Conductng a Internal Analysis Within Kraft's Corporation

CONDUCTING AN INTERNAL ANALYSIS WITHIN KRAFT’S CORPORATION INTERNAL ANALYSIS AND SWOT ANALYSIS TRIDENT UNIVERSITY INTERNATIONAL AVIE MARIE JOHNSTONE STRATEGIC MANAGEMENT MGT599 MODULE 2 SESSION LONG PROJECT PROFESSOR LARRY BANKS NOVEMBER 5, 2012 Rapid growth and under developed financial and operational controls are common characteristics of many start-up operations, including companies, joint ventures, departments and divisions. Inadequate or improperly working controls can lead to fraud, loss of customers, and even business failure.

Managers of start-up operations often fail to adequately address the need for controls because they lack the knowledge of how to address control risk, lack resources to address control risk, or they perceive other issues as being more critical. The manager’s dilemma is how to efficiently balance the need for strong controls with the everyday demands associated with running a newly formed business. (Denise Dickins, Margaret O’Hara, John Reisch). (2009). Resources are the inputs into a production process.

They can be capital, equipment, patents, skill sets of individual employees and/or managers, financial resources, etc. Resources can be tangible or intangible. Individually, they may not necessarily lead to a competitive advantage – it is how they are used and the synergies they create that make them strategically valuable. Give me as much information as you can find about the following as it relates to the Kraft Foods Company: Tangible Resources Physical Resources S&P Dow Jones Indices, a unit of McGraw-Hill Companies Inc. , said that Kraft Foods Group Inc. will replace Alpha Natural Resources Inc. n the S&P 500, Alpha Natural Resources will replace Korn/Ferry International in the S&P Mid Cap 400, and Korn/Ferry will replace Pulse Electronics Corp. in the S&P Small Cap 600 after the close of trading on Monday, October 1. S&P 100 & 500 constituent Kraft Foods Inc. is spinning off Kraft Foods Group to shareholders in a transaction expected to be effective after the close of trading on that date. The Kraft Foods stub, which will change its name to Mondelez International Inc. and its ticker symbol to MDLZ, will remain in the S&P 100 & 500. (Kraft Foods Group to Replace Alpha Natural Resources In S&P 500). Nov. 7, 2012). 2. Financial Resources Kraft Foods, the newly independent company that was spun-off from its parent last month, reported stronger-than-expected third-quarter earnings and sales on Wednesday and reaffirmed its full-year guidance. The North American grocery business operating brands such as Oscar Mayer and Kraft cheese posted net earnings of $470 million, or 79 cents a share, compared with a year-earlier profit of $417 million, or 70 cents. (Jennifer Booton). (November 7, 2012). Analysts in a Thomson Reuters poll were looking for earnings of just 69 cents.

A reflection of stronger volumes and pricing as well as increased advertising investment, revenue for the three-month period ended Sept. 30 grew 3% to $4. 61 billion from $4. 47 billion a year ago, edging above the Street’s view of $4. 56 billion. For the fiscal year of 2013, Kraft Foods had reaffirmed the GAAP EPS view of $2. 60 stating that the revenue was expected to grow in line with the North American food and beverage market. The consensus, excluding special items, was to look for a full of year earnings of $2. 66 on sales of $19. 28 billion. (Jennifer Booton). (November 7, 2012). 3. Human Resources

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The food industry is one of the most highly competitive centers of commerce worldwide. Consumer demand for high-value, healthy, convenient foods; advancing technology; globalization; and new distribution methods keep leaders and frontline employees in a state of constant change with comparable demands on human resources professionals. (IBM). (30-Jun-2010). “It shows just how open Kraft Foods is to new approaches. ” That focus has helped Kraft Foods become the world’s second-largest food company, with annual revenues of approximately US$50 billion and sales in more than 160 countries.

It also keeps HR strategists on the lookout for better ways to attract and recruit key talent, streamline processes and maintain operational excellence. (IBM). (30-Jun-2010). Kraft Foods decision makers determined that one lever to support those efforts and an ambitious multiyear transformation was to outsource selective back-office functions, said Karen Isaacson, Kraft Foods’ vice president of HR administration outsourcing. To that end, they sought a transformation partner that could deliver an integrated solution to help them meet technology and functional needs, and support their growth strategy.

