The implications of Kraft-Cadbury takeover: Cultural Change

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By: Alex Osborne, Vivian

Songonuga & Mphasto
Chibwana

20th April 2010

Agenda
1. Introduction
2. Group Approach
3. Organisational culture
4. Comparison of Kraft’s and Cadbury’s culture
5. Implications of the cultural change on Kraft and Cadbury
6. The impact of cultural change on Cadbury
7. The factors needed to implement and sustain cultural change
8. Strategy and plan for implementing change
9. Conclusions
10.Recommendations
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11.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 2nd 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.

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“Cadbury has been in Kraft's sights for a while, but the merger took on new
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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
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confusion and conflict” (Virani, 2007).

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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
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Networked, Mercenary, Fragmented and Communal (Goffee, 1998)

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 Comparison of Kraft’s and Cadbury’s culture
Types of Culture Characteristic Traits Cadbury Kraft

Participation  
Friendship & Networking
Networked Networking throughout the organization
Helping others  

Performance and effectiveness  

Hard work  
Mercenary
Material reward 
Destroying competition 
People working alone
Fragmented Few links with colleagues
Aiming for goals outside organization
Deep friendships 
Shared values of sociability  
Family atmosphere 
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A passion for the business
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Communal Sense of value in work 

*Adapted from Goffee & Jones (1998)

This assessment of the company’s culture has been derived from various sources, including their website
Implications of cultural change on Kraft and Cadbury

Implications on Kraft Implications on Cadbury

Strengthened Brand Damaged Heritage
Drives higher performance leading to Lower moral and performance
higher revenue
Better control of the organisation Staff burn-out
Better reputation Risk of losing benefits schemes to
American procedures
Efficiencies through alignment of Trust Issues
procedures and processes
Alignment of goals Weakened Brand
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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
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Risk of diminishing Cadbury’s brand

The factors needed to implement and sustain cultural change

Drivers for change Drivers against Change

Strong leadership Government

Interventions
Good support
from team
Bad press by the media

Empathy and respect for

acquired company
Cultural
Change Employee resistance: Unions
Good communication of
change

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Brand Loyalty, e.g. Consumer boycotting brand

Resources e.g. human

and financial

*Adapted from Kurt Lewin (1943) Force Field

 Strategy and Plan for implementing change
Kotter’s 8-Steps Plan
Examine the limitations of the existing culture and its
impact on performance.
Establish a sense of urgency
Communicate to Senior Management the need for
the change.
Assemble a group from senior management and
Union members to champion the change.
Forming a powerful guiding coalition Use press coverage to maintain momentum
Seek internal and external support, e.g. Government
to aid the transition
Senior management to develop a new mission
Creating a vision statement which incorporates the new culture and
develop effective strategies to execute the vision.
Communicated new vision throughout the
organisation and to consumers using different
Communicating the vision channels such as TV, emails, documentation,
bulletins etc.
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Provide constant two feedback during transition
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Create the right environment to empower staff to act
on the change
Empowering others to act on the vision 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

*Adapted from Kotter’s (1996) 8-step Change Model in Burnes (2004)

Strategy for implementing change Cont…
Kotter’s 8-Steps
Plan for and create short term wins
Consolidating gains and producing more change
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Institutionalize new approaches
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Plan
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
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.
Articulate to the organisation the connection
between new norms, behaviours and the organisation
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Document
master 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.

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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!

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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.
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Bowers, S.(2009) ‘Cadbury warns of culture clash under Kraft’. The guardian . 21 October, 2009 [Online]
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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]
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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
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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 ,
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2009 [Online] Available at: http://www.theglobeandmail.com/globe-investor/why-kraft-wants-cadburys-
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secrets/article1279793/ [Accessed 12 April 2009].