Readers of this BLOG know I have been no fan of Roger Deromedi and Kraft. So, you probably think I’m delighted with his ouster this week by Altria (effective parent of Kraft). Actually, I’m unconvinced whether it will matter.
There is no doubt that Kraft was locked-into a Defend & Extend strategy which was producing declining results. The stock price had declined 30% since 2002, and the CEO had no plans for growth. Deromedi laid off 14,000 people and closed 40 factories in 2.5 years. His plans could be summed up in his own quote "strong execution of our strategies will deliver improved results in 2006 and beyond." Just like it had done in 2004 and 2005 – right. Obsessing about execution is one critical telltale signal of a failing, locked-in strategy. There was no plan for growth, sooner or later, as he kept selling brands and investing more money in no-growth categories like cheese. The Chairman of Kraft, currently the CEO of Altria, finally realized that there was no interest in an independent no-growth Kraft, so he’d better make some changes or the spin-out of Kraft was never going to be completed.
But, what’s needed at Kraft is a Disruption to the Lock-in, and replacing the CEO is more of a Disturbance than a Disruption. Changing the CEO doesn’t inherently change anything beyond the sign on the door. And the new CEO, for all the praise now heaped upon her, is a 20-year returning veteran of Kraft. She spent barely 1 year running Frito-Lay, so despite her $2.5million compensation, she wasn’t there long enough for us to know what difference she made, or might have made.
We do know that she left the job running Kraft North America, which was a $30B revenue business to later run Frito-Lay, only a $10B business. That indicates she was no fan of Deromedi when she split, nor most likely of his then co-CEO Betsy Holden. Nonetheless, her career was a pretty straightforward development up the management ranks of what has long been a low-innovation enterprise. But is she ready to create some growth engines inside this behemoth? Does she know how?
Top marketing gurus around Chicago have weighed in, calling for the first steps to include changing the culture toward product innovation from brand extensions, and using portfolio planning to milk some brands for cash while investing in growth with other brands and a refocusing on innovation and new product launches.
What is required, as I said earlier, is a Disruption. Kraft must stop viewing itself as being self-satisfied, and realize there are external Challenges to its brands and its business. Older Americans are changing their diets to live longer, and younger Americans no longer look to these old brands when thinking of meals. A great past does not assure a great future – just look at Brach’s candy company (bankrupt), ConAgra or Sara Lee (themselves drastically downsizing). The new CEOs first step must be to avoid reassuring the people of Kraft, and rather to hlep them see that these Challenges are placing Kraft – soon to be an independent company – at risk of having a viable future. There is no growth in Kraft, and without it the company is doomed to a very unhappy competitive reality.
And she must Disrupt Kraft. The mechanisms which keep Kraft acting like Kraft. She needs to attack Kraft’s critical metrics, its hiring practices, its centralized decision-making processes, its arrogant approach to retailers and end-users, its focus on "do no harm" brand tactics, its rewarding of "farmers" and punishment of "explorers" in the workforce, its deep hierarchy that vets out ideas which don’t look like guaranteed wins (and thus little more than extensions of old businesses), and its obsession with cost reductions. Of course, not all of these should be attacked at once. But, she must attack them. She must identify the Status Quo Police and reduce their numbers while gutting their influence – be they in finance, HR, or marketing. She must create a pattern interrupt in Kraft; she must Disrupt the old Success Formula.
And, she must put in place White Space. Something completely lacking at Kraft. We need to see her create project teams which have explicit permission to behave differently, outside the old Lock-ins. And she must show us that she is dedicating resources, in advance, to these teams so they have the wherewithal to actually create new Success Formulas for the company.
We must keep our eyes on Kraft. When Mr. Zander joined the cross-town company Motorola he too faced a seriously Locked-in organization. Yet, within only 6 months he effectively Disrupted Motorola and put in place White Space projects that almost immediately began changing the fortunes of the company. Let’s hope Ms. Rosenfeld does the same – so Kraft can once again take its place among the leading consumer goods companies of the world.