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MGW1010 Assignment Two

Introduction to Management MGW1010 Assignment 2

Prepare a report that addresses how managers can deal with challenges that increased financial uncertainty in the external environment creates for their organisation using any two functions of management.

Prepared by Priyanka Puri [21827109]

for

Dr. Imam Baihaqi [Sunway Campus]

Dr. Imam Baihaqi [Wedenesday, 9:00 am]

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MGW1010 Assignment Two

Table of Contents Executive Summary 1.1 Introduction

1.1 Aim 1.2 Scope 1.3 Methodology 1.4 Assumptions 1.5 Limitations 1.6 Background 1.7 Plan

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2.0 Discussion
2.1 The challenges created by the increased financial uncertainty in the externale nvironment to Kraft Foods can be dealt with through planning and controlling\

2.2 Planning
2.2.1 Establish Goals Management by objectives 2.2.2 Strategic Planning 2.2.3 Operational Plans 2.2.4 Criticisms and Limitation

3.0 Controlling
3.1.1 Definition 3.1.2 Types of Control 3.1.3 Issues that arise from control

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4. 0 Conclusion Recommendations

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Executive Summary
This report analyses how Kraft Foods managers can deal effectively with challenges created by the increased financial uncertainty in the external environment through the use of management tools planning and controlling. Challenges such as the Global Financial Crisis of 2007 to present, the health of the current American economy and the recent merger of Kraft Foods and Cadbury are all part of the financial uncertainty that managers of Kraft Foods face today. Although Kraft Foods is a food, beverage, and confectionary company this report will focus mainly on its confectionary business. Kraft Foods Confectionary Sector is committed to becoming a world leader and surpassing competitors, it aims to improve profitability by 10%, reduce debts and build a strong foundation in promising developing countries by 2013. The Global Financial crisis has led to instability in the American economy. As an American company, Kraft Foods must plan to establish itself more firmly in other less affected developing countries with more stable economies such an India and China. India has a strong confectionary market that Kraft Foods operates in 86 countries. It has 98,000 employees according to its company website. Currently Kraft Foods is the 2 nd largest in the world and the first in America. In February 2010 it merged with the British Candymaker Cadbury. Indicated in a article Scott (2010) Cadbury has 28.4% of the world gum market, while Kraft's share stood at 0.1%. This would also benefit Kraft in the long run especially in the developing markets like India, Mexico, Brazil ,China and Russia where Cadbury has leading position. Kraft Foods recent merger with Cadbury has caused much outrage from customers and employees in United Kingdom. There have been talks of boycotts of Kraft Foods goods. Kraft Foods must form a plan to gain loyalty and respect from Cadburys current customers in order to be successful and meet their objectives by 2013. Thus in order to carry this out successfully Kraft must plan a strategy to sustain and dominate developing economies as had Cadbury doing in the past, through the use of management function control. This report includes investigations of relevant theories and concepts selected from planning and controlling to meet its goals.

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MGW1010 Assignment Two

Based on the analysis, recommendations would be provided for Kraft Foods to perform. Analysis includes assessing bureaucratic and clan control and the issues that can arise through the use of control in a multinational like Kraft Foods. It explores how goals can be established through the utilization of management by objective, the different types of plans that can be formulated, the possible tools that can assist in planning, and the limitations that come with the management function planning. This report draws recommendations such as using Management by Objectives to establish well defined goals. Researching competitors current business activity in terms of products out in the market, suppliers, and general position in the market. Use bureaucratic and clan control to administer rules and regulations within Kraft Foods. Be aware of the limitations of both planning and control and eliminate issues that can possibly arise as much as possible. And finally suggesting that Managers of Kraft Foods should draw up detailed structured strategic and operational plans to deal with challenges that arise from the financial uncertainty of the external environment.

