum Wage Act (1998) ref, shareholders are particular about shares especially ROI. Whilst the workforce are interested in job loses, pensions etc. Other points of interests are competition from other competitors. Likewise, the general public wants to be reassured that the acquisition will not led to exploitation of Child labour in other to fight off price war competitions. Hence the strategy to manage these meetings of people will be paramount in the coming years 2010 and beyond for the acquisition to be judge successful.4. Balance add-in IntroductionThe notion of the Balance Scorecard (BSC) was brought into humankind in 1992 in a business review article written by David Norton and Steve Kaplan (Kaplan and Norton 1 992). The article was born out of the notion that the ability of a company to measure its intangible assets had a direct bearing on company performance and its ability to achieve company strategic objectives.The BSC brings additional value to the traditional measurement of historical financial perspective by including the measurement of internal business processes, innovation and learning and customer perspectives-all key indicators of future successful death penalty of company strategy.The BCS is thus seen as a 3-way dent step System, Strategic Management System, and Communication Tool. See Fig 3Fig 3 lineage Wiley and Sons (2003)The need to include lag and lead indicators in determining strategic performance is important. Lead indicators are those that affect future performance of Cadbury e.g. increasing market share. Lag indicators are those that indicate what has happened in the past, e.g. financial performance. Whilst lag indicators are important, Cadbury needs to focus on t he future indicators of strategic success i.e. customer perspective, business perspective and learning and growth perspective. Cadburys governing objective at the start of 2009 was to deliver well-made shareholder returns by realising their strategic vision to be the worlds BIGGEST and ruff confectionary company. (Cadbury Report 2008). Stakeholder theory identifies 5 main groups who have a vested interest in the commercial undertakings of the company.(Kaplan 2010) Cadburys strategic focus placed emphasis, primarily, on one stakeholder group the shareholders.Fig 4 The strategy map links intangible assets and critical processes to the value pro mail and customer and financial outcomes.Fig 4 shows the causal confederacy between these different metrics and the ultimate strategic aim of delivering shareholder value. The upward flow identifies the cause and effect relationship in the BSC that lead to ranking(a) performance. An e.g. is that innovative practices identified by learning a nd growth lead to more efficient internal business processes which in turn lead to a superior customer experience and eventually long term shareholder value.4.1 FinancialCadbury continues to increase its profit margin towards its goal in the mid teens.4.2 Customer MeasurementCadbury creates customer loyalty by identifying the exact amount of pleasure that customers derive from the Cadbury experience. This ensures that customers returned repeatedly and remain loyal. This has been an essential part of the strategic focus ensuring strong performance in 2008. (Cadbury Corporate Brochure 2008)Emerging markets have been identified as part of the overall strategy to reach more people, more quickly. As tell in the Cadbury India report in 2008, the overarching goal is this sector is to have more grams in more mouths. The potential for growth in this segment of the market is meaning(a) as the per capita consumption is very low compared to other non-emergent markets.0.03kg compared to 4.3kg in Europe. (Cadburys India Report 2008). The link between Cadburys relationship with Fairtrade is crucial to ensuring that company achieves its strategic objective of sustainability by increasing its try of raw materials and ensuring the livelihood of the farmers who produce these raw materials.(Cadbury 2008 corporate brochure)4.3 Innovation and LearningThe challenges include managing different pay structures, different ethos, work patterns and hiring methods. The instruction of all of these aspects will have a significant impact on Krafts ability to successfully integrate Cadbury into its global family and reap the financial rewards that will confuse the union a profitable one. Successful integration studies have shown that monetary rewards do work, but on their own are not enough to raise a successful collaboration between two different companies engaged in a merger or acquisition. (Montmarquette et all 2004). Krafts pledge is to take the beaver of both approach to the acquis ition. (Kraft Final Offer 2010) Kraft tillage is different to Cadburys culture and this will have major implications for the successful synergy of the two companies. Tetenbaum (1999) identifies culture as being at the centre of any successful merger or acquisition. Hofstede (2001) identifies culture as the collective programming of the mind that distinguishes the members of one group or category of people from another4.4 Internal business processesInnovation and research and development are key aspects of strategic success. Continuous investment in the development of new product ranges, especially in emerging markets, will be necessary to achieve strategic objectives. Cadburys extensive distribution networks ensure products are easily accessible to all consumers, from the large supermarket chains to the small corner kiosk in a remote part of India. The BSC is only as effective as the action taken as a result of the metrics indicated and measured. Leadership is important to ensure t hat the metric information is followed up and changes made to tap the impact of these measurements on performance.