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Right on the Money

The following is an article recently appearing on the website. In my opinion the author is right on the money with his article.

Kraft Heinz Needs To Get Creative Peter Georgescu Contributor Leadership Strategy

Kraft Heinz produces one of America’s best-loved meals, mac and cheese, but it needs to get creative rather than cutting costs to boost share price.Getty

It’s a gift to parents with toddlers who won’t eat anything else. It’s everyone’s go-to supper on the go—the simplest, most affordable comfort food. On one popular podcast, when the hosts are talking about how hard it is to make ends meet for more and more people, they play a little jingle that sings the praises of “the mac and cheese life!” They’re talking about a foundational product of the Kraft Heinz brand.

How exactly can a company fail when it sells macaroni and cheese, something most people find so irresistible some restaurants serve their version of it as an entree? Ask Kraft Heinz. Paleo and keto diets seem to be gaining more and more traction, with good reason. Quick carbs are on the way out. People prefer whole foods. Kraft Heinz isn’t adapting fast enough to all this. It has forgotten how to thrive.

Why Kraft Heinz is in trouble offers a bit of schooling for any corporate leaders willing to recognize the lesson it offers. Kraft Heinz announced an earnings report in February so bad it surprised even some of its pessimists on Wall Street. Simultaneously the company admitted it needed a $15 billion write-down and was subject to an SEC investigation. After this raft of bad news, its stock lost a quarter of its value. Warren Buffet saw $4 billion vanish from his portfolio, thanks to his heavy position in the company after helping 3G with the merger. Everything seemed to hit at once—but the bad news was inevitable and many saw it coming. A year ago, commentators and analysts saw all of this coming.

Kraft Heinz has brought this on itself. According to The New York Times, 3G Capital—the Brazilian investor—engineered a merger between Kraft and Heinz in 2015 and has been pushing the company into the danger zone chasing quick profits. As the Times reports:

Investors had bought into the idea that 3G’s stringent, cost-cutting approach to running companies would succeed over the long run. But Kraft’s problems suggest that unremittingly squeezing expenses can make it harder to stay competitive.

You think? The Times speculates that Kraft Heinz may need to start spending more rather than look for ways to cut costs. While ignoring the value of its workforce, Kraft Heinz has been targeting acquisitions in order to grow its top line the fast way by buying into new markets rather than cultivating growth through innovation.

Robert Moscow, a research analyst, diagnoses the disease: a lack of an innovative culture in a market that has been highly commoditized. What’s needed is an entire reorganization around a completely new mission. The company should be aligned around the creative contribution of all employees trained to look for ways to delight customers.

In a sense, it’s all about human resources. The only way to turn the company around is to let the workforce steer it forward. This is always counter-intuitive. When things are going south, the urge is to control. But you can’t engineer or force creative solutions, which are what counts the most. You have to build a home for creativity—and that exactly what Kraft Heinz has left behind. As John Kotter, the Harvard researcher and consultant, puts it, it’s a choice between a Thrive mentality or a Survive mentality. People need to know they are valued.

Instead, the mindset operating here resembles that of the corporate raiders in the late 80s, personified as Gordon Gecko in Oliver Stone’s Wall Street. The movie depicted exactly what happened in acquisitions back then (and now), under the cover of championing the shareholder. The raider would execute a “hostile takeover” and then begin to strip all the meat from the bones: firing workers, closing down long-term research and development, reducing the company to a generic ghost of its former self, and looking for any way to grow the bottom line artificially—not through creative expansion but by eviscerating operations. The goal: short-term spike in profits. What happens after two or three years wouldn’t matter, as leadership moved on and shareholders flipped their stake in the company.

Just read some of the employer reviews from workers at the Kraft Heinz website. (You have to admire the company for honoring former employees enough to leave these reviews on their site.) Some workers are satisfied, and many are happy with the compensation, but most say they have to give up on their personal life to make it work:

Production Associate, Springfield, MO” Work schedule not conducive to living a healthy, normal lifestyle. Training for new employees is poor. Recognition is poor. Advancement is poor. Overall, this place is on a downward spiral since Heinz and Kraft merged.

Warehouse Associated, Dover, DE: Good pay but you will live here. If you’re looking to make loads of money quickly then its the place for you. But the work balance is not here.

Forklift operator, Masillon, OH: You like working long hours and not having a life it’s the place to be. I was working 12 hours a day for three years straight . . . the whole summer working seven days a week. I would not recommend (the) job to my worst enemy.

Line technician, Jacksonville, FL: Completely lawless, no rules apply. Machines are old and outdated. Managers come and go. Mechanics come and go. Customer contracts come and go. Unsafe, unsanitary. Always on the brink of closing.

Companies need to cut costs that genuinely need to be cut, but once that has been done, if they don’t focus most of their effort on training, nurturing, listening to, and rewarding, their employees, they will face a crisis like the one at Kraft Heinz. Only by discovering a renewed commitment to customer delight from the bottom up, treating all of its employees as the source of its success and the font of new ideas, will Kraft Heinz begin to turn its fortunes around. Short-term, it might even mean investing more in compensation, not less. And, for leadership at Kraft Heinz, this will be a lesson much harder swallow than even a double serving of mac and cheese.

The folks at Kraft Heinz may want to talk with Daniel Lubetzky. He’s the one who created the now-omnipresent Kind candy bar, an energy bar for a lower-carb snacker–it feels like a guilty pleasure but is better for you than a candy bar. It’s proof that there’s always room for creative new products in what might seem a sector in decline. Kind bars are a huge hit.

Peter Georgescu is the author of Capitalists Arise!

Peter Georgescu Contributor Peter Georgescu is the Chairman Emeritus of Young & Rubicam Inc

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