Organisational Changes in Kraft-Cadbury - Essay Example

Organisational Changes in Kraft-Cadbury 1. Introduction Cadbury plc (Cadbury) dates back to 1824 when John Cadbury had opened his first shop in Birmingham (Cadbury-website-a, n.d.), UK. Since then the company had grown stupendously into a successful multinational corporate. Way back in 1897 the company had launched its first milk chocolate (Cadbury-website-b, n.d.), and then in 1905, the famous ‘Dairy Milk’ was introduced to the chocolate lovers (Cadbury-website-c, n.d.). In the year 2003, Cadbury became “the world’s No. 1 confectionery company after having bought Adams, the owner of chewing gum brands including Trident and Stride” (Cadbury-website-d, n.d.). According to 2009 reports the company had manufacturing facilities throughout the world, the key locations being Africa, Australia, India and Japan (Cadbury-website-d, n.d.). Another significant confectionery organisation that has stamped a mark in the history of food industry is the Illinois based Kraft Foods, Inc. (Kraft), that has “come a long way since J. L. Kraft started selling cheese from a horse drawn wagon in 1903” (Kraft Foods Inc.-website-a, n.d.). The company had a portfolio of nine major brands, and it claimed that “Whether watching your weight or preparing to celebrate, grabbing a quick bite or sitting down to family night, we pour our hearts into creating foods that are wholesome and delicious” (Kraft Foods Inc.-website-b, n.d.). Kraft ranks globally second among food companies and talking about its acquisition of Cadbury it says that “The combination of Kraft Foods and Cadbury creates a global powerhouse in snacks, confectionery and quick meals” (Kraft Foods Inc.-website-c, n.d.). The acquisition of Cadbury by Kraft has given rise to a significant amount of tension among different quarters that range from the management to the union. According to the reports by Clinton Manning and Cecilia D'Felice, “Felicity Loudon begged shareholders to reject the 850p a share takeover offer and urged them to keep the 186-year-old company British in memory of her ancestor John Cadbury” (Manning & D'Felice, 2010). Further, commenting on the said deal, the legendary investor Warren Buffet, who is also the chairman of Berkshire Hathaway, Inc. – the biggest shareholder of Kraft, has said that “I think it’s a bad deal, I have a lot of doubts” (Frye, McGee & Schectman, 2010). Quite obviously, a lot of speculations are being made about the fate of the acquisition move made by Kraft. In the light of these circumstances, the present report will aim at analysing the necessity of the organisational changes that have to be incorporated in order to make the acquisition a success. Subsequently a force field analysis will be conducted wherein the driving forces and the resisting forces will be identified and discussed. Following this, attempts will be made to strike a balance between the two categories of forces. Then the report will move into a comprehensive action plan that will outline the course of activities that the management will be required to perform in order to make the changes sustainable. Extensive literature review will be undertaken to justify the views and opinions generated during the research. Finally, the report will be concluded by documenting the key findings of the research. 2. Necessity of the Changes Although Kraft is highly optimistic about its acquisition of Cadbury and has said that “the deal would create a global confectionery leader” (BBC, 2010), Robert Peston – Business Editor, BBC – was quoted as saying “The increase in Kraft's debt to pay for Cadbury will doubtless worry its employees” (BBC, 2010). The key issues that have arisen out of the acquisition are largely related to job fears. While unions are worried about the fact that the takeover might lead to job cuts, Kraft has not given any specific guarantee regarding the prospects of 4500 jobs in the UK. According to Robert Peston, the company “has not ruled out cuts and staff numbers at Cadbury's head office in Uxbridge are expected to be reduced” (BBC, 2010). Post-acquisition, Kraft is aiming at manifesting significant cost savings, and quite naturally the union has conceived this as a harbinger to future layoffs. In this context, Jennie Formby – National Officer, Unite Union – had insisted that Cadbury shareholders must appreciate the fact that the company has demonstrated noticeable strength as an independent company and requested them to “Contrast that with Kraft's excessive debt, under-performance and the unacceptable risks this brings for Cadbury and it is hard to see any wisdom in this bid whatsoever” (Jones, 2010). Her opinions were seconded by David Bailey – Professor, Coventry University Business School – who said that “Serious questions need to be asked about Kraft's intentions; Kraft already has a track record of cutting production and moving production abroad” (BBC, 2010). Therefore, it is evident that there is almost no assurance that in due course Kraft will maintain the production facilities in the home ground of Cadbury. In the light of these data, it is necessary to analyse the necessity of the changes that have to be incorporated in the organisational framework of Kraft-Cadbury. The challenges that characterise the deal are that the deal ensued from a hostile negotiation process; both the brands are iconic and have pursued dissimilar positioning; the element of perceived dominance has a strong existence as “Cadbury executives might assume that Kraft will adopt a dominant approach” (Beaudin, 2010); time required to elevate the learning curve; and the inevitable tough decisions. 