Kraft Foods’ search led to IBM. (IBM). (30-Jun-2010). 4. Other? Kraft Foods Group Inc stood by its full-year outlook on Wednesday as it works to better tailor its product portfolio to a weak economy in North America, the only region the newly independent company now operates in. Kraft was spun off last month from the maker of Cadbury chocolates and Oreo cookies, which goes by the name of Mondelez International. Unlike Mondelez, which got some 45 percent of its sales from developing markets, Kraft focused on slower growing North America? Jennifer Booton). (November 7, 2012). Further, U. S. consumers face stubbornly high unemployment and slow economic growth. In the weakened economy, Kraft had to drive their sales volume with more advertising and a greater range of products and prices, in what they called a “good, better, best” strategy. (Martinne Geller). (February 10, 2009). “The economic environment has not improved and that creates a burning platform for Kraft, our customers and our industry. ” Kraft shares were down 22 cents, or 0. 5 percent, at $44. 48 in late morning trade.

The broader market, as measured by the S&P 500 index, was down more than 2 percent, a day. Kraft said net income rose to $470 million, or 79 cents per share, from $417 million, or 70 cents per share, a year earlier. Revenue increased 3 percent to $4. 61 billion. Most of the increase came from volume gains and selling a more expensive mix of products, with a smaller contribution from price increases. (Martinne Geller). (February 10, 2009). The company affirmed its 2013 outlook, calling for earnings of $2. 60 per share and revenue growth in line with the rest of the North American food and beverage market.

Kraft’s revenue in the current fourth quarter would be flat to down due to a comparison with the years earlier period when retailers increased orders in advance of a price increase. Kraft would eventually lose sales of some of its products that it pruned from its portfolio. (Martinne Geller). (February 10, 2009). Intangible Resources 1. Technical Resources In applications from salty to sweet, the Kraft Food Ingredients technology team did offer ingredient solutions and application technology across a wide range of manufacturing processes. (Ask KFIC). (2010).

Leveraging the knowledge of the parent company Kraft, there was an understanding of the basic science of food processing, as well as the art. In the dedicated application labs, Kraft Foods place a special emphasis on developing cost reduction technologies, translating to lower finished product costs for the customer. Kraft’s employers were the leaders in flavor technology and did play a key role in identifying the best ingredient solution for their needs. The employers of Kraft provided onsite regulatory, quality and specification management and offer pilot plant facilities dedicated to developing ingredients for application evaluation. Ask KFIC). (2010). 2. Intellectual Resources In perspective of Kraft’s complete understanding of the entire gamut of business across every employee. Increase in intellectual capital came along with new business ideas & better practices. Developing expertise in business management; focusing on making the business to be a pioneer. Creation of staff slots, keeping good employees within the company. Tight Integration: Reduced cost, build brands & develop people. (Jennifer Booton). (November 7, 2012). 3. Goodwill Company Profile

The value of business goodwill is in the throws of a major revival under the tent of mutual interest and partnership. Amid a global partnering boom, the future value of your business is at stake. Go-it-alone competitive practices are for the scrapbook. (Jennifer Booton). (November 7, 2012). Partnering opportunities created by the communications and distribution revolution along with a global explosion in consumption and production are reshaping the ability of companies to reach larger audiences and acquire value creating resources. A growing number of countries are announcing international business alliances.

Small to large enterprises are discovering partners across the global Internet. Nearly any business conference you attend this year is sure to feature passionate evangelists espousing the virtues of strategic alliances and economic goodwill. (Jennifer Booton). (November 7, 2012). Kraft Foods Inc. goodwill also engaged in manufacturing and marketing packaged food products, including snacks, beverages, cheese, convenient meals and various packaged grocery products. During the year ended December 31, 2008, the Company had operations in more than 70 countries and sold the products in approximately 150 countries.

