Will Cadbury give Kraft indigestion?

by Steve McKee

After months of intrigue, Kraft finally made a successful bid for venerable British candy maker Cadbury, leaving archrival Hershey's on the sidelines.

Kraft management predicts that the $50 billion combined company will be able to save $675 million over three years, but that's not the primary reason for the merger. It's all about global distribution and access to developing markets. Cadbury has it, Kraft wants it. Makes sense on paper.

Most mergers do make sense on paper, yet many become spectacular failures. The reason? A lack of appreciation for just how difficult it is to integrate not only global operations, but two proud and independent workforces.

Kraft is going to face this problem in spades with Cadbury. Todd Stitzer, Cadbury's CEO, said that Hershey's would have been a better cultural and operational fit. The company's Chairman, Roger Carr, took it a step further by saying Kraft is "an unfocused conglomerate" with "unappealing categories" and management that "underdelivers." Carr went on to say, "There is no strategic, operational, managerial or financial reason" for the merger.

Sure, Carr's statement may have been a bit of strategic bluster to raise the value of the offer (which he succeeded in doing), but it sounds pretty categorical to me. And it was telling that not a single Cadbury executive was present on the conference call with analysts to discuss the deal. Hmm.

Kraft estimates it will take $1.3 billion to "integrate Cadbury." I'm not sure exactly what that means or who came up with the number, but I don't know how anybody could forecast the costs associated with the fear, resentment and internal jockeying with which Kraft and Cadbury managers and employees are now having to deal. The fact that Britons consider Cadbury a national treasure that has been overrun by ugly Americans sure won't help.

Let's hope Kraft doesn't end up with a stomachache.


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Steve McKee is a BusinessWeek.com columnist, marketing consultant, and author of "When Growth Stalls: How it Happens, Why You're Stuck, and What To Do About It." Learn more about him at www.WhenGrowthStalls.com and at http://twitter.com/whengrowthstall.

Optimizing Innovation - Dr. Stephen K. Goers of Kraft Foods

by Braden Kelley

We are happy to bring you some of the key points and insights from Dr. Steven K. Goers' talk at the Optimizing Innovation Conference, which was held October 21-22, 2009 in New York City.

Dr. Steven K. Goers, VP, Open Innovation and Investment Strategy at Kraft Foods, oriented his talk towards 'Innovating the How'. Dr. Goers sits in the R&D department and looks after Knowledge Management, Intellectual Property, and Open Innovation.

Kraft Foods has 99% penetration into United States households, but still is trying to grow the company at 5%+ (which translates to $2B a year). To help achive their goals, they are trying to harness the power of internal innovation networks - 2,000 scientists and engineers and 98,000 employees - while also leveraging external innovation networks. They are currently expanding their innovation capacity (ability to do more) and capability (to integrate open innovation).

Kraft Foods needs to innovate because they are in the fast-moving CPG industry, maintain a breadth of categories, and need to continue to maintain an edge over private label products.


"We must ensure that we know what we know"


Knowledge Management Pains:

• Discovery (ability to easily search & access relevant information)


• Documentation and Content Management (capture, organize, transfer & archive info)


• Collaboration & Social Networks (leverage collective power of organization)


• Expertise Management (accessing expertise and know-how)

"How do we make sure that we are leveraging and sharing the information and expertise that are spread around the organization?"


Enabling Networks & Collaboration Tools to begin to address the pain:

• Innovation Web Site & Toolbox


• R&D Knowledge Suite


• Innovation Supplier Portal (probably have dealt with hundreds)


• Ask an Expert (blog type tool to route questions to senior tech community)


• Technical Subject-Matter Experts (expert management system)


• Category Linkage Meetings


• Innovation Days (get people to work in cross-functional days to ideate and innovate once a year - about 25 products have come out of these including Oreo Cakesters)

Deli-Fresh Case Study

• The technology that was developed a dozen years ago was found and leveraged, and this saved about four months of development time


• "New challenges can have old solutions"


• "Going slow to go fast"

"Innovation Capability = Know How + Know Who"


Knowledge Management - "Know what we know"

Open Innovation - "Knowing what others know and leveraging external solutions and capabilities"


