The Takeover of Cadbury by Kraft: Implications for Organisational Change - Case Study Example

Table of Contents Introduction…………………………………………………………………………………………………………2 Cadbury Nature of Change…………………………………………………………………………………….2 Triggers for change………………………………………………………………………………………….2 Levels and types of change…………………………………………………………………………..3 Nature of change…………………………………………………………………………………………4 Level of change…………………………………………………………………………………………….6 Conclusion……………………………………………………………………………………………………………….9 Sources Used……………………………………………………………………………………………………………..10 The Takeover of Cadbury by Kraft: Implications for Organisational Change Context Introduction Change is inevitable in any organisation. When Kraft took over Cadbury, this was a major change that was disruptive to the Cadbury organisation, which had implications for the all the stakeholders involved. Included in the stakeholders was the UK government, which rebuked the organisation for shuttering a plant that it promised to keep open. The workers felt job insecurity. However, the change was not all bad, as both companies gained market share throughout the world. This essay will examine the changes that were made, including the mistakes that Kraft made, and how the change affected all the stakeholders involved. Cadbury Nature of Change The triggers for change The triggers and forces promoting the change was that Kraft, in September of 2009, offered a takeover for Cadbury, valuing it at the time at £10.2 billion (Wearden, 2010). This offer was initially rejected. Kraft eventually went hostile without a change in terms, despite the fact that Cadbury upped its sales and profit margins, along with a warning that the firm, Cadbury, would lose its unique culture if Kraft took it over. In the end, despite Cadburys resistance to the takeover, Cadburys board recommended that the firm be sold to Kraft for £12 billion (Wearden, 2010). The triggers for change, in this case, was that Kraft wanted to expand its brand, and Cadbury was struggling in the marketplace. In applying the models of change, one of the pertinent models is that of Lewin’s Force Field Model. In this model, an organisation is beset by driving forces on one side and resisting forces on the other. Change upsets the equilibrium of the company, and the driving forces for change are opportunities and threats (Lewin, 1951). The driving force in this case was Kraft’s will to obtain the company, by any means, because it wanted to expand its market share. The resisting forces came when Cadbury repeatedly rejected Kraft’s offers, and, finally, Kraft had to take the company in a hostile takeover (Wearden, 2010). The opportunity that was represented by change was that both companies could gain market share. The threats was that Kraft’s takeover would threaten jobs, and would make workers, and the UK government, feel insecure about the future of the Cadbury company. Another model that is applicable is Lewin’s Ice Cube model. This assumes that there must be a transition state, that is the unfreezing of people’s beliefs – beliefs are frozen, and they must unfreeze for there to be change. The present state is the frozen belief system, while the desired state is what occurs after the beliefs are unfrozen, change takes place, and there is a new desired state that takes the place of the old belief system (Lewin, 1951). This is applicable in the Kraft case, as people in the Cadbury firm had a certain corporate culture and belief system, which is explained below, and they had to learn to adopt a new culture which was imposed by Kraft. Kraft also had to change and become more environmentally friendly to adopt to Cadbury’s ethos (Branagh, 2009). The change did not go as well as it could have, because the Cadbury employees felt intimidated and frustrated that Kraft changed the culture so completely (MacArthur, 2011). Therefore, Cadbury was delayed in getting to the desired state, which is where they accept Kraft’s changes. Likewise, under the three models of helping, the change agent, who was the CEO of the company, Irene Rosenfeld, did not provide as much information or consultation as she could have. She diagnosed the problem, which was that Kraft wanted to takeover Cadbury, and provided a solution, which was a hostile takeover. However, she did not help Cadbury perceive and understand the process events that occurred in the client’s environment, in that she did not communicate well with the stakeholders about key issues, including the shuttering of a plant, and did not communicate well about why it was the culture of Cadbury should change (MPs Criticise Kraft Chief Executive on Cadbury Takeover, 2011; MacArthur, 2011). Other change models are the clockwork mindset and the snake pit mindset. It seems that the change model that was in place was more the snake pit mindset, then the clockwork one. The clockwork mindset is that change is easy, and people who resist change are irrational, and people are basically happy in their work (Schwarz, 1990). This was not the change model that was in place during Kraft’s takeover, mainly because Kraft went back on its word regarding the shuttering of the plant, and the UK government was incensed about this, and the workers felt that they couldn’t trust the organization. Therefore, the people felt attacked, like everything was falling apart, and there was stress and anxiety where there didn’t need to be. This was the snake pit mentality (Schwarz, 1990). Education and communication could’ve helped overcome this resistance to change, along with bringing in stakeholders to have a say before the change occurred, but this didn’t happen, either, so the