In a competitive market, the organisations most likely to meet their objectives are those that are capable of leading rather than following changes within that market. Managers therefore need to build a business that is capable of responding quickly to changes in both consumer requirements and the business environment. This means not only constantly developing innovations but also being able to launch them into the market place.
Successful organisations consist of different people united in a common purpose or corporate goal. Within every organisation the key element in keeping people focused is a corporate strategy that builds the business so that it can adapt and move forward through time. In order to change, a business must plan ahead so that the actions of each of its parts fit together and are co-ordinated to meet the corporate goal.
This case study illustrates how Kraft Foods’ management accountants act as financial planning analysts to support the process of brand development. The study highlights how Kraft’s forward planning and supporting processes of investment/forecast analysis supports its core brands in a fast-changing market place.
The word ‘accountant’ conjures up the stereotype of somebody sitting in a office, often on their own, inspecting and auditing books, from which they produce historical financial reports. In a fast moving commercial environment such as that at Kraft, the difference could not be starker.
In order to achieve the corporate goals, Kraft employs accountants in planning analyst roles who work within customer and consumer marketing teams. The role of planning analysts is to:
- help decision making processes
- provide detailed value added analysis rather than accounting reports – i.e. why? rather than what?
- help the brands to deliver value for customers, yet at the same time develop their distinct position within the market place
- enable the teams to understand events and trends
- help teams plan for the future.
For example, this role involves 3 types of planning:
1. forward – strategic planning for the long-term future of the business
2. budgeting – setting and managing budgets across the business
3. forecasting – managing the business and making sure that activities meet annual and quarterly forecasts.
The starting point for planning is to set a corporate goal or target. With this, a business sets out a vision of where it wants to be and how it wishes to be viewed by others. The Kraft vision is to be recognised as the undisputed leader in the global market for foods.
In pursuit of this aim, Kraft has devised strategies that are intended to ensure that:
- its products become consumers’ first choice
- retailers and other customers view Kraft as an indispensable partner
- it is well placed to form alliances
- people are keen to work for the company
- it is viewed as a responsible business enterprise
- it is acknowledged as a high quality performer in its sector.
In order to achieve these goals Kraft aims to:
- accelerate the growth of core brands
- extend awareness of these brands into developing countries
- strengthen the portfolio of brands
- improve quality and service at the lowest cost
- develop company values that are supported by committed employees.
To support these goals, Kraft has established a set of core values that help to guide employees. These set out the aspects of its day to day operations that are vital in helping it achieve its goals.
These values include:
- a strong belief in staying focused
- showing a willingness to innovate, demonstrating commitment
- moving quickly to reach and implement decisions
- practising teamwork
- demonstrating trust and confidence in fellow employees
- turning strong results orientation into a passion to win.
Within the context of this case study, these core values emphasise how it is essential that employees from all backgrounds and levels of experience work together to support the organisation’s core brands.
To achieve its strategies/objectives and ultimately its mission Kraft has structured its organisation in ‘Category Teams’ to ensure a cross functional approach to its decision making. As a key member of this team the planning analysts physically sit within their teams to help communication and co-operation. This approach enables the planning analyst to be at the heart of the decision making process.
One of Kraft’s aims is to ensure that its products become consumers’ first choice. To achieve this, Kraft has identified and developed a range of distinctive key brands which are known within the company as its Power Brands. Kraft concentrates on the innovation and rapid development of these Power Brands, with a view to having new, exciting products ‘out there, now’.
The major element in managing and developing these Power Brands to ensure that they provide more value for consumers, is to use the experience of key managers to make important planning decisions about their future.
Fixing tight deadlines for product launches and then achieving those deadlines calls for careful, co-ordinated planning to ensure that the:
- necessary production capacity is available
- marketing effort is ready
- sales and supply chain effort is ready
- funds to support the venture are in place
- whole exercise stays within budget.
Every year Kraft introduces new products across a range of consumer markets, and this involves a considerable amount of investment and planning. Working within the product teams, planning analysts work together with Kraf’s Research and Development Division to analyse market opportunities for the Power Brands and discuss how to introduce new products to the market. This means that they help plan the future rather than just recording the past.
The planning process involves using the budget to co-ordinate the whole business, including operations and organisations within its supply chain. This is vital to ensure the demand for NPD is met with enough supply of product. A business is only as strong as its weakest link in its chain.
This planning approach, combining expertise from across the business, does more than simply focus everybody within the business upon goals; it also helps the organisation to develop a business plan that ensures the effective investment of funds.
Having created an operating plan within the annual planning cycle, a business must monitor the plan to ensure that targets for growth, sales, profitability and cashflow are met.
Using their analysis of variance between actuals, plans and forecasts, planning analysts work with the business teams to develop suitable plans of action. Where actual outcomes differ from forecasts built into budgets, it is essential to discover why.
Planning analysts work with sales and marketing managers to help identify reasons for change, e.g. has a competitor entered the market, or has there been an unanticipated shift in consumer tastes? In this way, planning analysts are analysing information with marketing managers and together they are developing strategies to keep the business plans on course.
For example, by using a Promotional Control Evaluation (PCE) tool, planning analysts are able to measure the impact of promotions. This enables the optimum promotion being placed at the right time for the consumer in the most suitable market, thus maximising the opportunity for everyone concerned.
In planning financial activities it is important to have a target or standard to achieve. Variances can be used as a way of checking the progress of strategies, corrections or changes to business activities to put the business back on track to improve performance.
The operations accounting and other budget planning analysts play an important role in ensuring that plans and forecasts are based upon reality. They use their experience of the business and management accounting techniques to construct annual plans. These managers work with the business teams involved with the supply chain and various marketing departments to co-ordinate their spending and investment programmes. They also then have to co-ordinate these plans.
Kraft sources its materials from 23 different locations within 10 different countries. This brings complications such as fluctuating exchange rates for foreign currencies and different levels of import duties.
Any variance between actual volume sales and predicted volume has an impact upon the supply chain. As the supply chain budget is the largest of the overhead budgets, it is essential to manage and monitor supply chain costs to ensure that the business’ annual plan is not damaged.
The budgeting process provides the basic information from which cash flow forecasts and balance sheet targets can be calculated and agreed. Having highly qualified planning analysts working across the business ensures that financial controls are compatible with the performance of the business.
A Business Projects and Controls team evaluates the key business processes within Kraft. One of its main aims is to ensure controls are maintained in a practical manner. Kraft is keen for its product managers to develop the company’s Power Brands but to do so firmly within the procedures and disciplines laid down by the company to support the growth of the business as a whole.
The strong link between the corporate strategies developed within Kraft and the performance of Power Brands is underpinned by the way in which teams comprising of business and well-qualified planning analysts work together.
Kraft is building its performance around skillful managers who operate within clearly defined forward plans that are carefully developed. The plans are closely tied to systems that make use of practical and tested methods of control.
Kraft’s management structure reflects the strength of its management teams who use shared expertise to make corporate decisions. Within these teams, planning analysts have an active role that enables them to focus upon adding value for customers in a way that improves the competitiveness of the whole organisation.