3. Force Field Analysis Figure 1: Force Field Analysis of Organisational Change Programme (Source: Gray, 2009, P.282) Appended above is a generalised model of force field analysis wherein the driving forces as well as the restraining forces have been shown in the context of organisational change that is aimed to be instigated within a hospital (Gray, 2009, P.282). From the figure it is evident that the two sets of forces collide at a common interface that is represented by the current situation. The restraining forces are generally strong in the initial stages of the change process owing to the inherent human nature to resist changes. However, the management should aim at augmenting the driving forces so that the change(s) set in and help the organisation escalate from the current situation to the desired situation. The following figure helps in conceptualising the force field analysis at work group level and demonstrates how change initiatives are resented by employees. Figure 2: Force Field Analysis of Work Group Performance (Source: Cummings & Worley, 2008, P.131) As the aim of any change initiative is to strike a balance among the restraining forces and driving forces and achieve a state of organisational homoeostasis, it is necessary for a process consultant – internal or external to the organisation – “to take a group of people through the unfreeze, move and refreeze stages” (Cameron & Green, 2004, P.97), as shown in the figure appended below. Figure 3: Lewin's Three Step Change Model (Source: Cameron & Green, 2004, P.98) 2.1. Driving Forces Perhaps the strongest driving force behind the changes at Kraft-Cadbury is the anticipation by Irene Rosenfeld – Chairman & CEO, Kraft – that the merger has the potentials to have a “phenomenal future” (Morris, 2010). Though the takeover bid has come through troubled waters and has given rise to substantial resentments, the rationale underlying the state of affairs has been nicely summarised by David Cummings – Head, UK Equities – when he said “It's sad that Cadbury is gone, but business is business” (BBC, 2010). Moreover, Rosenfeld, who is having an experience of more than 26 years in the related industry “ranked No. 6 last year on a Forbes list of the 100 most powerful women in the world” (NY Daily News, 2010). The exceptional business acumen that she possesses can be comprehended from her revelation that “I really enjoy figuring out why people behave the way they do and then using those insights to develop new products or build stronger relationships with our consumer” (NY Daily News, 2010), and it may be safely inferred that the lady can singlehandedly steer the behemoth towards a sustainable as well as profitable future. Although Warren Buffet had opposed the takeover bid, it remains a significant fact that he is a major shareholder of Kraft. Ranked among the crème-de-la-crème of global tycoons, the association of Buffet with Kraft is strong enough for allaying the fears of Cadbury's stakeholders – its employees, unions, etc. Becky Barrow has reported that “Kraft has promised to fully safeguard the existing contractual employment rights of Cadbury's 45000 global workforces, including their pension rights” (Barrow, 2010). Most importantly, Kraft has a rich experience in mergers and acquisitions (M&A), and the company claims that it treats “effective diversity management as a core leadership competency and business priority” (Kraft Foods Inc.-website-d, n.d.). Kraft claims that “Employees at Kraft Foods are enthusiastic about the commitment to diversity, the support given to initiatives within our company and in the communities where we do business” (Kraft Foods Inc.-website-d, n.d.), and hence it may be anticipated that by absorbing Cadbury’s employees into its folds, the company will act responsibly towards their betterment. Furthermore, “the Prime Minister insisted that workers will be protected” (Barrow, 2010), and this will also be a potent driving forces in helping the workers accept the forthcoming organisational changes. 2.2. Resisting Forces The resisting forces in this case are numerous. Firstly, the Cadbury employees in the UK were extremely worried about the company being taken over by an American organisation. Their fears can be estimated from the words of Karen Leach – Employee, Cadbury – who said “I don't think a company from abroad should be able to come over here and buy our companies up” (Morris, 2010). High levels of distrust have been prevailing among the employees about the intention as well as the outcomes of the takeover. Secondly, the general atmosphere that prevails under the Kraft flag is that of uncertainty which was expressed by an anonymous worker as “Nobody really knows what is going on or what this might mean in terms of job losses, but inside that factory there are a lot of people who are very, very worried about the future -- the future of the company and their own future, their jobs and their families” (CNN, 2010). The fact that Kraft and Cadbury have had dissimilar positioning since the beginning has also led to speculations regarding the success of the merger. Tracy Corrigan has reflected that “It may sound unlikely that investors in both Kraft and Cadbury will lose out, but unfortunately that is perfectly feasible, on the basis that both companies may well have been better off on their own” (Corrigan, 2010). Figure 4: Protest by Cadbury Workers (Source: Jones, n.d.) Finally, the financial health of Kraft prior to the takeover was also a significant resisting force as it was reported that the American giant has run into heavy debts; and hence it added to the fears of the Cadbury employees. The same was expressed by Stephen Copeland – Employee, Cadbury – as “There's a genuine fear the place could close within five or 10 years because of the heavy debt Kraft is in, this company is successful enough to run for the next 100 years, never mind five” (Morris, 2010). 