Kraft Foods and Corporate Social Responsibility

Global Challenges Individual Assignment: Kraft Foods and CSR. 2012 Global Challenges Table of Contents Table of Contents1 1. 0Introduction2 2. 0Application3 2. 1Kraft Foods Inc. 3 2. 2PESTEL Analysis3 2. 3SWOT Analysis5 2. 4Porters Five Forces5 2. 5Management at Kraft Foods Inc. 6 3. 0Corporate Social Responsibility6 3. 1Impact of CSR on Kraft Foods Inc6 4. 0Conclusion7 5. 0Recommendations7 6. 0References8 1. 0 Introduction Management is a term that is used and heard of every day and a role that is undertaken everywhere you go. It’s the ability to maintain and produce the best from a team or from a task, the activity of completing a task using the resources that are available and taking responsibility of the situation in hand. Even as individuals everyone participates in management in one form or another, whether it’s in a work environment or simply from the everyday running of life. In a business sense however, ‘management is the jobs within an organisation charged with running the organisation on behalf of the beneficial owner’ (Pg no 294, Martin, 2005). This report is going to examine the different principles and models of management, how it can be applied to individual companies and businesses and then go on further to examine Corporate Social Responsibility and how firms use this. ‘According to Mintzberg (1973) there are ten management roles, these are ‘Monitor, Disseminator, Spokesperson, Figurehead, Leader, Liaison, Entrepreneur, Disturbance handler, Resource allocator and Negotiator’. Mintzberg proposes that every manager’s role combines a number of roles, rather than ten individual roles. (Boddy, 2009) For example a CEO of a company could be a figurehead, a spokesperson, a leader as well as the negotiator; but he would assign the other roles to other specific managers or colleagues. Management involves a vast amount of planning as its sets out the direction of the work that needs to be done and the objectives that need to be achieved. According to Boddy (2011) ‘SMART acronym summarises criteria for assessing a set of goals’. This covers: Specific – Does the goal set specific targets? Measurable – Ensure you can measure the progress towards the attainment of the goal Attainable – Assuring the goals are challenging but reachable Rewarded- A reward is obtained for succeeding the goal Times – The time scale of which the goal is to be achieved in Boddy (2010) proposes that ‘’goals and objectives are the same’’. However in cases like this it could be argued that they are different in which the goal is the overall target or aim, and the plan which looks at what is involved to obtain this goal is made up of individual objectives at each level. A widely used management model used within virtually every company is the Competing Values Framework. ‘’It has been named as one of the fifty most important models in the history of business and has been studied and tested in organisations for more than twenty five years’’ (CVF, 2009). The model is made up of four components and each quadrant represents a different model and the roles that are played within the model; which can be seen in the diagram below in Figure 1. 1. The following section will demonstrate how the framework can be applied to individual companies. Figure 1. 1 Competing Values Framework. Source: Octogram. net (2005) 2. 0 Application 3. 1 Kraft Foods Inc. Kraft Foods Inc. is the second largest food company in the world generating annual revenue of ? 54. 4 billion. The company was founded in 1903 in Chicago, North America, where their headquarters are still based, and shares began trading on the New York Stock Exchange in 1991. They have over 126,000 employees in over 70 countries and they sell products to consumers in 170 countries. Kraft’s products are divided into five categories: snacks and cereals, beverages, cheese and dairy, grocery, and convenient meals. Popular household name brands include Philadelphia, Oreo and Cadburys, which they recently acquired in 2010 for $18. 5billion. The acquisition created the world’s largest confectioner, and confectionary now makes up for 28% of their net revenues. (Kraft Foods, 2012) In 2011 Kraft announced its intent to create two independent public companies by the end of 2012 as a strategic approach for growth; one being a high growth global snack business and the other a high margin North American grocery business. 3. 