Group IncentivesBy Ann Palmer
How Kraft 'Primed the Pump' for Alignment
Steve Finnerty grew up in Washington, D.C., in the 1950s, but he spent two weeks of every summer on his grandparents' farm in Princeton, Mo. "There was no running water," he recalls, "so I'd have to go out to the well and get the pump going by pouring some water into it to prime it."
Today, Finnerty, the CIO of Kraft Foods Inc.'s North American division, is still priming the pump, but this time it's all about using his leadership skills to inspire new ideas from his IT staff and business executives about how technology can beef up Kraft's bottom line.
Biz View: "In my experiences prior to Kraft, business folks would be in one corner, IT folks in another. There were business groups who couldn't spell IT and IT groups who were so enamored with technology that they forgot about the business."
Kraft doesn't do too badly pumping out profits: The Northfield, Ill.-based company is the second-largest packaged foods company in the world, with 2001 earnings of $1.9 billion on $34 billion in sales. Kraft controls hundreds of brands around the worldfrom Kool-Aid to Jell-O to Oscar Mayer hot dogsand packages more than 500 different cheese products alone, including Philadelphia Cream Cheese. Kraft marketing executives say Kraft products can be found in 99.6 percent of U.S. households.
But given Kraft's size and complexity, making sure information technology is continually used to carry out the company's business strategies is becoming more critical to its ability to maintain its margins. Finnerty credits IT-business teamwork, for example, for Kraft's ability to move aggressively on the new-products front. Kraft spends more than $350 million annually on research and development, and last year, new products generated $1.1 billion in new revenues. "With work flow and collaboration technologies," Finnerty says, Kraft was able to bring Boca Rising Crust Pizzaa new frozen pizza with meat-flavored soy protein toppingsto store shelves in just 12 months, well under the industry average of 18 to 24 months.
IT View: "If you're constantly trying to focus on where the other person is coming from, instead of concentrating on your point of view, you're going to effectively communicate. If you're truly communicating, you're going to be in alignement."
How does Finnerty manage to keep such IT-business teamwork on the front burner? Part of it is exposing his staff continuously to new technology ideas from outside Kraftand outside the confines of the IT department.
At regular retreats, for example, Finnerty invites senior business executives, such as Daryl Brewster, chief of Kraft's Nabisco Biscuit Division, to schmooze with senior IT staff. At the meetings, top business executives talk about what they want to achieve and what's holding them back. The IT managers then spend the next two days coming up with solutions. In Brewster's case, the session led to ideas for how IT could help his unit get market data faster so that it could make smarter strategy decisions. Now Brewster's direct-store sales force uses handheld computers to improve how efficiently they order products, execute merchandising and communicate with each other. His research and development teams are sharing ideas globally, day and night.
The meetings also give IT managers the chance to brief each other on their visits to other companies in other industries, another source of new ideas. Says Madeline Weiss, president of Bethesda, Md.-based Weiss Associates Inc., who helps Finnerty run the retreats: "Steve's whole approach is how to increase profits, not just cost-savings."
Photos by Marc Asnin (Brewster) and Jan R. Bohm (Finnerty)
Eyes Wide Open
Eyes Wide Open
Finnerty himself is an inveterate networker. As president of the 2,500-member Society for Information Management and as a member of the Research Board, whose membership is composed of CIOs at the top 100 companies worldwide, Finnerty practices what he preaches. About a third of his time outside Kraft is spent "looking at what's going on in other industries and what can transform ours," he says. A visit to Cisco Systems Inc.'s headquarters two years ago, for example, generated ideas for e-procurement and a customer self-service extranet. The latter lets grocery chains and other big retail outlets get instant information from Kraft on order status, promotion updates, consumer research and other information; in the past, they had to track down a salesperson or wait for a Kraft presentation. "The discussion between our salesperson and the customer can be more than transactional," Finnerty says. "It can be more consultative: 'How can I help you improve your business?'"
E-procurement is another example. "We're in a tight-margin business, and you have to make sure your supply chain is incredibly cost effective," Finnerty says. An IT e-procurement initiative dreamed up by Finnerty's people in partnership with the business side is still being rolled out. But it is already taking costs out of the supply chain.
But the retreats, road trips and internal brainstorming sessions aren't the only alignment techniques in Finnerty's bag of tricks. In 1999, he helped develop a two-day technology boot camp for Kraft's top 30 executives at Northwestern University's Kellogg School of Management in Evanston, Ill., in suburban Chicago. The goal was to raise the level of awareness about information technology and how it could change the way Kraft does business. "Kraft was the first company to do this," says Anthony Paoni, a Kellogg professor of technology and e-commerce, who helped lead the session. Paoni had pitched his idea for such seminars to "at least 25 other big companies, but they just weren't ready for it," says Paoni, who is also vice chairman of DiamondCluster International, Inc., a Chicago-based management consultancy.