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MGW1010 Assignment Two

1.0 Introduction:
Purpose: The purpose of this report is to identify, discuss, and evaluate how the ideas from the two management functions planning and controlling can be used by managers of Kraft Foods to deal with the challenges that increased financial uncertainty in the external environment creates for their organisation. Background: Kraft Foods is a American multinational company headquartered in Northfield, Illinois. It has is the largest confectionery, food, and beverage corporation in America and second largest in the world to Nestle, due to its recent merger with Cadbury. As most of its activity has been focused most in America, the recent downturn in the American economy can have damaging effects on its business. Especially due its takeover of Cadbury which cost Kraft Foods $19.5 billion to buy over. It financed part of this through selling its frozen pizza business to its Nestle competitors for $3.7 billion as indicated in the Nestle press release on its company website. The rest ($15.8 billion) was financed through loans from banks. As of present Kraft Foods has taken over all of Cadburys geographically diverse markets but needs to plan to sustain customer loyalty if it aims to pay back its loan by 2013 and survive the economic downturn in America and the Global Financial Crisis. Thus the management of Kraft have decided to focus on building and sustain a stronger foothold in promising developing countries where Cadbury is the leader, increase profitability by 10% or more and reduce their debts by December 2013. This is due to the potential impacts of the global financial crisis, and the current economic downturn in the United States. Scope: When investigating Kraft Foods sustainability by the challenges created by the Global Financial crisis it faces, it is important to consider its recent takeover of Cadbury as it reduces Kraft Foods cash flow as well as creating a risk to pay back the $15.8 billion with interest to banks. The financial uncertainty in this case is the Global Financial Crisis of 2007 to now. This requires managers of Kraft Foods to use planning and controlling to deal with the challenges faced in the external environment.
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Methodology: The information in this report was collected by online journals, company websites and Online news articles. Assumptions: It is assumed that the information provided by the relevant journals, company website and articles are accurate and appropriately used for this report. Limitations: This report is limited by the need to focus solely on planning and controlling as the management elements to meet the requirements of this report. Furthermore, only the relevant key elements within the planning and controlling management functions have been discussed. In doing so, it is understood that other elements that could also achieve the purpose of the report are not taken into account. Planning: This report will first illustrate a background on the challenges created by the increased financial uncertainty in the external environment to Kraft Foodsthat can be dealt with through planning and controlling. Significant functions regarding these two topics will be explained and their application to Kraft Foods will be analysed as well as evaluated that will ultimately lead to necessary recommendations to management to deal with the challenges that will occur due to the Global Financial Crisis.

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MGW1010 Assignment Two

2.0 Discussion
2.1 The challenges created by the increased financial uncertainty in the external environment to Kraft Foods, Inc can be dealt with through planning and controlling. Due to the Global Financial Crisis of 2007 to present, the worlds developed countries such as America face unstable markets in their economy. Kraft Foods being an American based company is susceptible to many financial challenges such as decreased sales as customers will be spending less while Kraft Foods cost of production remains the same. Kraft although being number one in America in food, beverages and confectionary faces many challenges now to pay backs it debts to banks due to its recent merger with the British brand Cadbury. For analysis sake to be current and straightforward the main focus will be on Kraft Foods in the confectionary industry. Kraft Foods paid 7 billion pounds to acquire Cadbury as. The company used money generated from selling it frozen pizza business to its competitor Nestle for a USD 3.7 billion in cash. The rest was borrowed from banks. Due to this Kraft Foods must maintain increased profits until 2013 so that all of its loans are paid back with interest to banks by the end of this period. Furthermore the Cadbury takeover caused much outrage and concerns in Great Britain from employees, families of employees and British customers. This can be seen when Jennie Formby at the union explains that ..the sad truth is there will be an irresistible imperative to pay down their debt, and this raises real fears for jobs and investment in this country (Dan Roberts, 2010). This can hinder Kraft Foods progress to become world number one in the confectionary industry if it does not plan and control its staff and sustain customer loyalty appropriately. Thus through effective planning and controlling, managers can attain their goals to deal with challenges caused by the Global Financial Crisis. Goals such as building a strong foothold in developing countries that show promising growth such as India and China. Kraft Foods also as stated previously aims to improve profitability by 10% each year till 2013. And finally reduce debts, especially its bank loan for the Cadbury merger.