The company managed and operated, through two commercial units: Kraft North America and Kraft International Kraft North America which operates in the United States and Canada. On August 4, 2008, the company completed the spin-off of its post cereals business. The brands of the company span five consumer sectors: snacks, beverages, cheese, grocery and convenient meals. (Jennifer Booton). (November 7, 2012). Valuation Summary: •Last Updated 10/23/2009 •MG Value $11 •MG Opinion Overvalued •Value Based on 3% Growth $23 •Value Based on 0% Growth $14 Market Implied Growth Rate 4. 15% •Net Current Asset Value -$19. 44 •PEmg 16. 80 •Current Ratio 1. 13 •PB Ratio 1. 64 (Martinne Geller). (February 10, 2009). Key Data: Balance Sheet – 6/30/2009 •Current Assets $11,688,000,000 •Current Liabilities $10,303,000,000 •Total Debt $18,610,000,000 •Total Assets $64,654,000,000 •Intangible Assets $13,257,000,000 •Goodwill $28,225,000,000 •Total Liabilities $40,358,000,000 •Outstanding Shares 1,474,970,000 (Martinne Geller). (February 10, 2009). Earnings Per Share – Diluted 2009 (estimate) $1. 93 •2008 $1. 22 •2007 $1. 48 •2006 $1. 71 •2005 $1. 72 •2004 $1. 56 •2003 $1. 96 •2002 $1. 90 •2001 $1. 17 •2000 $1. 38 •1999 $1. 20 (Martinne Geller). (February 10, 2009). Earnings Per Share – Modern Graham •2009 (estimate) $1. 61 •2008 $1. 48 •2007 $1. 63 •2006 $1. 73 •2005 $1. 71 •2004 $1. 67 •Valuation History: 10/23/09 – Value $11, Actual Price $27. 01, Overvalued & Speculative 7/17/09 – Value $10, Actual Price $27. 30, Overvalued & Speculative (Martinne Geller). (February 10, 2009). 4.

Other (cultural, reputational, strategic alliances)? How will the business acquire goodwill? It is cultivated through the best of practices, such as good governance, customer service, efficiency, branding, pricing fairness, innovation, authenticity, consideration, cooperation, collaboration, thoughtfulness, decency, understanding, trust and community. (Anirban Mazumdar). (Mar 24, 2012). This result is reflected in the valuation of the business reputation as measured by the loyalty of the customer’s base and the reliability, stability and good practices of management and its employees.

The dollar amount of Kraft’s good represented the excess price over fair market value that the consumers expected to get at the takeover of the company. (Anirban Mazumdar). (Mar 24, 2012). Alliance minded executives use their goodwill on a daily basis in communicating with stakeholders. Without the consistent expression of goodwill, they knew, it was virtually impossible to sustain a partnering synergy that could build goodwill and benefits all stakeholders. The alternative course would in time result in stagnation. (Anirban Mazumdar). (Mar 24, 2012).

Fostering goodwill among the stakeholders prepared their organization for partnering. The commitment to goodwill created change and built value. Apply goodwill on a daily basis. It may be your most powerful strategy in preparing for, processing and succeeding in the formation of alliances. To develop a continuous UVP plan extends your alliance road map by duplicating your forecast calculations to include all potential alliances you foresee into the future. How far can you go using this strategy? If possible, don’t stop until you’re able to imagine this process reaching a global scale or an exit strategy.

Finally, your alliance plan must weigh alliance costs and risks against the benefits/costs/risks of alternative strategies. (Anirban Mazumdar). (Mar 24, 2012). Whether your enterprise takes the role of a marketer or a supplier, you should consider formulating a phased in partnership plan containing a list of target partner prospects, financial validations, and a timeline and undertake a marketing initiative aimed at shaping a receptive and synergistic relationship with partner executives and operational teams.

Executing the plan is your next challenge. Don’t hesitate to seek help in developing your plan and making it happen. (Anirban Mazumdar). (Mar 24, 2012). Early 21st Century: Integrating Nabisco into Kraft Foods Inc. and an IPO Philip Morris completed its acquisition of Nabisco in December 2000 and immediately began integrating the Nabisco operations into those of Kraft Foods and Kraft Foods International. In March 2001 Philip Morris created a new holding company for the combined operations known as Kraft Foods Inc.