(Neely 2008). Cadburys developing association with the Fairtrade brand ensures that it is meeting its corporate social responsibility objectives, as well as ensuring a constant supply of raw material for its products, a form of backward integration.Fig 54.6 Criticisms of the BSCThe recent global crisis has also highlighted the weakness in current measurement governing bodys as they failed to identify the potential for risk for many companies. Analysis needs to identify, not only the historic performance, but also the potential future risks. Risk opinion and management needs to become an essential part of the any measurement system used in the future. Cadbury/Kraft must now identify, mitigate and manage risk in such a way that it becomes an integral part of their strategic management ethos.Management Control Systems will need to be active enough to respond to rapid ch anges in the environment in which they operate in prescribe to achieve their strategic objectives. Simons levers of control present an alternative system of measurement that includes complimentary metrics e.g., belief systems, interactive control systems and boundary systems etc. (Simons 1995). Fig 5 The BSC has been criticised as being too simple as a measurement/control tool. Businesses are more complex than just a few controls or levers. The functioning of the BSC has been compared to a pilot in charge of a flight from A to B. The BSC provides the mechanism for control and guidance in achieving the goal. (Kaplan and Norton 1996). The BSC is seen mainly as a diagnostic tool rather than a tool that aids strategic success.Where is the point of balance in the competing demands of the different measures?. For e.g. Cadburys overarching goal is delivering superior shareholder returns, but this must be balanced against the needs of staff. A trade off must occur at some level. Companies must understand the cause and effect relationship between the metrics in order to make the most appropriate decisions. Timing difficulties in respect of cause and effect relationships mean that the results of measures introduced may take a significant period of time to have an impact on the financial outcomes.It is essential to link the four aspects of the BCS to strategy to ensure its maximum effect on performance. Nair (2007) BSC can be seen as too rigid in its measurement matrices, i.e. just 4 elements and does not include risk, corporate social responsibility or environmental metrics. Need to carry on sensitivity analysis to measure responsiveness of performance to certain scenarios. More research is needed on the cause and effect outcomes for companies that use the BSC.Fig 64.7 Potential problems for CadburyStaff integration poses a significant challenge to Cadburys governing objectives. This is part of the internal process element of the BSC. This has the potential to derail the recent merger. (Shebioba 2010) Fig 6 shows how Cadbury can translate its mission into desired outcomes. Ensuring that all staff are aware of the new strategic direction that the combined company is now embarking on, and everyone understanding the impact their role has on achieving strategic objectives.(Regan and Ghobadian 2009) Fig 7 shows why companies fail to meet their objectives.Simons levers of control will assist the new Kraft Cadbury combinationFig 7Source Kaplan and Norton 1992In order to successfully achieve its overarching goal of superior shareholder returns, Cadburys must successfully balance the barriers to exercise as identified above.5. ConclusionCadburys has now become a part of the Kraft family and there is a strategic focus on Kraft reaping the benefits of Cadburys strengths and position in emerging markets.The combined company will need to focus its attention on achieving new corporate goals and devising a strategy that maximises the synergy of the union betw een them. The use of the BSC or levers of control will aid management in measuring and achieving strategic objectives.It must be noted that in isolation any system that measures the performance of the company will be meaningless unless it is combined with other systems. There is still room for some work to examine the relationship between cause and effect and the impact this will have on Cadburys strategic performance. This is a crucial part of the integration of Cadbury into the Kraft family. Only time will tell if Kraft will get the sugar rush it envisages from the purchase of Cadbury for 11.6bn.ReferencesAndrews, K., The Concept of Corporate Strategy (Homewood), IL Richard D. Irwin Inc. 1971Clark Andrew, Chocolate, chewing gum and coner shops, Why Kraft cant resist Cadbury, The Guadian. Tue 19 Jan 2010. Accessed 06/04/10 2236Hofstede, G. 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