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2.2 Planning
2.2.1 Definition Planning is described as the process of defining goals, establishing strategies for achieving those goals and developing plans to integrate and coordinate activities (Robbins, Bergman, Stagg & Coulter, 2006). As stated by Mintzberg (1994) planning is expected to produce the best step by step strategies as well making sure that managers of organisations would not make carry out instructions wrongly. Moreover purpose of planning is to provide goals, reduce uncertainty so that managers are able to anticipate changes and develop responses. 2.1.2 Formal Approach of planning

Planning works best with goals and objectives written down. Formal planning is when specific goals covering a period of years are defined (Robbins, et al, 2006). These goals are written down and shared with organisations managers. Furthermore Mintzberg (1994) clarifies that formal planning has very analytical nature and relies on the preservation and rearrangement of established categories (the existing levels of strategy). Kraft Foods should use a formal approach in terms of planning to deal with the Global Financial Crisis. 2.2.3 Establish Goals Management by objectives

Goals described as desired outcomes for individuals, groups, or entire organisation (Robbins, et al, 2006). Lee, Locke and Latham define goal as that which one wants to accomplish; it concerns a valued, future, end state. The theory is based on the assumption that goals represent an end state towards which a person strives and that they serve as immediate regulators of action (Lee, Locke and Latham, n.d. , as cited Strecher, Seijts, Kok, Latham, Glasgow, DeVellis, Meertens and Bulger, 1995).Thus provide direction and evaluation performance criteria. This is critical in the case of Kraft Foods. Instead of using the traditional goal setting methods, Kraft Foods can use management by objectives (MBO) to set its goals. Management by objectives is the
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process of setting mutually agreed-upon goals and using those goals to evaluate employee performance (Robbins, et al, 2006). It is when specific performance goals are jointly determined by employees and their managers, progress towards accomplishing these goals is periodically reviewed, and rewards are allocated on the basis of this progress. MBO has four elements; goal specificity, participative decision making, an explicit time period and performance feedback. In order to set goals the CEO & Chairman of Kraft Foods should certain steps. Firstly the organisations mission should be reviewed. Then Kraft Foods should evaluate what available resources it has. It should not have a goal that cannot be reached with its current resources. The goal with the use of MBO can be determined with input from the other managers of other departments (refer to Appendix 1). A well designed goal should be written in terms of outcomes rather than actions such increasing profitability by 10% at end of the year till 2013 is a clear and specific goal. This is a well designed goal because it is measurable and quantifiable and has clear time frame. It should be challenging yet attainable. It need to be written down for future reference and no opportunity of miscommunication (Robbins, et al, 2006). And finally all well designed goals are communicated to all the managers of Kraft Foods. Making people aware of the goals ensures that they are all on the same page and working in ways to ensure the accomplishment of the organisational goals thus dealing with the challenges that the Global Crisis will bring. 2.2.4 Strategic Planning Strategic plans described as general plans and have longer time horizons normally covering a one-to-five-year time period. It is a written long-range plan, which includes both a corporate mission statement and a statement of organizational objectives. A strategic plan includes strategies indicating how objectives will be accomplished. Strategic planning is also considered to provide the substance from which overall company performance can be controlled and measured (Shrader, Mulford , Blackburn, 1989). It forms the basis for a business model i.e. how a company intends to profit from its strategies, work processes and work activities. It results in higher organisational performance (Robbins, et al, 2006). It requires that managers examine and adapt to business environment changes. It coordinates diverse organisational units, helping them focus on organisational goals. It is very much involved in the managerial decision-making process. It is highlighted that effective
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strategies are about being different (Eisenhardt, Kathleen, Sull, Donald, 2001). Krafts operational plan is to reduce debts, build a strong sustainability and foothold in developing countries like China and India, and increase profitability by 10% each year till 2013. 2.2.5 Operational Plans Operational planning, on the other hand, is defined as the setting of short-term objectives for specific functional areas such as finance, marketing, and personnel. Operational plans cover periods of less than a year. In this case Kraft Foods Chief Financial Officer (refer to Appendix One) can plan written inventory and sales forecasts, advertising budgets and individual budgets for each department of Kraft Foods. These budgets will usually be for a time period of one month or quarter. Operational Planning It is important that the manager explains the goals at hand and how they will execute plans, anticipate the final results, examine and understand individuals willingness to achieve the goals (Shrader, Mulford, Blackburn, 1989). 2.2.7 Criticisms and Limitations Planning can create rigidity according to Robbins et al (2006). Formal planning means an organisation is locked to the specific goals it made in the past. In the business world there is a lot of uncertainty, formal planning doesnt not consider the idea that the environment can change. Thus the Kraft Foods manager can face trouble if they rigorously follow the original plan. It will mean inability to cope with changes for example if Hershey (their confectionary competitor) acquires a business like Mars to have a more competitive edge in the market. This may mean the original plans Kraft Foods drew may have to change in reaction to that. This flexibility is not allowed by formal planning as indicated by Mintzberg(1994). It does not allow managers of Kraft Foods to create or reinvent an industry.