2 PESTEL Analysis ‘PESTEL analysis is a useful tool to understand the macro-environment in which Kraft Food Inc. perates and how these factors affect the company. PESTEL framework helps evaluate the risks associated with market growth or decline, and the position and direction of the company. ’ (Bender and Ward, 2008) It examines six different segments, which are: Political, Economic, Social, Technological, Environmental and Legal. Although there are many factors which fall under each of the segments of the PESTEL analysis it is important to analyse them and select the most significant factors which have the greatest effect on the company. POLITICAL Kraft Foods Inc. s subject to various federal and state laws in the U. S relating to the protection of the environment. They also have manufacturing facilities in 70 countries and consumers in 170 countries which subjects them to individual environmental laws, health and hygiene regulations in every country which they operate. ECONOMIC As Kraft operates in 170 different countries, currency fluctuations and unfavourable exchange rates can put pressure on the company’s earnings, particularly with the current Eurozone crisis. ‘Increased unemployment in the U. S and other countries will lead consumers to cut spending on premium quality products’ such as those made by Kraft Foods Inc. (Bloomberg,2010) SOCIAL Diet patterns are rapidly changing in emerging economies like Brazil, China and India. The people in these countries are spending more on packaged food and this social drift has provided companies like Kraft to look towards emerging markets to increase revenues. (Yahoo Finance, 2010) Consumers are also getting increasingly aware about health implications of food which can cause obesity. ‘Federal Trade Commission reported that child obesity in the U. S has quadrupled in the last four decades’ (RWJF, 2008). Food and Beverage companies need to respond to these changes to maintain its market share and profits. TECHNOLOGICAL ‘Kraft is investing heavily in new technology to reduce carbon dioxide emission and protect the environment. They have adopted a policy where there is increased use of rail and barge transport instead of using trucks. ’ (Kraft Foods, 2010) ENVIRONMENTAL There is increased pressure from governments and the general public about the way companies operate and their effect on the environment. ‘In 2008 Kraft Foods Inc. ame under pressure when Rainforest Action Network asked companies such as Kraft Foods Inc. to stop buying palm oil from Indonesia to prevent deforestation. ’ (CNN, 2008) LEGAL Kraft operates in a highly regulated environment with a constantly evolving legal and regulatory framework around the world; particularly when selling products for human consumption involves inheren t risks such as contamination. ‘Cadbury, now owned by Kraft Foods Inc. had to recall 11 chocolate types in China in 2008 when at least 50,000 babies fell ill and 4 died by milk tainted with an industrial chemical. ’ (BBC, 2008) 3. SWOT Analysis Another approach that companies implement is the SWOT analysis. ‘’The core of this approach is a simple and eminently reasonable strategy that is concerned with identifying opportunities in the enterprises external environment’’ (Pg No 721, Linstead, Fulop & Lilley, 2009). This analysis examines the strengths and weaknesses internal to the company and then the external opportunities and threats. In Kraft Foods Inc. case the strengths that can be identified are that they are the world’s second largest food company and they have strong brand equity with over 100 years heritage. However their weaknesses are that the Cadburys acquisition resulted in added debt pressure and they are subject to cut throat competition from rivals such as Nestle. From the external point of view an opportunity for the company is that they could centre new products in the health related market such as introducing low fat or organic products. But on the other hand a threat for Kraft is that the Cadburys acquisition resulted in a lot of protests and bad media from the British which resulted in a drop of profit margins. 3. 4 Porters Five Forces Porter’s five forces is an analysis framework that identifies the competitiveness intensity and the five forces most relevant to the profitability of the company. ‘According to Porter (1980a) the ability to earn an acceptable return depends on five forces – the ability of new competitors to enter the industry, the threat of substitute products, the bargaining power of buyers, the bargaining power of suppliers and the rivalry amongst existing customers’ (Boddy, 2008, Pg No 93). This framework is demonstrated in the diagram below in Figure 2. 1. Figure 2. Porters Five Forces. Source: Wikepedia When looking at the bargaining power of suppliers with Kraft Food Inc. suppliers do not hold much power to enforce the company to extract their profits due to the competitive nature of the industry. Buyers however have an opportunity to extract firm profits as demand changes over the period of time. Due to intense competition in the market, there is a low possibility fo r new entrants to capture the market, and the threat of substitute products is medium as Kraft Foods Inc. hold such a large market share in the industry. Finally competitors such as Nestle and Kellogg’s are spending enormous sums of money for the promotion and advertising of their brands yet Kraft Foods Inc. is still the second largest in the world. 3. 