Never Was A Story Of More Woe Than This Of RJR And Nabisco
Like a farmer hurrying to gather crops before the onset of locusts, R.
J. Reynolds recently sold its Nabisco food subsidiary to Philip Morris,
rival and co-defendant in the Florida lawsuit. Philip Morris will merge
Nabisco with Kraft Foods, its $17 billion subsidiary, and expects the
combination to produce $600 million in cost-savings over the next three
with the responsibility for integrating the two businesses is CEO of Kraft
North America, Betsy Holden. The future may prove brighter for Kraft and
Nabisco than for Big Tobacco, but not before Holden and her team can solve
integration issues of monumental complexity.
While the Wall Street community debates the merger of two disparate corporate
cultures, little attention has been given to the challenges (and potential
opportunities) involved in combining different organizations with different
business processes and supporting technology. Large companies tend to
accumulate software packages from a variety of different vendors partly
due to distributed decision-making and partly because they are likely
to have large amounts of money budgeted for IT improvement projects. This
latter characteristic is especially attractive to consulting organizations
like Andersen Consulting and Deloitte & Touche, who target big companies
in a humanitarian effort to relieve them of excess cash.
Kraft and Nabisco have amassed their share of software systems over the
years. In just the past few years, Nabisco has purchased solutions from
Descartes Systems Group, Numetrix, IRI Logistics, Numetrix (now J. D.
Edwards), Think (now i2 Technologies) as well as others. For its part,
Kraft brings systems and technology from ILOG, Manugistics, and Ariba.
EAI (enterprise application integration) tools can easily "duct-tape"
these applications together, Holden and her team need to start from scratch
and design a business process architecture that makes the best use of
resources from each company. In addition to diversifying its product mix,
Kraft-Nabisco will have expanded its distribution networks, inventory
locations, logistics channels, production capacity, and supplier base.
Without a thorough review of these new components, a redefinition of business
processes that encompasses all of them, and a selective pruning of existing
systems to support the result, there can be no chance of Kraft-Nabisco
realizing its ambitious $600 million in cost-savings.
Corporations who may be pondering a merger should strive to understand
the scale of disparity in business processes and technology before committing
to the deal. Often, it is only months after the closing that companies
put together a viable plan that identifies potential synergies for improving
cash flow. Due diligence prior to the close is especially valuable for
public companies who ultimately must answer for mistakes to an increasingly
unforgiving investor community.