2.3. Balance of Forces The driving and resisting forces in the context of this case may be balanced through supportive interventions by the Kraft-Cadbury management. The company has reported that its integration plans are progressing well, and it has “Appointed all key senior leadership positions” (Kraft Foods Inc.-website-e, 2010, P.5) among whom approximately 33 per cent have been chosen from Cadbury. The merged companies have also been inching towards the achievement of cost savings as well as synergy targets by “Consolidating legacy plans with integration synergy programs” (Kraft Foods Inc.-website-e, 2010, P.5). At the end of Q1’2010, the company reported total cost savings of $ 675 million against total integration costs of $ 1.3 billion (Kraft Foods Inc.-website-e, 2010, P.9). These figures point at the healthy prospects of the merger in the long run. However, the management must consider the element of cross-cultural diversity and implement Lewin’s change model (Figure 3) in order to ingrain the changes sustainably. Kraft should also utilise its employee councils (Kraft Foods Inc.-website-d, n.d.) in extending the employee-management interface to the Cadbury employees and provide them with empathy as well as the assurance of their well being. Kraft should also play it safe in handling issues related to Cadbury. This is due to the vital fact that “Cadbury is nearly as important to British culture as the Beatles” (Beaudin, 2010), can make it immensely difficult for the latter to accept the merger. 4. Action Plan Post-merger, the management must minimise the culture shock of its employees through efficient interventions of the executive councils. Participative management should be brought into action in order to build trust among the workers and the unions. The company’s operations in the UK should be entrusted upon the British employees. Regarding its debt structure, Kraft must take steps towards enhancing its transparency. This will be necessary for allaying the fears of Cadbury employees as well as the general public. Through corporate social responsibility (CSR) activities the company should augment its position as a responsible corporate citizen and help the local populace perceive that it is not another American bloodthirsty corporate that has muscled into the British business arena to make profits and nothing else. Owing to the troubled state of affairs that had characterised the merger/takeover, it is highly necessary that the company should build rapport with the local media as well in order to convey its intentions to the masses. Employee training and development will play a vital role in the change implementation process. For this purpose the company must factor in the importance of motivational tools such as coaching, mentoring and counselling to ease away the anxieties of the Cadbury employees. 5. Conclusion Change management is an integral aspect of business administration, and when it comes to mergers and acquisitions, takeovers, etc. this particular concept becomes indispensable for the harmonisation of the workforces as well as the processes. In the case of Kraft’s takeover of Cadbury, it was a relatively young American giant that sent the identity of a rather historical British behemoth into premature and unforeseen oblivion. Issues have arisen out of cross cultural as well as employment fears among the Cadbury employees. Although Kraft has promised to provide complete protection to the Cadbury employees, the latter are suspicious that Kraft being highly indebted will downsize the employee base in order to fatten its coffers. Under such circumstances it has been outlined in this report as to how the situation should be handled in order to set in sustainable changes. However, reports predict that the merger has the potentiality to be highly profitable in the years to come; and the greatest driving force behind the confectionery colossus is undoubtedly Irene Rosenfeld, who has the capability to steer its course against competition and towards stupendous success. As it has been observed in the financial report, synergy is already being achieved by Kraft-Cadbury, it may be propounded that the management has been adopting effective as well as efficient change management initiatives to resolve the issues. References 1. Barrow, B. January 20, 2010. CADBURY BOSS SET TO COLLECT £12M PAY-OFF... AS UNIONS FEAR KRAFT TAKEOVER JOBS BLOODBATH. Mail Online. Associated Newspapers Ltd. [Online]. Available at: http://www.dailymail.co.uk/news/article-1244330/Cadburys-boss-set-collect-12million-pay-unions-fear-jobs-bloodbath-Kraft-takeover.html [Accessed on May 10, 2010]. 2. BBC. January 19, 2010. CADBURY AGREES KRAFT TAKEOVER BID. BBC News. [Online]. 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