A Warning To Kraft Foods: Eat Cadbury's And You'll Get Indigestion.

A Warning To Kraft Foods: Eat Cadbury's And You'll Get Indigestion.
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Kraft Foods seeming obsession with building a "global powerhouse" as a sound reason to merge with Cadbury's provides a telling glimpse into the future of the combined companies. Completely ignoring the diverse cultures at the two companies can result in one thing and one thing only: failure.

50% of all corporate mergers flat out fail. An additional 25% never make the promised return on investment. In other words, 75% of all corporate mergers aren't worth it. Imagine walking into a CEO's office and saying, "I've got an idea for you with a 75% chance of failure." You'd be laughed out of the room.

But merger's do happen. Companies naively believe that simply because two companies are in the same business, a merger makes perfect sense. But the first line in the Wall Street Journal announcing the failure a few weeks later is always the same, "the cultures didn't mix."

Cadbury's was founded on Quaker ethics and built on the philosophy of doing good for others. This permeates their culture as well as their products. Their Why, their cause, has been so clear and so powerful that Cadbury's has built a very loyal following of customers and employees. This is what made Cadbury's what it is today.

Kraft, in contrast, is a Wall Street driven company that sees the merger as a "logical next step in our transformation toward a high-growth, higher-margin company," as their CEO puts it.

Just because two companies are in the same category, doesn't mean the companies belong together. And the reason is simple: people.

100% of customers are people. 100% of employees are people. Focusing on the "market opportunity" alone and ignoring the people component demonstrates a total lack of understanding of what makes companies run well...and more importantly, what makes two companies run well together.

The rationale that Kraft Foods offers for the hostile takeover of Cadbury's demonstrates a total lack of consideration for what makes these kinds of mergers succeed or fail.

In a video statement by Kraft Chairman and CEO, Irene Rosenfeld (transcript also available), she justifies the merger in order to build a "global powerhouse in snacks, confectionery and quick meals." In other words, "market opportunity."

It gets worse.

Not only does she use the word, "synergies," to further explain the "value" of this combined company - a word that I thought had all been removed from collective business vocabularies, but those synergies have nothing to do with a collective view of the world, a common Why or even common values. Nope. "Substantial pre-tax synergies as a result of operational efficiencies...and equally important...excellent revenue synergies that come from increased investment in distribution," is how she sees the value of the combination.

Mergers are like marriages. They are the bringing together of two individuals. If you wouldn't marry someone for the "operational efficiencies" they offer in the running of a household, then why would you combine two companies with unique cultures and identities for that reason? Of course, both parties bring specific talents and capabilities that are important to a relationship, but at the end of the day, the people in that relationship have to love each other. They have to want to be together. They have to look at each other and believe this is right. Simply sweetening the dowry will not make the marriage any more successful. It will only make the divorce more expensive.

Sadly, there is a way for a marriage of two such different cultures to succeed. Attrition. If Kraft fires everyone be belongs at Cadbury's and completely destroys the "other" culture, replacing it with their own, then the merger will succeed. The question is, do we want to kill Cadbury's?

To understand more about how to create successful mergers, read Start With Why.

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