In February, Kraft Heinz disclosed a $15 billion write-down on its most famous brands, sending investors running for the hills amid fears that the relentless cost-cutting had eroded the brand’s value. Some new perspectives on the story emphasise the damage Kraft Heinz’s strategy had on both its brand and the ability to innovate.
It began with a major restructuring in 2015, when Berkshire Hathaway and 3G Capital, a private equity firm, pulled off a $63 billion merger of Kraft and Heinz. Taking a cue from Burger King-owner Restaurant Brands International, which had seen impressive increases in revenue following a hardcore cost-cutting exercise, Kraft Heinz followed suit and failed dismally.
Some critics argued that cost-cutting would hit the company’s ability to think up new products (and bring them to market) extremely hard and were ultimately proved right.
For a company with as many legacy brands as Kraft and Heinz, growth from these brands alone was likely to struggle in a complex context of healthier and fresher brands making gains, while Kraft Heinz’s usual territory of staples was losing ground to cheaper own-brand offers.
As a new paper in the Harvard Business Review suggests, this inability to innovate was, in part, the result of such widely publicised cost-cutting drives, not just financially but behaviourally.
“For most people, company restructuring initiatives represent a threat, triggering a strong ‘survive’ response in the brain. Fear, uncertainty, and anger fuel distrust in management and narrow all focus to eliminating the threat — leaving no capacity for creative ideation,” write John P. Kotter and Gaurav Gupta.
In cases like Kraft Heinz, this fear can trigger a ‘freeze’ response, “fuelled by despair and hopelessness”. Though it doesn’t totally kill employees’ desire to thrive, the worries that surround aggressive restructuring tend to occupy more of an employee’s mental bandwidth.
The answer, the authors say, lie in two areas: clarity and opportunity. Without obvious answers to what a restructuring means to each employee, it is likely that people will start guessing at answers; calming people down involves face time rather than company-wide emails.
Opportunity, meanwhile, involves bringing employees into the discussion about what the company needs to do, and how their roles can adapt to help the overall strategy. “The change is no longer a scary event happening to employees, but rather a journey that employees are a part of.”
Sourced from Harvard Business Review