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 / Autumn 2009 / Issue 56(originally published by Booz & Company)


Inside the Kraft Foods Transformation

Instead of letting the old Kraft Foods, the old General Foods, and the old Nabisco each have their own functions and operate as business units within a holding company, we moved in the early 2000s to a centralized model with very strong functional control, leaving the business units as not much more than marketing entities.

As a result, they were increasingly disempowered and disenfranchised. And increasingly, there was a slowed-down, thickening sense of process. Functional leaders were making decisions that might have made sense for the whole but clearly did not make sense for individual business units.

Dave Brearton: Up to a point, centralization was the right thing to do. If we hadn’t done it — if we hadn’t ripped out some of the costs and rationalized some of the infrastructure of the companies we bought — we would still today have a very disparate company with no real leverage of our scale. But the resulting problem, as we got into the middle part of this decade, was that we weren’t growing. Our earnings were going down. And we weren’t responding to changes in the environment quickly enough.

Brian Davison: The research and development function would have a goal for cost reduction. So would people in manufacturing and procurement. People were re­warded for their ability to hit their functional goals. They were good at that, but their linkage to the overall business performance and goals started to wane.

Mark Clouse: The operations group was incented for cost management and efficiency rates. Meanwhile, as a business manager — I was running the China operation when we started thinking about these changes; I run the Brazil operation now — I was chasing revenue. There was always this friction between the two sets of incentives, and the business unit leaders lacked the ability to holistically run the business. That was a constant source of problems — it got in the way of accountability and overall ownership of the business.

Lance Friedmann: An example from mid-2007 might show how siloed we were. The European chocolate business had developed a really cool reclosable package for their chocolate bars. You opened it up, took a bite of chocolate, and then put the rest back in and the adhesive resealed. It really helped freshness. They’d been developing this new packaging for some time.

Somebody was showing it at a strategic planning session in front of Irene, Sanjay, and the rest of the Kraft executive team (KET). [The KET, numbering nine people at the time, is composed of the most senior executives of the corporation.] And Gustavo Abelenda, who leads the Latin America operation, including a large chocolate business in Brazil, saw it and said, “That’s really cool.” Sanjay said, “You hadn’t seen that?” And Gustavo said, “No, I really hadn’t seen it.” A lot of lightbulbs went on. We suddenly saw how disconnected some of our teams could be.

This was before OFG — we had no mechanisms in place for making this sort of information flow. Now, we have something called category executive teams — multi-geographic groups responsible for sharing ideas in the areas of biscuits, chocolate, coffee, and powdered beverages. And, not surprisingly, today there’s a reclosable package in Brazil.

Mark Clouse: Another problem was how much time we spent, as business unit managers, communicating up the line. In a centrally run company, it stands to reason that the people in the center would need to understand your business at a level of detail that allows them to make good decisions. So we would prepare answers for whatever set of questions might be thrown our way. That took away from time we would otherwise spend developing our brands, building our businesses, and addressing the needs of the market or of our consumers.

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  1. "CEO Forum: Rosenfeld Keeps Kraft from Being Too Cheesy,” USA Today, December 11, 2008: Interview discusses outlook for the recession, the “Innovate with Kraft” program, the glass ceiling, and the turnaround described in this article.
  2. Vinay Couto, Per-Ola Karlsson, and Gary L. Neilson, “Putting Headquarters in Its Place: The New, Lean Global Core,” Booz & Company white paper: Spells out the kind of organizational design that proved relevant at Kraft Foods Inc.
  3. Gary L. Neilson, Karla L. Martin, and Elizabeth Powers, “The Secrets to Successful Strategy Execution,” Harvard Business Review, June 2008: Complements the suggestions in this article by showing why effective organizational redesigns go beyond lines and boxes.
  4. Jaya Pandrangi, Steffen Lauster, and Gary L. Neilson, “Design for Frugal Growth,” s+b, Fall 2008: How to use a similar type of redesign to cut costs and expand simultaneously.
  5. Janet Paskin, “The Corner Office: Cooking Up New Growth,” SmartMoney, July 2009: An interview with Irene Rosenfeld on how Kraft is staying competitive and creative.
  6. Kai Ryssdal, “Conversations from the Corner Office: Interview
    with Irene Rosenfeld
    ,” Marketplace, February 10, 2009: Kraft’s CEO, in a public radio interview transcript, on why it’s a good time to be in the foods business and how the company expects to grow.
  7. Central source for information about the company and its products.
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