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3.0 Controlling
3.1.1 Definition Controlling is the process of monitoring business activities to ensure they are being accomplished from planning and then correcting any significant deviations (Robbins, et al, 2006). The purpose of control is to ensure activities are completed in ways that lead to accomplishment of organisational goals. Controlling complements planning as it requires informing managers if their plans are on target, goals are being met and what future actions to take. Effective control system provides information and feedback on the performance of subordinates (Robbins, et al, 2006). 3.1.2 Types of Control There are three main types of control systems but the two main control systems Kraft Foods would benefit from are bureaucratic and clan in this situation. Kraft Foods manager can benefit from implementing these types of control systems in order to deal with challenges created by increased the Global Financial Crisis. Bureaucratic control is the organisational authority that ensures employees exhibit appropriate behaviours and performance standards through the use of administrative rules, regulations, procedures and policies (Robbins, et al, 2006). According to theory the manager collects information in regard to the flow of work by watching the actions of his subordinates, and inferring from their behaviour who is doing their job well or poorly (Ouchi, 1979). The manager than confirms his inference by checking a record of outputs for each worker at the end of the day. It requires close personal surveillance and direction of subordinates by superiors. The information necessary for task completion is contained in rules; these may be rules concerning processes to be completed or rules which specify standards of output or quality (Ouchi, 1979). This is the essence of bureaucratic control. Bureaucratic control can be used by the mangers of Kraft Foods in several ways. The manager of Developing Markets and Global Categories (refer to Appendix One) can make it a policy for the department to hold reviews once a week about what is being done to build a strong foundation in promising developing nations. Also administrative rules on areas such as lunch breaks should be followed rigorously to maintain productivity. The manager of Kraft Foods should with the application of bureaucratic control make sure that employees do not take more than a maximum of
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one hour for lunch. This can be monitored by Company Scanners by the doors of the office building. Company policy should also dictate that those who frequently come in late will be given less control of projects until performance observed in a period of one month shows changes or consistent improvement. Thus this allows Kraft Foods to have more control over their key objective for 2013.

