When a company’s corporate core gets too far from its businesses, from the marketplace, and from its consumers, then a new organizational model may be needed. That was true of Kraft Foods when I returned as chief executive in June 2006. I had just spent three years running the Frito-Lay division of PepsiCo, where decision making was highly decentralized. That experience had reminded me how powerful it is when people come to work every day aligned with and focused only on the business, rather than on the internal organizational demands.
Kraft, too, had gone through periods of decentralized decision making, as I knew from my previous 22 years with the company. But the company in 2006 wasn’t operating that way. Not long after I arrived, a request to review and approve a pricing decision in the German coffee business arrived on my desk in Northfield, Ill. It created a lot of unnecessary work when people asked us in corporate headquarters to make decisions that were not our province. Moreover, we weren’t managing our brands and categories at the appropriate level to understand their competitive dynamics. We weren’t as nimble or responsive as we needed to be, and it was affecting our results.
Now, three years later, we’re delivering. We had an exceptionally strong year in 2008, on both the top line and the bottom line, despite the challenging macroeconomic environment. And there has been an equal impact on the effectiveness of our management. Today, I spend the bulk of my time on strategy, on understanding key drivers within our business units, and on putting the right people in critical positions — where they have much more responsibility than in the past.
One of the vehicles for achieving these results was the “Organizing for Growth” (OFG) initiative that we began at Kraft Foods in 2007. Rewiring our organization was one of the four key strategies of our three-year turnaround plan to restore the company to sustainable, long-term growth. To achieve this, we had to essentially dismantle the existing organizational matrix and replace it with a decentralized structure that gave our newly reorganized business units more direct lines of responsibility. This was an enormous undertaking, both in concept and in implementation. It involved changing reporting lines, structures, and operating units. And it was only one part of a larger change initiative that involved operational changes — building up our sales capabilities, reframing our food categories, and implementing new operating metrics and financial rewards for our executives and managers.
There is often a tendency to believe that when you make a structural change first, everything else will follow. However, structural, cultural, and operational changes are typically made together, and they influence one another.
This is the story of our reorganization and the changes that it helped deliver. It is an initiative that is best described by those within Kraft who participated in it. Their story — our story — follows.
Before the Turnaround
Karen May: When I came to Kraft in 2005, it was a company with iconic brands. Kraft had scale like nobody else. On an individual basis, the talent was amazing. Yet somehow, we were getting in our own way. We had functionalized to an extreme, and had lost focus on business results.
Rick Searer: How did Kraft ever get so centralized? To answer that, you have to understand how the company of today came to be. We are essentially a combination of businesses that have been bought and sold over the course of 25 years. Philip Morris bought General Foods in 1985, then bought Kraft in 1988, and put us together into a de facto holding company a year later. Oscar Mayer, Nabisco, and Jacobs Suchard in Europe all became part of Kraft through acquisitions.