The previous Kraft Foods was renamed Kraft Foods North America, giving the new Kraft Foods two main units: Kraft Foods North America and Kraft Foods International. The two CEOs of these units were, Betsy D. Holden and Roger K. Deromedi, respectively, however, they were also named co-CEOs of Kraft Foods Inc. In June 2001 Philip Morris sold a 16. 1 percent stake in Kraft Foods to the public, retaining the remaining shares. The second largest IPO in U. S. history, the offering raised $8. 8 billion, which Philip Morris earmarked to reduce debt it had incurred in acquiring Nabisco. (Kraft Foods Inc. History). (2002). As it was integrating Nabisco and attempting to meet the anticipated annual cost savings of $600 million by 2003, Kraft Foods also began divesting some of the marginal brands it had acquired in the takeover. By late 2001, the company had announced that it had reached an agreement to sell the Farley’s and Sathers confection brands as well as its Mexican pasta business, which included the Yemina and Vesta brands.

Additional divestments were expected for Kraft, which as one of the top two food companies in the world with revenues approaching $35 billion could be very choosy about which brands to retain in its very powerful portfolio. (Kraft Foods Inc. History). (2002). Dorria L. Ball is the senior director of Human Resources, Beverages, for Kraft Foods, headquartered in Tarrytown, NY. In her role, Ms. Ball and her team are responsible for developing and leading the implementation of all human resources strategies and activities in support for all Beverages Business unit functions from marketing to manufacturing.

Ms. Ball has worked as an employee with Kraft Corp. for over 18 years in Sales Management, where she held numerous assignments of increasing responsibility, calling on customers and leading teams. She transitioned into human resources in 1994 and has since held a variety of human resources generalist and specialist assignments across a number of functions and business sectors. Most recently, Ms. Ball became the Senior Director of Global Diversity and Work Life, where she was responsible for developing and implementing the Global Diversity and Work Life strategy for Kraft Foods worldwide. Dorria L. Ball). (Feb. 2007). Further, Ms. Ball is one of the founding members of ASCENT, and was formerly on the Conference Board’s Council on Workforce Diversity, the Thurgood Marshall Scholarship Fund advisory board, the steering team of the William J. Clinton Foundation’s Harlem Small Business Initiative, and the Boston College Global Workforce Roundtable Steering Committee. In addition, Ms. Ball is a member of Alpha Kappa Alpha sorority and the Abyssinian Baptist Church. (Dorria L. Ball). (Feb. 2007).

Distinctive capabilities are those competencies possessed by a firm that cannot be copied or can be replicated only with great difficulty or resources. Determine the distinctive capabilities of the Kraft Foods Company as it relates to as many of the following as you can: 1) Architecture An American food favorite, Kraft Macaroni & Cheese Dinner has been serving up smiles since 1937. Long highly relevant and visible, Kraft Foods wanted to ensure its brand was differentiated and that it would reach its full potential moving into the future. Over the years it had also created a range of Macaroni & Cheese sub-brands that fragmented its core brand.

Macaroni & Cheese, Easy Mac, and Deluxe were all highly successful, but would benefit from a more prominent association with Kraft Foods. In summer 2009, the Kraft Macaroni & Cheese team approached Landor with a challenge: to refresh and contemporize its look, help differentiate itself better from competitors, and visually streamline its portfolio of over 50 Macaroni & Cheese products. (Landor Associates). (June 2011). Kraft’s brand promise was to bring smiles to everyone’s faces, and through research, it learned that it owned several compelling equities in customer’s minds: happy, smiles, and joy.

Inspired by these emotions, the company arrived at the metaphor of a county fair just like a day at the fair Kraft Macaroni & Cheese is a source of all American joy for the whole family. Drawing from the county fair metaphor, a new designed a new brand identity and packaging. The concept was further brought to life through improved brand architecture that united the portfolio of Kraft Macaroni & Cheese sub-brands under one brand promise, Landor’s visually unified them, and emphasized their connection to each other and Kraft Foods. Landor Associates). (June 2011). To help establish proprietary equities, Kraft Foods applied to register their design as a trademark. Although other macaroni and cheese brands used blue and yellow on their boxes, Kraft’s packaging, architecture system, and identity reclaim the colors as that of Kraft Macaroni & Cheese. Kraft Macaroni & Cheese redesign succeeded in strengthening and reclaiming the brand’s visual equities, differentiating it from private label, and creating a strong master brand to unite three disparate sub-brands.

