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


Inside the Kraft Foods Transformation

This time, they devised a plan to focus on higher-margin products and trim trade spending. That helped us deliver the number we were looking for on the bottom line.

The new organization and the mind-set within business units of “We’re all in this together” — sales and marketing and operations and R&D, all pulling in the same direction — facilitated this tactical adjustment.

Sanjay Khosla: Fundamentally, the role of corporate executives in this new structure has been to put the right people in the right jobs, and then get out of their way. And I’d argue that by going to the business unit structure, Kraft has done one of the most profound things in its history. We’ve unleashed the potential of our people.

The Challenges of Change

Irene Rosenfeld: When you make a change of this magnitude, it can take a while for people to figure out what to do. Some embrace that responsibility faster than others. At the same time, some of the functions have actually become, in effect, too hands-off.

Dave Brearton: The center still has people who can be parachuted in to help with issues. I think we have been a bit slow to react from the center in a couple of cases, and the BUs aren’t always anxious to get our help. It’s a delicate balance, knowing when to intervene, but we’re getting there.

Jean Spence: For me, and I think for a lot of us, the biggest challenge in decentralizing is making sure we get the benefit of collaboration across the enterprise. In the past — when the top R&D people in the business units reported to me and I had to answer to Kraft’s needs — if we created a promising new cookie technology in East Hanover, N.J., I could have the VP go over and share it with our Asia/Pacific operation. His day job may have been local in New Jersey, but a very important part of his role was sharing his innovations globally.

We’ve had to make sure to reinforce that ethic even though we have a less centralized reporting structure. We have several mechanisms in place. The highest-profile example is our category executive teams. We also have collaborative networks through which we share best practices.

Nick Meriggioli: Along with accountability, people need information. Our information systems were built to provide information to the business units, but not to the categories that make up those units. The people who oversee the hot dog, cold cuts, and bacon businesses — subcategories within Oscar Mayer — need to get data on their monthly results at the same time that I get the broader business unit results. With our new implementation of SAP, we’re making progress here.

Karen May: Another thing we are still working out is how to adopt more of the shared-services model. The idea is that each function defines its services and costs; the business units, within guardrails, get to choose the level of service they need or, in the extreme, to opt in or out completely. In previous years, the business units had no such flexibility — they would just get a huge cost allocation for shared services that they didn’t understand, and that they saw as a big dump into their P&L. There wasn’t a mechanism for them to exercise any control over it.

The process for calculating costs using shared ser­vices is still not as clear as we’d like it to be. Indeed, it’s fair to say the shared-services model is still in its infancy at Kraft — each function has done it in its own way. But the problems in the broader economy should give shared services a push forward, because of the method’s potential to help us control costs.

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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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