The sun generates a tremendous amount of energy, but it gives us only a warm glow. By contrast, a laser beam that uses a few kilowatts of energy can cut through metal. Such is the power of focus. If you are running a large global business with a big portfolio of brands, products, and markets, adding to your portfolio is likely to create more complexity than growth. To win in your businesses, you must harness the power of focus. By following the seven steps in our blueprint, business leaders can drive profitable growth even in difficult economic times.
Building Scale for Focus: A Tale of Two Acquisitions
Growth through focus involves a reduction in the number of products, categories, brands, and markets that the company should focus on. But it also demands an increase in the scale of the businesses that the company chooses to focus on. Scale can be generated by building on the brand and product assets that the company has in its portfolio through organic growth. However, organic growth may not be enough to get to the required scale, particularly when the company is betting on markets or categories in which it is not a market leader. Further, in some emerging markets, building distribution networks from scratch is a Herculean task. This is where acquisitions play an important role in the growth-through-focus approach. They can help the company acquire scale in its chosen domains. The acquisition strategy should be driven by the focus strategy, and a clear logic should link the acquisition to the strategic framework for growth.
Consider Kraft Foods. The company had chosen biscuits and chocolates as two of the categories it wanted to focus on. It had also determined that markets like India, China, Brazil, Russia, and Mexico would be important for the company in the future. However, it lacked the scale, the brands, and the distribution networks it needed to compete globally in these categories and these markets.
Using this focus strategy, Kraft Foods identified two key acquisitions — the global biscuit business of Groupe Danone and Cadbury PLC, the U.K.-based confectionery company. In November 2007, Kraft Foods acquired the global biscuit business of Groupe Danone for US$7.8 billion. After this acquisition, Kraft Foods’ biscuits business accounted for 20 percent of the company’s revenue and catapulted Kraft Foods into the leading position in this category across the world. More importantly, it gave Kraft Foods an engine for faster growth in emerging markets. And in February 2010, Kraft Foods completed the acquisition of Cadbury for $19.5 billion, which has made the company a global powerhouse in snacks, confectionery, and quick meals. Kraft Foods now has access to Cadbury’s strong international distribution networks, which will allow it to penetrate deeper into emerging markets.
The focus lenses chosen in the second step of our approach can be used to identify and prioritize acquisition targets. In the case of Kraft Foods, the Danone biscuits and Cadbury business were attractive targets because they represented a triple win on the 5-10-10 scorecard — priority categories, strong brands, and strong presence in the key markets that Kraft Foods had decided to focus on. Further, these acquisitions brought in talent and a diversity of culture that will be a powerful asset for Kraft Foods as it grows its international business.
—S.K. and M.S.
Reprint No. 00034
- Sanjay Khosla is president of Developing Markets and Global Categories for Kraft Foods. He has more than three decades of leadership experience in global consumer packaged goods companies and has lived and worked around the world.
- Mohanbir Sawhney is the Robert R. McCormick Tribune Foundation Clinical Professor of Technology and director of the Center for Research in Technology and Innovation at Northwestern University’s Kellogg School of Management. He has coauthored five books and many articles on marketing, technology, and innovation.