Kraft Foods earnings inch higher

The following message from Kraft Chairman and CEO Irene Rosenfeld was sent to all employees today.

Date: August 14, 2007

To: All Employees

From: Irene Rosenfeld, Chairman and CEO

Subject: Organizing for Growth Initiative

In April, we launched an initiative to look at ways to simplify our organization so we can grow faster. This is an important part of our strategy to rewire the organization for growth. It will also give us the capabilities we need to be successful in our other strategies - reframe our categories, exploit our sales capabilities and drive down costs without compromising quality.

This effort is being guided by the principles we laid out last September to:
" Place key resources closer to the business,
" Align the goals of our businesses and their supporting functions, and
" Migrate headquarters at all levels of the organization from an operating to an enabling role.

Saying these words, however, doesn't make it so. And not surprisingly, you have been asking how we intend to do this. We are now taking the next steps needed to implement this initiative. With our "Organizing for Growth" initiative, we want to create a structure and the supporting processes to operate in a more focused, simpler and dynamic way.

Addressing key barriers to growth
To date, this effort has been led by a small task force, comprised of leaders from across the company, sponsored by Karen May, EVP of Human Resources, and David Brearton, EVP, Global Business Services and Strategy. Over the past three months, in addition to benchmarking key peer companies, the team has met with more than 75 of our senior leaders to get their thoughts on the major organizational barriers to growth. I really appreciated the candor in these conversations. The feedback the group received from our leaders was very consistent.

Here's what our senior leaders said we need to do:
" Make decisions closer to our consumers, so we can increase our speed and agility.
" Reduce our matrix and bureaucracy.
" Be clearer about where we really need to leverage our scale and do so in a way that doesn't add complexity.
" Increase the accountability of our businesses for the total P&L.
" Keep people in jobs longer so we can minimize churn and maximize learning. But at the same time, ensure people have well-thought-out career development plans and experiences.
" Reinforce the behaviors we want and then motivate and reward our people accordingly.

In July, the Kraft Executive Team (KET) reviewed the team's early work and I want to summarize our key decisions and next steps.

Accountable businesses, shared services, corporate core
Most significantly, the KET has agreed on a new organizational approach that puts our business units at the heart of our organizational structure. This has a number of implications.

First, this new approach calls for us to reduce the amount of matrixing within a business unit. Instead, both in North America and in International, we will have business units that are much more self-contained and highly focused on product categories or geographies. Many of the people who are part of global functions but reside in and work primarily on businesses today will now have solid-line reporting relationships into our business units. And, as a result, the leaders of these units will have broader accountability for total business results.

These changes will speed decision-making and enable businesses to make cross-functional tradeoffs closer to the consumer in a more timely fashion, while reducing churn and bureaucracy.

At the same time, we will preserve critical links across the business units to leverage the scale and power of our global portfolio. We will achieve this with such tools as our strategic planning process and councils made up of leaders from across the business units, rather than through a centralized, corporate structure. Obviously, this will require greater collaboration and teamwork across units, but I believe the simplicity, accountability and empowerment will be well worth the effort.

Second, there will continue to be scale-driven shared services to support the business units. Examples of our shared services today include the North American Sales organization, North America benefits and our three Shared Service Centers. These shared services will operate on a demand-driven basis, with accountability for both the quality and the cost of services.

Third, the structure will include a streamlined corporate core. With the self-contained business units bringing accountability and decision-making closer to our consumers, corporate will be less involved in the day-to-day operation of the business units. Instead, the corporate core will focus on strategic direction, asset deployment for the corporation as a whole and public company requirements.

Similarly, the Kraft North America and Kraft International headquarters teams will be streamlined to play much more of a strategic, enabling role in helping our accountable business units grow.

Our functional leaders will continue to play a critical role in their "corporate core" responsibilities, including providing broad strategic guidance, defining best practices, developing training and managing career paths for our functional experts. They also will continue to be responsible for "shared services," working with our business leaders to provide the right tools to help our businesses grow.

Effectiveness is our primary objective, but this initiative will include redeployment and headcount reductions as we streamline our structure to place resources where they will have the greatest business impact.

Clearly, we have a lot of detailed work to do to build our new structure of accountable business units, supported by shared services and a corporate core. But, I believe doing so is another critical step in launching the new, more nimble, and more effective Kraft.


Work teams will determine the details
To move us forward, over the next 90 days, work teams, each with a KET sponsor, will be established (see list below). These teams will be responsible for nailing down the implementation details of the new structure and supporting processes; for determining how they play out across the organization; and for developing a plan and timeline for getting us there. It's important to note that we are not taking a "one-size-fits-all" approach, but are asking each business unit to design the structure that best enables its growth.

Our goal is to begin rolling out the new structure in February. We are likely to phase it in in some areas to avoid major disruption in running the business. We will do this right - without cutting corners, without sacrificing effectiveness and without rushing to meet artificial deadlines. Most important, we will do this with the utmost respect for all our people every step of the way.

At the same time, we must act with a sense of urgency to get the new streamlined structure in place as quickly as is feasible.

At this point, we can't be as specific as any of you would like - because the teams are just beginning their work. And, it will take them some time. As a result, there may be rumors, speculation, and a "here we go again" attitude.

During this period, I ask that you stay focused on the day-to-day actions you can take to help our business grow. We had a solid second quarter, with a promising outlook for the remainder of the year. I hope you see this initiative as yet another necessary step we're taking to help our business grow faster for many years to come.

Organizing for Growth Teams

Program Leadership and Integration
David Brearton
EVP, Global Business Services & Strategy

Karen May
EVP, Global Human Resources

Communications
Marc Firestone
EVP, Corporate & Legal Affairs and General Counsel

North America
Rick Searer
EVP & President, Kraft North America

International
Sanjay Khosla
EVP & President, Kraft International

Corporate Core
Marc Firestone
EVP, Corporate & Legal Affairs and General Counsel

Shared Services
Jean Spence
EVP, Global Technology & Quality

People and Motivators
Karen May
EVP, Global Human Resources

Cross Organizational Collaboration Process Redesign
Franz-Josef Vogelsang
EVP, Global Supply Chain

Strategic Planning & Performance Management
James Dollive
EVP & Chief Financial Officer

Newsbreak is produced by Corporate Employee & Online Communications, in cooperation with the Kraft Executive Team. If you have feedback or suggestions, contact Carl Zielinski in Northfield, IL, US, 1-847-646-7480.