change went not as smoothly as it could have. Levels and Type of change There are different levels of change. One was introduced by Golembiewski (1976), who theorized that the organizational members’ reactions to change may be classified as alpha, beta or gamma. The alpha level of change is change that is not a total paradigm shift, and is the least level of change of the three. In this level of change, there is relative stability, as the changes are mainly superficial. In a beta level of change, there is a change that is noticeable throughout the organisation, but the change is not so disruptive that the stakeholders are at risk for resisting the change. In a gamma change, there is a paradigm shift, which means that the organisation experiences a profound change that echoes throughout the organisation (Golembiewski et al., 1976). Change may also be either morphotastic or morphogenic. A morphotastic change means that the change takes place within the existing organisation, so the changes are internal, but the general structure of the organisation stays in place. A morphogenic change is more of a fundamental change, and the organisation is changed completely, structure and all (Golembiewski et al., 1976). In the case of Kraft taking over Cadbury, the change was morphogenic, in that the organization changed completely as it as taken over by another organisation, and everything changed. This change would also be classified as a gamma change, as Cadbury had a paradigm shift, which will be explained further below. Other types of change are gradual, discontinuous, dramatic, systematic or organic. In this case, the change was dramatic, which means that there was significant workforce restructuring, a change of culture, a takeover and a merger (Mintzberg and Huy, 2003). The other types of change are more gradual – the systemic change implies a slow and less ambitious change; discontinuous means that the change happens in episodes that are erratic; and organic means that the change happens through daily activity (Mintzberg and Huy, 2003). Other types of change include smooth incremental, which happens slowly; bumpy incremental which happens in fits and starts (tranquility alternating with change acceleration); and discontinuous, which is rapid and affects strategy, culture, structure of all three (Grundy, 1993). In this case, the takeover would be considered to be discontinuous as it affected the strategy, culture and the structure of Cadbury. As for the pace and scope of change (Balogun and Hailey, 2004), it would be considered to be a big bang, as the pace was sudden and transformative, and did not happen gradually. The nature of the change (i.e. was it proactive or reactive, was it planned or unplanned) The change was proactive on the part of Kraft, somewhat reactive on the part of Cadbury. Kraft was the aggressor, and Cadbury was trying not to be taken over by Kraft, but it failed at this (Wearden, 2010). The change was also planned, to the extent that, after the merger happened, there had to be changes that were made to both organisations, particularly Cadbury, and these changes had to be planned by top management in both companies. It was clear that there were mistakes made in the approach by the change management and consulting teams – for instance, Kraft had indicated that they would keep Cadburys Somerdale factory open, then the company reneged on the pledge after the bid, which brought a rebuke from a UK Parliamentary Committee investigating the matter (Chartered Institute of Management Accountants, 2013). The UK Takeover Panel concluded that Kraft did not have a basis to change its mind on this matter, which led to 500 job losses. Moreover, a key figure in the decision to close down this plan, Irene Rosenfeld, refused to give evidence in person, in front of a committee of Parliament, which demonstrated to the National Parliament that the company had a dismissive attitude towards them. Further, there was a concern on the part of United the Union that what Kraft intended, with regards to its UK workers, was a mystery (Armistead, 2011). Ms. Rosenfeld was the change agent in the Cadbury takeover (Kesmodel & Rohwedder, 2009). Moreover, this action caused much anger, and when employees experiences cause them to experience a strong cognitive reaction, such as anger, they are likely to reject the changes (Smollan, 2009). The move to shutter the Somerdale plant garnered considerable ill-will on behalf of the UK public and the UK Parliament – in the Ninth Report of Session 2009-10, the UK Parliament focused upon this exercise in bad-faith by Kraft, stating that Kraft “acted both irresponsibly and unwisely in making its original statement that it believed that it could keep the Somerdale factory open….Its actions have undoubtedly damaged the UK reputation and has soured its relationship with Cadbury employees. Kraft will now have to invest significant time and effort into restoring its reputation and regaining the trust of the public...” (House of Commons, 2010). This, unfortunately, appeared to not just be a bad PR move on the part of Ms. Rosenfeld, who garnered considerable ill-will for her refusal to answer questions after she made the decision to shutter a plant that she promised to keep open, but it also appears to violated one of the basic rules of consultancy and change – that is that a consultant as the obligation to be “as authentic as you can be at all times with the client” (Block, 2006, p. 30). Moreover, when Ms. Rosenfeld refused to openly address the issue with Parliament, this violated the tenet that successful change is dependent upon open communication