Kraft Foods is moving to open innovation because innovation landscape is changing, pace is acclerating, cost is increasing, internal resources are constrained, and speed-to-market needs to improve:

• There are a lot of smart people outside of Kraft


• Kraft owns only about 2% of the food-related IP - #1 us patent holder and #3 globally, but that still only gets us to 2%


• We've done partnerships and open sourcing before (example of partnership with Starbucks in grocery stores)

Open Innovation (OI) Strategic Imperatives (currently focused on building capabilities):

1. Focus (things our businesses really want - not OI for OI sake)


2. Building capabilities, and becoming a partner of choice


3. Addressing the culture

Accelerating our approach to open innovation is not without headwinds within the company:

• "I was hired to create"


• What you create is equally important as what you FIND and who you know


• "We didn't find an internal solution - let's now look external"


• Build OI strategies into business plans (consider open innovation at the beginning of the project


• What is the best path to the solution of this problem?


• Is it internal, is it external)


• "We need to own the IP"


• "You need rights to use IP"


• "OI is what they (that central group) do"


• People think my group handles this and so they opt out instead of proactively seeking themselves


• OI needs to be embedded into how everyone innovates

Kraft Foods like many of the other organizations here, operate a Hub & Spoke construct to drive open innovation:

1. Hub - Tools, Process, Culture


• Build org capabilities and networks


• Scout for new biz partnerships


• Governance and metrics


2. Spoke


• Scout, content, collaborate


• Identifies key business unit priorities


• Scouts for BU opportunities


• OI advocate/champion

Kraft Foods intends to embed open innovation into strategy and business process:

• Considered at onset of project


• Shared ownership and alignment


• One set of goals, Business Unit owns, OI group enables

The Innovation Hub tries to serve as a catalyst for these efforts, not as the driver:

• Supplier Innovation & Co-creation (most effective method so far)


• Innovation Challenges (Internal Innovation Days and external challenges as well)


• Expanded external networks


• External Investments - univ research and venture capital


• OI web site & cool tools (to help enable and connect people)


• http://www.innovatewithkraft.com (unsolicited idea submission portal)

Supplier-based innovation example (Oreos/Chips Ahoy):

• Resealable packaging for oreos and chips ahoy (no more sliding tray out of plastic and back in)


• Solution is the "Snack 'n' Seal"


• 51% to 70% boost in customer preference "definitely would buy"

Triscuit/Wheat Thins/Planters example:

• Here we put the strategy and customer needs statement with selected strategic suppliers


• This was very difficult to make happen


• We use these case studies to raise awareness and open doors to other groups changing their behaviors

Kraft Foods is currently doing mostly supplier-based open innovation.

Another case study (All Out Squeeze Kraft Mayo):

• Customer complaint of too much product left in the container


• We bought a technology that allowed us to coat the inside of the containers and allow complete evacuation of product


• This allowed us to turn consumer dissatisfier into a growth enabler


• But, not only that, as we started working with this company, we developed additional IP to make things work on our high speed lines, etc.

Kraft Foods High-Level Innovation Framework:

1. Business Strategy


2. Technical Needs


3. Intelligence Gathering


4. IP & Technology Sourcing Strategy


5. Development/Commercialization

One of Kraft Foods' key challenges is that often because of time constraints, people try to skip Intelligence Gathering and IP & Technology Sourcing Strategy:

• Knowledge Management - What do we already know internally?


• Open Innovation - How can we leverage external knowledge & innovation?


• Intellectual Property - How can we create or access an invention & operate freely?

Embedding innovation into the organization:

• Focus on the fact that the benefit is for them - the scientist/developer


• Communication


• Executive sponsorship and support

Finally, in response to a question from the audience, Dr. Goer did delve into the topic of corpoarte/university partnerships for a brief moment and his key points were the following:

• It's gotten a lot harder over the last few years


• Contract negotiations are taking a lot longer


• Questions about whether we really need to own all of the IP or whether having the rights to use it or the rights of first refusal are okay

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Braden Kelley is the editor of Blogging Innovation and founder of Business Strategy Innovation, a consultancy focusing on innovation and marketing strategy. Braden is also @innovate on Twitter.