5 Management at Kraft Foods Inc. As previously mentioned in the introduction, every business’s management model can be applied to the Current Values Framework. When analysing Kraft’s business strategy and management it is evident that their current dominant model is the Rational Goal Model. This model focuses towards maximisation of output and making a profit. Of course, the vast majority of companies would be dominantly working from this model as every company needs to make a profit in order to survive; although successful models of management relate to all four of the segments. ‘’The basic assumption of the Rational Goal Model is that clear direction leads to productive outcomes. There is a continuing emphasis on processes such as goal clarification, rational analysis, and action taking. All decisions are driven by consideration of the bottom line†. (Taylor, 1911) Kraft Foods Inc. hows elements of dominantly using this model from their hostile acquisition of Cadburys and with their intent to create two independent public companies as a strategic approach for growth. 3. 0 Corporate Social Responsibility ‘’Corporate Social Responsibility is the business contribution to sustainable development goals. Essentially it is about how business takes account of its economic, social and environmental impacts in the wa y it operates – maximising the benefits and minimising the downsides. ’’ (CSR, 2009) 4. 6 Impact of CSR on Kraft Foods Inc Kraft Foods Inc. as thrown into the media in 2010 with their hostile acquisition of Cadbury’s. Cadbury’s unions opposed to the take-over in fear that there would be big job cuts, and UK politicians even weighed in voicing their concerns. ‘Following the acquisition five senior executives of Cadburys quit and only 30% of the leadership positions were made available to Cadburys staff. ’ (FT, 2010). By the end of the acquisition over four hundred jobs had been cut by Kraft, this was deemed as an extremely bad case of CSR, particularly in the social aspect; and the company have been portrayed negatively in the media ever since. However, it is not all negative when it comes to Kraft’s CSR. ‘Over the past 25 years they have donated more than $770 million in cash and food to those suffering from hunger and malnutrition. Kraft Foods ranked 23rd in the 2011 Corporate Social Responsibility Index and were recently awarded the Gold Award for Environmental Excellence at the 4th Global CSR Awards 2012. ’   (Kraft, 2012) They work with non-profit organizations such as Feeding America in the U. S. and Save the Children in Southeast Asia as well as helping develop healthy lifestyles programs for children in the U. S. , Russia and many other places. 4. 0 Conclusion In conclusion the above shows us how the management theory helps us to analyse an organisation, and we can see how Kraft Foods Inc. operates successfully using the Rational Goal Model. They do however operate in a highly competitive food sector, where margins are diminishing, and they have to face tough competition from branded food as we ll as generic food manufacturers, particularly in this economic slowdown. Although the company does partake in a lot of CSR activities, a bad image always remains with customers for a lot longer than a positive one, and they still have a negative image portrayed on themselves from the hostile takeover of Cadburys. 5. 0 Recommendation Kraft Foods Inc. could benefit from repositioning their brand image in the markets to communicate with customers to remove the negative thinking from their minds which arose after Cadburys acquisition. They should also consider moving towards the Human Relations model in the CVF which emphasises commitment, cohesion, and morale. The key values are participation, conflict resolution, and consensus building. In this model the organisation takes on a team-oriented climate in which decision making is characterised by deep involvement. ’ (Quinn, 1988) This would be beneficial in gaining trust and respect from the employees after all the conflict and job losses that arose from the acquisition of Cadburys. Another option for t he company, as mentioned before in the SWOT analysis, is the expansion into new and developing markets which will aid the company in earning more profits to meet their debt requirements. With the consumer market becoming more health and environmentally conscious, organic and reduced fat content products could be a niche in the market for a confectioner such as themselves. 6. 0 References BBC (2008). Melamine found in Cadbury goods. September 2008. 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Available: http://www. octogram. net/quinn-model Last accessed 6 May 2012. Porters Five Forces, Wikepedia. Available: http://en. wikipedia. org/wiki/Porter_five_forces_analysis Accessed 22 May 2012. Robert Wood Johnson Foundation (2008). Food and Beverage Marketing to Children and Adolescents: What Changes are Needed to Promote Healthy Eating Habits? October 2008. Available: www. rwjf. org Accessed 22 May 2012 Taylor,