The impact of the first boot camp was significant, Paoni says, chiefly because Finnerty knew how to talk about technology to a room full of business peopleno easy task, still, for many CIOs. "Steve revolutionized how senior management at Kraft looks at IT," Paoni says. Using business language, not IT language, Paoni says, Finnerty made IT less intimidating, and "caused a critical mind-set change. Instead of thinking about strategy, the management team began thinking about strategy and the role and value of information and business systems."
Paula Sneed, president of Kraft North America's e-commerce and marketing services, says the boot camp helped convince Kraft senior business leaders that "technology isn't the understudy, it's part of center stage and keeps us aligned." Finnerty, for his part, sees to it that such thinking remains front and center. Today, for example, when Kraft's management team is considering new products or developing new strategies to go after a new market segment, "the team's first question is 'What information do we need and what business system will we get it from?'" Paoni says. "This is a big change."
Sure enough, the Kraft executives who left that first boot camp came up with eight to 10 new projects linking business IT systems to strategyinitiatives they planned to implement right away, not in a couple of years. Example: a new e-commerce division, a key part of the company's efforts to win "share of stomach" for its new products. Today, Kraft Foods' Web site, where consumers get all manner of advice on recipes and meals, attracts 12 million visitors a month.
Another result of Finnerty's two-day technology boot camp? Regular field trips for the 30-member senior management team to technology vendors such as Cisco Systems and Microsoft Corp. The trips allow the executives to get a firsthand look at how leading-edge technologies like employee portals and e-procurement can change the company. Finnerty and his people then decide how those ideas might be useful at Kraft, assign priority to those with promise and assign someone to pursue them. Says Sneed: "It was clear to us that IT could transform not only what we did, but how we worked internally with suppliers, customers and consumers." Self-service extranets for Kraft's business customers also came about as a result of these meetings. "There's a lot of competition out there, so you have to make sure customer service levels are high," Finnerty says.
But Finnerty doesn't stop there. All new IT initiatives are subject to two alignment reviews. One ensures that capital expenditures are tied not to projects, but to programs. "Instead of looking at a forecasting system, which would be a project, we look at inventory management reduction, a broader business program," Finnerty says. "[Thinking about alignment] focuses us not just on the technology but on the business process change."
Finnerty also uses portfolio management to keep tabs on projects greater than $250,000. The process values and ranks proposed expenditures according to the potential risks and benefits to Kraft companywide. Then the company's operating committee chooses those that promise the greatest value. "In the past, different departments would make decisions on how to spend their resources," Finnerty says. "Now, the company gets a higher rate of return on investment and a bigger bang for the buck, because we're selecting projects that position us best strategically."
Leadership training is also crucial. "We're trying to build smart business people within our IT staff so that they can become a key part of the business," Finnerty says. Creating that isn't dependent on compensation, bonuses or other employee incentives specifically designed to foster alignment, he says. Instead, IT people are compensated on how well the business does, which depends in part on how well IT employees, as a whole, support Kraft's business objectives. Performance reviews for IT staff are based on specific business goals, such as delivering on time and on budget the new inventory management system. "That's a big aspect for the individual getting rewards," Finnerty says. "Because the performance of division heads is based on how well their divisions do, they're looking at technology enablers with whom to partner."
Best of all, the payoff to Finnerty's own alignment leadership is this: Senior executives now have a whole new view of IT. "In the past, you finished your business plan and then you'd ask, 'How is IT going to do this?'" says Kraft's Brewster. "Now, we look at IT as part of our core strategy for productivity, new products and global business. It enabled us to significantly accelerate the U.S. introduction of our Chips Ahoy! and Oreo Cookie Barz, which were initially developed for the Canadian market." Delissio Rising Crust Pizza, a U.S. product, was introduced in Canada in October 1999 and became the number-one frozen pizza there by January 2000.
Indeed, integrating the business processes and information systems of the companies Kraft buys each year is among Finnerty's toughest challenges. When Kraft parent Phillip Morris Companies Inc. bought Nabisco Holdings Corp. in December 2000 for $15.2 billion, Finnerty was part of the leadership team asked to help the company integrate Nabisco into the operations of Kraft. That's behind him now, but Finnerty's zeal to foster alignment and make technology pay off for the company, project by project, hasn't wavered.
Yet Finnerty refuses to put metrics on his own activism. "With very rare exceptions, you don't point to a particular technology and say that saved X or generated X," he says. "It's always the business process, a combination of technology and people, business and IT, that brings such results. And there's always more to do. Take these things like portfolio management. We're always asking how we can do it better next year. I don't think you can ever get to a high enough level of alignment."
Ann Therese Palmer is a Chicago-based freelance reporter whose work regularly appears in BusinessWeek and the Chicago Tribune business section. She has an MBA from Notre Dame and a law degree from Loyola University. Please send comments on this story to email@example.com.
How Kraft Bridges the
How Kraft Bridges the Gap
- Creates an environment where people contribute to business-unit success.
- Conducts regular retreats for IT staff to brainstorm business challenges.
- Visits other companies in other industries to learn best practices.
- Mandates IT to boost profits, not just to cut costs.
- Uses alignment reviews and portfolio management to set priorities.