Clan Control on the other hand is when employees conduct is regulated by shared values, norms, traditions, rituals, beliefs and other aspects of the organisational culture (Robbins, et al, 2006). This can be used by Kraft Foods managers such as the heads of each department (Refer to Appendix One). The manager of Developing Markets and Global Categories can make a daily effort to briefly speak with each individual in his project team about the current stability of the economies of developing countries. While the Executive vice president of Strategy can discuss and remind his project team what actions are being taken by Kraft Foods competitors and how to counteract that to maximize profitability. Finally the Chief Financial Officer of Kraft Foods could emphasis by sending a daily memo every morning that debts have to be reduced as their main objective of activity. Through the behaviour and actions of each manager in Kraft Foods, employees will inadvertently form a norm to stay focussed on Kraft Foods goal for 2013 which will assist managers to deal with challenges of the Global Financial Crisis . This then creates a shared norm or value. As the manager is up to date with what is going on in the business world it will make employees more likely to find out and seek knowledge so as to keep up with expected norms displayed by said manager. Clan control therefore operates through socialization. It attempts to foster common goals between the controller and controllee by propagating norms,values, and a shared ideology. (Tiwana and Keil, 2009).

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3.1.3 Issues that arise from control Mangers of Kraft Foods should also be aware of the issues that come with control. As Kraft Foods is a American company that hires employees all over the world it is detrimental that areas such cross-cultural differences and workplace concerns are considered and control is adjusted accordingly. Distance is another issue that can hinder the flow and process of controlling for managers of Kraft Foods. Technology can be used to increase direct corporate control of local operations. Issues like legal constraints on corrective actions in foreign countries must be dealt with appropriately by the Legal council (refer to Appendix One). Sometimes there can be a difficult with the comparability of data collected from operation in different countries. Another issue to look at when evaluating workplace concerns is employee theft. It is said that 85% of all organisational theft and fraud is commited by employees, not be outsiders (Robbins, et al, 2006). Embezzlement, to fraudulent filling of expense reports, to removing equipement and parts, software and office supplies is common. In order for Kraft Foods to reduce cost and increase sales to sustain and increase its market share during economic downturn, it must have strong vigilant policies that do not allow employees to be in a position to behave in such a manner.

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4. 0 Conclusion
Planning provides goals, reduce uncertainty so that managers are able to anticipate changes and develop responses. Through the use of formal planning, Kraft Foods managers will reduce the chances of miscommunication and things going wrong, this is essential for sustainability and growth that Kraft Foods aims for. Kraft Foods can use Management of Objectives to plan its goals and so making subordinates aware of the goals ensures that they are all on the same page and working in ways to ensure the accomplishment of the organisational goals thus dealing with the challenges that the Global Financial Crisis brings. Strategic plans require that managers examine and adapt to business environment changes. It coordinates diverse organisational units, helping them focus on organisational goals. While Kraft Foods can use operational plan to reduce debts, build a strong sustainability and foothold in developing countries like China and India, and increase profitability by 10% each year till 2013. And use operational plans to run the day to day activity of Kraft Foods. However Managers of Kraft Foods should be aware that planning can also posses limitations such formal planning where it doesnt not consider the idea that the environment can change. Thus the Kraft Foods manager can face trouble if they follow the plan exactly with no flexibility. Controlling ensures that plans are being accomplished from planning and then correcting any significant deviations (Robbins, et al, 2006). The purpose of control is to ensure activities are completed in ways that lead to accomplishment of organisational goals. Bureaucratic and clan control a can be used by the mangers of Kraft Foods as different ways to control Kraft Foods employees. Clan control creates a shared norm or value while bureaucratic control is making sure employees know what behavior is expected of them through Kraft Foods rules and regulations. Mangers of Kraft Foods should also be aware of the issues that come when using control. Such as cross-cultural differences, distance and workplace concerns such as fraud and embezzlement. Thus if Kraft Foods managers implement the management function planning and controlling effectively as described in this report and keep in mind there limitations then the managers will be able to deal with Global Financial Crisis and challenges that come with it in the external environment.
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Recommendations
Use Management by Objectives to establish well defined goals. Managers of Kraft Foods should draw up detailed structured strategic and operational plans to deal with challenges that arise from the financial uncertainty of the external environment Research competitors current business activity in terms of products out in the market, suppliers, and general position in the market Use bureaucratic and clan control to administer rules and regulations within Kraft Foods. Be aware of the limitations of both planning and control and eliminate issues that can possibly arise as much as possible.

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