What Businesses Can Learn From Kraft Foods' Decision To Delegate Authority

Learn from the misstep—and correction—of the food giant that figured out big bosses don't always know best.

For the last few decades, the traditional role of leadership has been changing. The old view that leaders are visionaries who have the answers is giving way to a more enlightened approach, one that treats leaders as facilitators who inspire their people to find the answers.

Leadership’s role is changing for a reason. In part, the change reflects a modern world that is generally moving away from a dependence on hierarchy, a process that has accelerated with the rise of the Internet.

In a business context, the logic is determinedly practical—you simply get a better outcome by moving decision-making and accountability closer to customers and consumers and giving the people responsible for results the operating freedom they need. This amounts to looking out the window instead of looking in the mirror.

But old attitudes die as hard as old habits, and too many organizations continue to operate on the assumption that the bosses back at headquarters enjoy superior knowledge on almost any subject. This belief has any number of unfortunate side effects, from discouraging initiative to encouraging managers to assume that success lies in pleasing the executives above them rather than winning in the marketplace.

Move decision-making closer to the consumer

Ten or so years ago Kraft Foods had become such a complex matrix that accountability had become fragmented across functions, markets, and business units. Compounding the problem, decision-making had become highly centralized. Corporate headquarters in Northfield, Illinois, decided such matters as product pricing, a process that stretched time and excluded the rich knowledge and context of local markets. Even such routine decisions as the pricing of coffee in Germany were being made in a Chicago suburb.

When Irene Rosenfeld arrived in 2006, the role of headquarters became more strategic and less operational. Certain decisions involving food safety and purchasing remained centralized because they had to be made on a large scale. But the decisions that demanded intimacy with the local marketplace were delegated, and the change had a profound effect in making the organization more nimble.

A new kind of communications

In 2013 the Super Bowl was held in the Mercedes-Benz Superdome, a huge indoor arena in New Orleans. Kraft arranged for several members of Oreo’s American marketing team to be sitting by in New York with digital experts in front of a TV screen to provide tweets during the game.

Just after the second half started, the Superdome suffered a power outage—the place went black and the game stopped. Back in New York, the digital team got to work and quickly cobbled up a tweet playing off Oreo’s venerable “Twist, Lick, and Dunk” campaign. The Oreo marketers approved, and the tweet went out within minutes:

Ad Age reported that the makeshift ad was re-tweeted 10,000 times in the next hour, and in the post-mortems on the game’s advertising portfolio, the Oreo tweet was widely acclaimed a coup. Daniel Terdiman of CNet called it “so brilliant and bold that it out and out won the night.”

The triumph only came about because the authority to approve the tweet had been pushed down far enough that the decision could be made almost instantaneously.

Convincing the doubters

How do you persuade an organization that the role of leadership has changed? How do you alter ingrained attitudes? There’s no simple formula. After all, for most people, the default position is either to defer to higher-ups or to fall into the cover-your-ass syndrome.

You’ve got to say it and say it again and again and even then assume that most people won’t believe you. So you’ve got to follow up with actions—assign P&L responsibility; tell the manager who calls for your approval that the decision is his or hers; above all, don’t second-guess. That means sitting through plenty of mistakes made by the newly empowered—just make sure the people responsible have learned from them.

Learning from failure

The notorious Vegemite uproar provides a good case in point. Australians cherish their Vegemite—a dark brown food paste made from yeast extract and various vegetable and spice additives. It is a popular spread for sandwiches and toast, and has a cult-like following in Australia.

Kraft, which owns the brand, wanted to introduce a new variety—Vegemite mixed with cream cheese—but needed a name. Looking for a marketing coup, Kraft Australia waged an Internet-heavy campaign seeking suggestions from the public. More than 48,000 came in, and Kraft proclaimed the winner in a commercial during a nationally televised Australian-rules football game. Vegemite iSnack 2.0. Australians immediately erupted in disdain, going on the Internet to deride the name as dumb, forgettable, and worst of all, un-Australian.

All this unfolded outside the knowledge of Kraft corporate headquarters—authority had been delegated to Kraft Australia and all decisions were made there.
Headquarters first learned of the commotion when George Zoghbi, head of Kraft Australia, called to warn that a story was coming in The Wall Street Journal. The authority for solving the problem stayed with Kraft Australia, too. Within four days, the company announced it would shelve iSnack 2.0 and put the choice of a new name up to a vote by consumers. The winner came back Cheesybite, and the controversy disappeared quickly.

Striking the right balance

However, even with the delegation of authority, leaders of big companies still need to strike a balance between local and global. While the managers closest to the marketplace should have the authority to make key decisions, the mother company’s resources—in expertise, technology, R&D, procurement—should be made available across the board. That’s where the headquarters leadership can bear down—making sure the folks on the front lines have the tools they need.

The key here is clarifying roles—wringing any ambiguity out of who does what where—and then rigorously holding to the arrangement.

Once the roles have been clarified and the authority pushed down close to the customer, the corporate leadership should step aside, help with resources and, of course, monitor progress. The lower-tier managers should run the business on their own and inform the bosses when key decisions have been made or significant developments have unfolded. What’s the standard for alerting higher-ups? One classic shibboleth: If something could land in The Wall Street Journal, tell the boss first.

This article is adapted from Fewer, Bigger, Bolder: From Mindless Expansion to Focused Growth (Portfolio; July 2014).

Sanjay Khosla and Mohanbir Sawhney are authors of Fewer, Bigger, Bolder: From Mindless Expansion to Focused Growth (Portfolio; July 2014). Khosla is a senior fellow at Kellogg School of Management, Northwestern University, and was president of developing markets of Kraft Foods (now Mondelez International) from 2007 to 2013, where he oversaw revenue growth from $5 billion to $16 billion in six years. Sawhney is a professor at Kellogg School of Management, Northwestern University, and is a globally recognized scholar, teacher, consultant, and speaker in business innovation, technology marketing, and new media.

[Image: Flickr user Jellaluna]

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1 Comments

  • Patrick Tay

    Top-down authority has been discussed frequently in recent business literature and one of its major concerns lies with Gen Y, the current generation of youths who are often averse to receiving instructions from the top. Empowerment for this group of working professionals may be the way to go but for that to happen, senior management would have to consider delegating responsibilities to them.

    Patrick (www.patricktay.wordpress.com)