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Never Was A Story Of More Woe Than This Of RJR And Nabisco

Written By: Steve McVey
Published On: August 2 2000

Never Was A Story Of More Woe Than This Of RJR And Nabisco
S. McVey - August 2, 2000

Event Summary

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 years.

Saddled 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.

Market Impact

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.

Both 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.

Though 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.

User Recommendations

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.

 
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