Our packaging and noodle smile identity provided the basis for the Kraft Macaroni & Cheese integrated marketing campaign, which in 2010 helped drive gross revenue up 3. 8 percent, increased dollars by 9 percent, and raised its overall market share by 0. 4 points. (Landor Associates). (June 2011). 2) Reputation, and The absence of well-established laws governing social media communications make it challenging for companies to contest reputation damage on Facebook.

However, this shouldn’t stop them from putting a proactive social media reputation strategy in place. Leading food and beverage corporation, Kraft Foods Inc, has put in place a 6 pronged strategy to address various kinds of reputation risks on Facebook. . (John Paulo Cardoso). (Mar 28, 2012). We’ve summarized Kraft Foods’ Facebook reputation management processes in the graphic, below: . (John Paulo Cardoso). (Mar 28, 2012). Kraft Foods reputation risk management strategy includes both at internal employees and external stakeholders.

A typical risk management process is as follows: •Kraft Foods’ Social Media team takes ownership of all its postings as detailed in its Facebook posting rules this provides clarity of ownership and helps ensure a standard, congenial conversation. •Kraft Foods’ Social Media team continuously monitors Facebook postings for negative sentiment, profanity, and hateful comments – these trigger an immediate damage control response. •Once a risk event is detected, the Social Media team uses a Crisis Potential Questionnaire consisting of 15 questions, to determine the severity of the reputation risk event.

This helps the company to decide on the de-escalation time frame, and channels of de-escalation. . (John Paulo Cardoso). (Mar 28, 2012). •Kraft Foods’ Social Media team uses a Social Media escalation document to direct resolution steps to the correct internal stakeholders, and prescribes the course of action for various reputation risk events. •In times of crisis, the Moderator on the Social Media team checks any communication which goes out on behalf of Kraft Foods, to ensure it accurately represents the company’s point of view. However, if a sustained and malaise reputation risk persists despite the company’s best attempts to alleviate it, the Social Media team consults the legal department for possible legal recourse. . (John Paulo Cardoso). (Mar 28, 2012). 3) Innovation. There are no red flags with Kraft’s new name change. On Aug. 4, 2011, Kraft Foods Inc. announced plans to divide and create two independent public companies: a high-growth global snacks business and a high-margin North American grocery business. And now on March 21, 2012 they announced its plans for its snack food corporate name as Mondelez International, Inc. IBM). (30-Jun-2010). What this demonstrates is that the company truly understood the strength of its brands and how they have built a relationship with customers. And now they were using this knowledge to manage the branding of its new independent company to leverage the platform “make today delicious. ” The move to invent a new word and taking the time to let everyone know the phonetic spelling is the right thing to do for a multinational conglomerate rather than trying to leverage one of its current brand names. (IBM). (30-Jun-2010).

The Chairman and CEO Irene Rosenfeld had said that he would be implementing a new global snacks company, looking for a new name that would serve as an umbrella for their iconic brands, reinforce the truly global nature of this business and build on our higher purpose to make today delicious. Mondelez captured a perfect idea of a delicious world and saying that it would serve as a solid foundation for the strong relationships. Kraft Foods Inc. brands knew how to build relationships with its customers and now applying it to the market and their investors. (IBM). (30-Jun-2010). REFERENCES: Denise Dickins, Margaret O’Hara, John Reisch. 2009). Frameworks for establishing and evaluating internal controls: a primer and case study. Journal of Case Research in Business and Economics. Kraft Foods Group to Replace Alpha Natural Resources In S 500. (Nov. 7, 2012). http://www. nasdaq. com/article/kraft-foods-group-to-replace-alpha-natural-resources-in-sp-500-20120925-01231#. UJswqGcyCSo Jennifer Booton. (November 7, 2012). Kraft Foods Posts Strong 3Q Profit After Spin-Off. FOXBusiness. http://www. foxbusiness. com/industries/2012/11/07/kraft-foods-posts-strong-3q-profit-after-spin-off/ IBM. (30-Jun-2010). Kraft Foods builds on success to

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