and participation (Oakland & Tanner, 2009). She didnt communicate with her stakeholders about why the shuttering of this plant was necessary, as the UK government and the employees of the plant would be considered to be stakeholders in this project, and communication with stakeholders is necessary for successful change (Victorian Quality Council, 2009). Moreover, because this move made it more difficult for the employees, and the UK people, to trust Kraft, this set back successful change, because people tend to resist change if there is a lack of trust (Kotter & Schlesinger, 2009). Moreover, this move hindered positive change because it was something that the people were not mentally prepared for, and it was essentially a change that was sprung upon them without warning – this is another reason why change isnt effective. People have to prepare for the change (Kanter, 2009). The level of the change (as seen by key stakeholders) with justification for perspective The level of change was tremendous, in that Cadbury and Kraft both benefitted from the move. The Cadbury name and distribution were expanded, and these networks were leveraged to bring on board Krafts already diverse portfolio (Unlocking the Door, 2012). The deal made Kraft one of the worlds largest confection and packaged foods companies, while enabling both companies to get a stronghold in the beverage market (Unlocking the Door, 2012). Therefore, the level of change is that both brands expanded their global reach, and the justification for this perspective is that the empirical evidence bears this out. Indeed, Kraft has managed to open the door in Asia and Latin America with this move, as well as lift sells and cross sells through the companies distribution channels. Sales after the merger for Kraft climbed 11%, and jumped double digits in emerging countries in Asia and Latin America (MacArthur, 2011). One of the challenges faced by consultants and change agents was that the UK media didnt really know Kraft that well, despite the fact that Cadbury already had some 40% of its stock already in the US at the time that the takeover occurred. The UK public thought that Kraft was a single product, according to Mike Mitchell, who handled Krafts corporate communications. Mitchell that this was a challenge which was engaged strategically, ensuring that the Kraft message was being delivered to the masses (Williams, 2010). Another issue that was faced by change agents is the matter of the two companies environmental records. Cadbury was evaluated by the environmental consultancy group EnvirUP.com, which created the new Green Index Report, which assessed Cadbury at number 42, with an overall B grade, and Kraft at 78, with an overall F grade regarding environmental matters. This is based upon the brands use of resources, packaging material and green credentials (which includes food miles and fair trade ingredients). Moreover, Kraft, as of 2010, which is when takeover negotiations began, had no targets for reducing carbon emissions, whereas Cadbury, at that time, had set itself to have a 30% reduction target by the year 2020 (Branagh, 2009). Kraft responded by expanding its sustainability goals in 2011, in part to accommodate Cadbury. This was also the year that they added targets for transportation and agricultural commodities, and began looking at the supply chain around the world (Kruschwitz, 2012). The green commitment made by Cadbury, in contrast to the lack of commitment made by Kraft with regards to environmental issues, prior to the takeover, is emblematic of the cultural ethos of the two organisations, in general. This is because Cadburys culture was that of a small organisation that was socially benign, rooted in Quaker ethos. On the other hand, Kraft did not have the same sense of benign corporate ethos – it traces its origins to processed cheese innovations and was once a part of the tobacco and consumer goods conglomerate Philip Morris. Krafts reputation was much more that of a performance-driven way of doing business, whereas Cadbury was known more for its values (Bowers, 2009). There is indication that the change agent could have done a better job in integrating the culture of the two companies – Cadburys organisation was more nimble and less reliant upon bureaucracy than was Krafts. Several layers were added into who reports to whom – such as the case of Anand Kripalu, who was head of the Asian operations and once reported directly to the global CEO. After the takeover, Kripalu reports to Pradeep Pant, who is the Asia Pacific president for Kraft, who, in turn, reports to an executive vice-president, who, in turn, reports to the chairman (Vijayraghavan, 2011). Moreover, before the takeover, Cadbury was able to make pricing and promotional decisions without having to wait for official approval from the top brass – this is not the case anymore. Before, Cadbury would approve marketing and advertising budgets within a few days – after the takeover, this took a month. The added bureaucracy and layers of people led to frustration on the part of employees of the merged companies (Vijayraghavan, 2011). Thus, the organisational culture of the two entities was considerably different. The culture of an organisation consists of formal organisation and informal organisation – the formal organisation is the goals, strategy, structure, systems and procedures, products and services, financial resources and management. The informal organisation consists of values, attitudes and belief; leadership style and behaviour; organisational culture and norms of behaviour; power, politics and conflicts; and informal groupings (Senior & Fleming, 2006). When Kraft took over Cadbury, it interfered with Cadburys formal organisation, which is a part of the culture, in that it added layers and bureaucracy that were not there before, and this, in turn, led to frustration. Change sticks, according to Kotter (2009), when new behaviours are rooted in social norms and shared values. This means that the employees must be shown how the new approach might improve performance, and also taking time to ensure that the new generation of top management personifies the new approach. It does not seem that this was done – it was more a matter of Kraft coming in and changing the bureaucratic structure without rooting it to the culture, and this led to dissatisfaction. Moreover, there is some indication that Kraft took the wrong tact with regards to the Cadbury culture, in that it enforced certain bureaucracies and layers upon the employees of the company without adequately preparing them for this step. Smith (1996) states that when there is organisational change, if the employees do not understand the implications of change and urgently believe that the time is now to act, and the organisation does not have a track record of success for change, then there must a broad change in skills, values and behaviors of the employees of the company. This is particularly true when there are large numbers of existing people throughout the organisation who have to change specific behaviors. Culture change takes time and effort, and Kraft did not appear to put this time and effort into changing the culture (Strebel, 2009). Moreover, the bureaucratic culture, which is what Kraft is, is often a barrier to effective change, because of the multiple levels of hierarchy, the tradition for top-down change, short-term thinking, lack of vision, limited rewards and an emphasis on the status quo (Quinn, 1996). There is often frustration on the part of employees when there are so many layers that any kind of change requires “five people to say yes” (Quinn, 1996). There also is an issue with the fact that the changes that were made were not mutually supportive in terms of roles, governance structures and strategies, and these are all elements of a successful organisational change (Gill, 2009). Above all, the people of the organisation must be convinced that the changes are beneficial (Robbins & Finley, 1996), and that and that the changes are necessary (Price, 2009), and the fundamental changes to Cadburys culture were made without convincing the people of Cadbury that these changes are necessary. That Kraft has not done a good job of getting Cadbury ready for change and embracing the change is seen today, in that the workers are still apprehensive about their jobs, and the moral in the factory and in general opinion is still low (Kraft and Cadbury: What Does the Future Hold? 2013). The workers are apprehensive because many of them still do not know if their jobs are safe or not, and the pace of change is going to be ramped up this year, and this, too, has made many apprehensive about their jobs. It seems that Kraft has not done a good job of communicating with the workers, and this, too, has been psychologically damaging. What the upshot is in Kraft imposing its culture upon Cadbury, without getting the company ready for change is that many key executives have left the company (MacArthur, 2011). Therefore, in addition to the workers feeling that the culture has changed for the negative, executives have left, many of whom have been with the company for a long time. Conclusion The takeover of Cadbury by Kraft was one that was imperfect and could have been executed far better by Kraft. The company, Kraft, got off on the wrong foot with Cadbury employees and the UK government when it not only went back on its word not to shutter the Somerdale factory, but refused to send the CEO who was responsible for this to speak with Parliament about why the shuttering of the factory was even necessary. Moreover, there was the issue of culture – Cadbury was a smallish company that was built upon ethics and values, one of which was a commitment to the environment. Kraft was a conglomerate that was seen by many as not being as environmentally aware as Cadbury. It seems that, as far as this issue goes, Kraft tried to accommodate Cadburys environmental ethos, as Kraft has widened its environmental ethics since the acquisition of Cadbury. On another front, however, Kraft has not done as well – that is that it has imposed a bureaucratic structure that was at odds with Cadburys previous structure, which was much more streamlined. Of course, overall, the change has been beneficial for both companies, because both companies have expanded their global reach. So, although the takeover was not perfect, and it would be impossible to takeover a company without some kind of ill will, the takeover accomplished the ultimate goal of making both companies more profitable. But the Cadbury employee might reasonably ask at what price does the profitability come? Sources Used 1. Armistead, L. (2011) Kraft acted irresponsibly in Cadbury takeover, say Mps. The Telegraph, 24 May. Online. 2. Block, P. (2006) Flawless Consulting: A Guide to Getting Your Expertise Used. San Francisco, CA: Jossey Bass. 3. Bowers, S. (2009) Cadbury warns of culture clash under Kraft. Business, 21 Oct. Online. 4. Branagh, E. (2009) Green divide between Kraft and Cadbury. The Independent, 8 Sept. Online. 5. Chartered Institute of Management Accountants (2013) The legacy of Krafts takeover of Cadbury. Financial Management, 23 January. Online. 6. 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