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Published: August 27, 2009

 
 

Inside the Kraft Foods Transformation

Irene Rosenfeld: We changed Kraft’s incentive structures in a way that linked unit managers’ compensation more directly to their individual performance. For example, in the past we might have incented the general manager of a country — China, say — based on the total perfor­mance of Kraft worldwide. Now, bonuses are calculated by weighing the performance of their individual businesses (for example, China) at 70 percent and the next higher level of aggregation (for example, Asia/Pacific) at 30 percent. That is just enough to encourage the managers to support the greater good, not just their own individual performance. We’re hopeful this will encourage managers to make the trade-offs that help both their units and Kraft as a whole.

Learning New Roles

Dave Brearton: For most functional leaders, I’d say, the reorganization has been a huge shift. Previously, those of us in the KET had big portfolios. You might have had responsibility for a large number of factories, or for the customer service group worldwide, or in marketing for consumer insights worldwide. Suddenly you’re influencing decisions, providing tool kits, or managing talent, but you’re not actually running a day-to-day operation.

Karen May: There’s an art to letting go, which is necessitated by the new structure. In their new role, these executives are like orchestra conductors. They’re not playing the instruments and they’re not writing the music. But they are making sure it all comes together. It’s not a matter of abdicating responsibility. The responsibility is huge.

Jean Spence: Whenever you go through a change like this, you do feel a certain loss. I used to have 14 direct reports, and I would spend time with each of them on project updates. Moreover, I was involved in approving the year-end performance reviews of their direct reports — about 100 R&D staff people altogether.

That’s now done on a local basis. The head of R&D in the cheese division worries about cheese. My job now is to think about the strategic projects — for instance, what’s the 10-year trend going to be, what are the implications for R&D, and how do we build that into our strategy. Before, to be perfectly honest, I wasn’t able to spend much time on these questions. I’m finding the new challenge pretty interesting.

Rick Searer: It didn’t make sense to decentralize every function — and we didn’t. The model needed to be more flexible than that. We knew from long experience that there were functions, in North America in particular, that were better off centralized. We ran information technology and human resources centrally because they were more efficient that way. We kept sales central for reasons of effectiveness — our wall-to-wall sales force provides the best in-store coverage for our iconic brands.

Where does it make sense to enable each business unit to be nimble, and where does it make sense to take advantage of the scale of Kraft? Our answer to that question informs the model we have today. And the answer is still evolving.

Mark Clouse: As a business unit leader, I find that my ability to engage my organization has been aided greatly by the fact that we are setting more of the direction. And as a company, we’re doing smarter things. We’re not launching products just because someone thinks a platform that sells well in one place will sell well in another.

These problems are now gone, and we’re focusing on the things we should be focusing on: the top line and the bottom line.

Nick Meriggioli: I can offer a specific example of how things have changed for the better. Toward the end of 2008, operating income at Oscar Mayer, the North American unit I run, was a little behind plan. In the past, the sales planning team might not have had much reason to try to fill this gap. Their efforts, and much of their incentive compensation, were based on driving top-line growth.

 
 
 
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Resources

  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. www.kraftfoodscompany.com: Central source for information about the company and its products.
  8. For more business thought leadership, sign up for s+b’s RSS feed.