Kraft And Cadbury Takeover Management Essay
Acquisition is the act of acquiring or gaining possession. The Guardian Kraft bought Cadbury in 2010 for 11.9bn, ending more than 150 years of independence for the Birmingham-based chocolate maker. The main aim of the acquisition was to increase income and global dominance, gaining additional shares in the market and easy infiltration to others would be of great help to Kraft. To strengthen its power in the emerging market Kraft decided to buy Cadbury and expand its geographic boundaries. BBC (2010) Kraft said the deal would create a “global confectionery leader” The acquisition may be termed as “horizontal expansion”; such expansions are common and efficient in today’s post economic crisis environment.
Businesstoday (2010) states that, One of the reasons for change was synergy such as complimentary global presence, knowledge sharing and economies of scale and scope. Taking a decision to take over Cadbury, Kraft initially aimed for a profitable growth as part of its long term strategy. This seemed really promising for Kraft as Cadbury had a strong market especially in India and Brazil. BBC (2010) “We believe the offer represents good value for Cadbury shareholders… and will now work with the Kraft Foods’ management to ensure the continued success and growth of the business,” said Cadbury’s chairman Roger Carr.
However during this period Cadbury lost its Summerdale factory near Bristol, as Kraft transferred the production unit to Poland. This lead to fury and dissatisfaction amongst the employees at Cadbury. It also created negativity in the deal and the acquisition fell to a lot of criticism. However Kraft handled the situation and continued with the acquisition. The paper will explain us
Analyzing The Contextual Change :
The cycle below explains the steps taken for Kraft to acquire Cadbury.
According to Carnall’s (2003) Coping Cycle the following process will determine the steps of change. The cycle consists of five stages which are denial, defence, discarding, adaptation and internationalisation.
Step one Denial- Where people in the organisation need to face and accept change, the first reaction by people is to deny there is a need for change. In the Cadbury Kraft deal we see that the change is not easily accepted among the company that is taken over as they may feel inferior. This change may not easily come into effect and it may take a while for all the employees to get accustomed to it. The Guardian (2012) after the acquisition six to seventeen senior positions in Cadbury had left the company as they denied there was a need for change.
Step two defence- Once people realise that change is taking place and they can’t stop it, they may feel rejected and depressed. This can turn into defensive behaviour whereby people will defend their past practices and deny that the new ways are suitable to them and their job. BBC (2010) Similarly, in the case of Cadbury, it was taken by cultural shock, as they have been operating in the United Kingdom since over two centuries. One of the main philosophies of the company is that success depends on the commitment and the output of the people working with them. For Cadbury people are the most essential in fulfilling its targets. The American ways of working is usually different from the English ways as they are more result oriented. Kraft made it clear it wants to cut down on its expenses and had kept many employees hanging on their job. They also plan to increase the working hours and reduce the pay. Therefore Kraft had a strict and bureaucratic working environment.
Step three discarding- When people realise that change will take place whether they like it or not and it does not affect them and they need to adjust to new situation, they begin the process of discarding old behaviour and accepting what was suitable for them in the past is not suitable any longer in the present. The Guardian (2012) Cadbury followed the contingency theory of strategic human resource management also known as best fit. This theory states that an organisation can come into effect if its practices and strategies are together with the human resource management activities, policies and practices of the human resource department to the goals stated in the memorandum. Cadbury had integrated the human resource strategies along with the business perspective to complete it targets. The managing for value programme helped to enlighten the employees by explaining how the company could make more profit and also explains teamwork and efficiency. Kraft on other hand being an American company is more aggressive in nature and thus their targets and goals keep increasing. In Cadbury not meeting deadlines or certain goals was more lenient than Kraft. Kraft was more aggressive in their way of working and expected the people to deliver.
Step four adaptation – No proposed change is hundred percent acceptable therefore for the change to be successful, the ones affected need to adapt to the change, but the new ways also need to be adapted to fit in with the existing people and circumstances. Officials at Cadbury felt their ego has been hit as they are now a subsidiary of Kraft. It was difficult in the beginning to change the mindset of the people but later they all came together to put forward the change. Kraft already seems to be benefitting from the acquisition with the thousands of new outlets and selling points doubling in many countries. The huge sizes of the companies are what would take it more time to get integrated. It is estimated that Kraft is four times the size of Cadbury.
Step five internalisation – This is the stage of coping cycle where change becomes fully operational, and new ways of working and behaving have been developed. People reach the point where they see the changes not as new but normal. Cadbury officials agree soon that Kraft had strategy and purpose in the deal and it was coming into effect. Both these companies now share each other’s resources and expertise and hence have a bright future ahead. The change has therefore been a success.
The above case study illustrates that during acquisitions and mergers it is crucial to understand the type of change involved and the different parts of the organisation such as resources, skills and the way the change must be introduced. Jhonson (1993, p.64) suggested that the strategic management of change is essentially a ‘cultural and cognitive phenomenon’ rather than an analytical rational exercise. Clarke (1994) states that the essence of sustainable change is to understand the culture of the organisation that is to be changed. If proposed changes contradict cultural biases and traditions, it is inevitable that they will be difficult to embed in the organisation. Kotter (1996) takes a similar view, arguing that for change to be successful it must be anchored in the organisation’s culture. The analyst shows that Kraft needs to change the culture of Cadbury to take better control of the organisation and to strengthen its brand. The people responsible for the change need to pick up the multiple ways of managing change keeping the people’s interest in mind.
For a successful change every organisation needs to keep in mind the following guidelines. They must create a vision and strategies, then explain the vision with proper broad based action, create short term goals and changes for the betterment and introducing new techniques in the culture. These guidelines must be enforced in the mindset of the people. As suggested by Pettigrew (1997) organisational processes are embedded in an organisation’s context, of which culture forms an important part. Pettigrew also points out that, because of this embeddedness, change can be slow and it might be difficult to change an existing culture. In such cases it is necessary to challenge mechanism that reinforces old or inappropriate
Behaviour, such as reward, recruitment and promotion structures. If it is successful it will create a climate where people are willing to propose or undertake change.
The primary driver for mergers and acquisitions is revenue gain; however, this approach rarely takes account of cultural difference which may inhibit successful adaptation. Therefore the CEO and the Human Resource team need to design team building workshops and programmes for the workers to get to know each other better. Constant communication and feedback is essential and should be maintained throughout the organisation would be advisable to do a culture assessment of the organisation. Beer (1993) suggests that the most effective way to promote change is not by directly attempting to influence organisational behaviour or culture. Instead, they advocate restructuring organisations in order to place people in a new organisational context which improves new roles, relationships and responsibilities upon them. The case illustrates that the acquisition was successful financially; however it involved a clash of two different cultures. Firstly Kraft needs to understand the working environment, strategies of Cadbury and then cultivate a cultural change. It cannot forcefully exert a new culture, it needs to grow over time.